Nepal Rastra Bank : A Survey Report on Foreign Direct Investment in Nepal (2019/20)

A Survey Report on

Foreign Direct Investment in Nepal

(2019/20)

Nepal Rastra Bank

Economic Research Department

September 2021

FOREWORD

The COVID-19 pandemic has a sizeable impact on global foreign direct investment (FDI) flows as it declined around 35 percent in 2020. The decline is more severe than those seen after Global Financial Crisis in 2009. It poses significant challenges for many developing countries where FDI has been seen as a potential source of external financing in recent years. The role of private investment remains crucial for stimulating growth and employment in post-COVID era. FDI has a major role to play in sustainable growth and recovery. In this context, Nepal has been gradually making reforms in policies and procedures to promote and facilitate foreign investment inflows, considering it as an important external source of development finance.

This fifth edition of FDI report is expected to be useful to the policy makers and stakeholders for monitoring the trend of FDI inflows and existing FDI stock in Nepal. The report also examines the current status of FDI across sectors and underscores that FDI has been a key source of financing for sectors such as the hydropower and the financial sector. Despite COVID-19 pandemic, FDI stock increased moderately in 2019/20 in Nepal. I hope this report will provide valuable information and insights to all the stakeholders about the status of FDI in Nepal.

I would like to extend my sincere gratitude to companies with FDI and stakeholders for their contribution to the report. Finally, I would like to thank the team led by Director, Dr. Dilli Ram Pokhrel including Deputy Director, Baburam Koirala and Assistant Director, Anil Lama and other colleagues at the Balance of Payments and International Finance Division of Economic Research Department for their valuable contribution in preparing this report.

September 2021

Prakash Kumar Shrestha, PhD

Executive Director

Economic Research Department

Table of Contents
Executive Summary.........................................................................................................................	i
Chapter 1: Introduction ...................................................................................................................	1
Background ..............................................................................................................................	1
Objectives ................................................................................................................................	2
Methodology............................................................................................................................	2
Survey Coverage ..................................................................................................................	2
Survey Method .....................................................................................................................	3
FDI Compilation Method.....................................................................................................	4
Limitations ...............................................................................................................................	5
Chapter 2: Trend of Foreign Direct Investment..............................................................................	6
Global and Regional Trend in FDI Flows................................................................................	6
FDI inflows to Nepal ...............................................................................................................	7
Dividend Repatriation..............................................................................................................	8
Chapter 3: Foreign Direct Investment in Nepal: Survey Results....................................................	9
FDI stock..................................................................................................................................	9
FDI stock by Sectors..............................................................................................................	10
FDI stock by Countries ..........................................................................................................	10
Province-wise FDI stock........................................................................................................	12
Foreign Loans ........................................................................................................................	12
Capacity Utilization ...............................................................................................................	13
Sales from operation and Profitability ...................................................................................	13
Chapter 4: International Investment Position of Nepal.................................................................	14
Chapter 5: Summary and Conclusions..........................................................................................	15
References.....................................................................................................................................	16

Executive Summary

1. This report presents the latest data of Foreign Direct Investment (FDI) stock based on survey of companies that have received FDI in Nepal. It provides the estimates of inward direct investment position or the FDI stock at book value as well as country-wise and sector-wise distribution of FDI stock at end of 2019/20.
2. The survey provides comprehensive information on face value of foreign liabilities of Nepalese companies arising on account of FDI. These statistics are used as inputs in the compilation of Balance of Payments (BoP) and International investment position (IIP).
3. The survey shows stock of FDI in Nepal increased by 8.5 percent to Rs.198.52 billion at the end of 2019/20. Paid-up capital is the major component in FDI stock as it accounted for 54.4 percent of total FDI stock whereas the reserves and loans in total FDI stock accounted for 33.8 percent and 11.8 percent respectively.
4. Nepal received foreign investment from 52 different economies as of mid-July 2020. In terms of total FDI stock, India ranks top position with Rs.62.45 billion followed by China (Rs.30.97 billion), Saint Kitts and Nevis (Rs.15.27 billion) , Ireland (Rs.12.93 billion), and Singapore (Rs.12.43 billion).
5. Industrial sector accounts for about 56.0 percent of total FDI stock. Within industrial sector, manufacturing, mining and quarrying industry constitutes 28.3 percent and electricity sector 27.5 percent of total FDI stock.
6. About 43.9 percent of total FDI stock is in service sector. Within the service sector; financial intermediation constitutes 27.3 percent and hotel & restaurant sector 6.0 percent of the total FDI stock.
7. The electricity generation sector, particularly hydropower sector in Nepal has been emerging as a preferred sector for FDI in recent year. The latest survey shows that 27.5 percent of FDI stock and 36.4 percent of total paid-up capital is in this sector. Moreover,

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hydropower sector has also attracted other sources of external financing such as foreign loans in addition to FDI.

8. The capacity utilization of FDI based manufacturing companies is constrained by COVID-19 pandemic while the profitability of FDI companies remained satisfactory in the review year.

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