Thursday, June 14, 2012

FDI, approved industries and employment in Nepal, 1989/90-2010/11

Here is a chart that shows total FDI inflows to Nepal, number of industries/firms and employment generation. Also, it shows the share of investment and employment of top ten FDI origin countries, and India’s agriculture investment share in total Indian FDI inflows.

Total FDI inflows from approved industries in 2010/11 was Rs 10.05 billion and approved industries/firms were 209 (total employment target was 10,887). Of this India’s share in foreign investment was 69.72 percent and share in total employment was 30.07 percent. Meanwhile, China’s share in foreign investment was 11.81 percent and share in total employment was 28.16 percent.

The total FDI approved in agriculture was Rs 367.12 million with employment target of 1337. The highest FDI approved was in manufacturing at Rs 6.134 billion, followed by tourism at Rs 1.184 billion. Of total Indian investment, share in agriculture was 1.55 percent in 2010/11, 81.73 percent in 2008/09 and 21.49 percent in 2007/08.

In the figure above, you can clearly see the surge in FDI immediately after liberalization of the economy in the early 1990s. It declined for the next two years and then increased for two years. The onset of Maoist insurgency and its gradual intensification led to decline in FDI up until 200/01, which it increased and then the total FDI inflows have been erratic up until 2004/05. Both FDI and employment generation are in upward trend since then. That said, the dent in 2008/09 might be because of the impact of global financial and economic crises.

If you are wondering about how Nepal stands wrt FDI inflows to regional nations, then the figures look disappointing. FDI inflows to Nepal in 2010 was just $38.99 million. In contrast, India’s was $24.64 billion. The latest (2011/12) FDI inflows to India  was a record FDI of $46.8 billion.

So, what are the main constraints to FDI inflows to Nepal? Some of them are:

  • Political instability/strikes
  • Lack of appropriability of returns to investment
  • Militant trade unions
  • Inadequate supply of infrastructure (power and road network)
  • Policy inconsistency
  • Increasing cost of doing business

For solutions, read this. (The hope is that the newly formed Nepal Investment Board will encourage investors to come to Nepal. Btw, does anyone have any idea about NIB’s website?)

  • Political stability (if it can be achieved!)
  • Taming labor militancy and smoothening industrial relations
  • Policy consistency on key issues related to investment regime and sectoral support
  • End of syndicates, which foster uncompetitive practices and charge high fares
  • Credit at low interest rate to key sectors where we enjoy comparative advantage consistent with our land, labor and capital resource endowment
  • Emergency measures to supply power for at least two shifts in manufacturing plants
  • Fast track endorsement of investment plans and lowering cost of doing business in Nepal
  • Enactment of SEZ bill
  • Industrial security

[Update 2012-07-06: FDI from approved industries has been updated.]