Asst. Prof. Bharat Singh Thapa
Tribhuvan University Apex College, Nepal
Investing in Nepal
Presentation Outline
About Nepal
Nepalese Economy
Financial System of Nepal
Investment in Nepal
Process of Making Investment in Nepal
Why should one Invest in Nepal?
Legal Provisions
Ease of Doing Business
Various Bilateral Investment Protection
Present Status of FDI in Nepal
Areas for Investment Opportunity
Present Barriers for FDI
About Nepal
Region
• South Asia
Capital
• Kathmandu, located in central Nepal
Population
• 28.17 million
Area
• 147,181 square km
Altitude
• 59 to 8,848
meters (Mt
Everest)
Religion
Buddhism 9.0%
Hinduism 81.3%,
Kirat 3.1%
Islam 4.4%
Christianity
1.4%
Currency
1 USD = 102 NPR 1EURO=113 NPR
Governing System
Republic: Multi-party parliamentary democracy with
elected prime minister responsible to the parliament
as executive head and constitution endorsed in 2015
Geography of Nepal
Mountain region : Altitude 3,000–8,848 m
Hilly region : Altitude 700–3,000 m
Terai region : Altitude 59–700 m
Primary (Agriculture)
32%
Secondary (Manufacturing)
15%
Service (Tertiary)
53%
STRUCTURE OF THE NEPALESE ECONOMY
(SIZE IS USD 19.61 BILLION WITH USD 753 PER CAPITA)
Despite more than 70 percent
of the workforce involved in
agriculture sector of Nepal,
it produces only one third of
the gross domestic product.
Nepalese Economy: Basic Statistics
Size of Economy (GDP) USD 19.61 Billion USD 750 Per Capita Internet Penetration 51.1%
Health Institutions 4506 0.16 Health Institutions per 1,000 population Peak demand and Supply 1385 MW and 847 MW Peak excess demand of 498 MW
Airports 39 1 International
Road Length 62,579 2.2 Km per 1,000 population
Total Export Volume USD 642 Million Mainly: India
Total Import Volume USD 7.10 Billion Export Less than 10% of the total trade
The gross capital formation 21.2% 81% comes from the private sector
Trend of GDP Growth in Nepal
What were the causes of historically
low economic growth in 2015?
Low growth rate of the agriculture sector
Non-agriculture sector activities highly affected by earthquake,
and
Difficult supply situation as a result of border
obstructions
What were the reasons for very high
economic growth in year 2016?
Favored weather and very high growth of agriculture sector (Eg.g.
Paddy production increased by 24%).
End of electricity (power) shortage caused
about 30% increase in the capacity utilization
of Industries in Nepal.
Drastic decline in the Strikes and Bandha
Nepalese Financial System
Nepalese financial system is guided by Bank and Financial Institution Act (BAFIA), 2006 (new act in 2017).
According to the BAFIA, NRB classified the BFIs mainly into four categories:
‘A’- Commercial Bank
‘B’- Development Bank
‘C’- Finance Companies and
‘D’ - Microfinance Companies
12
Financial Institutions in Nepal
S.N. Types Name of Types No. of
Institutions
No. of Branches
1 ‘A’ Commercial Banks 28 1865
2 ‘B’ Development Banks 57 852
3 ‘C’ Financial Companies 36 175
4 ‘D’ Micro Financial Institutions 52 1391
5 Others: FINGOs (25) and Cooperatives (15)
Total Deposits in BFIs: USD 21.87 Billion
Total loans and advances of BFIs: USD 18.38 Billion
13
Shares in Financial System
Commercial Banks (A)
77,9 Development Banks
(B)…
Finance Companies (C
)… Microfinance Dev. Banks
(D)…
Assets/Liabilities
Other Financial Institutions
Insurance Companies - 28
Employees Provident Fund - 1
Citizens Investment Trust - 1
Nepal Stock Exchange Limited-1
Deposit and Credit Guarantee Corporation Ltd.-1
Postal Savings Units- 117 units
Laws Governing the Financial System in Nepal
Nepal Rastra Bank Act, 2002
Bank and Financial Institutions Act, 2006 (New act 2017)
Companies Act, 2006
Secured Transaction Act, 2006
Electronic Transaction Act, 2006
Insolvency Act, 2006
Banking Offence and Punishment Act, 2008
Asset (Money) Laundering Prevention Act, 2008
Foreign Exchange (Regulation) Act, 1962
Negotiable Instrument Act, 1977
Debt Recovery Act, 2002
Other prevailing Nepalese Laws
Foreign Investment and Technology Transfer Act 1992 (For foreign investment only)
Capital Markets in Nepal
Stock Exchange: Nepal Stock Exchange Ltd (Estd. 1993)
Market Capitalization: USD 18.61 Billion (Almost 90% of GDP)
Average Daily Turnover: USD 4.00 Million
Number of Listed Companies:257
Brokerage Firms: 50
NEPSE Index (Benchmark Index): 1650
Commission Rate: 0.6% to 0.4%
Financial Instruments: Common Shares, Debentures, Mutual Funds, Government Bonds, Preferred Stocks
Merchant Bankers: 26
Insurance Industry in Nepal
However, total insurance premium relative to GDP is only 1.71%.
Process of Making Investment in Nepal
Initial Consultation at IBN or DOI Application at IBN (Fixed capital more
than 100 Million Dollors) Approval by IBN
Issuance of Foreign Investment Approval Letter Company Registration at CRO
Tax/Pan Registration at IRD Central Bank Permission at
Central Bank (NRB) for opening account
Other Registration and Licensing (Visa, trademark, business licensing etc)
PDA/PIA Negotiation
GoN provides additional services until there is commercial operations and thereafter Industry
Registration at DOI
Environmental Assessment as Per EPR (Submission of EIA)
Approval by IPB (Fixed Capital Less Than 100 Million Dollar
Approval by DG of IPB/DOI
Strategic Location and Geographic Advantages
Strategically located between
China and India (markets of 2.6 billion people)
Duty free and open border access to India
Duty free access to China for around 8,000
products
The topography and abundant water
resources give rise to vast untapped hydropower potential
Member of South Asian Free Trade Area (SAFTA) and the Bay of Bengal
Initiative for Multi-Sectoral Technical and
Economic Cooperation (BIMSTEC) Free
Trade Agreement
Why Should one Invest In Nepal?
Strategic Advantages
Tourism:
Himalayas (8 of the world’s 10
highest peaks) Unique cultural heritage
Incredibly rich biodiversity
Large pool of capable workers 61% are working age (15–65 years)
Large English speaking population,
especial in the capital,
Kathmandu
High participation
of women in workforce the
Relatively low cost of
labour (minimum
monthly wage being
USD 78)
Disposable income of
locals is increasing rapidly (GDP
growth rate of 6.7%
forecasted)
low levels of foreign
direct investment (FDI) inflows
into Nepal
Why Should one Invest In Nepal?
Legal Provisions
The Foreign Investment in Nepal are regulated and administered by Foreign Investment and Technology Transfer Act (FITTA) 1992 and Industrial Enterprises Act (IEA)
1992.
The Department of Industries (DOI) is the sole agency for
administration and implementation of Foreign
Investment & Technology Transfer Act in Nepal.
Minimum threshold for foreign investment is NRS 5
Millions (About 45,000 Euro)
Foreign investors are allowed 100% ownership of a company
in almost all sectors2
Repatriation of capital and profits to the investor’s home
country is allowed
Industries of Restrictions on Equity Holding
Aeroplane
service -80% Telephone
service - 80% Consultancy service - Maximum
51%
Casino industry required a local partner
to be
established
Documents Required
Project Report
Citizenship certificate of local party or Certificate of Incorporation including
Memorandum of Association and Articles of Association, if local party is a company
Joint Venture Agreement (JVA), in case of more than one investor
Copy of passport of foreign party/or Certificate of incorporation, including
Memorandum of Association and Articles of Association, if participant is a company
Bio-data / Company profile of the foreign party
Financial Credibility Certificate (FCC) of the Foreign Investor provided by a home country bank or domiciled country bank
Authority letter from the concerned companies or individuals to carry out any
necessary work on their behalf, if applicable
Foreign Investment Restricted
1. Cottage Industries (the list of cottage
industries that are given below in note)
2. Personal Service businesses (Such as hair cutting, beauty
parlour, tailoring, driving training, etc.)
3. Arms and
Ammunition Industries 4. Gunpowder and Explosives
5. Radiation materials /Radioactive Materials
related Industries
6. Real Estate Business (excluding
construction industries)
7. Film Industries (National Languages and other recognised
languages of Nation)
8. Security Printing
9. Banknotes and Coins
10. Retail Business (excluding international chain retail business with its
business in at least two countries)
11. Bidi (excluding more than 90%
exports)
12. Internal
Courier Service 13. Atomic Energy 14. Poultry 15. Fisheries
16. Bee Keeping
17. Consultancy Services such as
Management, Accounting, Engineering, Legal Services (Maximum
51% foreign
investment is allowed)
18. Beauty Parlour
19. Processing of Food Grains on
Rent
20. Local Catering
Services 21. Rural Tourism
Ease of Doing Business
Ranked 2nd after Bhutan (107
thRank) among South Asian countries in the ‘Ease of Doing Business Report 2016’ by
the World Bank Group
Ranked 2nd after Bhutan (107
thRank) among South Asian countries in the ‘Ease of Doing Business Report 2016’ by
the World Bank Group
Foreign investors are allowed 100% ownership of a company in almost all sectors2 Foreign investors are allowed 100% ownership of a company in almost all sectors2
Repatriation of capital and profits to the investor’s home country is allowed Repatriation of capital and profits to the investor’s home country is allowed
Importance of the private sector recognised by the Constitution of Nepal (2015)
Importance of the private sector recognised by the Constitution of Nepal (2015)
Ease of Doing Business Rank South Asia (2016, World Bank)
73
107 110
130 135 144
176 183
0 20 40 60 80 100 120 140 160 180 200
Bhutan Nepal Sri Lanka India Maldives Pakistan Bangladesh Afghanistan
Various Bilateral Investment Protection
Bilateral Investment Promotion and Protection Agreement (BIPPA) signed with Finland, India, Germany, Mauritius, United Kingdom, and France
Double Taxation Avoidance Agreement signed with Austria, China, India, Korea, Mauritius, Norway, Pakistan, Qatar, Sri Lanka and Thailand
Member of Multilateral Investment Guarantee Arrangement (MIGA) of the World Bank Group
Member of World Trade Organization (WTO)
Duty free, quota free market access to European Union under Everything But Arms (EBA) arrangements
Duty free US market access to 66 types of garment items for 10 years (starting from 2016)
FDI Situation in Nepal
A total of 3,520 foreign investment industries from 86 countries have been registered with investments of more than Rs. 189 billion (about 1.67 billion Euro) have been approved.
These industries are estimated to have generated employment opportunities for a total of 211,843 people.
Sum of Rs. 2.34 billion (about 20 million Euro) has been received as Foreign
Direct Investment (FDI) in 2015/16.
Areas for Investment Opportunity
Hydropower
Agriculture
Transport
Tourism
Information Technology
Mines and Minerals
Health and Education
Present Barriers for FDI
Repatriation of foreign currency
Although Foreign Investment and Transfer of Technology Act allows repatriation of
foreign currency, the investors have to face a lot of problems in repatriating the dollars.
To resolve the disputes laws are not compatible with the legal risk management policies of most multinationals.
When one invests in dollars, converting the money into Nepali, the exchange rate fluctuation creates problems for investors as the Nepali currency is weak.
