Peaceful Transformation in Nepal: Consequences for foreign investments
In the last few years, the nepal government has declared that it is open to business, especially foreign business. Politics has become more welcoming to foreign investment. Since the onset of the parliamentary crisis, Nepal has increasingly revealed its capacity for rapid evolution and progressive changes. Thus, the country can safely be regarded as a potential object for profitable realization of long-term investments.
This article presents a detailed review of the political and economic situation in Nepal at this time and its impact on the state‘s financial system. As a consequence, we will consider various factors affecting the future economic development of the country in a positive and negative direction, as well as their impact on the constructive attraction of foreign investment. The article dives into the most attractive sectors of Nepal’s economy for direct investment and, moreover, highlights the main advantages of building commercial real estate in the country.
Social and Political Changes in Nepal
A couple of years ago, before the parliamentary crisis, the level of FDI in Nepal was much lower, and consequently the government’s attitude towards private enterprise was less friendly. The country’s financial and entrepreneurial activities were strictly controlled centrally, and strategic policy was based on the Five-Year Plan principle.
Things have obviously started to change for the better recently. Entrepreneurial activity has become less rigid in terms of bureaucracy. Attracting foreign capital is no longer a problem for the Nepali government, but on the contrary, it has become a matter of genuine interest. According to statistics, in 2019 the minimum FDI threshold was fixed at $415,000. This is a real miracle, given that in 2006 the figures were -$7 million, and only in 2017 managed to sign a contract with the MSS for $0.5 billion.
The government now openly declares its serious intentions to cooperate with foreign enterprises, to which they have only been able to reciprocate willingly. Nepal now is in the third place in the South Asian region in terms of FDI inflows, according to recent World Bank reports. The policy with regard to domestic enterprises has also become more lenient, although, unfortunately, words often do not coincide with deeds in this case.
Reasons for Investing in Nepal
Nepal is in a much better economic and political position than many other Asian countries. This is due to a combination of factors, which we will discuss below. The following sections highlight the most prominent reasons why Nepal is a potential good investment destination.
The location of Nepal is between the two dragons of the east, India and China. Undoubtedly, the country could potentially benefit from it. By opening its borders to attract foreign businesses, Nepal can become a large hub where the two major economies of Asia meet. Here they can meet and cooperate seamlessly, which will have a good impact on Nepal’s domestic economy as well.
The very fact that India has already demonstrated its positive attitude toward Nepalese export products indicates that mutually beneficial cooperation can be developed. Nepal has been able to achieve this largely due to the price-quality ratio of the goods and the ease of their transportation. For China, however, the South Asian country is a potential Beijing asset because of their multi-billion dollar ‘Belt and Road’ initiative.
The total unemployment rate in the country is always about 50% of the total population, which is about 15 million potential workers. To paraphrase, Nepal is a state with human resources that have not been fully realized. If you use at least 30% more manpower, you can get dozens of times more profit. It should be noted that we are not talking about blue-collar workers who cannot stay in the market for long.
Paradoxically, the level of education among Nepalis is impressively high. This means that the doctors and IT professionals here are top-notch. Because of the lack of suitable jobs, many professionals from medicine to construction are forced to take jobs abroad. The brain drain is to neighboring Asian countries, such as China and India, as well as to Australia and the Persian Gulf countries.
The current economic and social trends in Nepal are complemented by the growth and expansion of potential professional fields. Going forward, there should be no shortage of adequate manpower, regardless of which sector of the state economy one chooses to invest in.
Nepal’s natural resources are particularly valuable in the hydropower and agriculture sectors. Several thousand rivers provide the country with a total of more than 40,000 megawatts of water-generated electricity. The potential of Nepal’s agricultural sector is almost unlimited because of the country’s excellent climatic and geographic advantages.
Telecommunications Industry in Nepal
Although telecommunications is not one of the most attractive sectors of Nepal’s economy, there is a demand for them that is growing as rapidly in Nepal as it is worldwide. Here you can find some of the most favorable conditions for long-term investments, as evidenced by the international experience in this field Abdo Romeo Abdo. A native of Lebanon, Abdo is one of the founders of the international company Ncell, which acts as a major cell phone provider in Nepal. The growth of the telecommunications’ demand definitely will continue to be the case.
Potential Barriers to Future Development
It seems that the Nepalese government is quite supportive of the hybrid system, which may not be unreasonable to worry about. In the past, many worried that Nepal’s transformation would be entirely peaceful and not escalate into anything more dangerous, but now some wonder if we should even wait for the transformation.
The government has recently taken several steps in the opposite direction, intending to hold the economy and the financial position of the country in its hands at the helm at all costs. In any case, no objective reasons for concern were found, especially with regard to international relations and foreign investment. On the contrary, Nepalese officials and entrepreneurs are showing a genuine interest in cooperating with foreign enterprises and investors.
Ironically, the country’s government has always been interested in open international relations, while officials have tied their own hands at the seams, significantly hampering the development of Nepal’s economy. Apparently, the government has learned its lesson, as economic development trends now follow a very different path than the five-year plans. This is also indicated by the current political plans for the country’s development.
Nepal has ample opportunities for profitable investment in various sectors of the economy. The hybrid system currently practiced by the Nepal government is in fact almost identical to the ‘Golden Mean’ in China. and while hydropower, IT industry and agriculture are at the forefront in Kathmandu, the telecommunications industry sector is no less profitable, and is likely to continue growing in proportion to the demand of all sectors of the Nepal economy.