Foreign investment in the country stands at Rs 173 billion in the seven months of this fiscal year. After establishing the Foreign Investment and Technology Transfer Act (FITTA) in 1992 Nepal has welcomed multinational companies like Dabur Nepal, Colgate-Palmolive, Unilever into the country. Foreign investment in banking, insurance, telecom, hydroelectricity, cement manufacturing and tourism and hospitality sectors has witnessed substantive increase in this period. The new version of FITTA has been endorsed by the parliament recently just prior to the Nepal Investment Summit held on March 29-30 in the capital.
The government has accepted that investment is required in every sector that has value addition component in the economy and encourages investment that has potential to earn foreign currency through export of goods and services. Such investment will trigger economic growth, create employment and contribute revenue to the government coffer. Apart from few sectors categorised under negative list, the government has welcomed foreign investment in almost every sector of the economy like agro processing, mining and minerals, tourism infrastructure, hydroelectricity, manufacturing, physical infrastructures like toll roads, metro rail, tunnels among others. Few sectors categorised under negative list for FDI is related to non-tradables such as real-estate, telecommunication, primary agriculture production, etc.
Maha Prasad Adhikari, CEO of the Investment Board Nepal has said that the major focus of the Nepal Investment Summit is to attract investment in basic infrastructure and productive sectors to boost production, create employment and trigger growth. As Nepal has plans to graduate to the league of developing countries by 2022, the country requires investment of around 18% of the GDP.
To accelerate foreign investment and make it competitive, Nepal requires rigorous reforms in legal, administration and procedural fronts. “The government must ensure protection of investment and better returns,” said economist Bishwo Poudel, “We are in competition with the global community and investors across the globe are looking into what we are offering in terms of investment facilitation, protection of investment, and profit repatriation.”
Though, Nepal has opened up FDI, it lost its competitive strength with the armed conflict and long political transition. As a result FDI inflow is still substantially low compared to other least developed countries. On average, FDI equals to 2% of the size of GDP in LDCs but it is merely 0.6% in Nepal.
Hari Bhakta Sharma, President of Confederation of Nepalese Industries opines that Nepal has to focus on its comparative advantage. “It means there are still low-hanging fruits in Nepal,” said Sharma, “We have to focus on comparative and competitive edge in the beginning because we cannot be competitive in every sector overnight as the long armed conflict and political transition has eroded our competitiveness in many sectors and we have to improve on it.” Sharma laid emphasis on public private partnership to move forward towards improving investment climate in the country. “It is a rigorous process,” he reiterated.
Lack of strong commitment
An investor always looks for protection and better returns. Protection of investment is related to better treatment of investors during entry (FDI approval and company registration), operation, profit repatriation and also exit (if needed). However, procedural delays, administrative hassles and ambiguous legal provisions in investment laws are discouraging factors. Additionally, rent-seeking activities, donation drives and extortion from organisations and individuals affiliated to political parties and non-political forces creates a negative environment.
Anti-lobby of the private sector
It has been three years that the Dangote Group, a multinational conglomerate originated from Africa, has tried to set up a cement factory in Nepal. However, the Department of Mines and Geology has not been able to provide limestone mines to this group. The Investment Board of Nepal has been established to provide service to foreign investors from single window system and the board is led by the Prime Minister. Dangote’s FDI commitment worth Rs 55 billion provides benefit of economies of scale and enhances competitiveness of domestic cement plants. Dangote has been asked to take part in open bidding process for mines, however the specifications in the bidding document keeps Dangote out of the race.
Economist Keshav Acharya has said that this will spread a negative message to foreign investors. “For foreign investors, the government is single entity,” said Acharya, adding, “If the Prime Minister led board cannot sort out problems faced by foreign investors, they will not have reason to believe that the government is serious about FDI.”
There is a similar situation with Amul Dairy. There is anti-lobby of domestic dairy owners similar to those in cement factories. Anti-lobby of the private sector and the government’s silence has been creating a deficit of trust. Britannia Industries, an Indian food-products corporation headquartered in Kolkata, has also tried to enter Nepal. However, the government has not entertained the proposal from Britannia.
Economist Acharya says that the legal system should be transparent and the administration (bureaucracy) should have orientation to facilitate investment instead of creating obstruction.
Finance Minister Yubaraj Khatiwada has said that the government will bring FDI in every sector that creates value addition in the economy and earn foreign currency through export of goods and services except few sectors listed under the negative list for FDI.
Nepal must compete with other countries to attract investment or Nepal should improve its ranking in terms of ease of doing business. According to the doing business report of the World Bank, Nepal ranked 110 out of 190 countries. Hari Bhakta Sharma, President of CNI has said that the Nepal Investment Summit endorses the government’s readiness to welcome investment. “However, the reform should be carried out in a regular manner in competition with other countries,” said Sharma, “Nepal must create and easing environment for fourth-generation industrialisation (hi-tech industries) for high, sustainable and stable economic growth.”
Intellectual Property Rights
The current law on intellectual property covers only patents, trademarks, designs and copyright which is insufficient according to IPS experts. The intellectual property rights law should be comprehensive and encompass patent, trademark, design, copyright, trade secrets, geographical indication, traditional plant varieties and integrated circuit.
The Japanese joint venture investment with Indian company Kansai Nerolac paints lost its legal trademark battle in Nepal. Intellectual property law in Nepal does not even recognise well established brands. Whoever first registers a trademark in Nepal is validated irrespective of how popular the trademark is worldwide and where it is registered; this is cause for concern for foreign investors. Nepal can’t be in isolation. The Japanese JV with Indian company Kansai Nerolac Paints changed its name to KNP later as the appellate court issued a verdict in favour of a local businessman who registered the trademark first at the Department of Industry. However, a review petition has been filed at the Supreme Court and the case of trademark ownership is sub judice at the apex court.
There are several other trademark related cases, mostly sourcing from similar sounding names. Godrej and Podrej, Centre Fresh and Centre Fillz, are just a few examples of similar sounding products available in the market. Experts have laid emphasis on the need to train those involved in law enforcement, like the police, judges, staffs of the intellectual property rights office, among others.