The Role of Foreign Direct Investment in Nepal

This research explores the role of foreign direct investment (FDI) in Nepal's development. It examines the benefits and implications of FDI, focusing on sectors such as tourism, economy, and living standards. The research also highlights the importance of FDI and provides insights into the country's economic progress and future scope for FDI.

Running head: FDI IN NEPAL 1
Management
The Role of Foreign Direct Investment in Nepal

FDI IN NEPAL 2
Abstract
The research would be exploring the Foreign Direct Investment Role in the development of
the country, specifically in Nepal. The research would provide a broad concept on the
working of FDI and it would be explored through various perspectives which would help in
understanding the working of FDI along with its implications and the benefits that it serves to
the country. A small country like Nepal has been chosen in order to presents the impact of
application of FDI in such underdeveloped countries through which the country has been able
to develop and reach to the level and position it holds today in the International market. The
acknowledgement of the strengths of the country is required for the application of FDI in the
correct sector which would help the country in adding to its economy and thus. The overall
country would prosper through it. The channelization of the FDI is an essential part and it
needs to be done through acknowledging the country and its weaknesses sand strengths. The
role that FDI paly in a country is of tremendous importance and it should be utilised by every
country in the correct proportion so that the output is of balanced nature. The economic
progress of the concerned country has been the consequence of the five year plans made by
the country, which has been accompanied by 17 state enterprises being privatised. The
foreign aid or investment to Nepal has been in huge amounts and it has been contributing
hugely to its development, as it has been more than half of the development budget. It has
been revealed through the exploration that the government has been focusing on the
developments of agriculture, transportation, communication facilities, and industry.

FDI IN NEPAL 3
Table of Contents
Introduction................................................................................................................................3
Background of Nepal.................................................................................................................4
Foreign Direct Investment in Nepal...........................................................................................5
Essentials of Foreign Direct Investment and its importance......................................................9
Foreign Direct Investment Scenario in Nepal..........................................................................11
Contribution of FDI to Nepal in some specific Sectors...........................................................17
Changes in Living Standards of Nepal through FDI............................................................17
Improvement in Tourism of Nepal through FDI..................................................................18
Contribution to the Economy of Nepal through FDI............................................................19
Conclusion................................................................................................................................21
Literature Gap..........................................................................................................................21
Future Scope.............................................................................................................................22
References................................................................................................................................23

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Introduction
Foreign Direct Investment is one of the ingredients of the country’s economy which has been
observed to play a vital role in the development of the country. The exploration of the foreign
direct investment in a particular country would provide a wide and a broad concept of the
development that takes place within a country and the reason for development and growth
also gets identified and segregated. The focus would be on a particular country as this would
help in gathering some relevant and justified facts about the concerned investment and how it
works in favour of the country (nationsonline.org, k, 2019). The channel that is followed by
the direct investment by the foreigners would be identified which would help in gaining the
knowledge of the formalities and the procedure which is necessary for gaining the
investment. A small country has been chosen for the exploration that is Nepal which lies in
the Himalayas and is land locked country. On exploring the small country with only 26.4
million population and being the 93rd largest country as per area, it would help in
understanding the hard core impact of foreign direct investment in the country’s
development. The research would touch the economic aspect of the country’s growth along
with the tourism industry, as tourism is one of the major contributors ‘to the country’s
development. The role of FDI along with the accurate definition would be presented which
would help in acknowledging the actual meaning of FDI and thus, the main aim of the
research would be understood on clear grounds. This would be followed by the various types
of investment that the foreigners could opt for in order to invest in the country and the
importance of each of them would be analysed in order to understand the relevance of each.
The contribution FDI makes to a country in various forms and sectors would also be explored
and this would include the major areas of Nepal’s development such as tourism, economy,
and the living standard of the people. Three major areas of development has been chosen as
per the country’s growth and development as this would provide with the most accurate and
effective developments in the country which took place due to the inclusion of foreign direct
investment. The importance of FDI would also be revealed through this exploration. On
acknowledging all the information some graphical facts would also be provided which would
support the theoretical facts. The research would end with a summary which would provide
the zest of the entire research and the gap or the limitation that the literature carries would
also be stated in order to provide the future scope of the research. This means that the

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literature would end with a scope of future expansion and thus the accuracy and the
authentication of the research would be justified.
Background of Nepal
Nepal has been the land locked country, having the features of multi-ethnic, multi-religious,
multilingual country and is situated at the north of India in the Himalayas. The country is
located in the region where about 40 – 50 million years ago the crash of the Indian
subcontinent into Asia took place. This incident of the crash helped Nepal in including some
of the highest mountains in the world, such as Sagarmatha which is shared by China, as
Tibet. The country is famous for a place somewhere in Kapilavastu district in 500 B.C a
queen named, Mayadevi gave birth to Siddhartha Gautama, popularly known as Buddha. In
the 20th and at the early years of 21st century, Nepal has been observed to struggle for
democracy. The country was in civil strife from 1990s to 2008 (Nepal Foreign Direct
Investment, 2019). In the year 206, some peace treaty was signed which was followed by the
first elections in the country. The country became a federal republic and was formally
renamed as “Federal Democratic Republic of Nepal” which ended the 200 year old Shah
dynasty.
On acknowledging the gradual growth of the political scenario of the country, the economy
of the country could also be accessed and this would help in understanding the growth and
the developments of the country. The disturbing political scenario of the country has been
restricting its growth and development which stabilised and maintained a sustainable growth
in the 1950s, when the country liberalised and looked forward for economic growth. Though
the growth was not of high marks but the changing scenarios and the increasing economic
factors provided a picture of the country of being developed at a slow pace. The livings
standards were improving as compared to the pre 1950s condition which brought in the
positive attitude and environment in the country (Singh, 2019). The economic progress has
been the consequence of the five year plans made by the country, which has been
accompanied by 17 state enterprises being privatised. The foreign aid or investment to Nepal
has been in huge amounts and it has been contributing hugely to its development, as it has
been more than half of the development budget. The government has been focusing on the
developments of agriculture, transportation, communication facilities, and industry. The gross
Domestic Product of the country has been dependent on the remittances (9.1%) of foreign
workers. The country has been working in improvising its education which is under-

FDI IN NEPAL 6
development. The agriculture has been the main contributor to the GDP of the country about
31.7% of contribution.
Figure 1: GDP growth of Nepal
Source:
Nepal has been observed to carry a high capacity of hydroelectricity. The country has been
gaining through small foreign investments via Non Resident Nepali who are the main
investors in shopping malls, real estate, plazas, tourism, etc. The political instability in the
country has been the main hurdle in the foreign direct investment to be gained by the country.
There are large number of foreign companies interested in investing in the country but due to
the political disturbance the plans are not execute well. In 2000, the country has been
observed to enter into an agreement with about ten countries for avoiding double taxation
which are all in credit method. Since 1983, the country has been into an agreement with about
five countries for investment protections (Half of FDI pledged to Nepal goes to tourism
sector – Xinhua, 2019). The 2014, marked a minimum limit of the foreign aid to be gained by
the country from its development partners. Nepal has been one of the country’s which has not
explored its FDI in the initial stages of its growth but gradually it has gained the pace over the
factor and the profits that has been gained by the country could be acknowledged through the
current position that its economy holds (Tourism industry lures foreign investors, 2019).
Foreign Investment has been increasing in the country with an attractive percentage which
has helped the country to grow and expand and improvise its services in other sectors, mainly
focusing on tourism as it is one of the highest contributing factor in the economy of the
country.
Foreign Direct Investment in Nepal
As opined by Chan (2016), foreign direct investment is an investment made by a
company or individual in one country taking interests into business located in another

FDI IN NEPAL 7
country. A foreign direct investment generally takes place when an investor becomes
interested in the business operations of a foreign company or acquires foreign business assets,
including controlling interest of the acquired company or establishing ownership. As opined
by Gehringer (2016), FDIs are generally made in open economies, therefore, it aims to offer
growth prospects for an investor along with facilitating a skilled workforce when compared
to countries with regulated economies. Foreign direct investments can be made in different
ways which includes either opening an associate company or a subsidiary in the foreign
countries but the decision making power will be in the hands of existing company.
As suggested by Mishra, Degtereva & Paneru (2017), one of the prime examples is
the Nepalese economy which is considered to be stagnant and poverty-stricken which
requires to be pushed forward through foreign direct investments into the country. According
to The World Bank (2017), it is true that foreign direct investments help in sourcing capital
flow within a country in order to accelerate growth and help in combating poverty. The
World Bank (2019) has identified that over the decades, developing countries like Nepal has
failed to take full advantage of its geographical location between India and China. This
geographical proximity between the two superpowers provides Nepal with immense
opportunities. As identified by Bhattarai (2017), it would be incorrect to state that Nepal has
not received FDI from foreign countries but it is correct that the volume of FDI has been very
small due to Nepal's instability and legal loopholes leading to a stagnant economic
development within the country.
However, the country has given its efforts to attract FDI subsequently to bridge the
resources gap in private capital formation. As identified by Bank (2018), the country has a
Foreign Investment and Technology Transfer Act, 1982 to attract FDI into the country which
was improvised in the year 1992 thereby making Nepal a member of World Trade
Organisation and many other associations around the world to generate FDI. Cowling, et. al.
(2019), even when the country has access to the markets of neighbouring countries, it still has
a long way to go in terms of improving its political instability and preparing transparent
policies. As suggested by Krause, Sweet, Hedger & Chalise (2013), Nepal is considered to be
poorly monitoring its management with ineffective institutional arrangements, lack of skilled
workforce, political disturbances, and inadequate infrastructure. This has hindered the flow of
FDI into Nepal. The only saviour for Nepal would be its active engagement in developing
attractive policies in the country with a friendly environment for investments to pour in.
According to NICCI (2011), In Nepal, the Foreign Direct Investment Act (FITTA), 2049 and

FDI IN NEPAL 8
Industrial Enterprise Act, 2048 are responsible for framing the regulations and its
administration. As identified by Trading Economics (2019), despite the issues hindering the
economic development of Nepal, the FDI has increased by NPR 13,503.90 Million in 2017.
Previously, the average FDI between the years 2001 to 2017 has stood between NPR
3,374.48. The sudden rise in the rate of FDI has boosted the economic instability of the
country. Nevertheless, this sudden rise must not be big reason for the country to rejoice
because it still has a long way to go in terms of making its economy strong.
According to the Department of the Industries (DOI), the energy sector, tourism and
service and manufacturing industries have received the highest number of foreign direct
Investments in Nepal (Shrestha, 2019). Most of the industries open to such investments, but
few of the industries like security-related, automatic energy related and cottage industries
have not been open about foreign direct investments. As World Bank Group (2018) suggest
that this is an unfortunate situation because Nepal has not been able to exploit its potential
because of lack of investors and their confidence in the economic conditions of Nepal. In
addition to that, lack of protection and promotion of investors has made Nepal a risky choice
for investors. The legal loopholes of Nepal contribute to the lower investments in the country.
There is a lack of internal sources and in order to meet the domestic needs, Nepal has to
figure out ways in which it can boost its economy. Without making much changes for the
development of fiscal management, the Government of the country is making desperate
attempts to strengthen its national economy. When there are resources available, our country
must know how to utilise them, but in case of Nepal the dormant resources have never been
channelized for improving the economy.
Living in the close proximity of stable economies like China and India, has taken
several impractical initiatives that has broken down its relationship with such countries and
especially India. The external policy of Nepal should have been made by looking at the
diplomatic engagement of India and China. Looking at the previous situation of Nepal it was
easy to believe the country has lack of self-interest but in recent times the picture has changed
significantly. Considering the emerging concerns, Nepal now fosters democracy and political
stability with economic reforms in place. Nepal has started believing in the idea of embracing
changes and therefore it would be easier for Nepal to create its position in the world.
Recently, the Government of Nepal organised the Nepal Investment Summit on
March 29-30, 2019 in Kathmandu which was attended by more than 700 foreign delegates

FDI IN NEPAL 9
from different countries (Government of Nepal, 2019). India and China showed maximum
participation in the two-day Summit. The Summit made a positive impact on the policy
makers of Nepal and the international business players as they showed their interests in the
recent development projects in Nepal. As identified by Bhattarai & Thakur (2019), a total of
15 deals were made between Nepal and foreign companies. For instance, companies like
Chaudhary group made an impactful deal for Logistics Park, mobile network service and
solar power. On the other hand, the Arun III hydropower project tied this already existing
Nepali project with Indian Financial Institutions. For the energy deal, Nepal signed a Joint
Development Agreement with China for Nepal's Gandaki Gorge Project.
Despite all these efforts, there has been a decrease of 63% in the FDI investment in
the fiscal year 2018-19 when compared to the previous year's FDI. The recent development
figures have not been great after the formation of new government as there was no
considerable rise in foreign direct investments. Even when this was noticeable, the
Government of Nepal kept hoping for positive changes. The current position of Nepal has a
lot to do with the economic liberalization of 1990. This was an insurgency period for Nepal
that left deep scars political and economic environment of the country. However, positive
interventions have been made to simplify its tax paying structure as this reduced the global
ranking of call to 110th position for the ease of doing business. The 2019 Summit
incorporated Foreign Investment and Technology Transfer Act, Special Economic Zone Act
and Public Private Partnership and Investment Act to address the rising concerns of doing
business in Nepal. Foreign direct investment should be advantageous for businesses investing
in developing countries. The availability of technological advancements, large economies of
scale, low skilled labour lower tariff rates result in capital, and entrepreneurship opportunities
in the country's economy. FDI currently is low in Nepal, therefore the positive impacts are
still not visible looking at the dedication of new formed Nepalese government, there are
possibilities of profitable ventures in the country. According to many researches, Nepal has to
tackle with obstacles before foreign direct investment can flourish in the country. However,
Nepal's economy has been favourable in terms of unique tourist destinations, free trade from
India and its hydroelectric power. All these factors can still attract the attention of foreign
investors.
In a nutshell, Nepal has been concerned about the emerging issues it has been facing
and identifying solutions for the mistakes they have been still continuing. There is a need for
continuous follow-ups and fostering an investment friendly environment within the country.

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Nepal now aims to change its status from a low developing country to a developing country
by the year 2030.
Essentials of Foreign Direct Investment and its importance
The act of foreign investment is one of the acts made by the foreign country to the other
country with an objective to expand its business and utilise the resources and other available
components of the country. According to Mishra et al. (2017), FDI is a simple investment in
foreign country but this act of investment could be done in various ways and methods and
there are multiple types of FDI which helps in making the investment the most effective and
productive ones. The segregation of the FDI has been done with an aspect or view to receive
the maximum benefit form the investment as well as the investment proves to be an effective
and fruitful one for both the countries that is the investing country and the investor’s country.
As per Sharma (2018), the identification of the factors or the essentials of FDI that is the
country which could gain the benefits of FDI provides a hidden information on how the FDI
works and the various methods through which it works out, helps in making the act effective.
It has been stated by the same author that when a company of a foreign country takes a
decision of investing in the other country’s company in order to expand its horizon, there are
two factors which plays a vital role, the foremost is the plan on how the revenue would be
generated from the investment and the other is the choice to be made between the two
methods of FDI, so that the most productive method is chosen.
As has been stated by Adhikary (2015), there are two prominent and effective methods of
Foreign direct investment named as Greenfield Investment and Brownfield Investment. These
two methods of investment provides a clear distinction on the application of the two methods
which helps in making the investment the most fruitful one. Green-field investment is the
investment where the parent company or the investing company or government constructs a
new venture through building up new facilities in the country were the head quarter of the
company is not located. This method of investment has been observed to provide wide range
of benefit to India from 2005 to 2016, when India was the top most recipient of the
Greenfield FDI from the Commonwealth. During this period the country received double the
amount that was received in the last 10 years and the collection is not limited to
Commonwealth only but includes the entire world. Even China has been overtook by India in
2015, in case of Greenfield Investment (Shakya, 2018). On the other hand the Brownfield

FDI IN NEPAL 11
investment is a short cut of the Greenfield Investment, as in the former investment the
company do not have to build up something from zero but it just exploits the mergers and
acquisitions across borders and expand its business.
It has been stated by Bank (2018), that methods of FDI are important and it also demands the
exploration of the types of FDI investment which is mainly of two types, horizontal and
vertical. The horizontal FDI is one of the most common and the most used investment action
where the foreign company merges with the other country’s company, in order to expand the
business along with having a piece of the market share and reduce the intense competition.
This provides some additional strength to both the companies having homogenous product.
The other type of FDI is the vertical FDI which is done through acquisition and mergers too
but the motive is different that is in the case of vertical FDI, the aim is to add more value to
the value chain. Both the types of FDI falls in the Brownfield Investment as in the case of
Greenfield it’s a built from scratch concept. According to Adhikary (2017), FDI could be
classified in two more types of investment through a narrow perspective which are inward
and outward investment. Inward is the local resources investment while the outward is the
investment outside the country having government support.
The various aspects and the types of foreign direct investments has been framed with a view
to make the investment productive and utilise it to the maximum. There are some factors
which needs to helps in ensuring the FDI productivity and it has been stated by Batool &
Javaid (2018), under the following headings.
a. The foremost factor is the country needs to have an open economy as this would help
in providing an environment for the foreign investment. A country having a closed
economy would restrict the foreign investment and thus, there would be no scope of
further development or growth. In order to explore FDI benefits, the country needs to
be an open economy and also open to the growth and development.
b. The second factor which attracts the FDI or is required for FDI is the future growth
prospect of the country or the company. No investor would be interested in a
developed country or the country which has no prospect of expanding its development
to other countries in future. The criteria of above average growth scenario to be
present country needs to be met in order to gain FDI.
c. The most vital and the most crucial factor is the government support which frames the
environment for the FDI. Without the initiation of the government no foreign country

FDI IN NEPAL 12
or company would be interested in investing and thus, the government initiation and
support is must for FDI.
As per Moudud et al. 2016(), the essentials of FDI needs to be met by both the countries in
order to provide productive and fruitful investments. The foreign investments needs to be
utilised by the country in an effective manner through considering the requirements of FDI.
Foreign Direct Investment Scenario in Nepal
Nepal has been experiencing the flow of FDI in the recent time but still the peak of
investment has not been reached as it should have been achieved by now. In the 1990s, the
inward investment from the foreign countries was observed to be at the peak, but the
occurrence of the civil war of Maoist insurgency declined the action. Nepal has been trying to
provide a peaceful political environment in the country after the end of the Maoist civil war.
As said by Huq et al. (2016), Nepal is being aimed at by many foreign investors due to the
cooling political situation in the country. The projects of FDI in Nepal has been concentrating
in the sectors such as construction, agro-based, tourists hotels, mineral exploitation,
hydropower, manufacturing and many others. Under the manufacturing industry, by the year
2005, about 440 projects concerning hotels and resorts were undertaken. The approved FDI
projects of Nepal, consists of about 40% from India, and the remaining 60% comes from
Japan, Singapore, USA, Thailand, British Virgin Island, Finland, Bangladesh, Netherlands,
South Korea, Italy, Norway, Germany, Switzerland, Taiwan, France, etc (Dhungel, 2016).
The low labour cost injects the manufacturing industry through FDI and about 32% of the
total investment is allocated to the manufacturing industry.

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Figure 2: Nepal FDI Sectors
(Source: Adhikary, 2015)
As it could be see that the major explorer of the FDI Has been the agricultural sector
followed by the tourism sector, with 32% and 17% respectively.
Policy of Nepal concerning FDI
The adoption of the liberal policy by the government of Nepal has helped in attracting and
making the investors comfortable. The Industrial and Foreign Investment and Technology
Act, 1981, provided the path of inward FDI which helped the Nepalese economy to grow and
develop. This initiation paved the way for emphasizing on to the industry and trade sectors
focusing on private sectors to dominate over other sectors (Acharya, 2019). The government
has been observed to act as a mediator for providing the infrastructure and the environment
for investment. The act of 1981 was not providing the broad and a wide scope of attracting
Foreign investment which brought in the need to take up a new act framed in 1992, Foreign
Investment and one Window Policy (Ha & Giroud, 2015). The policy liberalization of 1992
and a renewed trade treaty with India during 1996 dramatically increase the proportion of
FDI to Nepal. The act helped in opening the investment in various sectors which include the
hydropower projects through offering 100% ownership (Sharma, 2018). In the following
figure, the information on the parts where the foreign investment could be available and the

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areas where foreign investment not to be granted could be acknowledged as per the Foreign
Investment Act of 1992.
Figure 3: Government of Nepal Foreign Investment Act, Forms of FDI
(Source: Bajracharya, 2016)
FDI trends in Nepal: Graphical Representation

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Figure 4: FDI Inflow to Nepal
(Source: Uprety, 2017)
As is depicted in the graph that FDI has been at its peak during the period of 1996-1998. The
reformation in the investment policy attracted many new investors to the country which
helped the country to grow. The 2004-2008 period marked a major downfall in the FDI sector
which reached to negative level and the cause of this negative figure was the disputes in the
country and the instability of the political situation.

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Figure 5: Nepal’s share of FDI inflows to South Asia
(Source: Imtiaz & Bashir, 2017)
Considering the South Asian countries and the part of each of the South Asian country in the
FDI, it has been revealed that Nepal received merely 3% of the total investment in 1990. This
was an all-time high share of Nepal, which has been reduced to 0.4% in 2010. The downfall
began in 2003 that is the period of instable political scenario in the country.
SWOT Analysis of Nepal in respect of FDI attraction
Nepal carries multiple factors which has been favouring the FDI flow in the country, the
factors has been financial as well as scenic beauty and the dense population. On analysing the
country through the SWOT tool would help in gaining the accurate information on the reason
for the increasing flow of FDI in the country.
Strengths
 The location of the country has
supported the flow of FDI that is
between the two largest markets,
India and China.
 Easy to train and low cost of labour
Weaknesses
 The country being landlocked, do
not have the access to the water
bodes advantages of business.
 The infrastructure has not been well
maintained and this impacts the

FDI IN NEPAL 17
has attracted the investment as it
would provide high productivity at
low cost (Shah & Qayyum, 2015).
 The size of the government being
small and easy to manage with easy
to access bureaucracy.
 The stability in the macroeconomic
and liberal economy helps in
providing a stable environment of
investment to the investors.
decisions of the investors.
 The labour legislation of the country
is rigid in nature and this makes the
country unattractive
 Corruption and instability in the
political situation has been
weakening the country gradually.
Opportunities
 The most attractive part of the
country is the tourism industry as the
country has the sports tourism,
adventure tourism, and heath
tourism, cultural and religious
tourism. This would help the
investors in having productive
returns (Dhungel, 2016).
 The variability in the agricultural
and agro based business adds on to
the attraction of the country.
 The generation of hydropower and
infrastructure which is the basic
requirement of the people, would
provide immense return to
investments.
Threats
 The Maoist insurgency is the biggest
threat.

FDI IN NEPAL 18
Contribution of FDI to Nepal in some specific Sectors
Changes in Living Standards of Nepal through FDI
Foreign direct investment an important resource for economic development.
Arguments have been made with regards to the benefits of FDI for the country and its people.
It not only increases tax revenues but also improves the capabilities of the host countries. All
these benefits are likely to contribute to higher economic growth and employment
opportunities which acts as an effective tool to reduce poverty of any country. The impact of
FDI has reasonably been moderately successful in Nepal but the after effects of FDI in the
country has contributed to significant amount of growth, economic development and
reduction of poverty thereby making considerable changes in the lives of people. The current
rate of GDP in Nepal has expanded 7.10% in 2018. The GDP annual growth rate in Nepal has
been fluctuating between the years 1993 and 2018, where 1993 witnessed the highest GDP of
8.60% whereas 2001 witnessed a record low of 0.01%. The country however benefits from
the revenue generated from the agricultural sector which employs more than 70% of the
population. A record 33% of the GDP is generated from the agricultural sector of Nepal. The
hydroelectric power has great potential in terms of development in the country and improving
standards of people.
As identified by the Transformation Index BTI (2019), Nepal has been a politically
disturbed country and the country's economic growth has been stagnant due to delay in the
development of the financial sector. The financial sector brings flow of investment into the
country from different public, private and foreign sources for the development of projects in
urban and rural areas. Foreign direct investment acts as an effective instrument sustainable
development in any country. For instance, the Asian continent received $476 billion making
it largest FDI recipient of the world for its developing projects. In the case of Nepal, there has
been a surge in the FDI commitments in the 10 months of 2017-18, the value of realisation
remains nominal. According to the records of Nepal Rastra Bank, the country has received
15. 51 billion rupees worth FDI during those 10 months of 2017-18. It is evident that Nepal
needs to reconsider certain areas and bring reforms to improve the condition of its
infrastructure, legal structure, political environment, human resource profile, bureaucracy,
investor security and financial sector.
The planned development strategy in 1956 aimed at generating employment and
improving the living standards of people of Nepal but as time passed by the output and

FDI IN NEPAL 19
expectations remained very low. Like any other country, Nepal also wishes to accelerate
growth, reduce poverty, bring employment opportunities improve the living standards of
people, Nepal has failed to bring right policies to promote economic growth. The
infrastructure of Nepal faces enormous challenges in developing the current required modes
of transport infrastructure. The country depends on low labour cost but it is in need of
productive labour. The country must invest in building the skills of its workforce thereby
creating a better human resource profile. This will eventually make the people more
employable and improve their standards of living. If the country gains the confidence of
investors, it will be able to make investments in developmental projects for the betterment
country and its people. Investor aftercare services is an important element of investment
promotion which ensures investor retention and expansion of business activities. This will
generate employment opportunities, earning capacity of the population thereby contributing
to economic development and improve living standards of people.
Improvement in Tourism of Nepal through FDI
As per Plummer et al. (2016), the tourism industry of Nepal has been receiving almost half of
the total FDI during the first four months of the fiscal year that is 2018-2019. This
information has been driven from the Nepal’s department of Industry. The program organised
by Nepal in respect of attracting he two million foreigners by the year 2020, named as “Visit
Nepal 2020”. This has also provided the country with a wide scope of attracting large amount
of investments from the foreigners. The information has also been provided on the data of the
FDI that is about 6.48 billion Nepali rupees, has been received by the country as FDI, during
the fiscal year of 2018-2019. The contribution or the share of tourism sector in the total FDI
figure has been 3.28 billion. The total amount of FDI Has increased handsomely from the last
year’s figure which was about 4.12 billion Nepali rupees. The increased share of the tourism
sector in the FDI has been contributing to the development of the hotels and resorts in the
country as the demand of the same has been increasing due to the increased tourist arrivals.
This also reflects that the inflow of FDI and the development of the country along with the
tourism development works in a cycle and is connected to each other (Paudel & Le Billon,
2018). Any change in any of the factors impacts the other factors immediately and this brings
in the requirement of handling each and every sector accurately. The International hotels such
as the Hilton, easyHotel, Marriott, Aloft, Taj and many others has been entering Nepal which
has helped the country in gaining more profits or GDP. The gradual and the planned
development of the country through exploring the tourism factor, the country has developed

FDI IN NEPAL 20
well and is expected to grow more in the future due to the program of “Visit Nepal 2020”
(Monaghan et al. 2018). The Nepal Tourism Board (NTB), has recorded the figure of the
tourists of Nepal being 940218 in 2017 which rose to 772798 in 2018 and is expected to grow
more which would help in gaining the high economy of the country.
The growth of the tourism sector has been met by the country through investing in it by large
amounts but the government has been ignoring the other considerations of the tourist
attractions and those are the infrastructure, transportation, roads etc. all needs to be
concentrated for development. These factors are also important for attracting the tourists and
focusing only on accommodation would not be helpful. The casino industry has been growing
in Nepal and many foreign countries are involved in this (Gautam & Andersen, 2016). The
increased FDI has been the result of the booming casino industry which has been providing
the tourists with a new attraction along with the foreign investors being attracted due to the
attracted tourists. The chain of attraction continues and this provides the country with a wide
scope of development in the future too. FDI has helped the country in gaining the
acceleration in the development which has impacted the other sectors too. The strongest point
of the country has been tourism which has been rightly exploited by the government and the
working officials for attracting the FDI.
Contribution to the Economy of Nepal through FDI
Economy of Nepal has been one of the most fluctuating economy which has been observed to
be high at times and low at times. Nepal has been known to revolve around the agrarian
economy where agriculture has been the main contributor to the GDP of the country, as the
mentioned sector employs about 75% of its population (population being 27 million). In
2014, the GDP of the country was recorded to be $66 billion which rose by $3billion as
compared to 2013 GDP (Sunam & McCarthy, 2016). The economy also reveals that one
quarter of the population falls below the poverty line and the unemployment rate has been
quite high which is marked at 50%.
Considering the foreign direct investment for the year 2018, marked a growth of about 0.6%
of the country’s Nominal GDP (Wang et al. 2016). In the previous year it was marked to be
0.5%. On acknowledging the graph below, it provides the information that the percentage of
the country’s foreign direct investment as percentage of the Nominal GDP, it was high
enough in 2012, reaching to 0.6% contracting to the lowest one in 2006, as -0.1%.

FDI IN NEPAL 21
Figure 6: Foreign Direct Investment: % of Nominal GDP
(Source: Nepal Foreign Direct Investment, 2019)
Mainly due to the growing investment from India and China, FDI rose substantially reaching
USD 104.6 in 2009-2010 and USD 116.3 in 2010-2011, but then slowed down due to
domestic political uncertainty, despite the fact that the global FDI flows recovered in 2012.
After the 2015 earthquake, the figure dropped and then picked up again in 2016 when Nepal
received USD 106 million in FDI, doubling the FDI inflows of 2015 and had USD 653
million FDI stock (Perri & Peruffo, 2016). In the Fiscal Year 2014-15, the government
approved many project proposals from various countries: 125 from China, 55 from South
Korea, 40 from US, 23 from India, 18 from Japan, 11 from the UK, and several more from
other countries (Fox, 2018). The contribution of FDI in the economic growth of the country
has been wide and this could be observed through the above exploration. The increase in the
flow of FDI provided the economy with hug number of financials and this helped in
accelerating the workings of the economy which added on to the productivity of the country.
As per Chalise & Naranpanawa (2016), FDI works as a fuel to the economy which helps in
gaining the acceleration and thus adding on to the productivity and the output of the economy
which again it gets injected into the economy thus providing a momentum to the economy.
The increased FDI helped controlling the unemployment rate of the country as the flow of
FDI provided the country with new jobs and thus, the people of the country got recruited
which added on to the employment rate. Gaining acceleration in the employment rate helped
in reaching to the high purchasing power of the people and thus, this impacted the output of
the country. The chain continued and this provided on with the increasing and developing
economy.

FDI IN NEPAL 22
Conclusion
Nepal has been observed to be one the most fluctuating economies and the role that foreign
direct investment has played in the development of the country has been wide and broad in
nature. The impact that FDI has on the country’s development and progress is not limited to
the economy of the country but economy is the major factor which gets impacted by the FDI
at the foremost notice. The contribution FDI makes to a country in various forms and sectors
has been explored and this included the major areas of Nepal’s development such as tourism,
economy, and the living standard of the people. On exploring the impact of FDI in Nepal and
the pillars that has been provided by FDI to the country on which the country stands has been
the consequences of the increased flow of FDI (Dewan, 2015). The economic progress of the
concerned country has been the consequence of the five year plans made by the country,
which has been accompanied by 17 state enterprises being privatised. The foreign aid or
investment to Nepal has been in huge amounts and it has been contributing hugely to its
development, as it has been more than half of the development budget. It has been revealed
through the exploration that the government has been focusing on the developments of
agriculture, transportation, communication facilities, and industry. The program organised by
Nepal in respect of attracting he two million foreigners by the year 2020, named as “Visit
Nepal 2020”. This has also provided the country with a wide scope of attracting large amount
of investments from the foreigners. The information has also been provided on the data of the
FDI that is about 6.48 billion Nepali rupees, has been received by the country as FDI, during
the fiscal year of 2018-2019 (Dixit, 2017). The contribution of the FDI to the country has
been wide in nature and this has been explored in the research too. The sectors explored that
is the tourism sector, the living standards of the people, the economy of the country, has been
reflecting that the FDI is one of the economic components which could be utilised by the
country in order to accelerate the working of the country which channelizes the path of the
country towards development and growth.
Literature Gap
The literature has been framed through considering all the possible areas that has been
impacted by FDI in concern of Nepal and has explored all the relevant areas. Though the
frame-up has been quite accurate in nature there e exist a gap in the literature as the mention
or the exploration has not touched the business aspect of the flow of FDI. That is the impact
of FDI on the business sector has not been explored which could have helped in gaining acute
accuracy in the research. The business sector is one of the most important and the productive

FDI IN NEPAL 23
sectors which would have provided the zest of the economy in single factor exploration. The
gap exist in the literature which makes the research inaccurate (Chen & Shapiro, 2015).
Another gap in the literature is that it has not explored the disadvantages of over flow of DI
which would have [resented the negative aspect of the FDI too and thus, the requirement of
the maintenance of balance in the flow would have recognised. The importance of
maintaining the balance in the inflow and the outflow of FDI would have been gained
through this exploration.
Future Scope
On acknowledging the gap in the literature, it provides with the future scope of the research
which helps in making the research applicable to some specific scenario. The future scope of
the research is to explore the business sector of Nepal and how the FDI factor impacts the
business sector in Nepal would be the main objective of the research in future (Godinez &
Liu, 2015). There exist another scope which is to explore the side effects of over flow of FDI
which is an important part of FDI exploration as knowing the benefits of a factor should
always be accompanied by its disadvantages in order to be prepared for the worst scenarios.
These future scope present in the research makes the research wide in nature and also
provides a platform for enhancing the present research.

FDI IN NEPAL 24
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