FDI and its practical side

(This writing has been written with Amish Dhungel, with a collective effort) 
 
Foreign Direct Investment (FDI) is a remarkable indicator of a country moving into free market and accepting globalization. One of the potential markets for FDI is developing countries, as such countries have abundance of valuable resources that are untapped.



 Besides, FDI helps these developing countries to balance the gap between desired investment and domestically mobilized savings. The general notion is that FDI role is tremendous in terms of bringing wave of economic changes that would benefit a country, and that is even more in case of developing countries like Nepal. Often referred to as a major tool of globalization since the early 1990s, FDI increases ownership of assets across the national frontiers. FDI provides a country with access to global talent, global managerial skills and knowledge, optimum utilization of human capital and natural resources, enhances exports, makes industry competitive, provides forward and backward linkages and access to international quality product offerings, and facilitates more employment opportunities.

 In the context of developing countries like Nepal, FDI can be regarded as the lifeblood for rapid economic development. FDI contribution to all round development of the economy is crucial. Indian Management guru Ram Charan reflects the importance as: “No country ever has grown without FDI, including America. FDI is not only money it’s what comes with it: technology, managerial knowhow, risk-taking.” Though liberalization of the national economy in the 1990s opened the door for FDI in Nepal, the country has not been successful in attracting significant amount of FDI. The Foreign Investment and Technology Transfer Act 2049 (1992) shapes the basic foundation for Investment in Nepal. The policy seems liberal. There is easy entry, as one can get ‘non-tourist visa’ for six months if they tend to invest in Nepal.

They can take every penny that they earn out of profit, share, dividend, equity and interest back to their country. There is no Government interference in case of any dispute with the local stakeholders. The case will rather be solved following United Nations Commission on International Trade Law. Again, foreign investors are allowed to hold 100% ownership in any business apart from cottage industry and other few sensitive places. The policy is beautifully designed, but the practical side is loaded with lots of side effects. Any foreigner cannot own land in Nepal. FDI is restricted for the ownership of commercial banks up to 66% only.

Published in The Himalayan Times of 9th March 2015 with co-writer Amish Dhungel.