Domestic investment commitment in Nepal falls by 50%
By Business Desk
07 September 2015

KATHMANDU, Nepal (ANN) -Foreign direct investment pledges more than triple while domestic investors remain cautious

Investment commitments by domestic companies in Nepal have more than halved in last fiscal year 2014-15, while foreign direct investment (FDI) pledges more than tripled, according to the Department of Industry (DoI).

According to the DoI, domestic investment commitments last fiscal year slumped to 132.91 billion rupees (US$1.25 billion) from 289 billion rupees in 2013-14. The number of industries registered, however, was up.

Government officials attributed the fall in domestic investment commitments to the April 25 earthquake. DoI director general Maheshwor Neupane said the earthquake had the biggest impact on industry registrations.

Considering the impact of the earthquake on industrial production, the Central Bureau of Statistics (CBS) lowered the economic growth forecast for the last fiscal year to 2.35 per cent from 4.55 per cent.

Although the earth did not have a big impact on industries in main industrial areas in the Tarai, they faced problems such as reduced demand and shortage of workers as economic activity slowed.

Commercial banks’ lending pattern also suggest that economic and trade activities slowed after the disaster. The banks have lent jut 20 billion rupees since the earthquake until August 7, their while deposit mobilisation over the period stood at 111 billion rupees, according to the Nepal Bankers’ Association.

Beside the earthquake, industrialists blame the unfavourable business climate for the fall in the investment commitments.

Federation of Nepalese Chambers of Commerce and Industry (FNCCI) president Pashupati Murarka said political instability, confusion about the new constitution and energy crisis were the major reasons for the slump in domestic investment commitments. “Business environment has worsened as industries have continued to remain closed due to month-long strikes in Tarai,” he said.

According to the DoI, energy-based industries attracted 83 billion rupees in commitments although the number of industries registered under the category fell. Tourism got the second highest investment commitment (21.38 billion rupees), followed by production-based industries (17.39 billion rupees).

There has been a sharp rise in number of industries related to tourism last fiscal year, with 135 new registrations, compared to the previous fiscal’s 83. In the last fiscal, a total of 92 big industries, 79 medium-scale industries and 291 small-scale industries were registered with the DoI.

As far as the foreign direct investment is concerned, the commitments more than tripled in the last fiscal year to 67.42 billion rupees, with energy-based industries once again topping the charts. FDI commitments in the previous fiscal was 20 billion rupees.

Although the of number of registrations of energy-based industries halved to five, the investment pledges stood at 54.28 billion rupees. Service-based industries and the tourism sector followed.

Despite the high FDI pledges, only a fraction of them are translated into actual funding, according to the Nepal Rastra Bank. The actual investment amounted to 6.16 billion rupees last fiscal year, while the pledges stood at 67.42 billion rupees.

Murarka said the commitments were not being translated into investment due to unfavourable investment climate.

(107 rupees = US$1)

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