Nepal attracts more foreign investment

KATHMANDU, JULY 7, 2012

Nepal succeeded in attracting foreign direct investment inflow worth $95.49 million in 2011, which is $8.75 million more than the $86.74 million it was able to attract a year ago, according to a global report.

With more foreign direct investment inflow, the country has also improved its ranking in UNCTAD’s World Investment Report 2012 — published today — as the report has ranked Nepal at 175th in foreign direct investment (FDI) Attraction Index 2011 from the 178th ranking a year back among 182 economies.

The inward FDI Attraction Index ranking is based on the average of a country’s percentile rankings in FDI inflows and in FDI inflows as a share of gross domestic product.

Similarly, the country ranked 150th in FDI Potential Index out of the 182 economies. The Inward FDI Potential Index ranking is based on the simple average of a country's percentile rank in each of the economic determinants areas. A country's ranking within each group of determinants is based on the simple average of the country's percentile rank of each variable included in the group.

However, Nepal ranked at the bottom among the South Asian countries.

Nepal had managed to receive a decent amount of foreign investment after economic reforms were initiated in 1991-92, but it became erratic during a decade of armed conflict that ended in 2006.

Since 2006-07, the FDI figures have exhibited robust growth barring 2008-09, during which it was affected by the global financial crisis.

Foreign direct investment inflows to South Asia rose by 23 per cent to $39 billion in 2011, following declines in 2009 and 2010, the report revealed.

According to the report, subtitled 'Towards a New Generation of Investment Policies', India has witnessed the highest inflow of FDI that stood at $31.6 billion in 2011, whereas it had witnessed FDI inflow of $24.2 billion in 2010. The recovery in South Asia took place mainly as a result of the good performance of India that is the largest FDI recipient in South Asia and it accounts for more than four-fifths of total FDI inflow to the region.

The FDI outflow from India stood at $14.8 billion in 2011, whereas a year back, the outflow stood at $13.2 billion.

FDI inflows to Pakistan, the second largest FDI recipient country, amounted to $1.3 billion. Bangladesh has also emerged as a major recipient, with FDI inflows increasing to a record high of $1.1 billion.

Similarly, FDI outflows from South Asia rose by 12 per cent to $15.2 billion, it said, adding that outflows from India, the region’s dominant source of FDI, is the highest.

Countries in the region face different challenges like political risks and obstacles to FDI, which need to be tackled to build an attractive investment climate, the report suggested.

Nevertheless, recent developments have highlighted new opportunities. Due to the improving political relationship between India and Pakistan, the two major economies in the subcontinent have been moving towards greater engagement.

In Afghanistan, significant FDI has been flowing into extractive industries, despite the country’s continuing internal conflict.

In 2011, about 145 cross-border mergers and acquisitions (M&As) and 1,045 greenfield FDI projects — that is, ground-up investments in new ventures — by foreign firms were recorded in South Asia.

Cross-border M&As rose by 131 per cent in value, and the total reached $13 billion in 2011, surpassing the previous record set in 2008. The significant increase was driven mainly by large transactions in extractive industries.

After a decline for three years, outbound FDI from the region recovered as well.

Though cross-border M&As slid across all three sectors –– extractive industries, manufacturing and services –– the drop was compensated largely by a rise in overseas greenfield projects, particularly in extractive industries, metal and metal products, and business services. "FDI growth seems to be keeping its momentum in 2012," the UNCTAD report projected.

Source: THT