The government is considering opening some sectors, which are presently restricted, to foreign direct investment (FDI). A draft of the proposed Foreign Investment and Technology Transfer Policy talks about opening motion picture, travel agency, trekking agency, water rafting, pony trekking, horse riding, tobacco and alcohol, internal courier service, atomic energy, tourist lodging, poultry farming, fisheries and bee-keeping to foreign investment.
These sectors are currently restricted for FDI under the Foreign Investment and Technology Transfer Act (FITTA) 1992. Other areas including consultancy services such as management, accounting, engineering and legal services, and personal service businesses such as hair cutting, beauty parlors, tailoring and driving training, will also be opened for foreign investment, as per the proposed policy. The new policy seeks to reduce the number of sectors restricted to foreign investment to seven from the existing 21. The seven sectors which will still be guarded include cottage industries, arms and ammunition, currency and coins, real estate and housing business (excluding construction), multi-brand retail shops with less than Rs 5 billion investment, hotels below three-star category and professions such as tourist guide, porter and kitchen workers.
In the case of multi-brand retail stores having investment above Rs 5 billion, a prospective investor has to have operations in more than two countries to be eligible to invest in Nepal. “If the proposed policy dœs impose FDI restriction in a sector, it means the sector is open for investment,” said Industry secretary Krishna Gyawali. “Although we are yet to come up with the final draft, we are trying to make it friendlier to foreign investors.” The Industry Ministry is currently gathering suggestions from stakeholders on the proposed policy. “After incorporating the suggestions, we will forward the final draft to the Cabinet,” Gyawali said. The planned opening of the previously restricted sectors to FDI is also in line with Nepal’s commitment to the World Trade Organization (WTO). Taking the WTO membership in 2004, Nepal had committed to open 11 service sectors (70 sub-sectors), including accounting, auditing, engineering, construction, computer, publishing, courier, telecommunication, franchising, education, hospital, tourism, and entertainment with a maximum foreign equity condition ranging from 51 percent to 80 percent. However, the plan to open the poultry sector invited flak from poultry entrepreneurs.
The private sector has welcomed the government’s move to liberalising the foreign investment policy. Pashupati Murarka, senior vice-president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), said the relatively liberal policy on inbound foreign investment is a welcome move and the government should work more on bringing in foreign investment. “Apart from sensitive businesses, the government should adopt more flexibility in attracting foreign investment,” said Murarka. The proposed policy has also opened the door for foreign institutional investors (FIIs) to invest in the capital market. If the policy is endorsed, FIIs can invest in companies listed on the Nepal Stock Exchange. “This is an indirect investment.
Although we are yet to finalise this provision, we are planning to allow FIIs to invest by setting some criteria,” said Gyawali. Given the vulnerability of such indirect investment, countries usually impose criteria for the same. Due to massive outflow of foreign institutional investment from Indian share markets recently, the Indian rupee had weakened against the US dollar, which also pushed down the Nepali rupee due to its peg with the Indian unit. The Industry Ministry is planning to hold discussions with the Nepal Rastra Bank (NRB) on allowing FIIs to invest in Nepal. Since Nepal’s capital account is not convertible, the ministry will seek suggestions from the central bank. Capital account convertibility enables easier inflow and outflow of capital.
“The provision will also be made compatible with the Foreign Exchange Act,” said Gyawali. The draft has categorised investors into three different categories—FIIs, individual foreign investors and non-resident Nepali (NRN) investors. FIIs will be allowed to make direct investment as well as portfolio investment through the secondary market. Individual foreign investors will only be allowed make direct investment, while NRNs will be allowed to make both direct and indirect investment. Some of the areas include motion picture, travel and trekking agency, water rafting, pony trekking, horse riding, tobacco and alcohol and internal courier service Ministry of Industry.
Source: The Kathmandu Post