I NVESTMENT O PPORTUNITY IN N EPAL Prof. Sri Ram Poudyal, Ph.D. Chairman, Institute of Policy Research Government of Nepal Board Director, Nepal Rastra Bank 1

I NTRODUCTION ABOUT N EPAL Demography and Geography Location: South Asia, between China and India Capital: Kathmandu Language: Nepali (Mother Tongue) ; English (International) Climate: Hot and humid climate in the south and alpine climate in the northern mountains Time Zone: GMT +5:45 Population: 26.5 million Government and Legal System Political status: Federal Democratic Republic Head of State: President Head of Government: Prime Minister Constitution: Interim Constitution of Nepal 2007 Legal System:Based on English common law and Hindu legal concepts / 3 Tier Courts 2

C URRENT E CONOMIC S TATUS (2013) S.NIndicators 1.GDP Growth rate3.6 2.Size of GDP15.40 billion 3.Percapita GDPUS $ Gross Domestic Saving GDP Ratio9.3% 5.Gross National Saving GDP Ratio38.4% 6.Inflation Rate10.6% 7.Domestic/credit GDP Ratio63.7% 8.Export/GDP Ratio4.0% 9.Import/ GDP Ratio29.0% 10.Trade Deficit/GDP Ratio-24.9% 3

S TATUS OF FDI IN WORLD S.NRegion and CountryFDI (Millions of dollars) InflowOutflow 1.World Share % Share % 2.Asia South Asia Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka China Belgium Netherlands Luxembourg Source: World Investment Report, 2013, UN 4

N EPAL RANKING IN WORLD In terms of the FDI potential index, Nepal ranks the lowest in the region, i.e., 175 out of 182 countries ranked globally. 5

FDI INFLOW IN N EPAL BY MAJOR COUNTRY (F ROM BEGINNING TO TILL 29 J AN 2014) SNCountry Name ProjectsTotal Project Cost Total amount of FDI No. Of Employment No.% (NRS in million)% %No.% 1CHINA INDIA USA SOUTH KOREA JAPAN UK GERMANY FRANCE NETHERLANDS AUSTRALIA SWITZERLAND BELGIUM Others (67 countries) TOTAL

T REND OF FDI IN N EPAL 7

S ECTORAL C OMPOSITION & SCALE OF FDI 8 S : < NRS 30 million M : NRS 30 >= 100 million L: 100 million and over

P ROJECT COST COVERED BY FDI BY SECTOR 9

FDI FROM B ELGIUM FISCAL YEARNo. of Industries Total Amount of FDI NRS in million Total no. of Employment 1997/ / / / / / / / / Total

T REND OF FDI FROM B ELGIUM 11

FDI FROM B ELGIUM BY S ECTOR & SCALE 12

FDI FROM N ETHERLANDS Fiscal YearNo. of Industries Total Amount of Foreign Investment NRS in million Total no. of Employment Upto 1988/ / / / / / / / / / / / / / / / / / Total

T REND OF FDI FROM N ETHERLANDS 14

FDI FROM N ETHERLANDS BY S ECTOR & SCALE 15

N EPAL ' S ADVANTAGE FOR FDI 1. Resources Availability Water resources Hydro power potential = 83,000 MW Economic potential = 50% Current Generation = 650 MW Domestic Requirement = 900 MW Biological Resources Herbs Labour Resources Millions of youth in foreign labour market every year 2. Market Availability Nepal population 26.5 million China's Population 1.63 billion (Tibaten region population 3.03 million) India's Population 1.24 billion 3. Efficiency Increasing Factors Cheap labour. Scope for increasing labour efficiency Quit efficient communication system Large number of management graduate, engineers, Chartered accountants 16

P OSSIBILITIES OF UTILIZING TRADE - INVESTMENT NEXUS 1. Nepal-India Trade Treaty last renewed in 2009 provides zero tariff access to almost all products manufactured in Nepal expect some in negative list- Alcohol, Tobacco, Perfumes 2. China provides zero tariff access to 7787 Nepali Products. Export possibility of food grains, sugar, vegetables, fruits 3. Duty free and quota free access in most OECD countries except US and Japan 4. Global Enabling Trade Report states Nepal as having the third best indicator on margin of preference in destination markets amongst 132 countries 17

T ABLE 2: A VAILABILITY AND QUALITY OF TRANSPORT INFRASTRUCTURE IN S OUTH A SIA Country/Indicators (N = 132) BangladeshIndiaNepalPakistanSri Lanka RRRRR Transport infrastructure (overall) Airport density, number per million population Trans-shipment connectivity index, Paved roads, % of total Quality of air transport infrastructure Quality of railroad infrastructure Quality of roads Quality of port infrastructure Note: R = RankingSource: Nepal based Research Organization, World Economic Forum (2012). 18

I NVESTMENT B OARD N EPAL Established in 2011 High level board chaired by Prime Minister Promote economic development by creating an investment-friendly environment by means of mobilizing and managing public-private partnership, cooperative and domestic and foreign private investments in infrastructure and other sectors. Function as a central agency for investment promotion and facilitation Provide one window service for registration, licensing, visa issues. 19

T HE PRIORITY AREAS / PROJECTS OF INVESTMENT BY I NVESTMENT B OARD OF N EPAL 1. Hydropower projects above 500MW. 2. Roads and transportation infrastructure – key focus projects will include a Kathmandu-Terai fast track road project, mid-hill highway, and north-south corridor connecting India and China. 3. Airports – Construction of a second international airport and overhaul of the existing Tribhuvan International Airport (TIA), upgrading of regional airports - key to commerce and tourism development. 4. Agribusiness and Medicinal herb processing facilities. 5. Solid Waste Management & Treatment, Chemical Fertilizer Industries, and Petroleum Refineries. 20

T HE PRIORITY AREAS / PROJECTS OF INVESTMENT BY I NVESTMENT B OARD OF N EPAL (C ONT.....) 6. Banks and Financial Institutions – establishment of an infrastructure financing institution, BFI with more than 51% foreign ownership, Insurance and re-Insurance companies. 7. Medical colleges, Hospitals and Nursing Homes with three hundred beds or more. 8. Special Economic Zones - They can be catalytic in attracting investors, bringing new technologies and jobs in the short to medium term, while providing a useful framework as a pilot and testing ground for broader economic reforms in the country. 9. Any “Infrastructure or Service Industry” (means any industry in construction, mining, tourism and aviation) that has a paid up capital or project cost exceeding Rs. 10 billion. 21

A CTS AND REGULATIONS ON ENTRY & OPERATION OF FDI Foreign Investment and Technology Transfer Act (FITTA) 1992 Industrial Enterprises Act (IEA) Department of Industries (DOI) is the sole agency for administration and implementation of Foreign Investment & Technology Transfer Act in Nepal. 22

FORMS OF FDI Share Investment in Existing Industries Establishment of New Industries Technology Transfer (Trade Mark) 23 Threshold for FDI: US$ 50 thousand

A REAS R ESTRICTED FOR FDI Foreign investors are permitted to own up to 100 percent equity share in industries except in the following areas. 1. Cottage Industries (Except industries using electricity more than 5 kW) 2. Personal Service businesses (Business such as hair cutting, beauty parlour, tailoring, driving training, etc.) 3. Arms and Ammunition Industries 4. Gunpowder and Explosives 5. Industries related to Radio-Active Materials 6. Real Estate Business (excluding construction industries) 7. Film Industries (National Languages and other recognized languages of Nation) 8. Security Printing 9. Bank notes and Coins 24

A REAS R ESTRICTED FOR FDI (C ONT.....) 10. Retail Business (excluding international chain retail business with its business in at least two countries) 11. Bidi (excluding more than 90% exportable) 12. Internal Courier Service 13. Atomic Energy 14. Poultry 15. Fisheries 16. Bee Keeping 17. Consultancy Services such as Management, Accounting, Engineering, Legal Services (Maximum 51% foreign investment is allowed) 18. Beauty Parlour 19. Processing of Food Grains on Rent 20. Local Catering Services 21. Rural Tourism 25

S TREAMLINED FDI A PPROVAL P ROCESS Department of Industry, October Application at DOI Issuance of FDI Approval Letter Approved by Director General of DOI Approved by Industrial Promotion Board Fixed Capital > NRs. 2 bln. Yes No Company Registration Industry Registration/Tax Registration Commissioning of Industry Start Application at IB Fixed Capital > NRs. 10 bln. Yes No

V ISA A RRANGEMENTS Non-tourist Visa for Carrying out the Feasibility Study Non-tourist visa for Expatriates ( Expatriate personnel working in the industries will be granted a non-tourist visa for duration of one year at a time on recommendation of DOI and Department of Labour.) Business Visa ( Foreign investors or his/her authorized representative and their dependents will be granted a business visa for up to a period of five years at a time on recommendation of DOI. Documents required at DOI) 5 years visa 1. Investment > 200,000 through banking channel 2. Income Tax Average NRs 200,000 years/per year 3. Employment > 50 persons 4. Export> NRs 2 billion 27

V ISA A RRANGEMENTS (C ONT...) Residential Visa: Foreign investor making an investment equivalent to more than 100,000 US$, at one time will be granted a residential visa on recommendation of DOI. 28

T HANK YOU. 29