In developing country like Nepal, FDI policy is highly misguided or influenced by certain lobbies or interest groups. FDI, though an effective tool of economic transformation for the developing countries, is falling to slope rather arising towards positive curve since past two decades.
In Nepal, different levels of study team have submitted their reports to enhance the investment in the country from various sectors. Likewise, GoN is also trying to create the favorable policies towards the investors and to make favorable economic regulations for the international donors, and corporate and individual investors.
# But unfortunately, the efforts made by GoN are not enough for the investors. FDI should have fewer barriers to trade and few restrictions on operation of foreign companies because they have to move from their home country to the host country to expand their product and services, but to which the GoN has failed so far.
# On the other hand, FDI policy should maximize externalities factor while investing in the country. But, the proposed policy does not seem to be attentive enough for this type of benefit that the country might receive in the future.
# The Draft policy needs to segregate the area of absolute FDI and technology transfer sector to reduce the main regulatory ambiguity. The Draft is yet confusing to the prospective investors and they still fear that the bureaucratic mind set may misuse the interpretation of the provisions to make pipelines for their own benefits.
# Invested FDI products and services have to be identified in the policy and they must be compatible with the international markets. Without preparation of identified market and service, the host country as well as the investors, may not get the expected outcome. Therefore, it is highly recommended to link the domestic with the international market. Costa Rica, the country from South America can be taken as an excellent example which made a successful FDI in the country by linking with international market for the specified products.
# Providing incentives to FDI needs to be based on externalities in the host country. To provide successful FDI in Nepal, portions of incentives and subsidies must be based on 'award the objective methods' rather than the subjective outlines. GoN must take a risk of exempting the income tax of the investors to get their confidence, but this exemption should be provided only after the successful operation of the company within a country for a reasonable time period.
# Proposed Special Economic Zones (SEZ) in Nepal should have appropriate strategy and policy to attract FDI that could alleviate poverty, micro economic reform to reduce corruption, and exercises of experimental economic rules and regulatory framework which can serve the purpose. It would be better to clarify the national and international investors on SEZ beforehand that the experimental regulatory framework can be updated for the betterment of the trade and economic activities to the proposed zones. Likewise, investment friendly regulatory environment and legal framework should be developed in advance, that clearly outlines selection criteria (based on transparent objective method), and incentives and privileges of SEZ to investors, developers, operators and new entrants of the market players for that specific zone.
# FDI needs effective competition policy to ensure fairness and transparency for trade and development. It should also guarantee the investors that the competency would be awarded and FDI would be secured itself from anti-competitive practices. At the same time, it should also provide security to the small market players in the country as well as business assurance to the local public. In the meantime, FDI horizontal spillovers could be used to enhance trade related activities for SMEs.
# Another important issue FDI policy need to address is Power Development Agreement (PDA) application proceedings. If Nepal Investment Board (IB) could not complete the task deliverance within the time frame mentioned in legally binding MoU, then the IB should provide compensation to the developers as per the agreement. After Power Development Agreement (PDA) and project operation, developers or investors should consider profit and risk sharing mechanisms to ensure investment climate within the country and to keep trust in between two parties. In absence of PDA, Power Trade Agreement (PTA) bilateral agreement can ensure the risk of investment through transmission manager for cross border transmission lines.
# On Human capital enhancement side, FDI should fulfill requirements of host countries. Externalities that the host country may get after FDI should be ensured by the policy rather than after legislation. Apart from tourism, Nepal may be benefitted from energy generation, advanced agricultural business or mining sector capacity enhancement, which could be highly productive in the long run.
# FDI should address social and environmental concerns to win the confidence of local public. In most of the cases, FDI leads to good practices to help social and environmental up grade. Therefore, FDI policy must have mandatory provisions on these factors to ensure undisturbed direct investment environment.
Finally, it's up to the host country like Nepal to provide and create investment friendly environment. It is very important to facilitate micro-economic policies to ensure sound environment for foreign investors in the country. FDI discreetness and unsolicited proposals for developing projects should be discouraged to provide constructive and competitive environment for the investors either to a public or a private or the both sectors in Nepal.
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