Kathmandu: Nepal has been receiving less than one-third of committed Foreign Direct Investment (FDI). Even after obtaining approval from the government, more than two-thirds of the pledged funds never actually enter the country.
A survey by Nepal Rastra Bank shows that only about 31.9 percent of committed FDI is realized as actual investment. The Economic Research Department of the central bank, in its report Survey on Foreign Direct Investment in Nepal, states: “On average, from fiscal year 1995/96 to 2023/24, net FDI inflows accounted for only 31.9 percent of total commitments.”
The central bank attributes this gap to the fact that “approved FDI only reflects investor commitments or intentions, not all of which are materialized,” and also points to time lags between approval and actual inflows. It adds that projects in long-term sectors often see delays, further widening the gap between commitments and realized FDI.
According to the FDI Survey Report 2023/24, in the past two fiscal years, actual FDI inflows were less than 20 percent of the approved amount.
FDI earnings themselves have contributed to overall growth in Nepal’s FDI stock, but recent years have seen a decline in net inflows.
As of fiscal year 2023/24, the total FDI stock in Nepal exceeded Rs 3 trillion, reaching Rs 3.33 trillion. Of this, 50.7 percent was paid-up capital, 36.7 percent reserves, and 12.6 percent loans.
In a single fiscal year, FDI stock rose by 12.7 percent, increasing from Rs 2.95 trillion to Rs 3.33 trillion. However, net FDI inflow in that year was only Rs 8.4 billion, compared to Rs 6.17 billion in 2022/23. In the three preceding fiscal years (2019/20 to 2021/22), Nepal consistently received net FDI of Rs 19.48 billion, Rs 19.51 billion, and Rs 18.56 billion respectively, but inflows have since declined.
The decline is not limited to Nepal; South Asia as a whole has also seen falling net FDI in recent years. While global FDI increased, South Asia did not experience growth in 2024. Worldwide FDI reached US$ 1.508 trillion in 2024, but South Asia received only US$ 34.6 billion—about the same as in 2023, and far less than US$ 55.6 billion in 2022.
Across Asia, FDI has also been shrinking. Out of the global US$ 1.508 trillion in 2024, Asia’s share was US$ 604.5 billion, compared to US$ 622 billion in 2023 and US$ 676.7 billion in 2022. Asia’s contribution to global FDI has fallen steadily from around 50 percent. In 2022, South Asia alone had received US$ 57.5 billion.
During the COVID-19 period in 2020, South Asia received US$ 71 billion in FDI, which dropped to US$ 52.7 billion in 2021.
Dividend repatriation from FDI in Nepal decreased in 2023/24. While Rs 17.33 billion was approved for repatriation in 2022/23, only Rs 12.57 billion was approved in 2023/24. In 2021/22, dividend repatriation had been Rs 15.67 billion, and in 2020/21 it was as high as Rs 26.07 billion.
In fiscal year 2023/24, most repatriation came from the manufacturing sector, which rose to Rs 8.97 billion. Banking and insurance accounted for Rs 2.99 billion. The IT sector saw a sharp fall: from Rs 3.67 billion in 2022/23 to just Rs 145 million in 2023/24. Other sectors repatriated Rs 135 million, and hydropower Rs 372 million.
The survey notes that foreign-invested manufacturing firms in Nepal are operating at just 47.5 percent of capacity, while returns on equity averaged 10.7 percent.
By the end of Ashar 2081 (mid-July 2024), Nepal had FDI from 60 countries, with nearly one-third originating from India. Indian FDI in Nepal stood at Rs 1.07 trillion (32.3 percent of the total). This was followed by China at Rs 338.2 billion (10.2 percent), Singapore at Rs 276.6 billion (8.3 percent), Ireland at Rs 231.4 billion (7 percent), South Korea at Rs 201.9 billion (6.1 percent), and Australia at Rs 197.1 billion (5.9 percent).
Countries like Saint Kitts and Nevis and the Isle of Man also feature among FDI sources, despite being little-known in Nepal. Saint Kitts and Nevis is a Caribbean tax haven, while the Isle of Man is a self-governing British Crown dependency whose companies are listed on the London Stock Exchange.
Of Nepal’s total FDI, 38.6 percent is in industrial production, 33.6 percent in hydropower and related sectors, 18.6 percent in banking and insurance, and the rest in other areas.
By province, Bagmati accounts for the largest share of FDI with 62 percent, followed by Koshi (13.5 percent), Gandaki (13.1 percent), and Madhesh (6.1 percent). Sudurpaschim has 4.2 percent, while Lumbini and Karnali each have less than 1 percent.
The FDI Survey Report was prepared by analyzing data from 504 enterprises (out of 867 approved FDI enterprises in 2080/81). Of these, 243 enterprises responded directly to the survey.
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