Nepal ranks 134th on FDI Inflow Index- 2011

Nepal's ranking in UNCTAD's foreign direct investment (FDI) Performance Index is unchanged in 2011. UNCTAD's World Investment Report (WIR) 2011 has placed Nepal at 134th position in the Inward FDI Performance Index. According to WIR, FDI inflow to the country in 2010 was same as that in 2009. The report says Nepal received $39 million in FDI in 2010.

Nepal's worsening image as FDI destination is further illustrated by the latest statistics of the Department of Industry (DoI). As per DoI statistics, FDI commitment has declined by 48.35 percent in 2010-11.

With FDI inflow to India and Pakistan declining by 31 percent and 14 percent, respectively, in 2010, it was understandable that Nepal would not witness an increase in foreign investment. If delays in the approval of large FDI projects along with other macroeconomic concerns were responsible in the slide in FDI inflow in India, protracted political transition played a key role in the slowdown in FDI commitments in Nepal.

Interestingly, more than half of global FDI inflows were into developing countries and transition economies. The report says FDI inflows to Bangladesh increased by nearly 30 percent to $913 million with the country becoming a major low-cost production location in South Asia.

Accroding to UNCTAD report, global FDI flows recovered from the post-meltdown $1.19 trillion to $1.24 trillion in 2010, with the United States being the largest recipient ($228 billion), followed by mainland China ($106 billion) and Hong Kong ($69 billion).

The new report tells the same story about Nepal which the 2010 report had told. The 2010 report had said FDI to almost all LDCs increased during the 1990-2008 period, with the exception of Nepal, Burundi, Eritrea, Samoa and Timor-Leste.

Nepal, after success of 1990s, has not been able to attract foreign investors in recent years.

Although Nepal got FDI commitments worth Rs 9.81 billion in 2007-08, the highest in the last two decades, Nepal's image as FDI destination is eroding fast.

FDI or foreign investment refers to the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance of payments. It usually involves participation in management, joint-venture, transfer of technology and expertise. There are two types of FDI: inward foreign direct investment and outward foreign direct investment, resulting in a net FDI inflow (positive or negative) and "stock of foreign direct investment", which is the cumulative number for a given period. Direct investment excludes investment through purchase of shares. FDI is one example of international factor movements.

The UN World Investment Reports have been published by the UN since 1991. They focus on worldwide FDI trends, at the regional and country levels. The reports contain recommendations as well as put special emphasis on the development implications that influence the FDI trends.

(2011 July)