Foreign direct investment (FDI) pledges jumped 28 percent in the first half of the current fiscal year, with northern neighbour China leading the pack of potential financiers.

FDI commitments from mainland China swelled more than threefold to Rs3.48 billion during the period mid-July and mid-January, according to the latest data of the Department of Industry. During the same period last year, investment pledges from mainland China totalled Rs1.12 billion.

Meanwhile, FDI commitments from southern neighbour India plunged 76 percent during the six-month period. India’s FDI pledges amounted to Rs439.65 million in the first half of the current fiscal year, down from Rs1.87 billion during the same period last year. 

According to Hari Bhakta Sharma, president of the Confederation of Nepalese Industries (CNI), the main reason behind the increase in Chinese investments in Nepal was a relatively better investment climate. “China at this point in time is among the largest foreign investors across the world. And it’s the same trend in Nepal,” Sharma said. 

Likewise, vice-president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) Shekhar Golchha said that the surge in the Chinese economy was being reflected in Nepal too. 

“We normally see huge investment pledges. But they rarely translate into actual investment,” Golchha said, adding that the current trend might be a short-term phenomenon. However, he said that Chinese investments in the cement industry and hydropower plants looked promising.   

Meanwhile, Sharma attributed the decline in FDI commitments from India to a better investment climate there. Souring ties between the two neighbours after the economic blockade too have taken their toll. Sharma said that the environment for industrial development had witnessed an improvement after Indian Prime Minister Narendra Modi assumed office. 

“In such a context, Indian investors are more interested in investing within India,” Sharma said, adding that initiatives like Make in India and several facilities for investors had boosted investor confidence. Golchha too said that political tensions between Nepal and India might have discouraged Indian investors. 

Nepal received FDI commitments totalling Rs8.3 billion from 26 countries in the first six months of the current fiscal year. During the same period last year, the figure stood at Rs6.5 billion. 

According to figures released by the Department of Industry, the services and tourism sectors attracted the highest amount of FDI commitments, Rs3.74 billion and Rs3.28 billion respectively. 

According to Golchha, lack of core competence in the manufacturing sector has preventing it from luring investors. “While tourism has good scope in Nepal, the services sector too seems to be doing good,” Golchha said, adding that apart from a few cement plants, the industrial sector had not attracted significant investments. 

“Everyone knows it is really difficult to get into the manufacturing sector. And this has been reflected in FDI pledges,” Sharma said. 

In terms of number of projects, a total of 189 small, medium and large industries have been registered with the department. They can employ 5,515 persons. While 171 small industries have made FDI pledges worth Rs4.46 billion, five large industries have pledged investments totalling Rs3.26 billion.

- Follow Giri @sanjeev1974ad