The stock of foreign direct investment (FDI) to Nepal stood at Rs151.7 billion as of the last fiscal year. One-third of the total amount was equity capital while the rest was debt financing, Nepal Rastra Bank (NRB) said. FDI stock shows the value of foreign investors’ equity in and loans to domestic enterprises.

Speaking at an interaction entitled Industrial and Trade Policy Reform organised by the Society of Economic Journalists Nepal, NRB Executive Director Nara Bahadur Thapa said that the paid-up capital of FDI companies amounted to Rs55.5 billion, reserves totalled Rs90.95 billion and loans amounted to Rs5.12 billion.

“The large amount of reserves are either reinvested or go to the parent companies,” he said. The central bank compiled the figures during an FDI survey conducted recently. As per the central bank, there were 252 firms with FDI financing operating in the country as of 2016-17. Out of the total, 37 are engaged in the manufacturing sector.

Meanwhile, 11 FDI firms have been exporting their products from Nepal. “While eight firms are engaged in manufacturing fast moving consumer goods, only three are engaged in exporting industrial goods,” Thapa said.

According to the United Nations Conference on Trade and Development (Unctad), Nepal stood in the 171st position among FDI recipient countries. As per the NRB report, Nepal receives a large number of FDI commitments, but only a fraction of them are translated into actual funding.

Thapa said the poorly performing manufacturing sector had led to a dramatic fall in the sector’s contribution to exports, which is one of the main factors leading to the alarming trade deficit. “Compared to the statistics of the past few years, the share of manufacturing products to the total export earnings has dropped to a mere 5 percent from 9 percent.”

As per NRB statistics, Nepal faced a negative trade balance of Rs917.06 billion in 2016-17, with export earnings at Rs73.04 billion against the country’s import spending of Rs990.11 billion.

The country’s ballooning imports are being financed by the remittance that the country has been receiving, however, a fall in remittance inflow recently has raised concerns over import financing in the future. The inflow of remittance dropped 1.4 percent to Rs228.95 billion in the first four months of the current fiscal year, as per NRB statistics.

The existence of a large number of non-tariff barriers, transit problems, high shipping costs and decline in factor productivity are among the major factors blamed for the widening trade deficit. “Over the past four decades, labour productivity dropped to 0.99 from 1.12 per factor,” Thapa said.

Presenting a paper, Posh Raj Pandey, executive chairman of South Asia Watch on Trade, Economics and Environment, said there was a need for integrating FDI inflows with the country’s exports.

“Nepal has been witnessing an increasing volume of FDI in the hydropower and communication sectors. However, the country has failed to attract FDI in exportable goods that aid in the global value chain,” Pandey said. 

Participants at the programme stressed the need to promote service trade and switch to high value products from primary goods to finance the country’s swelling imports. NRB reported that earnings from trade in services amounted to Rs158 billion, almost double the product export volume, in the last fiscal year.