Nepal Investment Year and Investments in Small Businesses

Another type of foreign investment …………………..

Foreign Direct Investment (FDI) can bring great advantage to the host country. It fuels economic growth, help reduce poverty, create employment opportunities and assist building physical infrastructures. With the same intention, the Government has decided to observe 2012-2013 as Nepal Investment Year and has setup Nepal Investment Board to spur and facilitate foreign investments in the country.

To attract foreign investments, NIB is launching promotional events like road shows in countries like India, UK and USA. NIB is targeting foreign firms that have the resources to investment in mega projects in sectors like energy, tourism, infrastructure development and commercial agriculture. Dr.BRB led cabinet has also passed Investment Board Act ,which ensures to facilitate investment above RS 25 billion through single window policy. A population of 28 million, rising per capita income (mainly due to remittances), demographic dividend, underexplored natural resources, and Non Residential Nepalis’ global network provides enormous market size and opportunities for investments in Nepal.

Having said that, the government and other enthusiasts needs to recognize that simply declaring 2012 -2013 as Investment year will not attract foreign investment. Capital inflow in a particularly country depends on domestic and international Marco economic situation and investment climate. For a traditional foreign investor risk to invest in Nepal is very high. According to the World Bank established international sovereign rating standard, Nepal is rated CCC+. With a CCC+ rating Nepal is boxed under “High Default risk” category. Additionally, due to perpetual “in-house” hurdles like militant labor, extortion, arbitrary government policies, red tapes, corruption, and bandas, Nepal’s foreign private capital attracting capability is also very undeveloped and fragile. In 2010, Nepal attracted least amount of private commercial capital in the South Asia region. According to the World Investment Report 2011; Nepal was ranked 134 out of 141 countries in the Inward FDI Performance Index. Despite the potential market opportunity in Nepal, traditional large scale investors will continue to be reluctant to invest until issues like high investment risk and cost of capital are addressed.

While Government of Nepal through Nepal Investment Board should continue scouting for large scale investors, they should also spotlight and create appropriate environment to lure in a small but strong growing breed of financers called Impact Investors. These investors are willing to take investment risk in developing countries like Nepal and understand the market dynamics of low income countries to reduce the cost of capital, through innovative financial products.  Capital they deploy intends to create positive social and environment impact beyond financial returns. These investors believe in building entrepreneurial culture and   invest in small businesses that use market-based approaches to provide scalable solutions to a number of socio-economic problems.  Investment are generally made  in sectors that serve the people at the base of the economic pyramid (as people earning  less than $3000 per annum per capita  ). Impact investors target sectors like affordable education, healthcare, renewable energy, access to finance and, sustainable agriculture. While government or charity solutions will sometimes provide these products or services, impact investment can complement government and philanthropic capital to reach more people.