NEFPORT ISSUE 45 – JULY 2021
FOREIGN AID AGRICULTURE FOREIGN AID
During the review period, a grisly picture of the foreign aid sector emerged. While foreign aid was seen increasing in the years before COVID-19, the coronavirus outbreak has completely flipped the situation. This time around, the foreign aid commitments to Nepal are declining. To tackle this, the government of Nepal along with its key ministries has formed study teams to evaluate and assess the situation and prepare reports to aid policy makers make rightful strategies for attracting foreign aid in Nepal. Nepal received Foreign Direct Investment (FDI) from 53 countries in 2020: A survey report on FDI in
Nepal published by Nepal Rastra Bank (NRB) on April 21, 2021, reveals that Nepal had received foreign investment from 53 countries as of mid-July 2020. Out of this, India stands in the top position of sending FDI to Nepal with NPR 56.05 billion (USD 0.465 billion), followed by China, Saint Kitts and Nevis, Ireland, and Singapore with NPR 27.56 billion (USD 0.22 billion), NPR 24.94 billion (USD 0.20 billion), NPR 11.59 billion (USD 0.096 billion) and NPR 8.73 billion (USD 0.072 billion), respectively.97 Likewise, in terms of sectors, 28.6% of the total FDI (i.e., NPR 52.24 billion/USD 0.43 billion) was received in manufacturing, mining, and quarrying sector, whereas financial intermediation received 27.4% (i.e., NPR 50.10 billion/USD 0.41 billion). Electricity, gas, and water received 36.66 billion, which forms 20% of the total FDI. On the other hand, the same report also states that the coronavirus outbreak caused a hit to the foreign aid sector in the second half of 2020, and a further severe decline is yet to be witnessed.
Decrease in net FDI inflows to Nepal: According to the Current and
Macroeconomic Update (based on nine months of data ending 2020/21) published by NRB, the net FDI) in the review period decreased by 25% to NPR 12.35 billion (USD 0.10 billion) in comparison to NPR 16.48 billion (USD 0.13 billion) of the corresponding period in the previous fiscal year.98 Review of the minimum threshold requirement for FDI recommended:
A study report on FDI 2021, published by the Ministry of Industry, Commerce and Supplies (MoICS), has stated that the current threshold for FDI, which stands at NPR 50 million, i.e., USD 0.41 million (from a revision of NPR 5 million, i.e., USD 0.041 million in May 2019) in all sectors, has to be revised as per different sectors. The government committee appointed to prepare the study is of the view that the minimum threshold is not practical and stands a restrictive policy. Given this, it recommends that the threshold has to be revised and lowered.99 Besides the MoICS the Department of Industry (DoI), the Federation of Nepalese Chambers of Commerce (FNCCI), and different private houses
are also on the same page regarding the revision of the FDI limitation. They opine that small businesses such as restaurants, coffee shops, and hotels require a lower threshold, whereas the threshold could be increased for larger businesses. They have demanded for sector-wise investment.100 Streamlining approval process of FDI needed: Currently, one of
the impediments in Nepal’s export potential is the low levels of FDI. Nepal’s FDI inflow stood at 0.4% in the fiscal year 2019, which indicates that Nepal is in the bottom decile of the distribution internationally. Considering this, it is crucial for Nepal to leverage its FDI to better integrate into global value chains. By doing this, exports can be promoted, and productivity can be upgraded. The Nepal Development Update published in April 2021 by the World Bank states that for increasing the FDI levels and attracting more inflows, Nepal needs to simplify and streamline its process. At a time when almost all economic activities of the nation have been shut down due to the COVID-19 outbreak, the restrictive policies are preventing FDI inflows. Thus, the reduction of the minimum threshold can contribute
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