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Nepal

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Toward Foreign Direct Investment

There is recognition within the GoN that foreign investment is necessary to boost economic growth to meet the GoN’s target of becoming a middle-income country by 2030. While the GoN’s stated attitude toward FDI is positive, this has yet to translate into meaningful practice.

The most significant foreign investment laws are the revised Foreign Investment and Technology Transfer Act (FITTA) of 2019, the Public-Private Partnership and Investment Act (PPIA) of 2019, the Foreign Exchange Regulation Act of 1962, the Immigration Rules of 1994, the Customs Act of 2007 (a revised act is under Parliamentary review), the Industrial Enterprise Act of 2016 (and its 2020 revision), the Special Economic Zone (SEZ) Act of 2016 (and its 2019 amendment), the Company Act (2006), the Electricity Act of 1992, the Privatization Act of 1994, and the Income Tax Act (2002). Also important is the annual budget, which outlines customs, duties, export service charges, sales, airfreight and income taxes, and other excise taxes that affect foreign investment.

The FITTA attempted to create a friendlier environment for foreign investors. It streamlined the process for inbound foreign investment by requiring approval of FDI within seven days of application. Similarly, the FITTA streamlined the profit repatriation approval process, mandating decisions within 15 days. The revised FITTA set up a Single Window Service Center, through which foreign investors can avail themselves of the full range of services provided by the various government entities involved in investment approvals, including the Ministry of Industry, Commerce, and Supplies (MOICS), the Labor and Immigration Departments, and the Central Bank. The FITTA included a provision requiring the government to set a minimum threshold for foreign investment and publish it in the Nepal Gazette. On May 23, 2019, citing that provision, the government raised the minimum foreign investment threshold ten-fold to NPR 50 million (USD415,000) from the existing NPR 5 million (USD41,500). The new FITTA commits to providing “national treatment” to all foreign investors and that foreign companies will not be nationalized. Under the FITTA, investments up to NPR 6 billion (USD52 million) come under the purview, including approval authority, of the MOICS Department of Industry (DOI), and anything above that amount falls under the authority of the Investment Board of Nepal (IBN).

Other relevant laws include the Industrial Enterprise Act, the SEZ Act, an updated Labor Act (2017), and a pending Intellectual Property Rights Act. The Industrial Enterprise Act is intended to promote industrial growth in the private sector, includes a “no work, no pay” provision, and allows companies to take certain steps – such as buying land and establishing a line of credit – while environmental assessments and other regulatory requirements are being carried out. In practice, U.S. and other foreign companies comment that corruption, bureaucracy, inefficient implementation of existing procedures and requirements, and a weak regulatory environment make investing in Nepal unattractive, and Nepal’s new legislation has not improved the investment climate sufficiently to change that assessment.

Another significant piece of legislation that could affect investment decisions in Nepal is the Customs Act (2007), which established invoice-based customs valuations and replaced many investment tax incentives with a lower, uniform rate.  In 2017, the Department of Customs started to use the Automated System for Customs Data (ASYCUDA) world software platform. In addition, the Electricity Act includes special terms and conditions for investment in hydropower development and the Privatization Act of 1994 authorizes and defines the procedures for privatization of state-owned enterprises.

There is no public evidence of direct executive interference in the court system that could affect foreign investors.  However, in recent years there has been public and media criticism of the politicization of the judiciary, including appointments of judges to Appellate Courts and the Supreme Court allegedly based on their political affiliations.

The IBN, a high-level government body chaired by the Prime Minister, was formed in 2011 to promote economic development in Nepal.  In addition to approving large-scale investment projects, the IBN is also the GoN body charged with assessing and managing public-private partnership (PPP) projects. It has the task of attracting large foreign investors to Nepal and was a key organizer of the last two Investment Summits in 2017 and 2019. It is the primary point of contact for large investors (above USD50 million), especially those engaged in public infrastructure projects.

The Nepal Business Forum ( http://www.nepalbusinessforum.org/ ) was formed in 2010 with the “aim of improving the business environment in Nepal through better interaction between the business community and government officials.” The NBF does not meet according to a regularized schedule, and the Embassy is not aware of any formal mechanisms or platforms to enable on-going dialogue, aside from the IBN, DOI, and the NBF.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have the right to establish and own business enterprises in Nepal and engage in various forms of remunerative activity.  The FITTA 2019 slightly increased the number of sectors open to foreign investment.  Outside of the restricted sectors listed below, foreign investment up to 100 percent ownership is permitted in most sectors. The GoN announced the opening of FDI in the primary agricultural sector for exports in January 2021. However, the matter is sub judice at the Supreme Court (as of March 2021), and so remains unimplemented.

During 2018 and 2019, the Market Monitoring Unit of the MOICS’s Department of Supply Management raided business establishments, seized records, closed business outlets, and brought charges against private businesses in various sectors, including retail, healthcare, and education, alleging that companies were charging prices that were too high.  Such raids are sporadic rather than a matter of sustained policy but contribute to creating an uncertain business environment.

The sectors excluded from foreign investment are listed in the annex of the FITTA 2019 and include:

  1. Primary agricultural sectors including animal husbandry, fisheries, beekeeping, oil-processing (from seeds or legumes), milk-based product processing; (Note: The GoN is attempting to open this sector for FDI if 75 percent of the products are exported. However, the matter is under review at the Supreme Court.)
  2. Small and cottage enterprises;
  3. Personal business services (haircutting, tailoring, driving, etc.);
  4. Arms and ammunition, bullets, gunpowder and explosives, nuclear, chemical and biological weapons, industries related to atomic energy and radioactive materials;
  5. Real estate (excluding construction industries), retail business, domestic courier services, catering services, money exchange and remittance services;
  6. Tourism-related services – trekking, mountaineering and travel agents, tourist guides, rural tourism including arranging homestays;
  7. Mass media (print, radio, television, and online news), feature films in national languages;
  8. Management, accounting, engineering, legal consultancy services, language, music, and computer training; and
  9. Any consultancy services in which foreign investment is above 51 percent.

Investment proposals are screened by the DOI or the IBN to ensure compliance with the FITTA and other relevant laws.  Historically, the lack of clear, objective criteria and timeframes for decisions have resulted in complaints from prospective investors. While the GoN intended the FITTA to address these issues, the regulations enabling the implementation of the Act were only completed in January 2021, and thus how the law will work in practice remains to be seen.

The IBN website provides resources to prospective investors including the Nepal Investment Guide ( http://www.ibn.gov.np/ ). Similarly, the DOI maintains a website that should be helpful to investors ( http://www.investnepal.gov.np ).

U.S. investors are not disadvantaged or singled out relative to other foreign investors by any of the ownership or control mechanisms, sector restrictions, or investment screening mechanisms.  U.S. companies often note that they struggle to compete with firms from neighboring countries when it comes to cost, but this is not a factor resulting from any specific GoN policy.

Other Investment Policy Reviews

There have been no recent investment policy reviews of Nepal.  The last one by the United Nations Conference on Trade and Development (UNCTAD) was conducted in 2003. The World Trade Organization (WTO) conducted a trade policy review in 2019, available online at:   https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?Query=((%20@Title=%20nepal)%20or%20(@CountryConcerned=%20nepal))%20and%20(%20(%20@Symbol=%20wt/tpr/g/*%20))&Language=ENGLISH&Context=FomerScriptedSearch&languageUIChanged=true#  and https://www.wto.org/english/tratop_e/tpr_e/tp_rep_e.htm#bycountry .  The International Finance Corporation (IFC) conducted a Country Private Sector Diagnostics, available at:   https://www.ifc.org/wps/wcm/connect/publications_ext_content/ifc_external_publication_site/publications_listing_page/creating+markets+in+nepal+country+private+sector+diagnostic .

Business Facilitation

In recent years, GoN officials have proclaimed Nepal “open for business” and explicitly welcomed foreign investment.  While the GoN likes to appear enthusiastic in its efforts to attract foreign investors, the reality has not yet matched the rhetoric.  Three laws directly affecting foreign investment (FITTA, PPP, and SEZ) were hurriedly revised and passed by Parliament but left little time for stakeholder consultations or transparency in the process. Both foreign and domestic private sector representatives often state that the GoN has not done enough to improve the business environment. While welcome provisions were included in the FITTA—for example, a streamlined approval process and single window service center—an assessment of the true effects of the reforms await full implementation.

After obtaining a letter of approval from DOI or IBN, Nepal’s Office of Company Registrar (OCR) maintains a website ( http://ocr.gov.np/index.php on which foreign companies can register.  OCR’s website also links to an information portal ( http://www.theiguides.org/public-docs/guides/nepal ), maintained by UNCTAD and the International Chamber of Commerce, with resources and information for potential investors interested in Nepal.  According to the portal, registering a company takes “between three days and a week with the law authorizing up to 15 days.” Independent think tanks, however, have noted the online system does not eliminate corruption, and bureaucrats frequently request additional documentation that must be submitted in person, rather than online. Users ranked the Nepal portion of the OCR business registration website a four out of ten, according to the UNCTAD supported Global Enterprise Registration website  www.GER.co .

Outward Investment

The Act Restricting Investment Abroad (ARIA) of 1964 prohibits outbound investment from Nepal.  Some enterprising Nepalis have found ways around the Act, but for most Nepali investors, outward investment is a practical impossibility. The GoN is currently in the process of revising the Foreign Exchange Regulation Act, which is expected to annul the ARIA, paving the way to limited capital account convertibility.

4. Industrial Policies

Investment Incentives

The Nepal Laws Revision Act of 2000 eliminated most tax incentives, however, exports are still favored, as is investment in certain “priority” sectors, such as agriculture, tourism, and hydropower.  Incentives for these sectors usually take the form of reduced or subsidized interest rates on bank loans. There is no discrimination against foreign investors with respect to export/import policies or non-tariff barriers.  The GoN also offers tax incentives to encourage industries to locate outside the Kathmandu Valley. Newly formed provincial governments are likely to consider offering their own investment incentives in the future. Post is unaware of the GoN issuing guarantees for FDI projects, but it has been open to joint financing arrangements.

Foreign Trade Zones/Free Ports/Trade Facilitation

In August 2016, Nepal’s Parliament approved the Special Economic Zone (SEZ) Act, which provides numerous incentives for investors in SEZs, including exemptions on customs duties for raw materials, streamlined registration processes, guaranteed access to electricity, and prohibition of labor strikes.  A revision to the SEZ Act in 2019 provided more incentives, including reducing to 60 percent the requirement that industries within an SEZ export 75 percent of their production. The GoN maintains plans to have a network of up to 15 SEZs throughout the country and is currently developing the country’s first two special economic zones in Bhairahawa and Simara, which are partly operational. Both are located in southern Nepal near the border with India.

Performance and Data Localization Requirements

There are no mandates for local employment.  However, numerous foreign investors and foreign workers have complained that obtaining work visas is an extremely onerous process, requiring the approval of multiple GoN agencies and instances of demands for bribes when obtaining and renewing visas.  (For information on work visas, http://www.nepalimmigration.gov.np . A recommendation letter from the relevant ministry overseeing the investment has become a de facto requirement. The GoN limits the number of expatriate employees permitted to work at a company, expressing concern that foreign workers are “taking jobs” from Nepali citizens. Representatives of foreign companies have told Post that these attitudes and extremely inflexible immigration laws make it difficult to legally get a visa for short-term employees or consultants. There are no mandates for local employees in senior management and on boards of directors.

There are no government-imposed conditions on permission to invest, other than those already discussed above, such as the list of sectors from which foreign investment is restricted.  The GoN does not use “forced localization” policies designed to compel companies to relocate all or part of their global business operations within its borders.

Nepal also does not have any requirements for IT providers to turn over source code or provide access to encryption.  In late 2018, parliament passed the Privacy Act and implementing regulations are being drafted. While the new regulations may clarify restrictions and responsibilities of companies around personal data management, Nepal has not previously had any regulations that would impede companies from freely transmitting customer or other business-related data outside Nepal. Similarly, there are no laws related to storage of data for law enforcement or privacy purposes.

Post is unaware of any Nepali laws regarding performance requirement, defined by the United Nations Conference on Trade and Development as “stipulations, imposed on investors, requiring them to meet certain specified goals with respect to their operations in the host country.”

6. Financial Sector

Capital Markets and Portfolio Investment

The Nepal Stock Exchange (NEPSE) is the only stock exchange in Nepal. The majority of NEPSE’s 255 listed companies are hydropower companies and banks, with the NEPSE listings for banks driven primarily by a regulatory requirement rather than commercial considerations. There are few opportunities for foreign portfolio investment in Nepal.  Foreign investors are not allowed to invest in the Nepal Stock Exchange nor permitted to trade in the shares of publicly listed Nepali companies; only Nepali citizens and Non-Resident Nepalis (NRNs) are allowed to invest in NEPSE and trade stock. The FITTA, however, allows for the creation of a “venture capital fund” to enable foreign institutional investors to take equity stakes in Nepali companies.

The Securities Board of Nepal (SEBON) regulates NEPSE, but the Board does little to encourage and facilitate portfolio investment. While both NEPSE and SEBON have been enhancing their capabilities in recent years, Post’s view is that the NEPSE is far from becoming a mature stock exchange and likely does not have sufficient liquidity to allow for the entry and exit of sizeable positions. Some experts have raised concerns about the Ministry of Finance’s degree of influence over both SEBON and NEPSE and have cited lack of independence from government influence as an impediment to the development of Nepal’s capital market. (See: https://milkeninstitute.org/reports/framing-issues-modernizing-public-equity-market-nepal .)

Nepal moved to full convertibility (no foreign exchange restrictions for transactions in the current account)  when it accepted Article VIII obligations of IMF’s Articles of Agreement in May 1994. In line with this, the GoN and NRB refrain from imposing restrictions on payments and transfers for current international transactions.

Credit is generally allocated on market terms, although special credit arrangements exist for farmers and rural producers through the Agricultural Development Bank of Nepal.  Foreign-owned companies can obtain loans on the local market. The private sector has access to a variety of credit and investment instruments. These include public stock and direct loans from finance companies and joint venture commercial banks. Foreign investors can access equity financing locally, but in order to do so, the investor must be incorporated in Nepal under the Companies Act of 2006 and listed on the stock exchange. The banking sector has grappled with shortages of loanable funds in the last couple of years resulting in high interest rates on loans. One of the major reasons for this is slow and inefficient government spending leading to lack of liquidity in the system. With the return of relative political stability in 2018, it was hoped this problem would be reduced but it has continued.

Money and Banking System

The NRB has promoted mergers in the financial sector and published merger bylaws in 2011 to help consolidate and better regulate the banking sector.  As of January 2021, there were 27 commercial banks, 19 development banks, and 21 finance companies registered with the NRB. This total does not include micro-finance institutions, savings and credit cooperatives, non-government organizations (NGOs), and other institutions, which provide many of the functions of banks and financial institutions.  There are no legal provisions to defend against hostile takeovers, but there have been no reports of hostile takeovers in the banking system.

Nepal’s poor infrastructure and challenging terrain has meant that many parts of the country do not have access to financial services.  A 2015 study by the UN Capital Development Fund (UNCDF) reported that 61 percent of Nepalis had access to formal financial services (40 percent to formal banking). Following local elections in 2017, the GoN established 753 local government units and promised that each unit would be served by at least one bank.  As of January 2020, 8 local units were still without a bank. Most of the local units without banks are in remote locations with few suitable buildings and a lack of proper security and internet connectivity.

(UNCDF) reported that 61 percent of Nepalis had access to formal financial services (40 percent to formal banking). Following local elections in 2017, the GoN established 753 local government units and promised that each unit would be served by at least one bank.  As of January 2020, 8 local units were still without a bank. Most of the local units without banks are in remote locations with few suitable buildings and a lack of proper security and internet connectivity.

Nepal’s banking sector is relatively healthy, though fragmented, and NRB bank supervision, while improving, remains weak, allegedly due to political influence according to several private sector representatives.  The GoN hopes to strengthen the banking system by reducing the number of smaller banks and it has actively encouraged consolidation of commercial banks; there are currently 27 commercial banks, down from 78 in 2012. Most banks locate their branches in and around Kathmandu and in the large cities of southern Nepal.  Some banks are owned by prominent business houses, which could create conflicts of interest. There are also a large number of cooperative banks that are governed not by the NRB but by the Ministry of Agricultural, Land Management, and Cooperatives. These cooperatives compete with banks for customers.

In January 2017, Parliament approved the Bank and Financial Institutions (BAFI) Act.  First introduced in 2013, BAFI is designed to strengthen corporate governance by setting term limits for Chief Executive Officers and board members at banks and financial institutions.  The legislation also aims to reduce potential conflicts of interest by prohibiting business owners from serving on the board of any bank from which their business has taken loans.

In 2018, NRB was criticized for not taking action to relieve a liquidity crunch and the Nepal Banker’s Association came to a gentlemen’s agreement to limit deposit rates.  The NRB did not protest this action, leading to some criticism that it was not fulfilling its role as a regulator against what many perceived as cartel behavior.

The NRB regulates the national banking system and also functions as the government’s central bank. As a regulator, NRB controls foreign exchange; supervises, monitors, and governs operations of banking and non-banking financial institutions; determines interest rates for commercial loans and deposits; and determines exchange rates for foreign currencies.  As the government’s bank, NRB manages all government income and expenditure accounts, issues Nepali bills and treasury notes, makes loans to the government, and determines monetary policy.

Existing banking laws do not allow retail branch operations by foreign banks, which compels foreign banks to set up a local bank if choosing to operate in Nepal.  For example, Standard Chartered formed Standard Chartered Nepal. All commercial banks have correspondent banking arrangements with foreign commercial banks, which they use for transfers and payments.  Standard Chartered is the only correspondent bank with a physical presence in Nepal and handles foreign transactions for the NRB. Nepal will be undergoing a review by the Financial Action Task Force (FATF) in 2021 to assess its anti-money laundering regime. Although unlikely, Nepal risks losing its correspondent banking relationships or increased FATF monitoring if it fails this assessment.  Foreigners who are legal residents of Nepal with proper work permits and business visas are allowed to open bank accounts.

Foreign Exchange and Remittances

Foreign Exchange

The FITTA allows foreign investors to repatriate all profits and dividends, all money raised through the sale of shares, all payments of principal and interest on any foreign loans, and any amounts invested in transferring foreign technology. Doing so, however, requires multiple approvals and extended procedures which have historically resulted in such transactions taking months to complete. Foreign nationals working in local industries are also allowed to repatriate 75 percent of their income. Opening bank accounts and obtaining permission for remittance of foreign exchange are available based on the recommendation of the DOI, which usually has provided approval of the original investment.

In practice, repatriation is difficult, time consuming, and not guaranteed.  The relevant GoN department and the NRB, which regulates foreign exchange, must both approve the repatriation of funds. In most cases, approval must also be obtained from the DOI. In the case of the telecommunications sector, the Nepal Telecommunications Authority must also approve the repatriation. In joint venture cases, the NRB and the Ministry of Finance must grant approval. Repatriation of funds is expected to become easier after the single window service center, as provided for by the FITTA, comes fully into operation.

In the past, several foreign companies reported that the GoN insisted on contracts denominated in Nepal’s currency, the Nepali rupee (NPR), and not major world currencies, such as the U.S. dollar. This seems to be changing, at least in the energy sector, where the GoN has adopted a policy that permits the Nepal Electricity Authority to sign Power Purchase Agreements (PPAs) denominated in U.S. dollars (or other hard foreign currency).  There are some limits on so-called “forex” or hard currency PPAs, including, for example, the stipulations that only costs or borrowing in foreign currency are covered and that payments may only be made for 10 years or the term of the loan, whichever is less. Provisions for repatriation are governed by NRB procedures, as is conversion of foreign investors’ funds into other currencies. Nepal’s currency has been pegged to the Indian rupee (INR) since 1994 at a rate of 1.6 NPR to 1 INR. As such, the NPR fluctuates relative to world currencies in line with the INR. According to the April 2020 IMF Article IV Consultation—Press Release; Staff Report; and Statement by the Executive Director for Nepal ( https://www.imf.org/en/Countries/NPL ), the peg to the INR reduces exchange rate uncertainty for trade and investment with India, its major trading partner, but the appreciation of the Nepali rupee against the Indian rupee has also resulted in the overvaluation of the Nepali rupee and could affect Nepal’s competitiveness.

Remittance Policies

The FITTA legislation promises to make it easier to remit investment earnings, but it will depend on how effectively the single window, as well as associated approvals and procedures, functions in practice. In the interim, foreign investors will continue to use the old process of applying to the NRB to repatriate funds from the sale of shares. For repatriation of funds connected with dividends, principal and interest on foreign loans, technology transfer fees, or expatriate salaries, the foreign investor applies first to the DOI and then to the NRB. At the DOI stage of obtaining remittance approval, foreign investors must submit remittance requests to a commercial bank. Final remittance approval is granted by the NRB Department of Foreign Exchange, a process that is reported by foreign investors to be opaque and time-consuming. After administrative approvals, a lengthy clearance process between the NRB and the commercial bank further slows the foreign exchange transfer. The experience of U.S. and other foreign investors so far indicates serious discrepancies between the government’s stated policies in the FITTA and implementation in practice.

Sovereign Wealth Funds

Nepal has no sovereign wealth funds.

7. State-Owned Enterprises

There are 36 state-owned enterprises (SOEs) in Nepal, including Nepal Airlines Corporation, Nepal Oil Corporation, and the Nepal Electricity Authority. Since 1993, Nepal has initiated numerous market policy and regulatory reforms in an effort to open eligible government-controlled sectors to domestic and foreign private investment. These efforts have had mixed results. The majority of private investment has been made in manufacturing and tourism—sectors where there is little government involvement and existing state-owned enterprises are not competitive. Many state-owned sectors are not open for foreign investment. Information on the annual performance of Nepal’s SOEs’ can be found on this website. https://mof.gov.np/uploads/document/file/Annual%20Status%20Review%20of%20Public%20Enterprises%202019_20200213054242.pdf .

Corporate governance of SOEs remains a challenge and executive positions have reportedly been filled by people connected to politically appointed government ministers. Board seats are generally allocated to senior government officials and the SOEs are often required to consult with government officials before making any major business decisions. A 2011 executive order mandates a competitive and merit-based selection process but has encountered resistance within some ministries. Third-party market analysts consider most Nepali SOEs to be poorly managed and characterized by excessive government control and political interference. According to local economic analysts, SOEs are sometimes given preference for government tenders, although official policy states that SOEs and private companies are to compete under the same terms and conditions.

Private enterprises do not have the same access to finance as SOEs. Private enterprises mostly rely on commercial banks and financial institutions for business and project financing. SOEs, however, also have access to financing from state-owned banks, development banks, and other state-owned investment vehicles. Similar concessions or facilities are not granted to private enterprises. SOEs receive non-market-based advantages, given their proximity to government officials, although these advantages can be hard to quantify. Some SOEs, such as the Nepal Electricity Authority or the Nepal Oil Corporation have monopolies that prevent foreign competitors from entering those market sectors.

The World Bank in Nepal assesses corporate governance benchmarks (both law and practice) against the OECD Principles of Corporate Governance, focusing on companies listed on the stock market. Awareness of the importance of corporate governance is growing. The NRB has introduced higher corporate governance standards for banks and other financial institutions. Under the OECD Principles of Corporate Governance, the World Bank recommended in 2011 that the GoN strengthen capital market institutions and overhaul the OCR. Although some reforms were initiated, many were never finalized and no reforms have been instituted at the OCR.

Privatization Program

The Privatization Act of 1994 authorizes and defines the procedures for privatization of state-owned enterprises to broaden participation of the private sector in the operation of such enterprises. The Privatization Act of 1994 generally does not discriminate between national and foreign investors, however, in cases where proposals from two or more investors are identical, the government gives priority to Nepali investors.

Economic reforms, deregulation, privatization of businesses and industries under government control, and liberalized policies toward FDI were initiated in the early 1990s. During this time, sectors such as telecommunications, civil aviation, coal imports, print and electronic media, insurance, and hydropower generation were opened for private investment, both domestic and foreign. The first privatization of a state-owned corporation was conducted in October 1992 through a Cabinet decision (executive order). Since then, a total of 23 state-owned corporations have been privatized, liquidated, or dissolved, though the process has been static since 2008.

The last company to be (partially) privatized was Nepal Telecom in 2008 (although the GoN still is the majority shareholder). Since then, no SOEs have been privatized. In the past, privatization was initiated with a public bidding process that was transparent and non-discriminatory. Procedural delays, resistance from trade unions, and a lack of will within the GoN, however, have created obstacles to the privatization process. The Corporate Coordination and Privatization Division of the Ministry of Finance is responsible for management of the privatization program. Foreign investors can participate in privatization programs of state-owned enterprises.

9. Corruption

Some report that corruption is rampant in Nepal. In the words of a World Bank official, corruption in Nepal is “endemic, institutionalized, and driven from the top.” Corruption takes many forms but is pervasive in the awarding of licenses, government procurement, and revenue management. The primary law used to combat corruption in Nepal is the Prevention of Corruption Act 2002. This law prohibits corruption, bribery, money laundering, abuse of office, and payments to facilitate services, both in the public and private sector. According to a report by GAN Integrity, a company that works with businesses to mitigate corporate risk, “implementation and enforcement [of the Prevention of Corruption Act] is inadequate, leaving the levels of corruption in the country unchallenged.” The report goes on to note that Nepal’s judicial system is “subject to pervasive corruption and executive influence,” that “corruption is rife among low-level [police] officers,” and that “Nepali tax officials are prone to corruption, and some seek positions in the sector specifically for personal enrichment.” The full report is available at: https://www.ganintegrity.com/portal/country-profiles/nepal .

The CIAA is Nepal’s constitutional body for corruption control.  The 2015 constitution empowers the CIAA to conduct “investigations of any abuse of authority committed through corruption by any person holding public office.” In practice, CIAA arrests and investigations tend to focus on lower-level government bureaucrats. According to the 2020 Corruption Perception Index released by Transparency International (TI), Nepal ranked 117th among 180 countries, placing it in the range of “highly corrupt” countries.  In January 2018, local media reported that the CIAA is drafting a bill to replace the Prevention of Corruption Act, with the goal of making the new law compatible with the UN Convention against Corruption that Nepal signed in 2011. Nepal is not a member of the OEDC Anti-Bribery Convention.

While anti-corruption laws extend to family members of officials and to political parties, there are no laws or regulations that are specifically designed to counter conflict-of-interest in awarding contracts or government procurement. GoN officials are aware that there should be no conflict of interest when contracts are awarded, but how this is implemented is left to the discretion of the concerned government agency.

The GoN does not require companies to establish codes of conduct. Post is not aware of private companies that use internal controls, ethics, and compliance programs to detect and prevent bribery of government officials, however, this does not mean that there are no companies that use such programs. American consulting firm Frost and Sullivan ( www.frost.com ) maintains an office in Kathmandu and investigates local investment partners for a fee. NGOs involved in investigating corruption do not receive special protections.

Resources to Report Corruption

Contact at government agency or agencies are responsible for combating corruption:

Commission for the Investigation of Abuse of Authority
CIAA Headquarter, P.O. Box No. 9996
Tangal, Kathmandu, Nepal
Phone:  +9771-4440151, 4429688, 4432708

International nongovernmental organization:

Mr. Bharat Bahadur Thapa
President, Transparency International Nepal
P.O. Box 11486, Chakhkhu Bakhkhu Marga, New Baneshwor, Kathmandu
+977 1 4475112, 4475262
Email:  trans@tinepal.org 

Local nongovernmental organization:

Prof. Dr. Srikrishna Shrestha
President, Pro Public
P.O. Box: 14307, Gautambuddha Marg, Annamnagar
Phone:  +977-01-4268681, 4265023; Fax: +977-01-4268022
Email:   mailto:propublic@wlink.com.np 

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

 

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy* Source for Host Country Data:
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2018 USD29.2 2019 USD30.6 www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2018 USD40.8 2019 USD39.7 Nepal Rastra (central) Bank
Host country’s FDI in the United States ($M USD, stock positions) 2018 USD0 2019 USD0 Not permitted under Nepali law
Total inbound stock of FDI as % host GDP 2018 6.6% 2019 6.2% UNCTAD data available at

https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward            USD1,620 Amount 100% Total Outward Amount 100%
India                            USD496 Amount 31% N/A
China, P.R.: Mainland USD244 Amount 15% N/A
West Indies                         USD221 Amount 14% N/A
Ireland                    USD103 Amount 6% N/A
Singapore                     USD78 Amount 5% N/A
“0” reflects amounts rounded to +/- USD 500,000.

Nepalis are prohibited from investing abroad as per the Act Restricting Investment Abroad (ARIA), 1964. Post has heard this Law might be abrogated soon, but as of April 2021, no outward investment is permitted from Nepal.

Table 4: Sources of Portfolio Investment
Data not available.

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