Nepal received foreign direct investment (FDI) of over Rs 227 billion from 55 countries as of mid-July. According to a survey report on foreign direct investment (FDI) issued by the Nepal Rastra Bank, the stock of FDI in Nepal increased by 14.8 percent to reach Rs.227.9 billion at the end of fiscal year 2020/21.
Paid-up capital is the major component in FDI stock as it accounts for 53.9 percent of total FDI stock whereas the reserves and loans in total FDI stock accounts for 31.6 percent and 14.5 percent respectively, the report shows. Similarly, in terms of total FDI stock, India ranks top position with Rs 75.8 billion followed by China (Rs 33.0 billion), Ireland (Rs 16.5 billion), Singapore (Rs 15.5 billion) and Saint Kitts and Nevis (Rs14.5 billion).
As said by the Economic Research Department, Central Bank, FDI is an important source of financing for many countries including Nepal as it facilitates the transfer of financial resources, technology, other intangible assets including technological know-how, managerial and organizational skills and access to foreign markets which help to increase production and productivity in the host economy.
The survey covers 197 firms out of 604 companies that have taken FDI approvals from Nepal Rastra Bank at the end of 2020/21. The details on FDI stock are obtained from the financial statements of the surveyed companies as well as from standard questionnaire. The FDI stock is valued using the company’s value appearing in the statement of financial position as shareholder’s equity and debt from foreign direct investors.
Industrial sector accounts for about 60.5 percent of total FDI stock. Of which, electricity, gas, steam and air conditioning sector constitutes 30.8 percent and manufacturing sector 29.5 percent of total FDI stock. About 39.4 percent of total FDI stock is in service sector. Of which, financial and insurance services sector constitutes 26.9 percent, accommodation and food services sector 5.7 percent, and information and communication sector 4.8 percent of the total FDI stock.
The electricity, gas, steam and air conditioning sector, particularly hydropower sector, in Nepal has been a preferred sector for FDI in recent years. The latest survey shows that 30.8 percent of FDI stock and 40.0 percent of total paid-up capital is in this sector.
Moreover, hydropower sector has also attracted other sources of external financing such as foreign loans in addition to FDI; the electricity, gas, steam and air conditioning sector accounts for 50.1 percent outstanding foreign loan at the end of 2020/21. The capacity utilization of FDI based manufacturing company’s stands at 64.9 percent, while the profitability of FDI companies remains at 14.7 percent in the review year.
