One Nepali, One Investment, One Employment: A framework for foreign direct investment

An edited version of this blog was published in The Himalayan, 2nd of May 2024 (Co-authored with Mr Dila Kharel, Sydney)

Background

The government of Nepal is hosting the Nepal Investment Summit in Kathmandu from 28 to 29 April 2024. This is the third Summit of its kind and has the objective to promote Nepal as a ‘highly promising’ investment destination. Foreign Direct Investment (FDI), i.e. attracting investment in Nepal from foreign citizens and companies, is identified as a priority area of the Summit. 

On the eve of the Summit, in this article we explore an important yet untapped aspect of FDI that has the potential to be a game changer for Nepal’s economy*. 

The agenda of FDI is not a new topic for Nepal. The government’s past initiatives, broadly speaking, have delivered some degree of success in terms of number of investors and amount of investment. The government and relevant stakeholders’ focus until now seems mainly to be about promoting Nepal as an attractive destination for foreign investors.

In its efforts to attract FDI, the Nepal government continues to overlook one key stakeholder that is potentially a major investor group. This stakeholder is missing from the equation of Nepal’s foreign investors. The missing piece of the puzzle is the members of the global Nepali diaspora. In this context global Nepali diaspora are those individuals living across the world who are of Nepali origin and have adopted foreign nationality. 

Why does it matter?

How can those who have left Nepal permanently and have adopted foreign nationality be a major investor in Nepal? That is a frequently asked question, and a reasonable one to ask. The answer to that question is that members of Nepali diaspora have vested interests to act in the interest of Nepal and Nepali citizens. 

It is human nature that people are motivated when they have vested interests. This is even more so when it comes to making financial decisions. Personal reasons aside, the most important vested interest of the Nepali diaspora is the strong connection to their homeland. 

Let’s do some simple maths. According to the latest census figures, there are over 2.2 million Nepalis residing overseas. In addition, there is a growing number of second generation of global Nepali i.e. born overseas to Nepali parents. If one out of one hundred from those 2.2 million Nepalis residing overseas invested in Nepal, that would be 22,000 individual investors. If one person invested NRs 10 lakh (1 million), that would be NRs 22 Arab (22 billion) of investment. In US Dollars that is approximately $200 million. For the sake of comparison and scale, the hugely publicised Millennium Challenge Corporation (MCC) was a US $500 million deal between the MCC and Nepal.

How do we do this?

Through this article we proposed a framework of FDI in Nepal from its global diaspora - One Nepali, One Investment, One Employment. 

The idea is that one member of the global Nepali diaspora makes a commitment to invest in one enterprise, and generates one full time employment opportunity in Nepal. The individual investor is responsible and accountable towards their investment commitment. 

Is this achievable? In our view, yes. 100%. 

What is stopping us and what can we do about it?

To get to a stage of achieving a healthy scale of FDI from the current state of only a few, we have a long way to go. To reach the destination via our framework, both the demand side (Nepal) and the supply side (diaspora) have to row their boat in the same direction. Both sides must be willing to explore and work towards finding practical solutions about how to ease the existing barriers. In our previous article* we outlined key barriers and proposed a few solutions that could enable FDI in Nepal from the diaspora community. 

Further to the points made in our previous article*, the next right step for the government is to clearly acknowledge its diaspora community as a key strategic partner in its pool of potential foreign investors. Once such a clear intention has been established at the higher level, the diplomatic missions present at each country must be the driver of ground work required at each country level to achieve tangible results. 

There are a few key aspects of Nepali diaspora investors that are worthwhile to outline. It is a fact that compared to a big multinational company, a Nepali diaspora investor is going to be smaller in monetary value. In our view, we have to consider a bigger picture rather than judging on the basis of monetary value of a single diaspora investor. If approached well, the collective investment from the diaspora community can be substantial. We demonstrated a potential scenario in this article above. The question we should be asking is how many multinationals have invested in Nepal so far since it opened its FDI doors to them? How many more are likely to be added? How does that compare with the potential investment from the diaspora Nepali? 

Diaspora community, in their countries of residence, have held many discussions about investing in Nepal. A few investments such as those in hydropower materialised in the past. However, the investment growth is far from satisfactory. The challenge before the diaspora Nepali now is to walk the talk rather than keep repeating the same talk. Globally there is a substantial number of diaspora members who are successful entrepreneurs albeit involved mostly in small and medium enterprises. However, the diaspora community is hardly visible when it comes to business and economic activities in their adopted country as well as that in Nepal. If they are willing, what is stopping every member of the diaspora community to assume the role of an ambassador to direct investment in Nepal?

As the saying goes the devil is in the details, the seriously interested investors from the Nepali diaspora must start to delve down to the finer level of implementing their intention to invest in Nepal. The first and the foremost role a member of the diaspora can play is to start having conversations about investing in Nepal with other like-minded fellow members. They must seek ways how they can materialise their individual and collective intention to invest in Nepal. The diaspora community must actively lobby through their diplomatic missions to raise their voice and profile about their interest to invest in Nepal. Equally importantly, how to enable FDI from Nepali diaspora must be one of the key performance indicators of our diplomatic missions. 

An attractive proposition for a multinational company might not necessarily be so for a diaspora investor. Diaspora investor’s motivation and reasons to invest in Nepal is going to be completely different. Both sides (Nepal and diaspora) must identify what is it that makes it a mutually attractive deal. One size fits all approach is not going to work. We would need to identify the nuanced reasons that would enable an investment environment and encourage both sides to find a win-win situation. 

Conclusion

There is a huge untapped potential for investment in Nepal from its global diaspora. While there is still a long way to go until the current scenario changes, there are a number of steps that both sides must take. It is high time that the Nepal government acknowledges its diaspora community as a viable investor partner. Similarly, the diaspora community must step up to make itself count if it wants to be a key stakeholder in Nepal’s FDI sector. Conversations like these must start from and at both ends - Nepal as well as the country of residence of the diaspora community. 

The authors reiterate that the global Nepali diaspora is ready to play its part in partnering with the Nepal government to help the country realise its vision of prosperous Nepal. 

At present it is a scenario of Nepal desperately needing investments and the diaspora eagerly willing to invest. However, there is a huge gap between these two demand and supply sides. To reduce this gap, the Nepal government must offer a more favourable investment environment to its diaspora community that is fit for the purpose. Similarly, the diaspora community must start heading towards delivering concrete results.

Our framework of ‘One Nepali, One Investment, One Employment’ discussed in this article could be a powerful vehicle to minimise the existing gaps in materialising FDI in Nepal from its diaspora community.

FDI is on the agenda of the upcoming Nepal Investment Summit. There is a huge untapped potential to channel a substantial scale of FDI in Nepal from its members of the global diaspora. We are looking forward to seeing a lively discussion held during the Investment Summit about how the both sides approach this yet untapped potential. 

Let the conversation begin.

Facilitate FDI From Nepali Diaspora

Published in The Rising Nepal, 15th February 2024, (Co-authour with Mr Dila Kharel, Sydney)

According to the 2021 census, 2.2 million Nepalis reside overseas. In the fiscal year 2022/23 Nepal received remittance of Rs 1220.56. What would be the impact on the economy if even a fraction of the overseas population invested in productive sectors in Nepal instead of merely sending money home? In most cases, the remittance is primarily used to pay off personal debt. One of the unintended consequences of the massive amount of cash flow into the market from remittance is that it is helping family members spend money on unproductive consumer goods, further exacerbating the already skyrocketing inflation.

What would the capital and investment market look like if part of the remittance were capital investment instead of being simply a passive and unproductive money transfer? From the principle of velocity of money, an investment framework will have a positive contribution to the GDP and add value to the economy more positively than that from an economically passive remittance model. FDI is a vast and complex issue. 

Game changer

FDI from the global Nepali diaspora could be instrumental to attract capital in Nepal. The post COVID-19 global economic climate is already in a state of recession. Indicators are painting a potentially dire scenario for Nepal’s economic future. In such a volatile economic outlook, FDI has potential to not only make a positive contribution but also to be a game changer to shift Nepal’s economy significantly towards a more capital and investment ecosystem. In the past, there have been instances of FDI in Nepal from the Nepali diaspora community, albeit few and far between. What we are proposing here is a mass-scale FDI as a norm instead of a handful of exceptional cases.

On behalf of the global diaspora the authors of this article would like to request the Nepal government to convey, through a liberal FDI policy, a message to the wider global Nepali diaspora about its approach to welcome capital investment from them. We believe that such an approach will encourage positive action from all relevant stakeholders, most importantly from the potential expatriate investors.

An owner of an overseas based consulting company has been trying to invest through their sister company in Nepal. The owner, who is a member of the diaspora community, said that they have been going around in circles without being able to make any progress. "For years, we have bounced around from here and there, from this office to that desk. There are unnecessary and unreasonable barriers for consulting and engineering sectors to invest in the country. Out of sheer frustration, we have diverted our capital somewhere else," the owner said. Similar to the above described real-life case studies, acknowledging that there is a large list of barriers, a few key issues and solutions are outlined below. 

The existing minimum investment threshold of Rs 20 million is a barrier to attract FDI, as are restrictions in certain sectors for investment and lack of clarity about the FDI in the Nepal Citizenship (First Amendment) Bill, 2079. Likewise, there are multiple layers of bureaucratic hurdles, cumbersome process to repatriate earnings and issues related to tax. To address these issues, it is necessary to revise the minimum amount threshold of FDI investment to Rs 10 million. Also necessary is removing all existing restrictions, except for sectors sensitive to national security, exclusively for FDI to encourage capital, talent and technology transfer. 

What's more, there must be clarity on FDI mechanism and options in the context of the new Citizenship Bill to give confidence to the potential investors that there are no uncertainty or barriers at the structural and legislative level. Besides, it is imperative to streamline and accelerate official processes and paperwork, to remove the existing barriers to repatriate earnings, and to initiate negotiations for dual taxation avoidance agreement and bilateral investment agreements with countries such as the USA, Japan, Australia and New Zealand from where there is potential of FDI flow.

Official statistics paint a poor outlook of Nepal’s economy. Only a few weeks ahead of the festive season, the markets are relatively quieter. Large and small business houses have been saying for some time that business is bad. Business confidence is not encouraging. These are only the tip of the iceberg. It won’t be an exaggeration to say that Nepal’s economy seems to be heading towards a crisis. In the budget of 2022/23, it was revealed that there was a budget deficit of Rs. 400 billion in the previous fiscal year. It is obvious that the economy would do better with a bit of capital injection. The government’s past FDI policies haven't so far yielded a significant amount of investment, barring a few exceptional cases. 

Low confidence

The diaspora today is capable of and willing to help their home country in the capital investment sector. However, its confidence is at a dismally low level due to the existing investment ecosystem. If the government wants the community to make mass-scale investment in the country, cutting the existing red tape, streamlining the investment process, simplifying taxation, and ensuring a seamless repatriation of return on investment are good places to start.

To facilitate and advance the ideas discussed above, we think that a high-level committee of relevant stakeholders involving the government institutions, the Nepal-based business community and the diaspora business communities is the first essential step. This committee will conduct a due diligence and make recommendations for a road map to improve the FDI ecosystem to facilitate a better flow of capital as investment. Suggested members of this committee are representatives from all directly relevant ministries, line agencies, departments, Investment Board, Nepal Rastra Bank and representatives of the global diaspora investor community. The authors are willing to contribute and share ideas to such a committee. Provided a favourable environment and a supportive framework, capital flow is possible. The diaspora is ready and is willing to collaborate with the government and the private sector to make a positive contribution towards uplifting the economy.

(Maharjan and Kharel are active members of the diaspora Nepali community based in Auckland and Sydney respectively.)