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Foreign direct investment (FDI) commitments to Nepal more than doubled to Rs 61.78 billion in the last fiscal year, largely due to pledges in the service sector. This surge was linked to Nepal’s third Investment Summit in April, though the response from global investors was tepid. Of the 402 projects that secured pledges, China contributed nearly half, with Rs 23.91 billion for 275 projects, representing 44.33% of the total. India followed with Rs 3.05 billion for 22 projects (20.86%).
Despite China’s rapid economic growth and resources, experts caution that geopolitical challenges, especially the rivalry between China and India, may affect the realization of these investments. Nara Bahadur Thapa, former executive director of Nepal Rastra Bank, pointed out that border disputes have complicated Nepal’s potential in sectors like hydropower. For example, India’s refusal to buy electricity from Nepal if any Chinese components were involved has hindered progress.
Chinese contractors dominate infrastructure projects in Nepal, but their aggressive bidding strategies sometimes lead to delays and cost overruns. A case in point is the Gautam Buddha International Airport, which took eight years to complete instead of the expected four due to such bidding practices.
While China and India are the largest investors, other countries are also showing interest. South Korea committed Rs 12.96 billion for 16 projects, and the Cayman Islands pledged Rs 13.10 billion for a single hydropower project. The US and UK also contributed smaller amounts.
However, Nepal’s investment climate remains challenging due to political instability, slow bureaucracy, and regulatory hurdles. Thapa emphasized that unless structural reforms—such as removing pre-approval requirements for foreign investment—are implemented, Nepal will struggle to attract substantial FDI.
In the last fiscal year, most FDI went to small-scale industries, with significant investments in tourism, services, and manufacturing. The Department of Industry also processed over 2,000 business visas for investors.
For Nepal to fully capitalize on its investment potential, experts agree that addressing internal challenges and improving the regulatory environment are crucial for long-term growth and sustainable FDI inflows.