FDI Commitments Rise to Nearly Rs 42 Billion, But Outflows and Investor Trends Raise Questions

Nepal has recorded a notable rise in foreign direct investment (FDI) commitments during the first nine months of the current fiscal year, with total pledged investments exceeding Rs 41.79 billion. According to the Department of Industry, these commitments span 615 industries between mid-July and mid-April, indicating continued foreign interest in Nepal’s investment landscape despite global and domestic uncertainties.

A closer look at the data shows that a significant portion of these commitments—Rs 37.69 billion—came through the approval route across 189 industries, while Rs 4.09 billion was pledged via the automatic route for 426 industries. This suggests that while the government’s push to simplify procedures through the automatic route is gaining traction in terms of volume, larger investments still prefer the traditional approval mechanism, possibly due to regulatory clarity and project scale. If fully implemented, these projects are expected to generate employment for over 22,000 individuals, offering a positive signal for job creation.

Further analysis reveals that Rs 10.94 billion of the total commitment came through share purchase agreements (SPA) and share subscription agreements (SSA) in 42 industries. This indicates a growing trend of foreign investors entering existing businesses rather than establishing entirely new ventures. Additionally, 38 industries received approval for technology transfer agreements, pointing to a gradual shift toward knowledge and skill-based investment, which could enhance productivity in the long run.

In terms of sectoral distribution, the data presents an interesting contrast between the number of projects and the volume of investment. Information technology leads in terms of project count, with 346 industries, reflecting Nepal’s growing appeal as a digital and outsourcing destination. However, the agriculture sector has attracted the highest investment value at Rs 22.08 billion, highlighting increasing foreign interest in agribusiness and resource-based industries. Tourism also remains a key sector, drawing Rs 11.46 billion across 164 projects, while manufacturing and services have received comparatively smaller shares.

Despite the encouraging inflow of commitments, the data also reveals underlying concerns about the quality and sustainability of foreign investment. One such concern is the declining number of business visa applicants. Only 1,569 foreign investors sought business visa recommendations during the review period, down significantly from 2,555 in the same period last year. This decline may reflect reduced physical presence or engagement of investors, or a shift toward more indirect or portfolio-based investment strategies.

At the same time, the outflow of returns in the form of dividends and royalties has increased sharply. Foreign investors received approval to repatriate Rs 16.81 billion in dividends during the nine-month period—around Rs 7 billion more than the previous year. Similarly, Rs 4.75 billion was approved for royalty payments. This growing outflow suggests that while investment commitments are rising, a significant portion of earnings is being transferred back abroad, raising questions about the net benefit to the domestic economy.

This trend becomes particularly important when viewed in the context of policy reforms. The government has taken steps to ease investment procedures, including expanding the scope of the automatic route. However, the simultaneous rise in profit repatriation indicates that attracting investment alone may not be sufficient; ensuring its long-term retention and reinvestment within the country is equally critical.

From an interpretative standpoint, Nepal’s FDI landscape appears to be at a transitional stage. On one hand, increasing commitments and sectoral diversification signal growing international confidence. On the other, declining investor engagement and rising financial outflows highlight structural challenges that need to be addressed. These include improving policy stability, strengthening investor confidence, and ensuring that foreign investments contribute more directly to domestic value creation.

Overall, while the headline figures present a positive narrative of rising foreign investment, the deeper data suggests a more nuanced reality. The true impact of FDI will depend not only on the volume of commitments but also on how effectively these investments are implemented, retained, and integrated into Nepal’s broader economic development framework.