More FDI Projects, Less Capital as Foreign Investors Favour Smaller Ventures

KATHMANDU — Nepal approved a record 1,116 foreign direct investment projects in fiscal year 2025/26, but the increase in project numbers failed to translate into a higher volume of investment.

According to the annual report of the Department of Industry, foreign investors committed Rs 58.01 billion to the approved projects during the year. The projects are expected to generate 28,423 jobs if they are implemented as proposed.

The figures present a mixed picture of Nepal’s foreign investment environment. While more investors registered projects, the average amount committed to each project declined substantially, showing that foreign investment was increasingly concentrated in smaller ventures.

In fiscal year 2024/25, the department had approved 840 projects carrying commitments of Rs 64.96 billion. The number of projects therefore increased by 276, or nearly 33 percent, in 2025/26.

However, total investment commitments declined by approximately Rs 6.95 billion, representing a year-on-year fall of 10.7 percent.

The average commitment per project dropped from about Rs 77.3 million in the previous year to Rs 52 million in 2025/26. This means the average size of an approved foreign investment project declined by nearly one-third within a year.

The decline is significant because an increase in project registrations alone does not necessarily produce a corresponding expansion in industrial capacity, employment or technology transfer. The economic impact ultimately depends on the size of the projects, the proportion of commitments converted into actual investment and the sectors in which the money is deployed.

Small industries dominate approvals

Of the 1,116 projects approved during the year, 1,092 were classified as small industries. Only 12 were medium-sized and another 12 were large industries.

Small projects therefore accounted for nearly 98 percent of all approvals.

This concentration explains why the number of projects increased despite a decline in the total value of investment commitments. Nepal attracted a large volume of relatively low-capital businesses, while the flow of major industrial investment remained limited.

Large projects generally take longer to negotiate and require stronger assurances regarding policy stability, infrastructure, market access, taxation and the repatriation of earnings. The small number of medium and large projects suggests that foreign investors continued to exercise caution before making long-term and capital-intensive commitments.

The approved projects are expected to create 28,423 jobs, equivalent to an average of about 25 jobs per project. Based on the committed amount, approximately Rs 2 million of proposed investment corresponds to each projected job.

However, these employment figures represent estimates submitted at the approval stage. Actual job creation will depend on whether the projects begin operations, receive the promised capital and continue operating over time.

ICT leads in numbers, but not in investment

The information and communication technology sector attracted the highest number of foreign investment projects during the year.

A total of 727 ICT projects received approval, accounting for slightly more than 65 percent of all approved projects. Tourism followed with 227 projects, while the service sector received 71 approvals and manufacturing received 63.

Agriculture and forestry accounted for 18 projects, while energy and mining received four projects each. Only two infrastructure projects were approved.

The sectoral distribution highlights the growing appeal of Nepal’s technology and digital service industries. ICT businesses generally require less initial capital than energy plants, factories, hotels or physical infrastructure projects. They can also begin operations with smaller teams and limited fixed assets.

However, ICT’s dominance in project numbers was not reflected in the amount of capital committed.

The 727 ICT projects attracted commitments of only Rs 2.83 billion, equivalent to about 4.9 percent of the annual FDI total. On average, each ICT project carried a commitment of less than Rs 4 million.

This suggests that much of the investment in the sector consisted of small software, outsourcing, digital service or technology-based businesses rather than large data centres, telecommunications infrastructure or major technology manufacturing projects.

Agriculture attracts 40 percent of committed capital

Agriculture and forestry emerged as the leading sector in terms of investment value, despite receiving only 18 project approvals.

The sector attracted Rs 23.18 billion, representing almost 40 percent of all foreign investment commitments recorded during the year.

The figures indicate that a small number of agriculture-related projects were responsible for a major share of the annual investment pipeline. Their average size was considerably larger than that of projects in ICT, tourism and services.

Tourism ranked second, attracting commitments of nearly Rs 14 billion, or about 24 percent of the total. Energy received Rs 7.17 billion, representing more than 12 percent.

The service sector attracted Rs 4.91 billion, manufacturing Rs 3.91 billion and infrastructure Rs 1.80 billion. The mining sector received the lowest commitment, at Rs 185 million.

Agriculture, tourism and energy together accounted for more than three-fourths of the total committed investment. This concentration means that Nepal’s overall FDI performance remained highly dependent on a limited number of large proposals in a few sectors.

The figures also expose a structural imbalance. Although Nepal approved hundreds of projects in technology and services, most capital remained concentrated in asset-heavy ventures requiring land, machinery, construction and physical infrastructure.

Investment weakened after a strong beginning

Monthly data show that foreign investment commitments were highly uneven throughout the fiscal year.

In Shrawan, the first month of the fiscal year, Nepal approved 127 projects carrying commitments of Rs 24.10 billion. This was the highest monthly commitment recorded during the year and accounted for more than 41 percent of the annual total.

In Bhadra, commitments reached Rs 8.99 billion across 109 projects.

Together, the first two months generated about 57 percent of the entire year’s foreign investment commitments. The heavy concentration at the beginning of the year indicates that the annual total was supported by a small number of early approvals rather than a steady flow of investment.

Investment then declined sharply.

Commitments fell to Rs 2.05 billion in Asoj, Rs 1.54 billion in Kartik and Rs 1.91 billion in Mangsir. In Poush, they dropped further to Rs 599.5 million, the lowest level recorded during the fiscal year.

The amount recovered slightly to Rs 1.04 billion in Magh but declined again to Rs 386 million in Falgun. Commitments stood at Rs 1.13 billion in Chaitra.

The prolonged weakness during the middle of the fiscal year suggests that investors delayed decisions or limited their exposure while assessing Nepal’s political, regulatory and economic direction.

Department officials linked the slowdown to domestic political developments, election-related activities, policy uncertainty and international tensions, including conflict in the Middle East.

Such factors can affect large projects more severely than small ventures. Major investors usually require long-term policy visibility and may postpone investment when they expect changes in government priorities, taxation, foreign exchange rules or sectoral regulations.

End-of-year rebound offers cautious optimism

Foreign investment activity began to recover toward the end of the fiscal year.

In Baisakh, 113 projects attracted commitments of Rs 3.52 billion. In Jestha, the number of projects increased to 186, although commitments remained comparatively modest at Rs 2.30 billion.

The strongest late-year recovery came in Asar, when 202 projects received commitments totalling Rs 10.38 billion.

Asar alone accounted for nearly 18 percent of the annual commitment. The final month also recorded the highest number of project approvals during the year.

Department officials have interpreted the rebound as a positive indication for fiscal year 2026/27. However, the data require a cautious reading.

The increase in Asar may represent renewed investor confidence, but it could also partly reflect the year-end processing of pending applications. A sustained improvement would require strong commitments across several consecutive months and a higher proportion of medium and large projects.

The first two months and the final month together accounted for nearly 75 percent of the year’s total commitments. This indicates that foreign investment remained volatile rather than evenly distributed throughout the year.

Automatic route increases access, but large investments use approval process

The government has expanded the automatic route to simplify foreign investment procedures.

Under this system, investors in designated sectors do not need to obtain conventional prior approval from the Department of Industry or the Investment Board. They can register a company, submit the required information and proceed with the investment process.

The government has included selected industries in energy, agriculture and forestry, infrastructure, tourism, information technology, services and manufacturing under the automatic route.

It also removed the previous upper ceiling of Rs 500 million for investment made through the system. The minimum investment requirement of Rs 20 million remains in place for most industries, while information technology businesses are exempt from the minimum threshold.

During the fiscal year, commitments worth Rs 9.58 billion were recorded through the automatic route. In comparison, projects processed through the approval route attracted Rs 48.42 billion.

This means approximately 83.5 percent of the total investment value came through the traditional approval mechanism, while about 16.5 percent entered through the automatic route.

The difference shows that the automatic system may be encouraging more accessible and smaller investments, but large investors still depend on the formal approval process.

Major projects often require additional licences, land arrangements, environmental assessments, sector-specific permissions and negotiations over infrastructure. An online or automatic approval system cannot, by itself, resolve all the practical obstacles faced by such investors.

Project approvals are not actual investment inflows

The annual figures represent investment commitments approved by the government, not necessarily money that has already entered Nepal.

This distinction is important when assessing the contribution of FDI to the economy.

Some approved projects may take several years to begin operations. Others may bring in only part of the committed amount, change their investment plans or fail to proceed altogether.

A rise in approved commitments is therefore an indication of investor interest, but actual FDI inflows recorded through the banking system provide a more accurate measure of capital entering the economy.

For policymakers, the central challenge is not only to increase the number of approvals but also to improve the conversion of approved commitments into operating businesses.

Faster post-approval services, predictable taxation, reliable electricity, easier land access, efficient customs procedures and clear rules for repatriating earnings can all affect whether investors implement their proposals.

Dividend and royalty repatriation rises

The Department of Industry also approved the repatriation of Rs 17.85 billion in dividends during the fiscal year.

In addition, more than Rs 5.89 billion was approved for transfer abroad as royalties and service fees in different foreign currencies.

Together, approved dividend, royalty and service-fee payments reached approximately Rs 23.74 billion.

These outflows should not be compared directly with the year’s Rs 58.01 billion in investment commitments. The investment figure represents proposed capital for new or expanded projects, while repatriated earnings may have been generated by companies established through foreign investments made over many previous years.

The ability to repatriate legitimate earnings is also an important part of an attractive investment environment. Foreign investors are less likely to commit capital when they are uncertain whether profits can later be transferred abroad.

At the same time, rising dividend and royalty payments create pressure on Nepal’s foreign exchange resources. They strengthen the case for attracting investment that produces exports, substitutes imports, transfers technology and creates strong domestic supply chains.

FDI brings greater long-term value when the foreign currency generated by exports and productivity gains exceeds the pressure created by profit and royalty payments.

More projects do not automatically mean stronger FDI

The fiscal year’s figures show that Nepal succeeded in widening participation in its foreign investment approval system. The increase in ICT and small-business registrations also suggests that simplified procedures have made the country more accessible to smaller international investors.

However, the decline in total commitments and average project size points to continuing weakness in attracting large-scale capital.

The investment pipeline has become broader in terms of project numbers but shallower in terms of capital per project.

For Nepal, the next test will be whether the increase in smaller projects can produce meaningful employment, technology transfer and export income, while the government works to attract larger and more productive investments.

The year-end recovery offers room for optimism, but a lasting improvement will require more than a rise in application numbers. It will depend on stable policies, credible institutions, predictable regulation and the successful implementation of projects that have already received approval.