The country witnessed slow economic growth for nearly two decades due to the armed conflict followed by another decade of political transition that ruined the investment climate. Against this backdrop, Nepal has been trying to emerge from the political and economic paralysis after the promulgation of the new constitution. To move towards a higher growth trajectory, the government has prioritised to improve the investment climate as the country sorely lacks investment to spur economic growth. To create an environment to attract domestic and foreign investment, the government has initiated reforms on the legal and administrative fronts and the quality of infrastructure.

Alaina B Teplitz, Ambassador of the United States of America to Nepal, spoke to Pushpa Raj Acharya of The Himalayan Times on what the government could further do to improve the investment climate in Nepal so as to lure investors from the world’s largest economy and also from across the globe.

The country has been focusing on legal and administrative reforms to attract investment to achieve its objective of higher economic growth. How do you view the government’s reform initiative?

We support the current government’s efforts to bring about positive changes in the economic legislation and hope that the legislation can reflect an enabling business environment. Recently, I had a meeting with both the commerce and industry ministers where we discussed on how Nepal could create an enabling business environment. We welcome the endorsement by the Parliament of some bills like the Industrial Enterprise Act and Special Economic Zone Act. Another crucial act, the Foreign Investment and Technology Transfer Act, is being reviewed. The laws have talked about establishing a one-stop window to provide all the facilities for foreign investors to come, get registered, get approved and move forward with making their investments that is really critical. I have gone through the draft of the Foreign Investment and Technology Transfer bill, which has placed a cap on dividend repatriation. I think that could be perceived as a risk by potential investors. If investors perceive it as a risk it will be a losing situation for Nepal. To attract foreign investment, the government should assure the security of investment and create a hassle-free environment to do business. If we analyse the flow of foreign direct investment (FDI) of the last three years, annual FDI inflow in Nepal is around $50 million, which is $750 million in Sri Lanka. Nepal should look into some issues like the regulatory and legal environment, transparency issues and procedural (implementation elements) hurdles.

In your opinion what should policy makers do to frame viable policies and laws to lure investors in the country?

While formulating such laws, policy makers should keep in mind that Nepal is not in isolation, it is in competition. The country should create an easy environment for investors to do business in the country. Investors should feel assured about getting returns for the investments that they make. That is why we have urged the government that there should not be a limit on repatriation of profit. The cap will be an obstacle for investments to come into Nepal. Moreover, the other problem is that there is a lot of procedural hassles and delay to get approval for dividend repatriation from the government, which takes about six to nine months. I feel the policy makers should retrospect on why a country like Somalia can attract three times more FDI per capita than Nepal. This is because businesses are always looking to reduce risks. They want certainty and the processes also need to be well defined and reliable. Attracting investment is all about ‘ease of doing business’. Nepal’s score in the ‘ease of doing business’ index released by the World Bank annually has marginally improved in recent years but it is still very low, which means that the cost of doing business in Nepal is still high. What we need to keep in mind is that investors are always wary about why they should make extra investments for simple things in Nepal. A poor ‘doing business’ environment means more risks for investors. Look at how Myanmar, Laos, Cambodia and many other economies of Africa have progressed in recent times. The ‘doing business’ environment is relatively better there and investors always want to be assured that their investment is secure. Along with this, another critical area that needs to be addressed is the issue of protecting property rights — both real and intellectual. Nepal has an opportunity with regard to intellectual property like developing software, animations and others. However, the country first needs to take steps to protect such rights. I think there are issues like trademark, patent and other elements that need to be addressed by the government. This is necessary because investors seek security of their property, be it real or intellectual. Another fundamental aspect is that the country requires a transparent tax regime.

There are considerable risks for a country like Nepal that is largely dependent on the inflow of remittance. How can Nepal cope with this challenge and produce more jobs within the country?

Nepal has to focus on building the capacity within the country to create jobs/opportunities for people. The Nepali economy is virtually divided between agriculture and tourism with small investments and little development in a couple of other sectors. Nepal has the opportunity to build on current economic activities in agriculture commodities that have high value like cardamom, tea, coffee, ginger and walnuts, among others. Value can be added to these products and they could certainly be exported. For this to happen certain infrastructure requirements need to be fulfilled and there needs to be sustained focus on developing them. Beyond that, I feel there is a considerable pool of talented people here in Nepal who can provide the required services to software companies. This is an option if the country does not have physical products to export. Also, there is always less advantage in exporting goods because the supply chain is long and the country has no immediate access to sea ports. I also think there is an opportunity in vertical specialisation of manufacturing, which is an engine of growth in many countries. Nepal can focus on vertical specialisation of manufacturing goods and for this manufacturing units need to be integrated with the big industries of other countries. For example, if there is a company in India that produces refrigerators then some components of the refrigerators could be manufactured in Nepal. The country needs a wide spectrum of job opportunities for various levels of people who enter the job market. And another important area is tourism to create more jobs. Nepal needs to seriously focus on infrastructure and conservation of nature to attract high-yield tourists to reap employment benefits of tourism.

In recent years, Nepal has been gradually losing its trade surplus with the United States. How can the world’s largest economy support Nepal?

Our Congress last year endorsed a separate law called ‘Trade Facilitation and Trade Enforcement Act’ that allows duty free access to 66 Nepali products into the United States and also endorsed preferential market access to some additional goods under Generalised System of Preferences (GSP) facility. Export of the 66 goods covered by the exclusive law for Nepali products to the United States was worth $8 million in 2015 and we hope it will create the incentive for people to come to Nepal and establish production facility to take advantage of the duty free access. We are trying to offer favourable treatment to Nepali products in which Nepal has comparative advantages. In June this year, Nepal and the US held Trade and Investment Framework Agreement (TIFA) meeting that discussed on bilateral trade and investment issues. TIFA is the regular bench to discuss on bilateral trade and investment issues and both parties agreed to hold the meeting regularly at least once a year. Further, the United States has been supporting Nepal on technical and human capacity for trade sector development. We have entered into discussions with the Nepal government about assistance over standardisation and testing of agriculture products so that these products can be exported. Likewise, through Millennium Challenge Corporation, we have been working in the energy sector which is one of the major constraints to businesses especially, the manufacturing sector. We are focusing on the transmission corridors to evacuate power from the plant to the market.

How long will it take for ‘Trade Facilitation and Trade Enforcement Act’ to come into effect?

We hope the legislation will come into effect from beginning of 2017 as some works need to be done at World Trade Organisation. Once that is completed then it will come into force. The facility granted for luggage under the GSP has already come into force.