FDI is needed now more than ever, but Nepal should not turn a blind eye to where the money is coming from, and where it is going

A Nepal Rastra Bank (NRB) survey on Foreign Direct Investment (FDI) in Nepal shows that almost half of the FDI entering Nepal until mid-July 2016 was from tax havens. The FDI from the West Indies, a cluster of island countries considered tax havens, stood at Rs 62.78 billion, according to the report. The investment from the West Indies accounts for 45.6 per cent of the total FDI inflow of Rs 137.6 billion until mid-July 2016. The NRB report says FDI inflows in recent years are on the upward trend. Almost half of the FDI inflow in Nepal from the Caribbean tax heavens, however, calls for some scrutiny; as such a huge investment from the West Indies – where there are neither multinational companies nor big investors – has raised many an eyebrow. Tax havens allow money to be stashed away and completely hidden. They also allow individuals and corporations from all over the world to exploit the possibility of money laundering and illicit dealings through shell companies.

FDI is considered an economically useful tool, for it activates real economy. It can be used to set up factories and companies or build infrastructure. Nepal currently is on the cusp of giving a tremendous boost to economy – the first ever stable government in more than two and a half decades has ambitious plans for the next five years and the finance minister has aimed economic growth of around 8 per cent. In this context, FDI can play a crucial role. That said, there is also a need to keep an eye on the source of FDI. When money starts flowing in from tax havens, it is imperative that the government and the central bank maintain more vigilance. It will, however, be wrong to say all investments coming from the West Indies and other known tax havens are illegal. But prudence must be exercised. A recent International Monetary Fund (IMF) article says more than one-third of global investment – a whopping $12 trillion or almost 40 per cent of all foreign direct investment positions globally – “is completely artificial”. And add this fact: tax havens do help launder money. So rising FDI inflows from tax havens should be a cause for concern.

Nepal was removed from the watch-list of the Financial Action Task Force (FATF), a global body that creates standards for fighting financial crime, only in 2014 after the country introduced five Acts related to anti-money laundering and combating the financing of terrorism. The Task Force is set to review Nepal’s status next year. Nepal’s economy may be small, but it is an emerging destination for FDI in South Asia. While the government and central bank must ensure that there are no illicit financial flows in the country, commercial banks also need to be on their toes. A study published last year had shown more than half of our commercial and development banks were not reviewing money laundering risks at every transaction – in an indication of indifferent approach towards curbing financial crimes. Failure to scrutinise FDI transactions could tarnish the image of the banking sector as well as the country. Nepal should not turn a blind eye to where the money is coming from, and where it is going. The country now needs FDI more than ever, but we have to be judicious not to make it fake direct investment.

Child labour

The prevalence of child labour is a serious issue worldwide. According to a Multiple Indicator Cluster Survey 2014 conducted by UNICEF, 37.4 per cent of total children between five and 17 years of age were employed as workers in the country. A labour force survey conducted by Central Bureau of Statistics in 2008 had recorded that 1.6 million children were employed as workers. Over 600,000 of them were exposed to hazardous working conditions.

However, the tendency of employing children as workers in the construction and service sectors has recently seen a drastic decline due to interventions by the government and various NGOs working in the field of child welfare. Minister for Labour, Employment and Social Security Gokarna Bista, addressing a function to mark the World Day Against Child Labour, said the government had a plan to eliminate all forms of child labour by 2025 by ensuring cent per cent enrollment in schools. There are still over half a million children working as labourers in the country. The United Nations has estimated that around 218 million children between five and 17 years are still employed as workers worldwide.