The failure of the existing policy to attract foreign direct investment (FDI) has forced the government and the private sector to consider introducing reforms. At present, FDI accounts for only one per cent of the Gross Domestic Product, which is atrociously low for a country which wants to tap FDI as an important means of accelerating its economic growth. Though the free market economy was progressively adopted after the restoration of democracy in 1990, the incentives do not seem to have been lucrative enough for foreign investors. Successive governments tried to bring in more FDI by introducing a number of steps like the one-window policy, removing import licences, introducing full convertibility of the rupee, liberalising formation of joint ventures in financial institutions and the New Foreign and Technology Transfer Act.
But despite these initiatives, the policy has not yielded good results. The Maoist insurgency, frequent government changes, political instability, insecure environment, and weak implementation of Foreign Investment and Technology Transfer Act 1992 are the principal culprits. In addition, frequent strikes and deteriorating law and order situation, including the recent closure of some industries, are some of the factors responsible for the unhealthy security environment. It must be remembered that investments are not for humanitarian purposes, but to make a profit. For the investments and industries to flourish, an investor-friendly policy and climate are needed.
As Nepal has joined the WTO, it would have to open up its market to foreign competition in a number of areas. In a world which is becoming more open to FDI, even in such areas as the media, as the cases of India and China show, Nepal cannot shut itself off from global and regional trends. There is no dearth of opportunities for investors. So the country should make arrangements, including legal, so that foreigners become attracted to invest in Nepal. The mere formation of things like an FDI promotion desk will not be enough. First of all, investors must be fully assured that their investments will be safe from violence and conflict. And this is extremely difficult to do at a time when some of the existing joint venture firms have closed down or are on the verge of being closed down for security reasons.