What drives the foreign investment in Nepal? Investors' perception analysis

Abstract

The study aims to identify the motives of foreign direct investment in Nepal and analyse the perceived strengths and weaknesses of investment climate. Additionally, it examines the experience of foreign investors in Nepal in terms of further investment plans and net promoter scores attributed to the host country. The study relies on primary data collected from the survey of 65 sampled industries with foreign direct investment, using structured questionnaires. Descriptive analysis has been used to assess the key factors motivating foreign investors. The findings reveal that labour cost, repatriation facility, industrial security, low operating costs, access to neighbouring market/trade openness, and investment and communal hospitality stand out as major motivating factors, while political instability, macroeconomic instability, availability of machinery and equipment, road access, and bureaucracy are the major precluding factors. The policy reforms in Nepal have notably shaped investors' perceptions. Acts like the Foreign Investment and Technology Transfer Act, 1992, and subsequent amendments such as the Foreign Investment and Loan Management, 2021, have significantly motivated investors by improving repatriation facilities and ease of VISA and work permit accessibility. Despite the efforts, land facilitation for foreign investors has been perceived as a weakness. The net promoter score for Nepal is 12 on a scale from −100 to +100, which is positive, albeit low, indicating a substantial gap to attain full promoters and needs to be improved by further enhancing the investment climate.