Why Nepal's change in investment policy is counterproductive
Jun 27, 2019-
The recent changes in the policy regarding foreign direct investment (FDI) have a group of Dutch investors—with a combined €150 million invested in small and medium enterprises in Nepal—extremely worried. Amongst the worrisome developments is a ban on loans from foreign investors and an increased minimum equity investment of Rs50 million (‘Rs 50 million minimum threshold for foreign investment invites criticism from private sector’, June 4, TKP Online). There may be some reasoning behind these new rules, but the fact of the matter is that these measures are not well explained which causes a great deal of uncertainty and mistrust, and—most importantly—the effects of these new rules have clearly not been thoroughly considered.
Some of us decided to provide a loan to our current investments. With the additional injection, these Nepali companies would be able to open new workshops and/or shops and create employment—our key reason for investing in Nepal. In the midst of the FDI process, we received news that foreign investors could not provide loans anymore. Just recently, while working on an alternative structure with ‘preferred shares’—not the most straight forward structure—we heard that new investments are only allowed if they total a minimum of Rs50 million. This causes numerous problems.
From the investor’s point-of-view, the large minimum investment requirement is totally unwarranted. Moreover, the government can be perceived as an unreliable partner, because it changes the rules of the game overnight without consultations. The companies that investors like me have invested in have nowhere to go now, as there are no funding alternatives for these young and innovative companies in Nepal. This is just to illustrate how the new laws work out in practice. In this context, we are not even talking about the bureaucratic procedures that make the exit and entry of funds difficult, and the extremely weak legal system relating to foreign investments.
When we attended the Investment Summit in March 2019, read reports from experts, and were fed a rosy picture by Finance Minister Yubaraj Khatiwada himself, we thought that the investment process would be improved. The reality, however, is that investing in Nepali small- and medium-sized enterprises is close to a complete nightmare. What’s worse, it’s not changing for the better.
The Dutch are certainly not the biggest investors in Nepal. But we have always been very patient and we try to understand how things work in this country, mainly because we appreciate the talented Nepalis we work with. We see chances for them in Nepal, instead of working abroad where, at best, they will be treated as second class citizens. But the recent developments are forcing us to stop investing and leave us frustrated and puzzled about the intentions of the government.
The Dutch are innovative entrepreneurs with cutting edge technology in many fields such as agriculture—our small country being one of the biggest exporters of agriculture products around the world. We are happy to export our knowledge to Nepal, but are forced by the new measures to withdraw from it. This policy change is counterproductive, especially when the Nepali government talks about developing Nepal for the benefit of the people.
Ton aan de Stegge, The Netherlands
Published: 27-06-2019 11:47