Nepal’s foreign direct investment (FDI) stock rose by 12.7 per cent in the fiscal year 2023/24, reaching Rs. 333 billion, according to a recent survey conducted by Nepal Rastra Bank (NRB).

The FDI stock comprises 50.7 per cent in paid-up capital, 36.7 per cent in reserves, and 12.6 per cent in loans.

This marks a continued upward trajectory in Nepal’s attractiveness as an FDI destination.

The FDI stock was Rs. 295 billion in FY 2022/23, Rs. 264 billion in 2021/22, Rs. 227 billion in 2020/21 and Rs. 198 billion in 2019/20.

The paid-up capital, reserves, and loans have increased by 8.2 per cent, 22.7 per cent and 5 per cent respectively.

The survey was conducted through a structured questionnaire administered to FDI approved enterprises, with 243 responses from a sample of 504 enterprises, out of total of 867 active enterprises that had obtained approval from NRB as of 2023/24.

Industrial sector dominates

In sectoral term, electricity, gas, steam, and air conditioning sector stands the highest with 29.5 per cent of total FDI stock, followed by the manufacturing sector with 29.3 per cent.

Both are included in the industrial sector which accounts for 59.4 per cent of total FDI stock.

The service sector accounts for 40.5 per cent of the total FDI stock, with financial and insurance services representing 24.4 per cent, according to the report.

In addition, the information and communication sector constitutes 8.1 per cent, while the accommodation and food services sector makes up 6.5 per cent of the total FDI. Nepal has received foreign investment from 60 different countries as of mid-July 2024.

In terms of total FDI stock, India occupies top position (32.3 per cent) followed by China (10.2 per cent), Singapore (8.3 per cent), Ireland (6.9 per cent), and South Korea (6.1 per cent).

Likewise, in terms of paid-up capital, India also ranked top with Rs.55.6 billion followed by China (Rs.29.8 billion), South Korea (Rs.17.4 billion), and Ireland (Rs.10.7 billion)

The majority of India's FDI stock is concentrated in three sectors – manufacturing (38.6 per cent), electricity, gas, stream, and air conditioning (33.6 per cent), and financial and insurance services (18.6 per cent).

In terms of paid-up capital, the investment in electricity, gas, steam, and air conditioning remains the highest. China's FDI stock is mostly concentrated in electricity, gas, steam, and air conditioning (85.9 per cent), followed by the manufacturing sector (33.9 per cent), said the report.

Bagmati constitutes highest share of FDI stock

Province-wise, Bagmati province constitutes the highest share of FDI stock (62 per cent) whereas Lumbini and Karnali Province account for less than 1 per cent of total FDI stock.

Koshi Province constitutes FDI stock of 13.5 per cent, Gandaki 13.1 per cent, Madhes 6.1 per cent and Sudurpashcim Province 4.2 per cent.

As of mid-July 2024, the outstanding foreign loans (excluding direct loans from foreign direct investors) of FDI enterprises stood at Rs. 59.9 billion.

The enterprises in the hydropower sector have utilised most foreign loans as the outstanding loan of this sector stood at Rs. 34.7 billion as of mid-July 2024.

The capacity utilization of surveyed FDI enterprises in manufacturing stands at 47.5 per cent, whereas the profitability of surveyed FDI enterprises remains at 10.7 per cent in 2023/24.

The FDI plays a vital role in driving structural transformation, enhancing productivity, and fostering inclusive and sustainable growth. Nepal began prioritizing inward FDI with the launch of its Sixth Five-Year Plan in FY 1980/81.

Since 2012/13, NRB has been conducting annual surveys of FDI enterprises to compile comprehensive data on FDI stock, disaggregated by source economies and economic activities.

In recent decades, Nepal has undertaken a series of legal and institutional reforms aimed at improving the investment climate and attracting greater inflows of Foreign Direct Investment (FDI).

These reforms are designed to enhance transparency, streamline administrative procedures, and ensure investor protection. The World Investment Report 2025 published by UNCTAD shows that global FDI flows increased by 3.7 per cent to USD 1508.8 billion in 2024 from USD 1455 billion in 2023.

FDI in developed economies increased by 8.8 per cent to USD 641.6 billion in 2024 from USD 589.6 billion in 2023.

Similarly, inflows to developing economies increased marginally 0.2 per cent to USD 867.2 billion in 2024 from USD 865.4 billion in 2023.

In line with the global trend, gross FDI inflows increased by 6.2 per cent to Rs. 8.5 billion in 2023/24.

The divestment of foreign investment (repatriation of investment) during 2023/24 remained Rs.73.9 million which is around 0.9 per cent of gross FDI inflows.

According to the report, net FDI inflows to Nepal increased by 36.1 per cent to Rs. 8.4 billion in 2023/24.

The insights from this survey are expected to support evidence-based policy design, informed investment promotion, and targeted sectoral strategies to ensure that FDI contributes more effectively to Nepal’s long term, sustainable, and inclusive economic growth, said the NRB.

By Laxman Kafle