Ensuring the Meaningfulness of Investment Summit

While investment summits are important, such events alone cannot guarantee foreign investments.

– Dr Ghanshyam Ojha –

In the past six years, Nepal has hosted two investment summits— one in 2017 and the other in 2019. The summits were aimed at making concerted efforts to present Nepal as a lucrative investment destination in South Asia in a bid to get the attention of international investors.

The government has declared to host the third iteration of the investment summit in 2024. Yet, it is imperative to distinguish between organizing these summits and the substantive efforts involved in attracting foreign investment to Nepal.

While investment summits are important, such events alone cannot guarantee foreign investments. The events function as preparatory measures, setting the stage for generating interest and engagement. However, the sustained attraction of FDI requires more comprehensive and ongoing efforts beyond the summit proceedings.
Past experiences show relying solely on investment summits is insufficient to attract FDI in the country. While the current government’s initiative to gather international investors and promote Nepal as an investment-friendly destination is commendable, there is a need to evaluate why the investment commitments from the previous two summits were not realized. Government authorities, including the Investment Board Nepal (IBN), must delve into the reasons behind Nepal being the recipient of the lowest FDIs among peer countries and address the issues to enhance the effectiveness of future investment promotion initiatives.

A crucial aspect that demands scrutiny is the government’s preparedness to organize the summit effectively. The hurried organization of the summit results in a lack of comprehensive preparation, particularly concerning project readiness. The absence of well-prepared projects poses a hindrance for investors to make informed decisions during the summit. Without concrete projects in place, potential investors hesitate to commit. This deficiency in project preparation emerged as a significant obstacle in both the summits held in Nepal. Thus, it is important to address this issue for future summits, ensuring that the groundwork is laid for effectively attracting and materializing the FDI commitments.

Another critical aspect requiring attention is the preparedness of projects for private sector operation and construction. In both the previous summits and, seemingly, in the upcoming one, the government has not adequately addressed the legal aspects of these projects. Insufficient attention has been given to crucial matters. Instead of thoroughly addressing these concerns, ministers often deliver routine speeches, urging foreign investors to consider investing in Nepal. However, mere speeches are inadequate for attracting investments. Investors seek comprehensive information, including financial feasibility, in-depth project studies, streamlined legal procedures, ease in land acquisition processes, and guarantees from the government regarding policies and project implementation. Addressing these shortcomings is essential for the success of future investment summits, ensuring that legal aspects are given the necessary consideration to attract and retain foreign investments.

To maximize the impacts of investment summits, a strategic approach is crucial. One notable observation is the limited participation of chief executive officers (CEOs) of large foreign companies in the past summits. The participation of large foreign companies is often made by their second or third-tier representatives. To rectify this, a post-summit follow-up schedule should be devised, and CEOs of the key participating companies must be approached with a comprehensive list of investible projects. An analysis of participating companies, including their countries of origin, sectors, and profiles, is also essential to identify genuine investors. After the summit, a targeted approach should be implemented. Forming a small team of 2-3 individuals to initiate follow-ups, whether through emails or visits, can establish direct communication with potential investors. This focused post-summit strategy enhances the likelihood of successful engagements and investment commitments.
Ahead of the summit, the government must ensure that projects are investment-ready. Investors should be presented with a clear and comprehensive overview of these projects, and the use of video presentations of such projects can be particularly effective. Representatives from the second or third tier of companies can utilize these videos to engage directly with their CEOs which can enable more impactful interactions. With careful consideration, investment summits can transcend their role beyond introductory events, evolving into proactive platforms that facilitate meaningful connections and collaborations between the government and potential investors.

In addition to inviting investors, the government should contemplate the participation of Chinese, Indian, European, and American banks in the investment summit. This approach, involving financial institutions from major economies, is unprecedented in the context of Nepal. By extending invitations to banks alongside investors, the summit can offer a comprehensive platform for cultivating financial collaborations and partnerships.

Legal reform has been one of the top concerns of foreign investors for a long. It is important for the government to work to change the hedging regulations. Currently, private sector banks impose a 5-6 percent interest for hedging solutions, which significantly elevates the overall cost of investment. This situation acts as a deterrent to investors who are averse to assuming the risk of foreign currency fluctuation. To rectify this issue, involving the private sector in a manner that makes hedging more accessible and affordable for investors is essential. Amending the hedging regulations and facilitating private sector involvement can potentially alleviate the cost burden on investors. For instance, if an investor secures funds at a 3 percent interest rate but has to pay an additional 5 percent for hedging, the overall interest rate becomes 8 percent. This increased cost dampens investor interest and raises the entry bar for investments.

Addressing the financial viability of projects is crucial for attracting investment, especially in sectors such as airports, roads, and tourism, where revenue is not guaranteed. In such cases, investors often seek Viability Gap Funding (VGF) to bridge the financial gap and make the projects more attractive for private investment. In India, the provision of a 20 percent VGF contributed to the successful completion of projects, such as the metro rail project in Hyderabad. However, in Nepal, the absence of VGF guidelines poses a significant challenge. Without clear guidelines for VGF, investors may be hesitant to participate in projects that lack financial viability. For the upcoming investment summit, the government must showcase projects, particularly those that may not be financially viable without VGF. The government should prioritize the development of VGF guidelines to incentivize private sector investment in projects crucial for economic growth.

The concept of the ‘one window policy’ is already under implementation, with the Ministry of Industry in Nepal actively working in this regard. However, the current process remains more complex than envisioned. A truly effective one-window policy should embrace digital connectivity, enabling investors to seamlessly navigate the investment process from anywhere in the world, whether it’s the United States or Malaysia. The government’s role should be to facilitate and streamline the investment process. Presently, despite the existence of a one-window policy, investors in Nepal often find themselves required to be physically present. To enhance efficiency, a genuine ‘one-stop policy’ should be established, enabling investors to complete all necessary procedures and transactions digitally.

While the repatriation process in Nepal has eased of late, investors still encounter challenges as it necessitates the submission of identical documents to multiple institutions, including Nepal Rastra Bank, IBN, and the Ministry of Industry, Commerce and Supplies, among others. This redundancy not only introduces unnecessary complexity but also raises concerns about potential redtapism. Streamlining and simplifying the documentation requirements across these institutions would not only improve efficiency but also contribute to a more transparent and accountable process.

IBN was established to streamline investment processes, but over time, it has exhibited traits typical of becoming a conventional government agency, which has resulted in its operational delays. Reforms are essential to prevent it from becoming overly bureaucratic and to reinstate its original purpose as an expert entity focused on expeditious decision-making in the realm of investments.

Dr Ojha is an infrastructure development expert.

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