Foreign Investment in Nepal

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Foreign Direct Investment in Nepal
Current status, prospects and challenges

Ratnakar Adhikari

SAWTEE Working Paper No. 01/13

Foreign Direct Investment in Nepal
Current status, prospects and challenges

Working Paper No. 01/13

South Asia Watch on Trade, Economics and Environment (SAWTEE)
26 Mamata Galli  P.O. Box: 19366  Tukucha Marg Baluwatar  Kathmandu  Nepal Tel: 977-1-4444438 / 4424360 Fax: 977-1-4444570 Email: sawtee@sawtee.org Web: www.sawtee.org

Views expressed in SAWTEE working papers are of the author(s) and do not necessarily reflect the official position of SAWTEE or its member institutions. SAWTEE working papers often represent preliminary work and are circulated to encourage discussions.

Foreign direct investment in Nepal
Current status, prospects and challenges1
Ratnakar Adhikari

I. Introduction
For a least developed-country (LDC) like Nepal with huge saving-investment gap; limited, albeit growing, revenue to gross domestic product (GDP) ratio; and limited amount of foreign aid flow, foreign direct investment (FDI) is considered an indispensible mode of development financing. Although FDI is traditionally viewed as foreign investments made in manufacturing and services sectors, which undoubtedly contribute to employment opportunities as well as economic growth, they are increasingly attracted by host countries for meeting financing requirements for large infrastructure projects. This is an area in which foreign investors used to shy away from investing in the past due to various risks associated with such projects resulting from long gestation and pay back periods. In the context of Nepal, although FDI is generally welcome in all sectors, due to acute dearth of resources for infrastructure financing, it has become an imperative in the latter sector. It must be noted that the utility of foreign investment for a country like Nepal does not end there. It is an instrument for the transfer of technology from the

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