Nepal is a landlocked Himalayan country sandwiched between China and India. It maintains close relations with the two countries, especially with regard to infrastructure investment. Its hilly topography, however, poses a significant challenge to the improvement of transportation facilities within the country. Nepal abolished its monarchy in 2008 and adopted a multi-party republic system.
A number of massive earthquakes struck the country in early 2015, leading to continual negative repercussions. In 2017, Nepal’s economy rebounded with an estimated growth of 7.5%, but the momentum is unlikely to sustain due to the severe floods in August 2017, which has caused devastations in the agricultural sector and disrupted crop production.
Agriculture is the major economic sector for the country, contributing some 30% of GDP while employing 80% of Nepal’s working population. Tourism, one of the key drivers of the services sector, is reviving from the earthquakes in 2015 with the number of tourist arrivals growing by 40% in 2016. Foreign aid and remittances from Nepalese overseas workers remain important in terms of helping Nepal’s external position in the face of the reconstruction costs.
India is Nepal’s leading trading partner, and the Nepalese rupee is pegged to the Indian rupee. Over half of Nepal’s exports are sent to India, with the US and Germany as the other two most significant destinations. Textile articles, including carpets, account for some 35% of the country’s total exports. Nepal’s major imports include fuel, machinery, metals and transport equipment, mostly from India and China.
A World Bank report estimates that Nepal needs to invest about 3% of GDP annually in order to enhance external connectivity through strategic and local roads. Thanks to an MOU signed with China in May 2017, Nepal expects its infrastructure gap to be better addressed under China’s Belt and Road Initiative. Chinese media has reported a number of ambitious regional rail schemes, including a rail link under Mount Everest to Nepal, are being considered. In September 2017, the Investment Board of Nepal has signed off an investment project of US$360 million by Chinese-Nepal joint venture Hongshi-Shivam Cement. According to the Nepal’s Department of Industry, China was the largest source of FDI in Nepal, accounting for about half of the total FDI commitments in the country during the fiscal year 2016/17.
Nepal acceded to the WTO in 2004, and is a founding member of the South Asian Free Trade Area (SAFTA) and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Co-operation. Nepal has signed a bilateral trade treaty with India, as well as bilateral investment agreements with six countries, including France, Germany and UK. In March 2016, China and Nepal signed an MOU to launch a joint feasibility study on FTA. Nepal’s Ministry of Commerce announced the conclusion of the feasibility study in July 2017, indicating that more Chinese investment is essential for the country.
Investment Board Nepal (IBN) is the government agency for FDI promotion and facilitation. It sets priority investment areas and investment incentives, and provides one-stop-shop services for foreign investors. In terms of sector, IBN encourages FDI projects in hydropower, agriculture, information technology and tourism.
According to UNCTAD, Nepal’s cumulative FDI was US$653 million as at end-2016. According to statistics of China’s Ministry of Commerce, Chinese cumulative FDI in Nepal was US$247.1 million as at end 2016.
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