Hit the road Jack
A country that desperately needs foreign investment seems even more desperately determined to repel it. Nepal’s official strategy declares foreign capital a pillar of development. Its reality is one of institutional self-sabotage. In the first eight months of this fiscal year, gross foreign-direct investment (FDI) inflows were a meagre $40.4m. Nearly half of that was promptly refunded. Nothing was reinvested. For three years running, more foreign capital has left Nepal than has entered.
Do not blame macroeconomic malaise for that. Inflation is tame, reserves are ample and a flood of remittances props up the current account. The trouble lies in a policy ecosystem that functions like a series of locked turnstiles. Investors face ambiguous approvals, contested land rights, whimsical tax demands and legal enforcement that seems to change by the week. A chronically overstaffed and under-incentivised bureaucracy acts as a filter rather than a facilitator. Capital, sensibly, goes elsewhere.
Consider the road not taken. Four decades ago Vietnam was an economic peer of Nepal. Then it launched its Doi Moi reforms, embedding foreign capital into a national growth plan. The results speak for themselves. Last year Vietnam attracted $19bn in FDI. Its exports are around $400bn. Samsung, its biggest investor, employs more people in Vietnam than work in Nepal’s entire manufacturing sector. Nepal struggles to export $3bn of goods, mostly low-value carpets, garments and ghee.
Vietnam’s success was no accident of geography. It combined market liberalisation with state discipline. Corruption was corralled, if not eliminated. Provinces were consolidated. Institutions were synchronised towards common goals. It is a case of what scholars call “authoritarian developmentalism”: an undemocratic state proving stunningly capable of aligning itself with investor priorities. Nepal’s model, theoretically more participatory, has produced the opposite effect.
Since adopting federalism, Nepal has multiplied veto points. Provinces behave as rival fiefs. Local officials see investors as sources of rent rather than revenue. Reforms are diluted or reversed. With five prime ministers in six years, no policy survives long enough to be implemented, let alone to bear fruit. The consequence is a reputation not merely of risk but of futility. Investors now speak of repatriation delays, as well as constant litigation and a lack of contract enforcement. Capital does not seek perfection; it seeks predictability. Nepal provides neither.
The state has grown comfortable living on other people’s money, which dulls the urgency for change. Remittances, expected to hit $11bn this year, dwarf FDI. Steady grants and soft loans from donors allow the elites to delay the reckoning. There is little pressure to enact the boring, basic reforms that matter: digitised land records, time-bound approvals, professional regulators and a tax system governed by law not negotiation. The government finances itself through external goodwill rather than domestic credibility.
This is a tragic waste. Nepal has a young, digitally-literate workforce, vast hydropower potential and a location that should, in theory, make it a natural node in the “China plus one” recalibration of supply chains. Yet geography is no longer destiny. As global capital grows more choosy, institutional trust not terrain decides where it flows. Bangladesh and Indonesia have seized this moment to present themselves as credible alternatives. Nepal has not landed a single large-scale manufacturing or logistics investment in years.
The digital economy is another missed chance. The country has digital wallets and e-government portals, but they sit atop a regulatory stone age. There is no coherent digital strategy. Data protection and cybersecurity are afterthoughts. Investors in fintech or data centres look for enabling environments. In Nepal they find latency—in both bandwidth and bureaucracy.
This need not be permanent. Fixing it means a shift from donor-led planning to investor-aligned execution. Stop measuring success by the number of roadmaps published, and start tracking outcomes. Harmonise land laws. Make courts competent. Evaluate ministries on delivery. Political leaders must resist the urge to micromanage—or, worse, to meddle.
A coherent strategy would focus on a few sectors—hydropower, tourism, agro-processing and digital services—and do them properly. It would prioritise linking foreign firms with local suppliers, to embed knowledge (not just extract profit). It would align vocational training with what industry needs. And it would equip local governments to deliver permits and utilities without seeking a bribe at every step.
Nepal will not become Vietnam, nor should it try. Vietnam’s model has stifled domestic innovation and worsened inequality. But Nepal can learn from its clarity of purpose. In this new era of capital scarcity, investors are not comparing countries to an ideal. They are choosing from a shortlist. At present Nepal is not on it.
Capital has options. It flows to places that provide reliability over romance. Nepal’s task is not to woo investors with lofty promises, but to pass the most basic test of credibility: that the rules work, the courts function and those who enter are not punished for believing in the country’s potential. ■
