NEPAL HOLDS an investment summit every few years. It has three different investment laws. The prime minister chairs the national investment board. Yet very few foreign investors turn up.
The country has changed its laws while the way the system actually works has stayed much the same. In 2026 the country will graduate from the UN’s list of Least Developed Countries, a step that is meant to signal progress and confidence. The legal framework looks more welcoming. The 2019 Foreign Investment and Technology Transfer Act promised quicker approvals, equal treatment for foreign investors and the right to take profits home. A “One Window” service centre was created to simplify permits. Brochures talk about opportunity and returns. The day-to-day experience suggests otherwise.
In government offices in Kathmandu, online applications are often printed out, stamped and filed away. Different ministries read the same rules in different ways. Even small proposals can sit untouched for months unless someone influential steps in. A UN-backed review of Nepal’s digital investment portal scored it four out of ten. Many users would say that was generous. The main issue is not the quality of the laws. It is that they carry little weight in practice.
Nepal’s regulatory system still reflects a time when uncertainty meant control. Decisions are slow because rules overlap and none clearly take priority. The One Window Service Centre was meant to solve this, yet it has neither real authority nor independence. The Investment Board Nepal, chaired by the prime minister, has visibility but limited institutional strength. The Nepal Business Forum, set up for dialogue between government and business, meets infrequently.
When rules are unclear, they become open to negotiation. That suits some people. Vague regulations create room for discretion, and discretion creates opportunities for rent-seeking. Foreign investors, who are used to clear and consistent processes, find this risky. Large companies can live with high taxes or even corruption if the costs are predictable. What they struggle with is uncertainty.
This helps explain why even hydropower, one of Nepal’s strongest prospects, has attracted limited foreign capital. Nepal has more than 40,000 megawatts of viable hydropower potential. It could be exporting electricity to neighbouring countries with growing energy needs. Many projects stall because of land disputes, slow grid connections and other administrative delays. India, Bangladesh and China all show interest in buying Nepali power. Transmission lines, cross-border agreements and political follow-through remain weak.
Limits on foreign ownership add to the problem. Foreign firms are not allowed into retail, media and several service sectors. In agriculture, foreign investors must export 75% of output. In theory this sounds reasonable. In practice it is difficult without large-scale operations and strong logistics.
These rules protect local businesses, many of them family-owned or politically connected. They also deter the mid-sized foreign firms that often bring new technology and integrate local suppliers into global value chains. Nepal often talks about wanting “responsible” investment. From an investor’s point of view, responsibility starts with rules that are applied as written.
There is a revealing example. Since 1964 Nepali companies have been banned from investing abroad. The original aim was to conserve foreign exchange. The government now says it will lift the ban. The long-standing approach shows a deeper mindset, one that treats capital as something to control rather than allow to circulate. Nepal’s capital account remains tightly managed, making profit repatriation and foreign currency flows more complicated than many investors expect.
Nepal is not alone in struggling with implementation. What stands out is how long the gap has lasted. Vietnam and Bangladesh were once seen as unstable and difficult places to do business. Both now attract billions in foreign investment because they have built a record of following through.
In Vietnam, once a permit is issued, construction can usually begin within months. In Bangladesh, despite frequent political tension, the garment industry grew under steady and predictable policies. Neither country is perfect. Both understood one simple point: investors prefer environments where outcomes are not a surprise.
Nepal is full of surprises. Some are welcome, like its landscapes and hospitality. Others are not. A process that takes three weeks one year may take three months the next. A policy announced with enthusiasm may never be carried out. A permit can be granted and later withdrawn.
Graduating from LDC status is an important milestone. It also brings new pressures. Trade preferences will fade. Aid will decline. Borrowing will become more expensive. To keep growing, Nepal will need private investment.
That means changing a bureaucratic culture that values discretion more than clarity. It means giving one agency real responsibility for investment approvals, along with the power to enforce timelines. It means treating rules as commitments rather than suggestions.
Nepal has real strengths: a young workforce and a location between two huge economies. Investors are not looking for perfection. They are looking for a system that works even when no one is making phone calls. Nepal says it is open for business. Investors will start to believe it when they can walk through the front door without needing a fixer. ■
