foreign direct investment in Nepal: perspective of primary agricultural stakeholders

Abstract

Executive Summary: Speedy economic growth is at the heart of Nepal’s post-conflict periodic plans. Agriculture, hydroelectricity, tourism and the labour force have been identified as the key drivers of economic growth. However, despite efforts by both the governments and the private sector to exploit these pillars over the years, the overall progress has not matched aspirations and expectations. The failure to mobilise resources for export-oriented projects is said to be the main reason behind this lacklustre economic performance. For several years, Nepal has planned to attract Foreign Direct Investment (FDI) in big infrastructures and large-scale production. The Fifteenth Plan of the country envisions building a competitive and dynamic national economy through the enhancement of products, productivity and competitiveness. To that end, it aims to attract and increase the volume of foreign investment, including FDI. Driven by the quest for bringing in foreign investment, the Government of Nepal (GoN) amended – on 4 January 2021 – the Foreign Investment and Transfer of Technology Act (FITTA) opening the previously banned primary sector of agricultural production – poultry farming, fisheries, bee-keeping, fruits, vegetables, oilseeds, pulse seeds and dairy products – to FDI. However, the move met angry remarks from farmers, their associations and small-scale agro-investors. The study was conducted on this background, with the overall objective to unpack why the decision to open the primary sector of agricultural production has become debatable. The study has engaged the combination of primary and secondary data that includes a national policy dialogue with primary stakeholders and books, reports and newspaper commentaries. Macroeconomic data consulted for the study suggests that FDI has both positive and negative experiences. It has brought benefits to some countries and has created harmful consequences on some others. However, in the absence of a specific monitoring mechanism on the impact of FDI, there is no sector-wise data on which to build a definitive assessment as to which sectors are good and cost-effective and where caution is warranted. The views and concerns of agricultural stakeholders align with the macroeconomic data. While FDI is necessary for economic growth, most of the stakeholders argue, opening agriculture to FDI before putting in place necessary infrastructure – transport systems, technology, skilled human resources, managerial efficiency, and so on – will only harm small farmers and the subsistence economy they have been nurturing.