After the people's revolution in 2007 BS and the establishment of democracy in the country, the process of opening up industries in Nepal began. It is not that it had not happened before that. But the concept of industry was very limited. But with the openness after democracy, industrial activities began to expand.

There were some attempts to build industries and infrastructure during the Panchayat regime. But they were mostly based on government investment. The role of the private sector was minimal and the main responsibility for development was borne by the state. The global political environment of that time also had an effect on Nepal's investment pattern. Competition between powerful countries, the impact of the Cold War, and the strategy of supporting developing countries and keeping them within their sphere of influence led to a competition to provide grants, loans, and technical assistance to countries like Nepal. Due to this environment, Nepal received assistance from various countries in the areas of infrastructure, industry, and economic development.  

Roads and industries were built with the help of the Soviet Union, infrastructure and factories were built with the help of China, and the United States launched integrated development programs. Industrial and infrastructure projects were completed with the help of India. During this period, the private sector gradually began to enter. The company model, public corporations, boards, and public limited companies were formed for industrial development. In some industries, the government was the main owner and shares were given to the general public. Institutions like Biratnagar Jute Mills, Agricultural Tool Factory, Janakpur Cigarette Factory, Gorakhkali Rubber Industry were established on the same basis. However, the concept of private investment in the infrastructure sector had not yet been developed. The trend of infrastructure development through private investment developed later in the world. And, in Nepal too, its clear impact was seen only after some time. During this period, Nepal's investment structure seems to have been mainly focused on the public sector.

More inclination towards privatization

After the people's movement of 2046 BS, Nepal moved towards a liberal democratic system. Political openness came. Economically, there was a greater inclination towards a liberal economy. The work of mobilizing the private sector extensively has been seen to have progressed rapidly through the policies, programs and budgets of the government after 2048 BS. From the 2047 constitution to the 2072 constitution, it seems that the private sector has been encouraged and a competitive economy has been accepted.

Although the concept of public-private partnership was expected to gain momentum during this period, in practice it seems that there has been a greater inclination towards privatization. There has also been criticism that the privatization process has focused more on asset transfer than industrial operation. Examples such as the Birgunj sugar factory and the Bansbari leather and shoe factory have shown that despite asset privatization, the production-focused objective has been overshadowed.

The idea that employment, production, and industrial continuity could have been strengthened if the public-private partnership model had been adopted in a balanced manner remained strong. However, the step to advance the private sector during this period is considered important in itself.

Growing political and policy consensus The Investment Board has adopted a strategy to advance institutional development and immediate delivery in parallel, and efforts are being made to diversify investments in sectors including energy, tourism, information technology, agriculture, and industry.

Two major models of public-private partnership are being implemented. First, direct investment by the private sector, where the private sector invests, produces, services, and markets at its own risk. Second, collaboration between the government and the private sector, where a partnership is established between the government's policy, assets, or rights and the private sector's capital, skills, and management. The second model has been found to be more effective in complex and long-term development projects. In the last two decades, political and policy consensus has been growing in Nepal as well.

Local levels had also practiced public-private partnerships. The private sector was involved in projects such as bus parks, shopping complexes, waste management, and public infrastructure construction. Some were successful. Some were controversial. This further highlighted the need for legal clarity, procedures, and institutional capacity. In the meantime, the energy sector received special priority. When the government ensured electricity purchases, private investors felt less market risk. Tax exemptions, customs concessions, and investment policies required by banks led to significant progress in the energy sector. Today, a large portion of Nepal's private investment is focused on the energy sector.

The role of the private sector also increased in the tourism sector. The expansion of cable cars, hotels, resorts, and service industries supported domestic and foreign tourism. The entry of private airlines into the aviation sector increased service expansion and competition. The role of the private sector in road transport became stronger. Similarly, the expansion of education, health, industrial sectors, special economic zones, and financial institutions also had a positive impact on the investment environment. Nepal succeeded in reaching a level where it could export cement production abroad.

A legal framework was needed to institutionalize public-private partnerships. In the initial stage, large projects could not move forward due to the lack of policies and laws. Despite efforts to provide technical assistance, studies and work procedures with the support of various international donor agencies, it took time to clarify the institutional structure.

Finally, with the establishment of the Investment Board of Nepal in 2068 BS, the path was opened as a central body for investment promotion and public-private partnerships. The structure, which operates under the chairmanship of the Prime Minister, provided the basis for high-level coordination and decision-making capacity.

Reform efforts

Only after the Public-Private Partnership and Investment Act was implemented in 2075 BS, did legal clarity regarding public-private partnerships come. But challenges still remain in developing the institutional capacity of the Investment Board itself, coordinating with the provincial and local levels, managing human resources and developing work procedures.

The continuous transfer of employees, lack of institutional memory and lack of continuity of long-term planning in the Investment Board have shown structural weaknesses. Efforts have been made to improve this by formulating business plans, strategies, performance agreements and guidelines. Similarly, initiatives have been taken to move forward by amending policies and laws. Project preparation has emerged as another major challenge. The concept of a project bank was born from this, where priority setting, feasibility studies and financial structures are clarified. Arrangements are being made to give an open opportunity to the private sector to submit proposals.

Project preparation has emerged as another major challenge. The concept of a project bank was born from this, where priority setting, feasibility studies and financial structures are clarified. An open opportunity is being provided to the private sector to submit proposals.

Great progress is being made in the field of infrastructure development around the world. We must open up to bring such innovation to Nepal. Relying on internal resources alone is not enough. This is why the Investment Board has opened it up. In this context, preparations are being made to move forward projects that require new technology and external experience according to the Swiss Challenge concept. ‘Unsolicited’ proposals have also been accepted in this. But the process of competition and good governance have been ensured. This is paving the way for innovation, technology and international experience.

The idea of ​​​​mobilizing resources such as Employees Provident Fund, Insurance Fund, Social Security Fund in an integrated manner, including the establishment of an Alternative Development Finance Fund, by adopting an alternative investment concept for financial management. The act to be brought based on the aforementioned concept will also implement alternative investment arrangements such as green bonds, guarantee-based finance, and asset monetization.

Economic diplomacy is also an important means of investment promotion. Keeping this in mind, attention has been paid to investment promotion, facilitation, and trust building through Nepali embassies and diplomatic mechanisms abroad. Along with this, the concept of a single point service center is being advanced, which will provide all services to investors from one place. It is believed that the move towards digital systems, paperless processes and automated decision-making systems will increase both transparency and speed. The Investment Board is currently focused on this.

Investment prospects are bright

Institutional structures and systems are indispensable for sustainable development. Individual-dependent development efforts are not long-term. Therefore, a long-term strategy, policy stability and institutional human resource development are necessary. The Investment Board has adopted a strategy to advance institutional development and immediate delivery in parallel. Efforts are being made to diversify investment in sectors including energy, tourism, information technology, agriculture and industry.

Political stability is another basic condition for the investment environment. Real achievements should be seen in project agreements and implementation rather than the hype of the time. Since its establishment, the Investment Board has approved projects worth 1.7 trillion 16 billion rupees, while about 20 trillion projects are in the pipeline.

Projects approved by the Investment Board and amount

Sector

Now, the Investment Board is formulating a clear vision on how to take forward those projects in the next four to five years. As those projects move forward, it will create confidence and stability in terms of private sector investment in Nepal's development at the national and international levels.