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Unlocking Nepal’s Potential: Overcoming Challenges to Attract Foreign Investment

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Nepal, a nation historically plagued by poverty, has set ambitious targets to transition into a middle-income country and achieve sustainable development goals by the year 2030. As the fiscal year in Nepal draws to a close, official data indicates that the country received an inflow of USD 229 million through foreign investments during this fiscal year. This figure represents a significant decline from the USD 413 million received in the previous fiscal year. One contributing factor to this decrease is the global economic recession experienced this year. Despite the government’s concerted efforts to attract foreign investors to Nepal, the country has struggled to entice international businesses to establish operations within its borders. Given the prevailing trends of globalization in international trade, Nepal confronts an immensely challenging task in realizing its goals by 2030 unless substantive policy-level changes are implemented. It is necessary to analyze the obstacles impeding Nepal’s progress toward becoming a middle-income country, and successfully attracting foreign investment in order to effectively address them.

Declining Foreign Investment in Nepal: The Current Scenario

According to the Systematic Country Diagnostic Report published by the World Bank in 2018, foreign investment accounted for a mere 0.2 percent of Nepal’s economy over the past decade, placing Nepal significantly below the median. In response, the government of Nepal has taken various measures since 2019 to transform the country into an attractive destination for investment. One such step was the enactment of the new Foreign Investment and Technology Transfer Act in 2019 (the “FITTA”), which established a centralized one-stop service centre, where all the services required by foreign investors including registration of industries, renewal, and exit, among others, are provided from a single building, to streamline foreign investment-related processes. Additionally, in 2022, the government lowered the minimum investment amount for foreign entities to USD 150,000. Despite these efforts, there has been no discernible increase in foreign investment inflows.

One major deterrent for foreign investors is the lack of harmonization of laws in Nepal. This stems from an ‘attitude of convenience’ among regulators, where laws and policies are framed to suit the convenience of regulators rather than with the intention of creating an investment-friendly environment. Prior to making foreign investments and commencing business operations in Nepal, entities are required to obtain approvals and complete paperwork with at least five regulatory authorities, which is considered excessive compared to other jurisdictions. For reference, in India, the approval of a single regulator is sufficient, in most sectors. Procedural delays and a time-consuming process act as deterrents for foreign investors. Given that foreign investment can significantly boost the economy and provide livelihood opportunities, the government should focus on providing encouragements that facilitate an increase in foreign investors seeking to do business in the country.

Furthermore, political instability, the associated risks of changes in laws, and inadequate infrastructure are other contributing factors deterring foreign investment in Nepal. According to the World Bank, Nepal ranks 130th in the world in terms of infrastructure readiness. Investors face  challenges in efficient connectivity within the country due to poor road infrastructure, limited electricity, and water supply. Some investors have also faced difficulties repatriating their income from Nepal, as instances of bureaucratic obstacles and delays in approval of repatriation have created uncertainty regarding the timeline for repatriating their investment. Considering Nepal’s competition with global giants like India and China for investment, these factors push Nepal towards the bottom of the preference list for investors.

The Role of Foreign Investment in Nepal’s Development

While it is crucial to acknowledge that foreign investment alone cannot single-handedly solve all development challenges in Nepal, it does play a pivotal role in establishing a solid foundation for the nation’s economic growth and market practices. Increased foreign investment would inject much-needed capital into Nepal’s economy, providing the financial resources necessary for infrastructure development, industrial expansion, and technological advancements. These elements are essential for stimulating economic growth, improving productivity, and generating employment opportunities. Additionally, partnerships and collaborations with foreign entities enable Nepalese businesses to enhance their competitiveness in both regional and global markets.

Foreign investment also brings in foreign currency, which strengthens Nepal’s balance of payments and foreign exchange reserves. This, in turn, enhances the country’s capacity to finance imports, repay external debts, and maintain a stable macroeconomic environment. Given Nepal’s heavy dependence on imports and the importance of maintaining a stable foreign currency reserve, the inflow of foreign currency is vital for the landlocked nation. In 2022, Nepal faced a significant crisis with depleting foreign currency reserves, leading the government to impose a ban on the import of “luxury” goods, such as automobiles, non-essential FMCGs, and alcohol.

As recorded, Nepalese individuals heavily spend on foreign education and travel, which contributes to the outflow of foreign currency from the country. Without swift measures taken by the government and regulators, Nepal risks facing an economic collapse similar to that experienced by Sri Lanka in 2022. Sustained inflows of foreign currency can effectively mitigate this risk and address the challenges associated with maintaining a stable economy.

Paving the Way for Nepal’s Economic Transformation through Foreign Investment

To address the aforementioned concerns, the government of Nepal needs to streamline its regulatory framework concerning foreign investment. This entails reducing bureaucracy, eliminating unnecessary paperwork, and establishing transparent and efficient procedures for obtaining permits, licenses, and approvals. The implementation of clear and straightforward regulations is crucial in creating an environment that is conducive to foreign investors in instilling their trust. The FITTA includes provisions that aim to facilitate foreign investment through automatic routes, where prior approval is not required, as commonly practiced in many jurisdictions worldwide. Introducing automatic routes for foreign investment in specific sectors has the potential to be a transformative factor for Nepal. However, the regulators have interpreted the provision of automatic routes as merely issuing foreign investment approvals through an online platform. This approach, characterized by an “attitude of convenience” displayed by the regulators, is difficult to justify, especially when foreign investment holds such importance for the country’s economic growth and when Nepal is competing with global economic powerhouses for investors.

Implementing additional measures to attract foreign investors involves fortifying laws and regulations to ensure the utmost protection of investors’ rights and interests. This encompasses robust enforcement of contracts and intellectual property rights, establishing a fair and predictable legal framework, and creating effective mechanisms for resolving investment disputes that adhere to international best practices. By safeguarding the rights of investors, Nepal can foster confidence among foreign investors, demonstrating a steadfast commitment to providing a secure and stable business environment. Moreover, offering appealing incentives can significantly entice foreign investors to consider Nepal as a preferred investment destination. These incentives may encompass tax advantages, investment subsidies, and tailored incentives targeting specific sectors or regions. Such measures can mitigate the risks and expenses associated with investing in a developing nation, thereby positioning Nepal as a competitive choice for foreign investment.

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Why BRICS matters for Pakistan

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BRICS represents Brazil, Russia, India, China and South Africa, encompassing 41% of the global population and 24% of the global GDP. The 15th BRICS Summit being held from August 22 to 24 in Johannesburg, South Africa. About 40 countries participated in this year’s BRICS summit where some key decisions were made adding six new members namely Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the UAE. The new membership will be effective from January 1, 2024.

In a historic first, Pakistan’s participation in the BRICS’s seminar, ahead of the summit, was encouraged by Beijing, which wants to integrate Pakistan into the alliance. However, Pakistan surprised the international community for not being the part of BRICS’s summit in Johannesburg. By joining BRICS, Pakistan could potentially benefit in multiple ways.

First, BRICS is the emerging power Centre of the world. Joining BRICS could open up economic opportunities for Pakistan. The country could engage in trade with other member states, benefiting from their growing economies. Pakistan’s exports could find new markets within the framework of BRICS. Muhammad Karim Ahmed analysed, “These BRICS countries are emerging economies and they have improved their country, their economic conditions, manufacturing, and found markets for themselves through joining the bloc”. Certainly, the economic prosperity will minimize unemployment, poverty and illiteracy in Pakistan.

Moreover, developing nations are dissatisfied with the stringent conditions imposed by western-dominated financial institutions like International Monetary Fund (IMF). BRICS has also created two new financial institutions, the New Development Bank (NDB), also known as the BRICS Bank and the Contingent Reserve Arrangement (CRA). CRA, which has a capital of more than USD 100 billion, can help member states withstand any short-term balance of payment crises. Pakistan if allowed in BRICS, can easily access the USD 100 billion CRA as well as the comparatively lenient loan conditions of NDB, without improving the functioning of the Pakistani state.

Second, BRICS membership could boost Pakistan’s geopolitical leverage by providing a platform to collaborate with other emerging powers on global issues. Pakistan has always been blackmailed by its traditional allies. Becoming a BRICS member could offer Pakistan an opportunity to diversify its diplomatic relationships. As a BRICS member, Pakistan could potentially demand for reforms in global governance structure. This could lead to a more equitable international order.

Third, some political analysts suspected that Pakistan’s inclusion in BRICS may generate disturbances with India, leading to a defunct group. However, it appears that India’s opposition to Pakistan joining the bloc is dying down. Recently, Indian Prime Minister Modi has supported BRICS expansion. South African president also welcomed Modi’s remarks, who remarked, “delighted to hear India supporting expansion of the BRICS”. Senator Mushahid Hussain Syed told Arab News that “First of all, Pakistan should apply for membership in BRICS, where the lead role is with China and where India is the weakest link due to its proclivity to be part of the West’s new Cold War against Beijing.” So, BRICS membership will certainly increase Pakistan’s diplomatic leverage with regard to India in the region.

Fourth, BRICS membership could also alleviate Pakistan stature in other regions of the world. For example, in East Asia there’s Regional Comprehensive Economic Partnership (RCEP), again China is in the lead there, but Pakistan isn’t ‘Looking East’! Why? Somewhat inexplicable, not seizing opportunities when these arise.

Fifth, BRICS membership will also introduce correctness in Pakistan’s foreign policy objectives. International community brands Pakistan as a terror sponsor state. Through joining BRICS, Pakistan could divert its security-oriented approach in foreign policy in line with BRICS manifesto. Even India used BRICS forum in Xiamen to condemn Pakistan-based militant groups like Lashkari Tayyaba. So, Pakistan could also use BRICS forum to project its soft image in the world.  

In the past, Pakistan has suffered immensely by aligning itself with one group against other.  There appear clear indications that Russia and China have shown clear intent to use BRICS to counter G-7, the grouping of powerful wealthy western nations. By orienting its foreign policy away from block politics, Pakistan could potentially get more economic benefits.

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The Concept of Sustainability for the World’s Cotton Industry Amidst Geopolitical Challenges

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The textile industry is one of the industries that contributes to the largest air pollution in the world. Responsible for 10% of global carbon emissions and 20% of global water waste, the fast-fashion phenomenon also contributes to this problem. If this is allowed to continue, the effects of global warming will get worse. The concept of sustainability itself can also be a polemic for the textile industry because they are experiencing global fluctuations caused by high inflation, weakening demands, and large inventory amounts.However, high global warming will also backfire on them and weaken this industry. Cotton, which is the raw material for making textile fabrics, deeply requires water and fertile soil. With the upcoming heatwaves that will occur, many dry lands will cause difficulties in world cotton production. The United States, as one of the largest cotton producers in the world, is starting to worry about this issue. Moreover, the energy crisis adds further complexity to this problem.

The textile industry itself is trying to revive itself due to many geopolitical problems such as the trade war between China and the United States, the post-Covid-19 situation, and the war between Russia and Ukraine. Even though the Government has been aggressive in advancing green transformation, many customers’ behavior places their spending on assets, automotive, housing, and so on. The problem of inventory buildup is due to textile production continuing to run and increasing but customer enthusiasm is always decreasing, coupled with the thrifting phenomenon which is currently rising.

To focus on green sustainability is a long homework for the textile industry. Although the textile business remains slightly positive in general in the first half of 2023, there are still fears of a global recession as the Federal Bank continues to raise interest rates. However, concerns about the issue of inventory buildup have begun to be resolved. In Cotton Day 2023 held by the United States non-profit organization Cotton Council International in Jakarta, Indonesia, one of the speakers, namely Bruce Atherley (Executive Director of CCI), stated that textile business actors have begun to be careful and control the turnover of textile commodity inventories, and this has resulted in decline in world cotton demand. However, he also stated that this effort could be a good thing and there is optimism about the stability of the textile industry ecosystem. With inventory being depleted across the supply chain, it can be expected that the cotton and textile industry will return to normal and positive demand.

Referring to sustainability and green transformation programs, many textile industry business players have made a commitment to only use sustainably grown cotton by 2025. They have also made a commitment to carbon reduction. This is contained in the regulations of the European Union and the United States, Investment Groups, as well as Focus Media and Non-Governmental Organizations. CCI also stated that the trust protocol will drive continuous improvement in key sustainability metrics by leveraging quantifiable data and variable data while delivering unparalleled visibility into supply chains for brands and retail members.

The concept of circularity must also be considered in green transformation efforts in the world textile industry. Circularity is the concept of minimizing waste and reusing resources. The circular model aims to create production and consumption that can be recycled (closed loop). Circularity is the solution for sustainability. Circular strategies include eco-friendly recycling, easy-to-reset designs, products as a service (PaaS), and increased producer responsibility. The benefits we will get from this concept are reducing the amount of waste, maximizing resource conversion, increasing investment, reducing carbon emissions, increasing economic opportunities, and improving brand reputation. However, this concept can also give rise to challenges such as technological limitations in developing recycling technology, supply chain complexity in traceability and transparency, complicated regulatory framework which includes supporting policies and regulations, and unpredictable consumer behavior. Hopefully more textile and cotton commodity industry players will pay more attention to the importance of the concept of sustainability in their production processes so that carbon emissions and pollution can be reduced which then prevent the worsening condition of global warming.

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Marrakech IMF/World Bank meetings, a barometer of Moroccan development and resilience

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The recent, devastating earthquake in Morocco’s Atlas Mountains has claimed more than 2,900 lives, injured at least 5,500 people, and left thousands more homeless. Despite this tragedy, Morocco is showing to the world its resolve in the face of hardship and proceeding with its commitment to host the IMF and World Bank Annual Meetings in Marrakech between the 9th and 15th of October.

While normally held in Washington, this year Morocco will host central bankers, ministers of finance and development, private sector executives, civil society, media and academics to discuss leading global issues including world economic outlook, global financial stability, poverty eradication, inclusive economic growth, job creation, and climate change.

While it’s been a disaster that has directed the eyes of the world to Morocco, the country is nonetheless poised to show the world its capacity for global leadership, a strength ever more impressive as they do so while still clearing away the rubble. The country’s determination to proceed as host of the meetings is reflective of Morocco’s recent and broad overhaul of its international engagement vis-à-vis both multilateral organisations and its bilateral relations as the country seeks to solidify its place as a regional economic and technological leader in North Africa.

The meetings are particularly an opportunity for Morocco to demonstrate its leadership in key global industries. Morocco’s aviation and aerospace sectors have increasingly become key to the country’s economic growth, with one of the fastest growth rates globally. The Covid-19 pandemic highlighted the durability of Morocco’s aviation and aerospace industries- while demand for aviation globally dropped 49%, Morocco’s activity declined only 29%. Moreover, the Moroccan aviation sector only saw a 10% job-loss rate during the pandemic, compared to a world-wide figure of around 40%. With more than 140 companies providing 20,000 direct jobs, of which 40% are women – a high statistic when compared to international competitors – the sector is thus a key engine of Morocco’s economic trajectory, its commitment to workforce equality, and a strength in the face of challenges.

Aerospace and aviation have greater impact than simply economic return, also serving to contribute to Morocco’s influence in international security. With Morocco’s defence forces operating a wide variety of internationally developed aircraft, Morocco has recently signed a number of agreements with businesses and international actors in the sector. Notably, these agreements have included the near-shoring of production and maintenance facilities in the country, including a 2022 deal with US-based Lockheed Martin to open a state-of-the-art maintenance and repair centre. With local integration into aerospace products hitting 40% in Morocco, the sector clearly supports wider government aims of technological development and enables closer ties with many major Western powers.

In keeping with recent developmental goals, Morocco’s burgeoning tourism industry is also of note. Moroccan tourism is equally vital to international perceptions of the country, contributing more than $9 billion to the country’s GDP in 2021, even at the height of the pandemic. With a record 6.5 million visitors to the country in the first half of 2023, the sector is undoubtedly going to continue seeing massive growth. With almost 5% of total employment coming from the sector, revenues are expected grow in the region of 60-70% by 2028. Capitalising on its rich history and geographic beauty, Morocco has taken advantage of this dimension of its soft power and positioned itself as a cosmopolitan tourist hotspot.

Morocco is also positioning itself as a leader in the renewable energy sector, with the country’s solar energy sector now set to account for 20% of its total energy use by the end of the year and progress-focussed policy reforms have tackled fossil fuel subsidies, renewable energy development, and gender equality in the workplace. Further recent initiatives have included Africa’s first hydrogen-powered vehicle, its first high-speed rail network.

Internationally, a joint Morocco-UK energy project will provide 8-10% of the UK’s total electricity consumption. A 10.5 GW solar and wind farm as well as a 20GWh battery site will be constructed in the Guelmim-Oued Noun region of Morocco and linked directly to the UK via the world’s longest twin 1.8 GW high-voltage direct current (HVDC) cables that will run nearly 3,800km from Morocco to North Devon. This collaboration between Morocco and the UK is an ideal example of cross-border initiatives that properly address climate change through fostering international partnerships, and again highlights strands of Morocco’s longer-term push to deepen international engagement.

Morocco moving forward

Despite hardship, in hosting the Annual Meetings Morocco is displaying its resilience, signalling that the country remains open to both visitors and development, and making the most of the opportunity to show the world how the country is leading the way across a swathe of key international sectors. Engaging with international governance institutions has been central to Morocco’s development strategy for many years, and this opportunity to host the meetings strongly signals Morocco’s continued resolve to make its mark on the world’s stage.

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