One of my clients recently engaged me to advise them in matters related to the capacity increment of their industry and also an injection of investment through foreign investment. In Nepal, the Department of Industry is the relevant authority to provide relevant approvals in the matter. Based on the prevalent law at that time, we structured everything in a way that it only required bare minimum approvals as the client needed the funds immediately to cover the reconstruction work and also operational expenses.
The particular industry being a hotel, we increased that capacity from 30 beds to 45 beds to keep it under the threshold of 50 beds because the Environment Protection Regulation 1997 requires any hotel above 50 beds to 100 beds to conduct Initial Environment Examination (IEE) and hotel beyond 100 beds to conduct Environment Impact Assessment (EIA). IEE usually takes around 3 to 6 months, while the EIA process takes almost over a year to complete.
Hence, the client accordingly applied for an increment of capacity and capital, just before the new Environment Protection Act 2019 came into effect scrapping the earlier legislations and hence requiring the Ministry of Forest and Environment to frame new Environment Protection Regulation.
When the client’s file came up for processing at the Department of Industry, the officials now faced a dilemma as to how to process with the approval. They did not know what threshold would the new Environment Protection Regulation specify for the requirement of IEE and EIA and could not proceed as per the old regulations as they were already scrapped. This has caused a long delay.
In this particular case, it was a grey area but the problem is more persistent in cases where it was clear under the earlier regulation to conduct IEE and EIA and had even engaged the consultants but their work came into halt due to absence of regulation.
It has been more than a month since I inquired the Information Officer at the Ministry of Forests and Environment, Government of Nepal, regarding the new Environment Protection Regulation and I was notified that they were working on the draft and should be ready in a week or so. And it is only yesterday that a draft has been put up for comments and suggestions in the ministry’s official website.
A LOT OF work e.g. registration of industries, increment of capacity of existing industries have been held up due to lack of any transitional provision during the period after the new law is passed by the parliament and the rules thereunder are finalized by the concerned government ministry.
In the above case, the parent act was passed in October 2019 and its already January 2020, a vacuum of 3 months (not so significant) but businesses are suffering due to their approval being held up in absence of the transitional provision based on which the government officials are to process these applications.
In one of my interaction with a Director at the Department of Industry, they have time and again requested the concerned ministry for a circular to proceed during such transitional period but has not resulted in anything specific. According to him:
One industry was complaining the it had to incur a daily cost of NPR 1.4 million as the installation team has already arrived but the approval process was still pending due to lack of clarity regarding the EIA process.
Similar is the case with the Foreign Investment & Technology Transfer Act 2019 and the Industrial Enterprises Act, which are the relevant legislation in matters relating to foreign investment approval, industry registration and approval, without which a new industry cannot be set up or an existing industry cannot be expanded. The parent acts leave a lot of issues to be covered by the regulations which often take a very long period to be issued and no transitional provisions are specified.
If only, a circular to the effect that the older provisions apply until the new regulations under the new parent acts would do a lot. Also I do not see a rush in specifying the effective date for a new act until its implementation is possible. They can always specify that the new law will come into effect along with its regulation or set a specific deadline for the transition.
It only shows the lack of commitment from the government when it talks about increasing foreign investment by speeding up the investment approval process (which at least takes 3 to 6 months, even longer than before in some cases). The One-Stop Center established with the idea to provide one window solution acts as a window but with many doors that the investor or the service seeker is required to knock to get the approval done.
It is no surprise that Nepal ranks 135 among 190 countries in “starting a business” as per the Doing Business Report 2020 with Bhutan doing far better at 103.
In a way, the existing foreign investors are also frustrated due to the changes that have been made by the new regulations (e.g. restricting the number of representative visas in case of corporate investors, no procedure specified for 5-year visa for which a lot of them were eligible under the earlier regulations, 10 fold increment of the minimum investment limit per investor, some industries like language training put in the negative list, requirement restricting loan investment from financial institutions only). This is only the tip of the iceberg and few regular issues that are discussed and forgotten but no concrete strategic actions are formulated to address them.
Actions should speak louder than words!
Nepal may organize as many as investment summits to promote itself as an investment destination but until and unless the commitments made in these forums are implemented and basic ground rules are made clear and concise, it is going to be really difficult to see the expected results. There may be lessons to be learnt from Vietnam and Myanmar who are establishing themselves as credible investment destinations.
Does it? Does Nepal really value the FDI? Investors will soon question this if drastic improvement measures are not taken immediately.