KATHMANDU: In November 2013, Nigerian billionaire Aliko Dangote’s company, Dangote Group, received approval from Investment Board Nepal to establish a cement industry in Nepal. On May 27, 2014, it registered a company named Dangote Cement Nepal Pvt. Ltd. at the Office of the Company Registrar. The group also paid a government fee of 5.74 million rupees.

Operating cement plants in 10 countries including Cameroon and South Africa, Dangote had proposed an investment of 550 million U.S. dollars to establish its industry in Nepal. The company requested a mine that could supply raw materials for daily production of 6,000 tons. However, government agencies including the Investment Board Nepal responded that mines could not be handed over to Dangote without a competitive tender process. That is where Dangote got stuck.

Sometime later, the government opened applications for mining licenses. Dangote submitted its technical proposal, but it was rejected in the very first stage.

The proposal was not rejected because of technical weakness. Instead, Dangote was blocked from entering Nepal under the influence of local industrialists, who feared losing their market share if such a powerful multinational entered the sector.

Dangote had set two basic conditions for investing in Nepal. First, it wanted to establish the industry with 100% foreign investment without a local partner. Second, it required a mine that could support a daily production of 6,000 metric tons.

Despite nearly ten years of effort, the company could not reach a conclusion on running a cement industry in Nepal. Ultimately, Dangote abandoned its investment plan in Nepal and returned to Nigeria.

This stands as one example of how large-scale foreign investment has been restricted in Nepal.

Similarly, Nepal’s largest proposed hydropower project, the Karnali–Chisapani Project, has remained stranded for 65 years due to India’s lack of cooperation. The project was estimated to generate 10,800 megawatts of electricity, and its story traces back to King Mahendra’s reign.

In 1960, during King Mahendra’s visit to the United States, discussions led to a study of the Karnali–Chisapani multipurpose project through the World Bank and the United Nations Development Programme (UNDP). The study concluded that the project could generate more than 10,000 megawatts of electricity.

To prepare manpower for this project, Nepali students were even sent to India’s Roorkee University on United Nations scholarships to study engineering. Former Secretary Dwarikanath Dhungel, in his book Nepal’s Water Resources in a Vicious Circle, writes: “A total of 410 students returned with engineering degrees. Most of the manpower trained to work on that project have now retired.”

In 1965, then Prime Minister Kirti Nidhi Bista argued that Indian involvement was necessary in the Karnali–Chisapani project. Since then, the project became entangled in bilateral disputes. After the Mahakali Treaty and the Nepal–India energy trade agreement, American multinational Enron submitted a letter of intent for the project to then Prime Minister Sher Bahadur Deuba in 1996. But Enron was never granted permission to build it. To this day, the Karnali–Chisapani project remains stalled.

These two cases are enough to illustrate why the presence of multinational companies in Nepal has remained weak. In many cases, domestic industrialists’ lobbying, lack of government cooperation, and geopolitical interests have prevented multinational companies from establishing a strong foothold in Nepal.

Successful multinational companies

Several multinational companies operating in Nepal are making encouraging profits. One such company is Surya Nepal. Established in Nepal in 1982, this multinational has 59 percent shareholding by ITC India Ltd., 39 percent ownership by Nepali investors, and the remaining 2 percent by British American Tobacco Ltd. Among its Nepali investors are former King Gyanendra Shah and Siddhartha Shumsher Rana.

In 1965, then Prime Minister Kirti Nidhi Bista argued that Indian involvement was necessary in the Karnali–Chisapani project. Since then, the project became entangled in bilateral disputes.

Dominating Nepal’s cigarette trade, Surya Nepal has been distributing dividends of around 10 billion rupees annually to its investors. In 2023, the company reported a cigarette business worth 29 billion rupees. In addition, it has recently diversified into producing confectionery, incense sticks, and biscuits.

Another successful multinational in Nepal is Unilever Nepal Ltd., a subsidiary of the London-based British multinational Unilever. The company manufactures cosmetics, personal care, and hygiene products. In Nepal, it produces brands such as Dove, Close-Up, Glow & Lovely, and Lifebuoy. Hindustan Unilever owns 80 percent of Unilever Nepal, while businessman Ravi Bhakta Shrestha’s Shree Bikram Land and Industrial Company holds 5 percent, and the remaining 15 percent is owned by the general public.

Unilever’s shares are the most expensive on Nepal’s stock exchange. On August 31, the company’s shares closed at 48,000 rupees per unit. The company also declared a dividend of 1,714 rupees per share from its accumulated profits until the last fiscal year.

Other multinationals like Dabur Nepal, Pepsi, Asian Paints, Berger, and Johnson & Nicholson are also doing strong business in Nepal. In the hospitality sector, several international hotel chains have entered Nepal, including Marriott International, InterContinental Hotels Group (IHG), Hilton, Radisson, and Taj Hotels.

Chinese-invested cement industries like Hongshi and Huaxin are also performing well in Nepal. Similarly, foreign-invested banks such as Standard Chartered Bank, Nepal SBI Bank, and Himalayan Bank are earning good revenue.

In the last fiscal year, the government honored Dabur Nepal as the company with the highest export revenue and tax contribution from Nepal. In the energy sector, the Bhote Koshi Power Company, backed by American investment, was recognized as the highest taxpayer. Hongshi Cement was honored for timely payment of Value Added Tax, while in the special industries category, Varun Beverages Pvt. Ltd., which produces Pepsi, received recognition.

When it comes to paying the highest dividends to investors and the highest taxes to the state, multinational companies consistently lead the way. Companies with foreign investment such as Ncell, Surya Nepal, Gorkha Brewery, and Nabil Bank rank among the top taxpayers in Nepal.

Why have more multinational companies held back from investing in Nepal?

Surya Nepal, one of the multinationals operating in the country, owns about 72 ropanis of land in Budhanilkantha. The company had announced plans to build a five-star luxury hotel there with 100% foreign investment. The project was set to introduce “Welcome Hotel”, a well-known brand under ITC Hotels. However, due to land-related disputes, the project remains stuck. Initial studies indicated that about 6 billion rupees would be needed for the construction of the hotel.

Another example of how foreign investment is pushed away from Nepal is a solar energy project. India’s state-owned power company, the National Thermal Power Corporation (NTPC), was in talks with Nepali entrepreneurs to enter Nepal as a power production company. It has already been a year and a half since NTPC submitted a detailed proposal seeking approval. Yet, Nepal has not given any response.

Unilever’s shares are the most expensive on Nepal’s stock exchange. On August 31, the company’s shares closed at 48,000 rupees per unit. The company also declared a dividend of 1,714 rupees per share from its accumulated profits until the last fiscal year.

Sunil KC, president of the Nepal–India Chamber of Commerce and Industry, who has been leading efforts to bring NTPC into Nepal, says:

“The plan is to start with 100 megawatts and expand to 800 megawatts of solar power, exporting it to India. Once implemented, this would become a 100-million-dollar project.”

In the past decade, very few multinational companies have entered Nepal. Yet, around 40% of the world’s population lives in the countries surrounding Nepal. For industries based in Nepal, China and India could serve as huge markets, and multinationals investing in Nepal could benefit from this. Nepal’s labor market is also inexpensive. Sectors such as agriculture, tourism, information technology, and manufacturing remain largely untapped for investment.

Former CEO of the Investment Board and investment expert Radesh Panta says foreign investors are discouraged because Nepal’s political leaders and governments fail to recognize the importance of investment.

“In most countries, multinational companies create win-win situations. Even if the market is small, Nepal has many resources,” Panta says. “But in Nepal, providing incentives for multinationals has never been a priority for political parties or governments.”

Nepal has ample potential for assembling plants. Large-scale mines have been identified, but there are no investors. There is also vast potential in hydropower, solar energy, infrastructure development, and operations. Panta adds, “Simply giving speeches that Nepal is investment-worthy will not bring investors. We must present clear facilities, potential sectors, and the markets for products made in Nepal. Unless the government’s commitments and stability are proven in practice, no one will invest.”

Nepal’s tax policy is also seen as unstable. Attracting investment is not a priority for policymakers. Former government secretary and trade expert Purushottam Ojha says, “The international community perceives Nepal as politically unstable. Although laws have been amended to create an investment-friendly environment, the government shows apathy in implementation.”

Nepal has never had an elected government complete its full five-year term. Frequent changes of government bring frequent reshuffling of civil servants, essentially replacing entire office setups. New staff take time to understand their environment. Moreover, Nepal lacks a culture of maintaining institutional records and building on past work.

Another problem for investors is land ownership limits. Large industries require large plots, but Nepali law only allows up to 11 bighas in the Terai, 30 ropanis in Kathmandu Valley, and 15 ropanis in the hills. Any landholding beyond these limits is subject to confiscation.

On the other hand, it is extremely difficult to find land as per the industry’s needs. Collecting land under different individuals’ names takes years. Once a foreign company shows interest, land prices skyrocket to unaffordable levels. In addition, fulfilling regulatory requirements for running an industry can take years—industrialists say even an Environmental Impact Assessment (EIA) can take up to five years to complete.

Ojha says tax policy is another major reason investors are discouraged in Nepal, “The problem lies in the instability of Nepal’s tax system. With every change of government, tax policies change. Moreover, companies already investing in Nepal complain that it is not even easy to repatriate dividends.”

Currently, to establish a company, approvals must be obtained from all three levels of government, and taxes must also be paid at all three levels. This has been discouraging investors.

Former CEO of the Investment Board and investment expert Radesh Panta says foreign investors are discouraged because Nepal’s political leaders and governments fail to recognize the importance of investment.

While companies wanting to invest in Nepal face bureaucratic hurdles at every step, neighboring countries like China adopt easy policies to attract investment. In China, foreign investors get 10 years of tax exemption. The government fully facilitates the establishment and operation of industries, and banking transactions face no unnecessary scrutiny.

In the United Arab Emirates (UAE), investors can obtain a three-year residential visa within hours and immediately access banking services. All procedures are streamlined to remove hassles for investors.

In some countries, weak laws benefit taxpayers, but in Nepal, the opposite is true: weak and disputed laws create hassles for taxpayers. Political leaders and bureaucrats exploit these weaknesses to extract illicit money, effectively creating a web of red tape for personal gain.

Stakeholders believe that word of these hassles has spread internationally, making new companies hesitant to enter Nepal. Pant remarks:

“We have not even been able to facilitate existing multinationals. Instead, unnecessary obstacles and complications have been created. In some cases, companies themselves may have carried their negative experiences abroad.”

Government officials admit that political leaders often impose direct conditions on foreign investors, such as appointing their own people. Director General of the Department of Industry Rajeshwar Gyawali says, “Foreign investors familiar with the habits of Nepal’s high-ranking political and administrative officials often avoid meeting them. They don’t want to be pressured into making appointments for their associates while in office or after leaving office.”

One of the most important complaints of foreign investors in Nepal is the burden of taxes. Another discouraging factor is the country’s weak governance.

Sunil KC, president of the Nepal–India Chamber of Commerce and Industry, notes, “Investors have to bargain with political parties and their leaders and cadres. They complain about the lack of good governance. Unless these issues are addressed, it will be very difficult for multinational companies to come to Nepal.”