Where Capital Gets Stuck

Nepal has prioritized foreign direct investment (FDI) for more than four decades. Since he early 1980s, successive governments have revised laws, hosted investment summits, and pledged to make the country more welcoming to foreign capital. However, the outcomes have remained modest. Between fiscal years 1995/96 and 2022/23, Nepal received FDI commitments worth Rs 442 billion. However, actual net inflows amounted to only Rs 155 billion—roughly 35% of what was pledged.

This gap between commitment and realization is not accidental. It reflects deeper structural weaknesses in how Nepal handles foreign investment across the entire investment cycle—from entry and operation to reinvestment and exit. While policy intent has often been positive, execution has remained uneven and unpredictable. The experiences of Dangote, Ncell/Axiata, and Dabur Nepal show where, and how, capital repeatedly gets stuck despite repeated reforms.

Case 1: Dangote’s Nepal Cement Dream

Around 2013, Africa’s richest industrialist, Aliko Dangote, turned his attention to Nepal. The proposal was ambitious by any standard: a lump-sum FDI commitment of $550 million-800 million to build a state-of-the-art cement plant with an installed capacity of 6,000 tons per day. For Nepal, such an investment would have marked a decisive shift in its manufacturing trajectory, industrial scale, and export potential.

Initial approvals were granted, and a subsidiary company was duly registered. However, the project did not progress beyond the planning stage. The principal obstacle was access to limestone mining. Dangote sought a dedicated limestone mine—an entirely reasonable requirement for a cement project of that scale and technological sophistication. That condition, however, was never fulfilled. Bureaucratic delays, regulatory ambiguity, and resistance from vested domestic interests gradually eroded momentum. By 2019, Dangote’s representatives had begun withdrawing from Nepal, effectively ending the project.

The collapse of the Dangote proposal was a major setback for Nepal’s cement industry. Its broader implications, however, were even more significant.

Beyond the immediate loss of hundreds of millions of dollars in potential FDI, the episode exposed Nepal’s inability to operationalize approvals and align multiple agencies around a single large investment. For a country seeking to climb the manufacturing value chain, the failed Dangote investment remains a cautionary tale about how entry barriers  alone can derail transformational capital.

Case 2: Ncell, Axiata, and the Cost of Uncertainty

If the Dangote case highlights Nepal’s difficulty in attracting large investors, the Ncell saga demonstrates how regulatory unpredictability during operations can undermine investor confidence even after entry.

In 2016, Malaysia’s Axiata Group acquired TeliaSonera’s controlling stake in Ncell for around $1.03 billion, making it one of the largest foreign investment transactions in Nepal’s history. Initially, the deal appeared to confirm that Nepal could host large-scale telecom capital. That optimism was short-lived. 

Soon after the acquisition, disputes emerged over capital gains tax (CGT) payment. Officials began taxing the transaction which triggered disagreements over whether the deal was taxable in Nepal and, if so, how liability should be assessed. While the matter moved through the courts, regulators withheld dividend repatriation and foreign-exchange approvals. Although courts allowed repatriation in late 2017,  subsequent directives and enforcement actions again restricted it.

From an investor’s perspective, the experience amounted to moving goalposts. Axiata had completed a legal, internationally disclosed transaction and sought clarity on its CGT liabilities. The company ultimately paid around Rs 47 billion, describing the payment as “full and final.” Despite this, dividend remittances remained frozen for years, and the company faced repeated tax notices and prolonged legal uncertainty stretching nearly seven years.

There is little dispute that the legal intricacies surrounding taxation were  complex. However, the prolonged ambiguity, politicized communication, and lack of coordinated resolution sent a chilling signal to potential investors. In 2023, an International Centre for Settlement of Investment Disputes (ICSID) panel ruled in favor of Nepal’s right to tax the transaction. By then, however, the damage to investor confidence had already been done.

A senior Nepal Rastra Bank (NRB) official said even if Nepal was not wrong to tax the deal, it handled the process in a way that felt hostile and unpredictable. Tax uncertainty, uneven regulatory coordination, and opaque processes froze dividend flows and frustrated legitimate repatriation. In November 2023, Axiata announced its decision to exit Nepal altogether, citing unfair taxation and regulatory unpredictability. The lesson was stark: even profitable foreign  investors will walk away if rules shift midstream and exits become arduous.

Case 3: Dabur Nepal and the Reinvestment Odyssey

Dabur Nepal, one of the country’s most successful joint ventures, highlights a different but equally damaging  weakness in Nepal’s FDI environment: the difficulty of reinvestment. When  Dabur decided to reinvest Rs 9.68 billion (approximately $80 million) to expand its operations, it expected a routine approval process. Instead, the proposal turned into a prolonged odyssey lasting nearly three years. Although the Office of the Investment Board Nepal (OIBN) approved the reinvestment plan in February 2022, the formal memorandum of understanding was signed only in April 2023.

For a company operating in Nepal since 1992, with one of the country’s most extensive consumer-goods distribution networks and a contribution of more  than 5% of total exports, the delay was deeply frustrating. For investors more broadly, the episode highlighted systemic problems: overlapping mandates between the Department of Industry and the OIBN, slow document vetting, frequent staff transfers, and discretionary application of foreign-exchange rules.

Economists point out that reinvestment should be one of the easiest forms of FDI to facilitate. Capital is already in the country, the investor is established, and the risks are relatively well understood. Yet in Nepal, reinvestment often proves  as difficult as—or harder than—new entry. If an established multinational such as Dabur struggles to reinvest its profits, new investors are likely to think twice before entering Nepal, let alone committing additional capital.

Dabur Nepal’s Business Head, HS Bedi, captured this reality bluntly after the approval was finally secured. Succeeding in Nepal, he said, requires patience, resilience, and the ability to navigate adversity—qualities that are hardly reassuring selling points for an investment destination.

Beyond the Big Names: A Broader Pattern

The challenges faced by Dangote, Ncell, and Dabur are not isolated incidents. Across sectors—particularly energy and hydropower—foreign-backed projects have repeatedly encountered regulatory, commercial, and bureaucratic hurdles  that have delayed, diluted, or derailed investments. Norway’s Statkraft withdrew from the $1.5 billion Tamakoshi-III hydropower project in 2016, citing regulatory and policy uncertainty. China Three Gorges International exited the West Seti project in 2018 after extended delays and concerns about project viability. Contracts for the Budhi Gandaki reservoir project were revoked amid financing and governance disputes.

Independent power producers, many with foreign partners or foreign-linked financing, continue to report transmission bottlenecks, forest and land-clearance delays, licensing uncertainty, and stalled IPO approvals. Industry associations point to regulatory obstacles and changing rules that have blocked project finance and delayed commissioning. As Ncell CEO Michael Foley has observed, although there has been progress in digitization  and some efforts toward standardization, procedures remain layered and unpredictable. What ultimately matters to investors is not the number of reforms announced, but the consistency with which rules are applied.

Investment Flows: Commitments vs Reality Nepal has formally prioritized FDI since the early 1980s, supported by successive revisions of the Foreign Investment and Technology Transfer Act and related laws. On paper, the framework has steadily improved. According to Nepal Rastra Bank’s Survey on FDI in Nepal 2023/24, gross FDI inflows increased by 6.2% to Rs 8.5 billion, while total FDI stock grew by 12.7% to Rs 333 billion. Nepal has attracted investment from 60 countries, with India accounting for the largest share of total stock, followed by China, Singapore, Ireland, and South Korea.

Between 1995/96 and 2022/23, Nepal received FDI commitments worth Rs 442 billion but attracted only Rs 155  billion in net inflows—about a third of what was pledged. The gap between approvals and actual capital deployment has persisted across political cycles, policy regimes, and economic conditions. As OIBN Spokesperson Pradyumna Prasad Upadhyaya bluntly observed in 2024, “Nepal has no lack of interest; it has a lack of delivery.” Investors routinely point out that while approvals may be granted, translating them into functioning projects often proves difficult due to delays in land acquisition, licensing, foreign-exchange clearance, environmental permits, and inter-agency coordination.

Ncell CEO Foley echoes this concern, stating that Nepal compares poorly with peer economies. “Nepal has among the lowest FDI inflows, lowest GDP growth rates, and one of the highest tax-to-GDP ratios among comparable countries, including those with similar or even lower income levels such as Rwanda and Ethiopia,” he said.

Repatriation: The Quiet Flashpoint While inflows dominate political and media discourse, outflows—particularly profit and dividend repatriation—have emerged as one of Nepal’s most sensitive and consequential FDI fault lines. In theory, Nepal’s laws guarantee foreign investors the right to repatriate profits, dividends, royalties, and capital gains after meeting tax obligations. In practice, that right is often difficult to exercise.  Economists and investment experts say that rising repatriation is not inherently negative. It represents returns on successful investment and is a normal feature of integrated capital markets. “Repatriation of profits and dividends  should not be viewed negatively,” explained Siddhant Pandey, Chairperson and CEO of Business Oxygen. “If investors cannot take profits home, they will simply not invest in the first place.”

The problem lies in the process. Firms seeking repatriation must navigate multiple agencies—the Department of Industry, NRB, tax authorities, and sometimes sector regulators—each with its own documentation requirements and timelines. This results in delays, uncertainties, and, in some cases, politicization.

According to NRB, approved dividend repatriation fell to Rs 12.6 billion in 2023/24, the lowest level in three years, despite an increase in overall investment approvals. Over the past eight years, foreign firms operating in Nepal have repatriated more than Rs 162 billion in dividends, with telecommunications, banking and insurance, aviation, and manufacturing accounting for the largest shares.

Ncell remains the single biggest source of dividend repatriation and, consequently, a focal point of public debate over outflows.  Banking institutions such as Standard Chartered Bank Nepal and insurance companies including MetLife Nepal have also made regular remittances. Yet even  well-established firms have experienced delays. “The process is legal, but it is not predictable,” an OIBN official said, speaking on condition of anonymity. “Companies can meet all requirements and still wait months for approvals.”

Paperwork, Sequencing, and the View from Impact Investors

The experience of impact investors reinforces these concerns. Dolma Impact Fund, a Mauritius-registered investor with stakes in hydropower and healthcare in Nepal, has faced prolonged approval timelines despite supportive policy language.

“Our experience shows that while policy intent is positive, implementation remains  uneven,” says Dolma CEO Tim Gocher. One of Dolma’s approvals took over 13 months. He says that sequencing itself creates risk: transactions may close, but approvals lag behind, exposing investors to material financial uncertainty.

Unclear tax practices, delayed  approvals, restrictive loan conditions—such as capped interest rates on NPR-denominated loans—and high withholding taxes on international borrowing all shape investment appetite. In contrast, countries that have successfully attracted long-term foreign investment, including Mauritius, Singapore, Rwanda, and India, emphasize predictability, regulatory clarity, fast-track approvals, and neutral dispute-resolution mechanisms.

Understanding Investor Motives  To understand why these procedural bottlenecks matter so deeply, it is useful to step back and examine what drives foreign investment decisions. According to the United Nations Conference on Trade and Development (UNCTAD), global FDI is motivated by three broad objectives: resource-seeking, market-seeking, and technology-seeking. Measured against these criteria, Nepal presents a paradox. The country’s hydropower potential and strategic location between India and China suggest opportunity. Yet its domestic market remains small, logistics costs are high, and technology ecosystems are shallow.

Nepal does not offer large-scale resource extraction, a sizable consumer base, or a strong network of research and technology transfer. So why do investors come? More often  than not, they are drawn by niche opportunities—hydropower projects that sell electricity to the national grid, manufacturing firms serving domestic consumption, or service-sector ventures filling gaps in supply. These are inherently higher-risk bets. When economic fundamentals do not provide scale, investors rely even more heavily on legal stability and regulatory predictability. If profit repatriation becomes uncertain, the business case quickly unravels. This dynamic is especially acute in hydropower. Projects require heavy upfront capital and operate on 15- to 20-year horizons. Even minor regulatory uncertainty—over tariffs, taxation, or dividend approvals—can significantly alter project economics. Investors respond by demanding higher returns or redirecting capital elsewhere.

Easing the Rules, Slowly

There are some silver linings though. In September 2024, NRB eased rules for foreign nationals working in Nepal, allowing them to transfer up to 75% of their income directly through commercial banks without separate approval.

The reform addressed long-standing complaints from expatriate professionals, who previously faced weeks-long approval processes.

Similarly, NRB revised foreign-exchange regulations in mid-2024 to allow certain firms to repatriate dividends by making a self-declaration. The central bank’s monetary policy for 2025/26 also acknowledged the need to facilitate repatriation of principal, interest, and dividends. These measures suggest growing awareness among policymakers. However, Nepal has historically struggled to translate announcements into consistent practice. Administrative discretion remains high, timelines remain uncertain, and coordination gaps persist.

Way Forward: The Trust Deficit

For a small, landlocked economy competing with far larger neighbors, ease of exit should be a competitive advantage—not a bottleneck. As one OIBN official said, when investors can exit smoothly—paying taxes, repatriating profits, and perhaps returning with more capital—the system gains credibility. When exits are mired in paperwork, suspicion spreads faster than policy assurances. At the core of the problem is trust. Foreign investors are pragmatic: they understand that developing economies carry risk. What deters them is not taxation itself, but unpredictability—taxes imposed retroactively, approvals dependent on personal discretion, and policies reversed midstream. As one analyst puts it, “Investors can live with red tape if it is consistent. In Nepal, it changes with every desk.”

Nepal’s challenge becomes clearer when viewed through UNCTAD’s lens. The country does not rank strongly as a resource-seeking, market-seeking, or technology-seeking destination. Its appeal, therefore, must rest on other strengths: ease of doing business, policy stability, and predictable exit options. Yet the very area that should compensate for structural disadvantages—the freedom to move profits and savings—is precisely  where bottlenecks persist.

This mismatch is most visible in investor psychology. When dividend repatriation is delayed, firms perceive hidden risk and raise their required rate of return. Some defer expansion; others redirect capital to India, Bangladesh, or Vietnam, where repatriation is routine. Nepal thus risks becoming an economy that attracts interest on paper but struggles to secure real commitment.

In a world where capital moves at the click of a mouse, countries compete not only on what they offer investors, but also on how easily investors can exit. For Nepal, ensuring that profits, dividends, royalties, and even expatriate salaries can move across borders swiftly and transparently is not a technical detail—it is central to credibility. Without that assurance, bureaucratic red tape will continue to choke the very investment the country seeks to attract.

(This report was originally published in January 2026 issue of New Business Age magazine.)