According to the latest World Investment Report 2010 published by United Nations Conference on Trade and Development (UNCTAD), the trade, investment and development body of the UN, Nepal is at the bottom on the list of “Least Developed Countries” in attracting foreign investments.
The report said that from 1990-2008, Foreign Direct Investment increased in all the least developed countries except Nepal, Burundi, Eritrea, Samoa and Timor-Leste. It also said that the contribution of FDI to the economy of the LDCs’ has been rising since 1990 and further accelerated after 2000 due to rise in commodity prices, economic reforms and creation of new investors in the developing countries.
In Nepal, FDI inflow started in the 1990s. It was the best period of FDI in the country’s history. Investors were attracted due to a series of economic reforms making the policies, acts and regulations more liberal such as removing the requirement of import licenses, full convertibility of the Nepali rupee, introducing flexible policies for joint-venture financial institutions, introducing new Foreign Investment and Technology Transfer Act. Due to the good flow of FDI, Nepal’s economy grew at an average 5.2 percent per year from 1992-1996.
According to Bhola Chalise, Former Industry Secretary, political instability is driving away investors from the country. He said, "In the last seven or eight years, we've neither stability in politics nor better infrastructure including power,"
After the fall of King Gyanendra, there was a renewed interest among foreign companies and in
FY 2007-08, Nepal received FDI worth Rs.9.81 billion, the highest in the last twenty years but then the interest gradually faded.
Increasing power of trade unions, poor law and order situation and most importantly the conflict of the political parties made it very difficult for foreign investors to invest in the country.