Foreign Direct Investment (FDI) in Agro and Forest-Based Industries in Nepal is a crucial component for the economic development of the country, particularly in promoting industrial growth, creating employment opportunities, and enhancing access to technology and international markets. These sectors contribute significantly to rural livelihoods, value chain development, export earnings, and sustainable natural resource management. FDI encourages Nepal to transition from traditional agricultural practices toward commercial and technology-driven production systems that can boost productivity and global competitiveness.
The Government of Nepal has introduced several policies and regulatory frameworks to attract foreign investment in prioritized sectors such as agriculture processing, herbal industries, forest-based enterprises, livestock development, and commercialization of high-value crops. By strengthening forward and backward business linkages, foreign investment helps increase income generation, ensures resource utilization, and supports Nepal’s overall economic stability.
Abstract
Foreign Direct Investment (FDI) plays a crucial role in accelerating industrial growth, technology transfer, and employment creation in Nepal. The agro and forest-based industries are central to Nepal’s economy but remain underdeveloped due to insufficient domestic investment. FDI can boost value addition, productivity, and global market integration. Although Nepal allows up to 100% foreign ownership in agro-processing industries, actual investment inflows remain limited because of infrastructure constraints, regulatory hurdles, and fragmented landholdings. This paper analyzes the current status, opportunities, legal provisions, and challenges of FDI in Nepal’s agro and forest-based industries while proposing strategies for sustainable economic growth and environmental protection.
Introduction
Agriculture is the backbone of Nepal, involving more than 60% of the workforce and contributing significantly to rural incomes and food security. Forest-based industries—such as herbal products, paper, resin, and timber processing—also generate employment and export earnings.
However, these sectors are characterized by:
- Low productivity
- Traditional farming practices
- Limited processing capacity
- Weak infrastructure and market access
FDI can help bridge these gaps by introducing:
- Modern machinery and technology
- Better storage and processing facilities
- Export-oriented production and global marketing channels
The Foreign Investment and Technology Transfer Act (FITTA) 2019 allows full foreign ownership in agro-processing and secondary agro-industries. Primary agriculture is partially restricted unless at least 75% of the production is exported. Despite policy support, FDI inflow in this sector remains lower than expected.
Current Status of Agro and Forest-Based Industries in Nepal
Nepal’s diverse climate and rich resources create significant potential for agriculture, forestry, and non-timber forest product (NTFP) industries. According to the Department of Industry:
📌 Registered agro and forestry-based industries under FDI:
- 1 project in FY 2079/80
- 8 projects in FY 2080/81
This shows growing investor interest in Nepal’s agricultural and forestry value chains, especially in processing and high-value products.
Scope of FDI in Agro and Forest-Based Industries
1️⃣ Fruit & Vegetable Processing
- Value-added products: juices, jams, dried fruits, canned vegetables
- Helps reduce 20–30% post-harvest losses
- Expands domestic and export markets
2️⃣ Tea and Coffee Production & Branding
- Demand rising in Europe, U.S., and Japan
- FDI brings advanced roasting, fermentation & packaging technologies
- Improves global branding (similar to Nepal Himalayan Tea & Coffee)
3️⃣ Silk and Medicinal Herb Processing
- Nepal is rich in wild herbs & sericulture potential
- FDI supports commercialization & premium export markets
- Helps brand Nepal as a natural herbal hub
4️⃣ Rubber Processing Industries
- Import dependence on rubber is high
- FDI can foster local raw materials for manufacturing tires & mats
5️⃣ Cold Storage and Logistics Infrastructure
- Reduces wastage of perishable goods
- Helps stabilize prices & support year-round supply chains
6️⃣ Paper, Resin & NTFP-Based Industries
- Sustainable utilization of forest resources
- Supports rural entrepreneurship
- High export potential (Lokta paper, essential oils, resins)
7️⃣ Tissue Culture & Greenhouse Technology
- Enables mass production of disease-free, high-yield plants
- Beneficial for floriculture and high-value crops
✅ Overall Outcomes of FDI in This Sector
| Impact Area | Benefits |
| Employment | Rural job creation—youth & women |
| Export diversification | Value-added products vs raw agricultural exports |
| Technology upgrade | Modern farming & processing techniques |
| Rural development | Strengthened supply chains & income growth |
Legal Framework for FDI in Agro & Forest-Based Industries
| Policy / Act | Key Role |
| FITTA 2019 | FDI approval, repatriation, investor protection |
| Industrial Enterprises Act 2020 | Licensing, incentives, industrial operation |
| Forest Act 2019 | Sustainable use of forest resources |
| Environment Protection Act 2019 | EIA/IEE guidelines for environmental compliance |
▶ 2021 Major Policy Reform
The negative list of FITTA was amended on 4 January 2021, allowing foreign investment in previously restricted primary agricultural activities, provided:
At least 75% of production is exported
- Sectors opened:
- Poultry
- Fishery & aquaculture
- Bee-keeping
- Dairy farming
- Fruit & vegetable farming
- Oilseed & pulse production
Responsible Authorities for FDI
| Authority | Responsibilities |
| Department of Industry (DoI) | Approval & monitoring of projects below NPR 6 billion |
| Investment Board Nepal (IBN) | Approves large projects above NPR 6 billion |
| MoFE | Ensures sustainable use of forest & environmental clearance |
| MoALD | Agricultural regulations & coordination with value chains |
Documents Required for FDI Approval
- Investment Proposal Application
- Detailed Project Report (DPR)
- MOA, AOA & Incorporation Certificate
- Passport copy of investor(s)
- Audited financial statements of foreign company
- Joint Venture / Technology Transfer Agreement (if any)
- Board Resolution authorizing investment
- Power of Attorney for local representative
- IEE/EIA environmental documents
- Capital transfer proof or bank guarantee
Step-by-Step Legal Procedure for FDI in Nepal
1️⃣ Submit Investment Proposal (DoI / IBN)
2️⃣ Obtain Foreign Investment Approval
3️⃣ Register company with OCR
4️⃣ Obtain industry license
5️⃣ PAN & VAT registration
6️⃣ Environmental clearance (IEE/EIA)
7️⃣ Register Technology Transfer Agreement (if needed)
8️⃣ NRB approval for foreign exchange & profit repatriation
9️⃣ Obtain local land use and operational permits
🔟 Start industrial operations
Challenges Limiting FDI Inflows
| Challenge | Impact |
| Poor infrastructure & logistics | Higher production & transport costs |
| Land fragmentation | Difficulties acquiring industrial land |
| Lengthy regulatory procedures | Slower project execution |
| Inadequate market linkage | Limited export competitiveness |
| Environmental compliance complexity | Project delays |
Conclusion
FDI in Nepal’s agro and forest-based industries offers an opportunity to modernize agriculture, promote rural industrialization, and reduce dependency on imported goods. Policy reforms such as the FITTA amendment have made the sector more investment-friendly. However, improving infrastructure, land policy, and regulatory efficiency is essential.
With strategic reforms and stronger coordination among DoI, IBN, MoFE, and MoALD, Nepal can unlock the full potential of its natural resources—ensuring sustainable, inclusive, and export-driven growth.