There are other finance and investment professionals in Nepal. How are AIPN different?
Our members will be required to sign onto a code of ethics they agree to adhere to during their membership. In addition, most will have some affiliation with the credentialing programs of the CFA Institute. Either they will be CFA charter holders or CFA candidates at different levels of progress. We will focus strongly on ethical investment practice, adoption of international best investment practices and increasing financial literacy among the investment public for the ultimate benefit of the society. Finally, we will have strong institutional support from the CFA Institute, the standard setter for the global investment industry.
What are some of the key elements that hinder investment in Nepal?
Foreign investments come in two types: Portfolio and Direct. Nepal’s capital market is not ready for portfolio investments since we do not have the liquidity nor the depth that portfolio investors would expect. Besides, the regulatory framework does not exist to allow for such investments.
For foreign direct investment are the risk adjusted returns acceptable to the investor? Why should a foreign investor come to Nepal when there are 200 plus countries to choose from? There must be a compelling profit motive for them. If I can make similar risk adjusted returns in my own country or a nearby country (home country bias) why should I go all the way to Nepal to invest? Therefore, we as a country need to determine how much initial cost we are willing to bear for longer term benefits to the country and society.
Whether we like it or not, our natural foreign investors are Chinese and Indian. If we cannot attract and retain them, you might as well forget about others. That is not to say foreign investors from other countries will not come to Nepal. If the market potential is there, they will come if they can navigate around our regulatory and business practices. This is why we are seeing some interest in the hospitality and cement sector. But because of our geographical location, we will always be viewed as investment opportunity from their Indian arms. That is the reality we need to deal with.
How could we unblock those hindrances?
We first need to decide where we want to attract foreign investments. Then we must determine how much cost we are willing to bear in the short term for long term gain for the economy and society.
At the fundamental level this is an allocation of value of the enterprise between foreign investors who provide capital and know-how and domestic stakeholders who are in need of them. Obviously it helps if regulatory and business practices are simplified, transparent, corruption free, and the investment environment is stable and apolitical but the bottom line is that foreign investors are not going to come to Nepal if they cannot make acceptable risk adjusted returns on their investments. Investors will, therefore, welcome any measure that reduces their risk or increase their return.
We can have all the summits and consultant studies that we want but if they cannot be translated into actionable, implementable rules and regulations that gives the foreign investor their expected risk adjusted return, nothing much is going to happen. We want FDI but are afraid that the foreigner will take advantage of us. We need to reset that mentality and look for positive win-win investments.
In all this, CFA charter holders could play a very constructive role in the creation of these win-win investment contracts. They can leverage the deep knowledge base that they have acquired to identify the risk and returns relevant to investments and come up with solutions to bridge the gap in expectations between the parties. Local CFA charter holders with their global credential will allow domestic parties to negotiate with strength to maximise their interests.