Despite the signing of the peace agreement in 2006 declaring the formal end to a 10-year rebel insurgency, political and criminal violence continue to be a serious problem. Nepal's unstable political situation in recent years is perceived by companies as a major constraint to doing business and has resulted in a low economic growth. The current government of Nepal has been seeking to implement investor friendly-policies, but implementation has often proved complicated due to the fragile and shifting political situation, insecurity and pervasive corruption. Corruption is identified as the second biggest obstacle to doing business, with both petty corruption in the issuing of licences and grand corruption considered endemic. High-ranking officials and well-connected businesspeople enjoy virtual impunity from corruption charges. The Department of Industry has attempted to reduce red tape and occasions to extort bribes by operating the One Window Committee, a one-stop shop web-portal for foreign companies. However, the system is reportedly far from streamlined. Private sector corruption in the form of kickbacks and facilitation payments is also widespread in Nepal. Global Integrity 2009 suggests that Nepal's continuous political instability may have side lined the drive against corruption.
Positive developments in relation to corruption and investment:
- In March 2011, the Government of Nepal ratified the United Nations Convention against Corruption, demonstrating a major step towards curbing public and private sector corruption.
- A private sector anti-corruption legal framework was established by the Competition Promotion and Market Protection Act 2006.
- A Right to Information Act was passed by the interim government in 2007, stating that citizens are entitled to receive public information within fifteen days of applying to any government body or public entity.
- A new procurement law enacted in 2007. The act explicitly addresses conflict of interest and provides for periodical rotation of public procurement officials. The act also includes a debarment system for companies found guilty of corruption or other anti-competitive practices. Information about public tenders can now be accessed online on the Public Procurement Portal.
Risks of corruption:
- Corruption in relation to the granting of permits, the procurement of goods and services, and the award of contracts presents significant obstacles to doing business.
- The Kathmandu airport, customs, land-revenue, transportation management and police continue to be considered as 'hotbeds' of both petty and heavy corruption, according to Global Integrity 2009.
- Laws and regulations pertaining to property registration, ownership and transfer are unclear, and the interpretations of these laws are highly inconsistent. Lawsuits concerning property rights can take years to settle.
- Public procurement is reportedly rife with corruption in the form of commissioning of agents, padding the costs by buying from specific companies, using money on unnecessary travel and consulting projects, or giving gifts to public officials as appreciation of their services.