Foreign investors return as Nepal’s economy rebounds

Nepal’s economy is forecast to grow at the fastest pace in 20 years in 2017, with tourism arrivals also recovering, helping to attract foreign investment into its casino sector.

A devastating earthquake in 2015 killed more than 9000 people and crippled the country’s economy. A subsequent border blockade with India, coupled with the fallout from New Delhi’s decision to demonetize its economy to crack down on black money took a further toll.

However, foreign investors are now moving back into the country and the casino sector. During the Nepal Investment Summit in March a total of $13.7 billion was pledged in foreign direct investment, with the bulk from China. About $10 million was earmarked for tourism.

The Himalayan country has a long history of casino gambling. It opened its first casino under the then royal regime in 1968 and it flourished as a South Asian Las Vegas under RD Tuttle, an American businessman. However, until recently it didn’t have a regulatory framework that was up to international standards. In an effort to upgrade the industry, the government introduced new legislation in 2013 and shut down all properties that failed to comply. The industry was just beginning to get back on its feet when the earthquake hit.

A total of 729,550 international travelers visited Nepal last year, up 31 percent from 2015, the Department of Immigration said, although figures for Indian tourists, who are freely able to cross the porous border into Nepal weren’t included in the calculation.

The highest number of arrivals were from India (16.21 percent) and China (11.04 percent), with the United States (7.35 percent) and Sri Lanka coming in third and fourth position.

The Asian Development Bank predicted in March that Nepal’s GDP will grow by 5.6 percent in the year ending in mid-July. The projected growth, up from 0.8 percent the previous year, if realized, will be the highest in 20 years.

Five casinos -- Millionaire’s Club and Casino, Casino Mahjong, Casino Royale, Casino Pride and Casino Rad -- currently operate in Nepal. That’s down from 10 before the government clampdown. More are scheduled to open.

Imperial Private Limited, a company that is 90 percent-owned by Indian operators, with the rest from Nepal, is set to open Casino Anna, which was demolished after the earthquake.

The company will operate the casino one floor above a high-end coffee shop facing the five-star Hotel De l’Annapurna, according to casino sources. A Nepali businessman based in Sri Lanka in partnership with Sri Lankan casino operator, Bally’s Casino Colombo, the island nation’s largest casino, has set up a company called Vintage Nepal to run Casino Venus at Hotel Malla, the sources said. The Bally’s Casino Colombo has a 51-percent share in the company, with the rest held by Nepali partners.

“The sector has rebounded strongly. More casinos are opening in Kathmandu as a result of strong demand from India as well as an increasing number of Chinese businessmen and tourists coming to and in many cases living in Nepal,” said Mike Bolsover, CEO of Australia-listed Silver Heritage Group, which runs Millionaire’s Club and Casino.

“The fundamentals of the proposition remain strong. Positive broad structural demographic trends in India underpin a burgeoning middle class in the neighbouring state of Uttar Pradesh with its population of some 215 million citizens, and the 1.32 billion citizens of the Republic of India,” he said, explaining Nepal’s attraction.

Silver Heritage is scheduled to open its Tiger Palace Resort later this year, near Bhairahawa. The debut of what will be the country’s first integrated resort has been delayed from February due to problems including shortages of raw materials and fuel.

Bolsover said the opening of Tiger Palace Resort “will be a game change for the industry in the subcontinent”. Access to the area is being improved through a new six-lane highway directly past the resort, as well as the upgrading of the airport at Bhairahawa, about 20 minutes drive away, to full international status.

“The expansion of the domestic Indian airport at Gorakhpur (just 100km over the border in India) will substantially improve ease of access from the largest cities in India such as Delhi, Mumbai, Kolkata and also internationally,” Bolsover said.

Meanwhile, in a clear sign of investors’ growing confidence in Nepal, several international hotel chains have also begun construction in Kathmandu, with the Marriott Hotel and Hilton Hotel nearing completion.

Chiranjibi Acharya, spokesman of Casino Association, Nepal, said casino operators were gearing up their marketing efforts and targeting more Chinese players after India’s demonetization.

Nischal Chapagain, a former operations manager of Casino Mahjong, said that the sector had now gained a degree of stability, but added that the legacy of years of mismanagement and lack of regulations was still being felt.

“For several decades, the sector didn’t have a proper regulatory framework. A gambling act targeted at cracking down on informal gambling was cited for casinos, which was inadequate. And, there was political interference. Most casinos violated rules that banned locals,” he told AGB.

“The new regulation has brought about policy stability. It was introduced after much deliberation and learning from other countries’ casino experience,” Chapagain said.

However, the rules have created difficulties for some local properties, which claim the new fee structure is too high.

The rules now stipulate that casinos should have paid-up capital of at least 250 million Nepali rupees ($2.4 million), with the minimum set at 150 million rupees for mini-casinos. The royalty alone is set at 30 million ­rupees per casino a year for casinos and 7.5 million rupees for mini-casinos, payable by the end of each fiscal year. An annual fee for renewal of license, to be paid to the tourism ministry, is set at 500,000 rupees for both casinos and mini-casinos.

“At Silver Heritage, we welcome greater regulation as we want our customers to know they are playing in a fair and responsible venue with operators who adhere to the highest international standards,” Bolsover said.

“As with all gaming regulation worldwide, it will require ongoing improvements in order to better meet the demands of the market, for instance anti-money laundering initiatives are a global issue and we take that very seriously,” he said.