Dismal year of investment: Industrialists

When Babu Ram Bhhatarai assumed the office of Prime Minister on August 28, 2011, the country had just faced closure of Surya Nepal Garment - a billion rupee company that was employing 700 workers.
“It was a big setback,” Bhattarai had acknowledged and had vowed to prevent such happenings in the future, promising good climate to industries.
But just as Bhattarai is set to complete a year in the office on Tuesday, three benchmark global fast food chains - KFC, Pizza Hut and Cream Bell - have remained closed for two weeks, citing ´manhandling´ of its manager by workers. So much so, Devyani International, the operator of those food chains, has warned of permanent closure, citing lack of peace in the workplace.
“Despite commitments, PM during his year of reign simply failed to restore normal productions environment in the industrial sector,” said Pashupati Murarka, vice president of Federation of Nepalese Chambers of Commerce and Industry (FNCCI).
That is not all. Nepal also suffered a whopping 30 percent drop in foreign direct investment (FDI) in 2011/12, as it received FDI commitment of just Rs 7.14 billion during the year, compared to Rs 10.05 billion of a year ago.
Worse still, manufacturing sector, which used to be the favorite sector for foreign investors, found few investment. The sector drew meager Rs 988 million worth of FDI in 2011/12, compared to the commitment of Rs 6.13 billion a year ago.
While this dampened the prospect of creation of jobs for semi and unskilled workers, something which the PM had promised while assuming the post, officials at Department of Industry (DoI) said the picture of domestic investment too remained the same during the year.
“Not just the foreign investors, local investors also shied away from injecting fresh investment during the year,” said Kush Kumar Joshi, former president of FNCCI. Leave fresh investment apart, private sector leaders claimed numerous small and medium scale industries pulled down their shutters during the year.
Though entrepreneurs like Joshi blamed the situation on long-running constrains like power crisis, increasing labor costs, labor disputes and political instability, others said situation of investment and industry would have been different had the government truly delivered on its promises.
On the face value, entrepreneurs rated the year of Bhattarai as PM as ´relatively fine´ because he took number of encouraging decisions and promised policy and legal reforms.
For instance, in September 2011, PM Bhattarai formed a special committee to deal with country´s thorny industrial relations and instructed labor offices to promptly step in whenever labor-management conflict arises in industries, particularly foreign investment ventures, to ensure timely addressing of grievances. Through this, the private sector believed the government could truly tackle the industries´ problems effectively.
A month later, the PM went a step further and inked Bilateral Investment Promotion and Protection Agreement (BIPPA) and Double Taxation Avoidance Agreement (DTAA) with India despite huge uproar in his own party. He even announced the signing of similar agreements with more than half a dozen countries, including China, Japan and USA within a year.
The government formed the Investment Board in November 2011 to speed up development of mega-projects in a fast-track mode to do away with country´s infrastructural and power constraints. The private sector and foreign investors hailed those steps.
In December, he adopted the FNCCI´s proposal and announced FY 2012/13 as the Investment Year, committing host of reforms to make the year successful. He said 50 bankable projects would be developed and offered to overseas investors during the year.
“We will bring in foreign investment US$ 1 billion in the first six months of the Investment Year,” PM Bhattarai said when he unveiled immediate action plan on prosperity and economic growth.
Going by his commitment of legislative reforms for investment friendly climate, Ministry of Industry even drafted new Industrial Enterprise Act (IEA), Foreign Direct Investment and One Window Policy, Special Economic Zone Act, and Safeguard, Anti-Dumping and Countervailing Act. Ministry of Law too was asked to make the labor law flexible.
But all those efforts fizzled out when the Constituent Assembly dissolved on May 28 and political impasse and constitutional confusions crept in. “If that had not happened, we would have had number of new policies and laws already in place,” said Anil Kumar Thakur, joint secretary at Ministry of Industry.
Sadly, however, political imbroglio that followed in recent months pushed new laws and policy reforms to uncertainties. The Investment Year has turned into a hoax. This along with the lack of full-fledged budget has caused the private sector to lose optimism.
“Sincerely speaking, the year of PM Bhattarai turned out to be waste” said Bhawani Rana, another vice president of FNCCI.