Full speed ahead

This article was first published in The Kathmandu Post, Dec 11, 2017. 

The 10th South Asia Economic Summit held in Kathmandu last month aroused hopes and aspirations as it discussed regional cooperation on many fronts, from promoting trade and investment to mitigating the risks of climate change. The National Planning Commission (NPC) was directly involved, along with Kathmandu-based regional think tank South Asia Watch on Trade, Economics and Environment (Sawtee). The main message from the summit was that, while the pillars of prosperity are shifting towards Asia Pacific from the West, South Asia has an important role to play as a dynamic and open society with a huge population dividend. 

An enabling environment

The government scrapped a $2.5 billion deal with China Gezhouba Group Corporation to build the 1,200 MW Budhi Gandaki Hydroelectric Project, which would be the largest in the country. The decision taken just before the scheduled parliamentary and provincial elections has spread the wrong message to the public. It has also generated conspiracy theories about the ‘relations’ of political parties with China and India. The country’s credibility has eroded as a result. Nepal needs foreign investment, and it can come from any country. We don’t have to worry whether it’s Chinese or Indian money as long as it helps to develop large-scale infrastructure. 

Nepal will require an estimated $15 billion for infrastructure development within the next few years, and another $20 billion for urban development. Multilateral development banks such as the World Bank, Asian Development Bank (ADB) and newly established Asian Infrastructure Investment Bank (AIIB) are funnelling new investments into Nepal, but they are not enough. The country now needs something more—a consistent inflow of private investment in the services and manufacturing sectors. Services and manufacturing can attract investment from domestic and foreign private parties only if the government ensures an enabling environment. This means quality connectivity infrastructure, policy clarity and consistency regardless of changes of government. 

While the second condition could be fulfilled by a stable government looking towards state prosperity, it is quite difficult to see how the first condition of quality connectivity infrastructure will be fulfilled. The question is about the massive funding needed to build connectivity infrastructure. At the same time, issues of governance and the expenditure capacity of our institutions and the technical capacity of the human resources remain.

The state mechanism is going to be bulkier and more expensive with the change from the existing unitary system to federalisation. The Finance Ministry has estimated that it will cost around Rs820 billion to establish office buildings and facilities for the local and provincial governments. Considering the huge amount of money needed, managing funding for municipal and scaled-up provincial level infrastructure is another question. 

It is not practical to expect local and provincial governments to secure funding for infrastructure development at this early stage of federalism. The central government has to support local and provincial governments so they are institutionally capable to function as soon as possible. The central government has to adopt policies that create an enabling environment for foreign investors to jump in to develop infrastructure projects. This will allow the government to focus on the core issues of institutionalising the achievements made so far in terms of federalising the country. The process has been more about political engineering so far, but now it will also require finance and technical capacity.

House in order

The country’s needs are beyond measure, and we have limited resources at our disposal. Nepal has to look towards both the south and north for support, not just financial support but also political support through which both China and India can help Nepal emerge from transition successfully. 

So, we have to be clear about what we want, and design our foreign policies accordingly. The first and foremost priority of our foreign policy at present should be attracting more foreign investment. Let’s revisit Deng Xiaoping’s time to get some nuggets of wisdom. In the early 1970s, the Nixon administration got closer to China to find potential ways to contain the influence of the former Soviet Union. This was phrased as America using the ‘China Card’ as a weapon against the Soviet Union. The then leader of China, Deng Xiaoping, was asked if the US was using the ‘China Card’; and his response was quite an answer to the world. He said that China wouldn’t be on the table but at the table. He continued saying that China didn’t want to be a card but a player. 

Nepal has to abandon this ‘card’ mentality. Nepal can neither be a card nor a player at the moment. It has to come out of the ground of regional geopolitics and get its house in order first. The challenges ahead are enormous, and we have to be serious. 

Cleaning the drainage

This article was first published in The Kathmandu Post, March 24, 2017

In the last three months, Nepal hosted three mega summits: the Power Summit, the Infrastructure Summit and the Investment Summit. The central message was that Nepal needs to attract foreign investment to overcome infrastructure deficits and attain the desired double digit economic growth rate. Political forces also reiterated their support for this initiative, and committed to facilitating the investment process in the priority sectors of energy, agriculture, tourism and infrastructure. 

Is FDI enough?

Investors from eight countries pledged investments totalling $13.5 billion in the Investment Summit. The question is whether an inflow of FDI alone will trigger the economic take off required to attain and maintain a double digit economic growth rate. It is necessary to sustain this growth rate for a decade for Nepal to be a middle-income country by 2022. 

Nepal is beset by numerous problems that hinder prosperity; almost everyone from bureaucratic, political, academic and development sectors can pinpoint different obstacles. What’s more, everyone has a set of recommendations on how the country should be developed, and everyone believes that there is someone to blame. Several development partners and academicians have made policy recommendations that the government is trying to implement; however, this has not yet helped to accelerate economic development. National pride projects have been delayed, capital expenditure is low and the productive sector is sluggish. Large sections of the society are disappointed with the governance of Nepal’s current political parties, and claim that they are responsible for the sad state of affairs. However, the emergence of some new political parties with fresh leadership has led to renewed political initiatives. 

Against this backdrop, it is important to focus on one particular area to bring about change so as to embark on the road to economic prosperity. This entails an understanding of Nepal’s current problems from the perspective of behavioural economics. The reason behind this proposition is the fact that Nepal’s development activities have been in limbo, not due to the lack of resources, but because of the behavioural tendencies of Nepal’s politicians, bureaucrats, development workers and citizens. I am drawing this conclusion based on my visits to over two dozen districts in the last three months, during which I interacted with local people, representatives from local government bodies, and development workers at the ground level. 

communities clean to building small infrastructure. 

From the beginning of modern Nepal, the economy has been subject to political transitions. All political systems have been unable to address the structural problems impeding economic growth. While reforms in the early 1990s were instrumental in effecting positive change, they neglected to address problems of land use patterns and rent-seeking mentality. Thus, government policies have been unable to match people’s expectations. Perhaps the second generation of reform initiatives currently underway will do better. 

While policy reform initiatives are undoubtedly a foundation for economic development, they are not enough. These policy reform initiatives need to be accompanied by a change in the deep-rooted structural socio-economic Nepali mindsets. The lahure mentality of Nepali society is ever present. In earlier days, youths used to leave for India in the hope of military recruitment, or for employment in the Indian labour market. Now, they aspire to leave for South Korea, Japan, Europe and America, or to get a job in the Middle East and Malaysia. There are few incentives for young people to stay in Nepal.

Despite exponential technological advancements and the creation of efficient tools for agriculture activities, Nepal’s agriculture sector remains at the subsistence level. Tools for commercialising agriculture and starting agro-businesses are unfeasible when people in the Tarai lack simple irrigation systems. And although pompous slogans abound in the tourism sector, there are no well-planned tourist destinations. Trekking routes lack standard safety measures, and historic places such as the Gorkha Durbar, Lamjung Durbar, and the Janaki Mandir are in a state of dilapidation. 

No clear policy frameworks

Recent discussions have proposed ways to bring in billions of FDI in diverse sectors, highlighting the fact that these investments could complement the goal of economic development. These discussions focus on Nepal becoming a ‘bridge’ between China and India, thus establishing a trilateral mechanism for cooperation among the three countries. This would facilitate Nepal’s participation in China’s One-Belt, One-Road (OBOR) initiative and create a regional energy cooperation mechanism in South Asia. These are external factors that could accelerate the economic growth rate; however, none of these are in the implementation phase. The government lacks a clear framework to execute plans connected with foreign policy. Though the economy is in need of an immediate push, the implementation of these mechanisms and the subsequent results seem distant. 

Behavioural perspective

People at the local level have a tendency of staying idle, with the expectations that the state will provide something. However, the state often fails to meet even the basic expectations of these people. Instead of initiating and participating in ‘doable’ activities, individuals and communities have a proclivity for refraining from such enterprises expecting things to be done by the government. While it is the responsibility of the government to meet the expectations of its citizens to a certain level, there is an increasing reliance on the state to do everything, from keeping 

Political instability and corrupt leaders are the main causes of Nepal’s socio economic backwardness. Leaders and politicians exhibit a general lack of responsibility towards the nation’s economic development. One of the reasons behind this mindset could be that the incentive structures have been distorted right from the beginning, with the opening up of the economy in the early 1990s. While some development initiatives have been taken by the people, such initiatives are on a very minimal scale. The inflow of FDI and the resultant development of infrastructure will certainly lead the country towards economic development. But behavioural change in our public and private sectors are prerequisites for such advancements. 

Nepal’s development bottleneck is not due to a lack of resources or policies per se. It is largely owing to the behavioural problems plaguing our leaders, bureaucrats and people in general. A large number of improvements could be made efficiently, and without state intervention. Development is a matter of conscious realisation where every individual works to improve the larger society. In the absence of this conscious realisation, nothing can help. 

CNI appeals for more investment

Confederation of Nepalese Industries (CNI), the umbrella organization of Nepali industrialists, has appealed both local as well foreign investors to raise their investment in Nepal.
“Nepal holds immense potentials for investment. It is the right time to invest here and reap maximum benefits,” Hari Bhakta Sharma, vice president of the CNI, said, presenting a working paper at the special session of the 10th Annual General Meeting of CNI on Sunday.
Given the increasing demand for energy within domestic market as well as in India, Sharma said hydropower is one of the best sectors for investment in the country. “The country has the capacity to generate 83,000 MW, of which generation of 43,000 MW is feasible technically,” Sharma said in his working paper on ´Prospects and Challenges on Enabling Investment in Nepal´. “Farming of high value agriculture products and agro-processing industries also hold immense potentials here.”
Speaking on the occasion, former finance minister Surendra Pandey said Nepal has been failing to attract investment despite having high potential in different sectors. “Deteriorating labor relation and rise in labor costs are the major factors hindering the development of industrial sector,” said Pandey.
The AGM, which concluded on Sunday, was mainly focused on ways to develop country´s industrial sector and establish good labor relations.
Industrialists have urged the government and all the political parties to come up with a common minimum economic agenda at the earliest so as to give a boost to economic activities.
“The minimum economic agenda is a must to lure investment and also keep the nation´s economy buzzing. We have to strengthen formal economy and discourage informal economic activities,” said Sharma.
Basnyat elected CNI prez
KATHMANDU (REPUBLICA): The 10th Annual General Meeting of Confederation of Nepalese Industries (CNI) on Sunday unanimously elected Narendra Basnyat as its new president.
Basnyat was senior vice president in the outgoing executive committee.
"I will put my best efforts to accomplish the vision and mission set by CNI,” Basnyat told Republica after his election to the post. He further added that there won´t be major departure from CNI´s current strategies and programs. “My main priority will be to attract more investment in the country. We will continue to lobby with the authorities concerned to create favorable investment climate.”
Outgoing president Binod Kumar Chaudhary has been named CNI´s president emeritus.
Basnyat is the chairman of the Bank of Kathmandu and president of Nepal USA Chamber of Commerce and Industry.

Empowering Nepal seminar in Seoul to lure Korean investors

Nepali Embassy in Seoul, Non-Resident Nepalis (NRNs) and Korean Partner House are jointly organizing a three-day international seminar on ´Empowering Nepal - 2012´ in Seoul from Sunday in a bid to lure potential investors from South Korea to put their money in Nepal.
A delegation of Federation of Nepalese Chambers of Commerce and Industry (FNCCI) under the leadership of its President Suraj Vaidya left for Seoul on Friday to take part in the seminar. "The seminar will cover areas such as investment prospects in hydropower and tourism sector in Nepal," FNCCI said issuing a press statement.
The seminar will showcase Nepal as a profitable investment destination to the international investors, shedding light on its laws and regulations. The seminar is scheduled to be addressed by Dipendra Bahadur Kshetry, vice-chairperson of National Planning Commission (NPC), different ministers from the Korean government and private sector leaders.
The seminar would also touch on issues related to the development assistance of South Korean government to Nepal and bilateral trade.
"Officials from FNCCI will hold business-to-business meetings with private sector leaders of South Korea," reads the statement.

FNCCI to promote investment year in USA

A team of Federation of Nepal Chambers of Commerce and Industry (FNCCI) led by its President Suraj Baidha left for the United States on Sunday to promote Nepal Investment Year 2012/13.

According to a press release, the team of 11 members will meet various US officials, including officials of Bureau of Energy Resources Office of Alternative and Renewable Energy US, Department of State, Export-Import Bank of the US, US Trade and Development Agency, National Hydropower Association (NHA), Energy and Environmental Industries, US Department of Commerce, International Trade Administration (ITA) and Transportation and Machinery, among others. 

During the meeting, the team will highlight latest policies and priorities set by the government for attracting foreign investment, and also shed light on areas in which the country has huge business prospect and return like hydropower, tourism, agriculture and infrastructure sector.

"The team will discuss on investment prospects in sectors like energy and agriculture and shed light on investment climate in Nepal," reads the release. 

The team comprises of representatives from agriculture, banking, carpet, tea, garment and hotel sectors of Nepal.

"The five-day visit will focus on highlighting positive and developing situation of Nepal among officials and private sector leaders is US," states the release.

It is time to invest in Nepal: CII CEO Mission

A visiting top official of Confederation of Indian Industry (CII) on Saturday said that Nepal’s business climate is fast improving and it is high time that Indian investors started exploring opportunities for investments in the country.

B Mathuraman, president of CII and vice-chairman of Tata Steel Ltd, who was in Kathmandu with a six-member team, made such a remark after interacting with officials of Federation of Nepalese Chamber of Commerce and Industries (FNCCI) and CEOs of Indian ventures in Nepal.

“I am happy with what I saw and heard. I will encourage Indian investors to visit Nepal and look for avenues of investment,” Mathuraman told the press before leaving Kathmandu on Saturday.

Mathuraman tagged consistent policies and political stability as two major factors Indian investors consider while taking decisions about investment. He expressed satisfaction over recent political development in Nepal and the government’s endeavor to reframe policies such as Industrial Enterprises Act (IEA) and Foreign Direct Investment (FDI) policy.

“There exists some problems in the industrial sector, but overall situation is improving. Nepal has definitely created opportunities to attract investments,” Mathuraman stated.
Mathuraman’s team, which included CEOs of some Indian companies, met with President Ram Baran Yadav, Prime Minister Baburam Bhattarai, Industry minister Anil Kumar Jha and senior government officials. All members of the visiting delegation expressed same zeal and were positive about Nepal’s condition.

“Political situation seems a bit tough now, but this will pass away once the constitution is written,” Rajiv Kaul, former president of CII and chairman of Nicco Corporation Ltd said.
Pointing out the areas in which Indian businessmen would like to invest, Mathuraman said, “Hydroelectricity, agro-processing and infrastructure development are the areas that can lure Indian investment.” He added that CII team members accompanying him will also share their views with other Indian investors and motivate them to visit Nepal to explore areas for investment.

The delegation during its meeting with PM Bhattarai had raised concerns about labor tensions in multinational companies, particularly Indian ventures in Nepal.

“In our brief discussion with Prime Minister Bhattarai we discussed labor problem in Nepal like the one that led to the closure of Surya Nepal Garment Factory and the strike threats faced by Surya Nepal Tobacco Factory,” said a member of the team.   

“The meeting concluded on a positive note. He has assured us that the government will put all basic requisites in place in order to build investors’ confidence,” said Kaul.

IFIC Bank Will Have More Share in NB Bank

The International Finance Investment and Commerce Bank Bank Ltd (IFIC Bank) of Bangladesh has shown interest to invest more in the Nepal Bangladesh Bank in Nepal. The Central Bank of Bangladesh has principally provided the permission to IFIC Bank to invest more in the NB Bank in Nepal.