Unsatisfactory performance of 'success story products'

Nepal´s priority export items, which are enlisted as success stories by the Enhanced Integrated Framework (EIF), an initiative of World Trade Organization (WTO), have not performed well in terms of export volume.

Ginger, tea and Pashmina products are included in Nepal Trade Integration Strategy (NTIS) - the government blueprint for export promotion - have been selected as model products in Nepal by the WTO stating that they have replicable performance and prospect for exports.

Statistics compiled by Trade and Export Promotion Center (TEPC) shows export of ginger, for which Nepal is the fourth-largest producer in the world, saw a whopping decline of 38.2 percent to Rs 281.94 million during fiscal year 2010/2011 compared to a year-ago period. Data shows export of ginger went up by 13 percent to Rs 456.01 million in 2009/2010 compared to a year-ago period. TEPC data shows India, Japan, USA, Pakistan, and the Netherlands are major importers of Nepali ginger.

Despite a double-digit growth in Pashmina exports, inconsistency in export volume, weak quality control, and nominal production of domestic raw material are still serious bottlenecks for Pashmina exports. Due to lack of brand awareness of Nepali Chyangra Pashmina in the international market, export volume couldn´t go up to the desired level.

Pashmina export went up by impressive 24.2 percent in 2010/2011 compared to a year-ago period. However, exports plummeted by whopping 27.6 percent during 2009/10 compared to a year-ago period. Nepali Pashmina is being exported mainly to Japan, France, Germany and USA.

Officials at the Ministry of Commerce and Supply (MoCS) admitted lack of effective mechanism to assure quality and high dependence on imports for necessary raw materials are major factors for uncertain prospects of Pashmina exports despite some positive developments in recent months.

“Though Nepali Chyangra Pashmina trademark has been registered, we still have a long way to go to win the trust of international buyers. Dependence on other countries for raw material is another problem in the Pashmina sector,” said Jib Raj Koirala, under-secretary at MoCS.

According to TEPC, tea export has gone up in 2010/2011 by 29.7 percent compared to a year-ago period. Export of tea declined by 3.7 percent in 2009/2010 compared to a year-ago period.

Officials however claimed performance of any product shouldn´t be judged on the basis of export volume alone.

Slew of tax incentives proposed to boost industrial production

The government readied the final draft of Industrial Enterprises Act, proposing host of incentives for entrepreneurs, including waiver or reduction of income tax for enterprises based in remote areas.

The draft prepared by the Ministry of Industry (MoI) in line with the existing Industrial Policy 2010 specified different incentives, including complete or partial exemption of tax and VAT for small, medium and large scale industries. The draft also envisions waiver of income tax for small scale industries.

In an effort to boost industrial production in remote districts, the MoI has proposed providing income tax incentives for industries to be operated in 62 districts, including Bajura, Jajarkot, Dolpa, Baitadi, Dadeldhura, Myagdi, Kailali, Bardia and Mahottari, for 10 years from the date of establishment.

“These industries will get 70-90 percent waiver on income tax in the first 10 years of operation,” said Anil Kumar Thakur, joint-secretary at MoI.

However, industries that use more than 12 percent alcohol in their total production content would be entitled for only 40 percent of tax rebate. The draft also incorporates a provision for 50 percent waiver on income tax for the first year for ICT industries to be established in Technology Park.

In a bid to generate more jobs within the country, the draft incorporates additional incentives for industries in proportion to the jobs they generate. “The government will provide additional 25 percent rebate on income tax to small, medium and large scale industries if they provide jobs for more than six months to 100, 200 and 500 people respectively,” the draft states.

Likewise, industries having women, Dalit or differently-abled persons as 50 percent of their total workforce are also entitled 40 percent tax exemption.

MoI officials, who expect to get the draft okayed by MoF soon, also said the draft is favorable for industries using alternative energy to lower fossil fuel consumption. “Industries won’t have to pay tax for expenses made to install machines or plants to generate alternative energy,” the draft states. But these industries should claim rebate within five years of the installation of plant.

The act also promises incentives to industries that buy insurance products for risk management, diversify their production portfolio and launch corporate social responsibility schemes.

Similarly, it also proposes VAT waiver for products of small scale industries for 12 years from the date of establishment. It also incorporates a provision that proposes levying one percent customs tariff on imports of transformers and generators along with other machineries.

MoCS clueless about crucial meeting

Though Nepal and Bangladesh finalized a draft last year, aiming to bring into operation a transit route between the two countries, the final pact is still eluding. A commerce secretary level meeting held last year in Dhaka had finalized the draft of the proposed agreement.
The agreement envisions to boost exports from Nepal through improved connectivity with Bangladesh. Lentils constitute about 75 percent of Nepal´s exports to Bangladesh.
"Though Bangladesh is ready to ink the pact any time, our progress is slow," said Purshottam Ojha, who was a couple of weeks ago transferred to the Prime Minister´s Office from the Ministry of Commerce and Supplies (MoCS). Last year´s meeting had decided to hold next bilateral meeting in Kathmandu between February and March this year.
Lal Mani Joshi, Secretary at MoCS, however, expressed ignorance of any preparations for the meeting supposed to take place in Kathmandu. "I have heard about the meeting but have no idea about the preparations by our ministry," said Joshi.
The draft of the agreement on bilateral transit stipulates to Nepal can use Mongla and Chittagong ports for its international trade. Nepali traders are facing problems in the transit of goods through Fulbari-Banglabanda route due to complicated transit process. Nepali exporters have to bear up with poor road infrastructure along Kakarvitta-Fulbari to Banglabanada and hassles caused by Indian security personnel. 

The proposed pact is crucial to expand Nepal´s export with Bangladesh, which is almost double the imports from there. According to statistics compiled by Central Bank of Bangladesh, Nepal exported goods worth US$ 7.5 million during the three months between July and September last year. However, imports from Bangladesh stood at US$ 3.6 million during the period.
According to Kumud Dugar, a trader who has been exporting goods to Bangladesh, Nepal enjoys comparative advantage on lentils export that hovers around 25 tons annually -- some 70-75 percent of Nepal´s total export to Bangladesh.
Besides the Nepal-Bangladesh transit pact, Nepal-India Railway Service Agreement (RSA), Free Trade Agreement with Bhutan and Bangladesh, facility to use Visakhapatnam port, and Rohalpur-Singhabad transit are also among the long overdue issues.
However, Joshi claimed that the ministry is working to settle the issues gradually with due preparation.

Over a dozen int'l firms knock IB door for investment

More than a dozen companies from China and India have approached the Investment Board (IB), showing interest to invest in different sectors ranging from hydropower to mining in Nepal.

Some half a dozen Indian companies have expressed strong interest to invest in airport, hydropower and transmission line, disclosed Radesh Pant, CEO of the IB.

Chinese firms approaching the board too have expressed willingness to put their money on long-term projects like hydropower, mining and infrastructure development.

“The companies are in regular discussion with us,” Pant told Republica.

He, however, refused to disclose the name of the companies, saying it would be inappropriate to name them until a final decision is made.

IB, which has been coordinating with the foreign investors in order to lure overseas investment for the upcoming Investment Year 2012/13, has also finalized its structure in order to facilitate overseas investors and deal with their issues.

Pant said the board will have five sub-divisions -- project assessment, investment generation, investor services, policy services and governance.

“Fundamentally, these units have been worked out in order to make IB a long-term professional arm of the government,” said Pant, who has been leading the government´s ambitious plan of attracting foreign investment amounting to $1 billion during the second half of 2011/12.

Pant is confident of achieving the ambitious target provided that there is conducive business environment in the country.

“Once we prepare all the legal frameworks to protect investment, I am sure we will start receiving foreign direct investment (FDI),” he said, further disclosing that investors from other countries like France, US and Japan too have shown interest to invest in Nepal.

Revision of FDI Policy

The government has taken initiatives to revise Foreign Direct Investment and One-Window Policy (FDI) policy 1992 to create a sound legal framework during the Investment Year 2012/13.

Ministry of Industry (MoI) in assistance with the United States Agency for International Development (USAID) has hired a team of experts to review the existing policy.

“We have taken service of a team of experts to get meaningful review of the existing policy,” Anil Kumar Thakur, joint-secretary of MoI, said, adding: “After getting the report, we will make necessary changes in the policy.”

Govt planning to bring in slew of new laws to bolster investment climate

The government is preparing to revise, replace and formulate around half a dozen laws including Industrial Enterprise Act (IEA) to make them in compliance with the Industrial Policy 2010 and offer new favorable legal framework to investors in the Investment Year 2012/13.
The Ministry of Industry (MoI) is working on amendment in IEA 1992 and Company Act 2006, and replacement of Nepal Standard (Certification) Act 1980, tuning them in line with the new Industrial Policy.
Likewise, it is formulating a new Nepal Accreditation Board Act, which will pave the way for establishment of an accreditation authority that will certify quality and standards of Nepali goods and services for exports.
“The existing Acts related to enterprises, establishment of companies and standards were formulated long before the new Industrial Policy. Hence, amendments are being worked out to make them in sync with the new policy,” Joint Secretary at MoI, Yam Kumari Khatiwada, told Republica on Monday.
The new Act on Nepal Accreditation Board, meanwhile, is being formulated as per the long time demand of the private sector.
So far, the ministry has prepared a draft of the revised IEA and circulated it among the stakeholders for consultation. “We will submit it to the Council of Ministers for endorsement once we incorporate the feedbacks received from all concerned,” she said.
Unlike the past, when a new would focus solely to serve the policy, the new amendments would also take into account government´s latest drive to lure more foreign investments, particularly in the upcoming investment year, and incorporate special provisions to make it more investment friendly.
Nepal Standard (Certification) Act would be completely replaced because it was formulated way back in 1980 and has turned obsolete amid changes in the way standards have been defined across the globe. “The new Nepal Standard Act 2012 that will replace the existing Act will help to accelerate promotion of Nepali products in the international market,” Khatiwada stated.
The Ministry has already initiated the process to draft the Act, but it is yet to give it a final shape.
New amendments in the Nepal Company Act 2006 are expected to make the Industrial Policy more functional.
Once new laws are put in place, MoI hopes the country to have a better investment climate. However, they will still not be able to address labor and security related problems that have been driving away the investors.
Moreover, the government will soon set up a new office to deal with Intellectual Property Right (IPR) issues. “A process for this has already begun,” said Khatiwada, elaborating that the office is being set up as per the new IPR policy. The ministry is also leveraging efforts to make effective the policy provision of single-window service for all business activities.

TIFA meeting rescheduled to Sept

The meeting of Nepal-US Council on Trade and Investment (NUSCTI) under the Trade and Investment Framework Agreement (TIFA) has been postponed to Sept.
The meeting was scheduled to be held in Kathmandu in March.
The Nepalese Embassy in US, which notified the Ministry of Commerce and Supplies about the fresh development on Sunday, has, however, not mentioned why the meeting has been rescheduled.
Both the countries had intensified preparations for finalizing the possible agendas for the meeting that is crucial for creating environment for bi-lateral trade and investment.
Lal Mani Joshi, secretary at the Ministry of Commerce and Supplies (MoCS), said the Office of the United States Trade Representative (USTR) communicated with the MoCS through the Nepalese Embassy in this regard.
“Our embassy in the US has informed us about the postponement of NUSCTI meeting,” Joshi told Republica on Sunday. He said the letter undersigned by Nepali ambassador to US, Dr Shankar Sharma, only stated that the meeting was rescheduled as USTR preferred to hold the meeting in the last week of Sept.
The TIFA agreement signed in April, 2011 stipulates that the NUSCTI meeting -- a forum to discuss bi-lateral trade issues -- can be held once a year.
Nepali business people are anticipating bilateral Free Trade Agreement (FTA) at the upcoming meeting in a bid to boost exports of garment and pashmina products to US that has been falling gradually since 2000.
Uday Raj Pandey, president of Garment Association Nepal (GAN), said they would push for Generalized System of Preference (GSP) facility on Nepali Readymade Garment (RMG) and pashmina products from the US in the upcoming meeting.
“Attempt to reclaim market for RMG and pashmina products will be one of the key agendas from of Nepali exporters in the meeting,” added Pandey.

Nepal’s Economic Growth Around 4 Percent

Nepal’s economic growth rate is going to be slightly up in 2012 and 2013 compared to the last year 2011 as per one UN report. The report World Economic Situation and Prospects 2012 has estimated that Nepal will maintain 4.3 percentage of economic growth in 2012 and 4.4 in 2013. This is higher than 0.7 percentage compared to the last year 2011. 

Nepal and Pakistan are going to have almost same pace of economic growth as per the UN estimation for 2012 and 2013. Pakistan is going to achieve 4.1 and 4.4 percentage of economic growth in 2012 and 2013 respectively.

UN has noted that the long-standing structural problems such as weak implementation of policies, security concerns and less investment on physical and human capital will be holding back the growth rate of Nepal and another Asian country Iran.

The growth rate of India is also going to slowdown in 2012 and 2013 and that will have a negative impact in the region, South Asia.