FDI inflow up by 10%

Nepal´s ranking in the global foreign direct investment (FDI) index has improved compared to last year, as the inflow of FDI went up by 10 percent, the World Investment Report 2012 published by the United Nation Conference on Trade and Development (UNCTAD) has revealed.

Nepal currently stands in 175th position out of 182 countries included in the index. The ranking, which is on the basis market attractiveness, availability of low-cost labor and skills, enabling infrastructure, presence of natural resources, was the same in 2007 as well. Nepal had secured 178th position the previous year. 

The report published by UNCTAD shows that the FDI inflow increased by 10 percent to US$95 million in 2011. However, the total inflow of FDI in 2011 contributed only 2.5 percent to gross fixed capital formation (GFCF), which is far below the South Asian average of 6.4 percent. 

The flow of the amount of total FDI has been continuously increasing since 2006, when the decade long armed conflict ended following the signing of the comprehensive peace accord. The report says, FDI had reached $5.89 million in 2007, up from the negative flow in 2006.

SAARC commerce Secy to review regional trade, cooperation

Commerce Secretaries from eight South Asian countries are meeting next week to review current status of all committed regional cooperations and ways to enhance trade integration and cooperation under South Asia Association for Regional Cooperation (SAARC) initiative.

"The meeting will be held in the Maldives from July 14 to 15," said Lal Mani Joshi, commerce secretary, who will represent Nepal in the fifteenth meeting of the Committee on Economic Cooperation (CEC) under the SARRC secretariat. "It will also review the implementation of trade facilitation measures," he told Republica. 

Though regarded as crucial body, the CEC is meeting after a gap of three years. During the meeting, the commerce secretaries are scheduled to discuss a range of issues including regional agreement on investment protection, avoidance of double taxation and SAARC trade fairs, among others.

The top commerce officials of SAARC, including Nepal, India, Bangladesh, Bhutan, Pakistan, Sri Lanka, Maldives and Afghanistan will also discuss the drafts of different agreements being worked out to promote investment and trade in the region.

"Fundamentally, the meeting will review progresses achieved so far and also develop new action plans for further improving the implementation of commitments made by the SAARC Summit," Joshi shared. 

Among others, the agendas of the meeting is shortening the ´sensitive list´, which include items on which the SAARC member countries have refused to trade at zero tariffs under South Asia Free Trade Agreement (SAFTA) pact.

The working group of SAFTA that met in Kathmandu last month to shorten the list had failed to make any headway after the countries remained divided over the modalities of reducing the items from the list. "The upcoming meeting of the CEC will also touch on that matter since it aims to further liberalize trade on services and goods," Joshi said.

Pashmina, tea struggle to find place in int'l markets

Though tea and Pashmina hold strong potential to churn in foreign currency through exports, producers and exporters have consistently failed to tap their prospects even in already available international markets due to lack of capacity and inability to mobilize funds to promote their products. 

“The trademark of the Nepali Pashmina has been registered in 40 countries all over the world but we neither have capacity nor capital to promote the brand in the international market,” Pushpa Man Shrestha, president of Nepal Pashmina Industries Association, told Republica on Tuesday. 

“As a result, we have not been able to take benefit from the trademark,” he added. According to Nepal Rastra Bank (NRB), the country received foreign currency worth Rs 2.63 billion from the export of Pashmina in the first ten months of this fiscal year. 

Tea producers too shared a similar story. According to them, in the absence of collection center at home and strong overseas market linkages, farmers and processors largely dump their produces in the Indian market, mostly in Calcutta. 

"This deprives Nepali producers from getting due prices for their products, whereas owing to better quality, the Indian firms easily sell our products at handsome prices branding it under their name," a leading tea marketeer said on the condition of anonymity since he has business with Indian importers. 

"Some 85 percent of Nepal´s total tea exports is consumed by Indian resellers," he shared with Republica. "We could do far better and earn huge amount of foreign currency if we could explore other markets and establish our brand in third countries including European countries such as Germany and others." 

Nepal produces 16.61 million kgs of tea. Of that, more than 8.49 million kgs - that is more than half of the productions - are exported. But owing to weak marketing and lack of direct access to global buyers, only 15 percent of total exports reach the third country markets.

The government has listed both tea and pashmina in the Nepal Trade Integration Strategy (NTIS) 2010 -- a blueprint to boost export -- as they have a comparative edge. 

However, traders blamed government´s failure to implement NTIS and develop concrete programs to gain the potential returns from those products for the less than expected level of foreign currency earning by these products. Former Commerce Secretary Purushottam Ojha agreed with the traders.

Given the situation, NPIA has pushed the government to provide it financial support to promote the trademark, Chyangra Pashmina. “We have requested the government to provide us Rs 10 million for the promotional objectives,” said Shrestha.

But experts like Ojha, however, are of view that the government should rather focus on implementing NTIS more committedly, instead of pledging financial support to individual group of producers. "For this, MoCS has long been pushing for additional budget. But government has largely ignored the call," said Commerce Secretary Lal Mani Joshi.

The government had allocated Rs 35 million in 2010/11 for NTIS implementation and Rs 50 million in this fiscal year. Joshi said the ministry has requested for around Rs 120 million for its implementation in the next fiscal year 2012/13.

In the meantime, the Enhanced Integrated Framework (EIF), an initiation of World Trade Organization (WTO), has been supporting export of identified products such as Pashmina and ginger. “There might be some programs coming up in the near future for promotion of pashmina,” a source close to EIF implementation unit at the MoCS stated.

Country may not have next periodic plan

The country may not have a three-year or five-year periodic plans after 2012/13, as the National Planning Commission (NPC) has not been able to initiate the process for formulating such a plan due to political vacuum created by the dissolution of the Constituent Assembly on May 27.

NPC officials claim that the commission has so far failed to develop a base paper, the preliminary sketch of the periodic plan, due to the prolonged political transition and uncertainty on how the upcoming economic policies will be framed. This paper is required to frame the periodic plan, which is considered long-term development blueprint. 

“NPC, which develops the periodic development plans, normally begins the preparation for the base paper a year and half ahead of its launch,” NPC member Janak Raj Shah said. “The NPC has not even been able to form technical committees to work in that direction so far.” 

NPC has so far formulated 10 full-fledged five-year periodic plans, an interim plan and the existing three-year periodic plan. The current three-year plan, which has targeted to achieve 5.5 percent economic growth rate, will expire by the end of fiscal year 2012/13. 

“In order to develop a base paper for the next periodic plan, we need a clear roadmap of the country´s political course,” Shah shared, indicating the country may be devoid of a long-term development plan after the next fiscal year ends.

Suggesting alternatives, Dr Posh Raj Pandey, former member of NPC, said that the government can announce a ´Plan Holiday´ if it is fails to come up with a periodic plan.

“Plan Holiday can be an alternative if the NPC can´t come up with the periodic plan due to political uncertainties and absence of government that enjoys people´s mandate,” he said.

Nepal seeks more German support for product development

In a bid to streamline aid coming into the country for purposes of product development and value chain improvement, the government has requested the German government to provide assistance in a more consolidated way so that it could be more useful for production and export.

The Ministry of Commerce and Supplies (MoCS), which is carrying out the implementation of Nepal Trade Integration Strategy (NTIS) 2010 -- a blueprint to boost exports -- wrote a letter to the German government this week requesting for additional specific support. 

“We have approached the German government to provide assistance to enhance the production capacity and improve value chain,” Toya Narayan Gayawali, joint secretary at MoCS, said. “We need more support from our perspective development partners in a more consolidated way.”

According to an MoCS official, the German government has provided around US$1 million (Rs 91 million) for two years from 2010 to 2012. “That support is going to end by December,” the official said. MoCS has forwarded a letter to the German government this week with some additional requests for further support Nepal´s supply side constraint, such as infrastructure development and improvement of value chain.

Development partners including Germany, the US and the Asian Development Bank (ADB) provide aid for trade but those are not specifically for product development. “Germany is a development partner which has been providing assistance to MoCS,” the official said. “We are trying to make it more focused.”

According to the Organization for Economic Cooperation and Development (OECD), Nepal anually receives Rs 60 billion foreign aid on average, of which 35 percent comprises aid for trade. “We need to strengthen the supply side capacity to get returns from the trade,” Gayawali said. “Our request to the German government is an attempt to achieve something substantial in that direction.”

In the meantime, the government has not been able to allocate enough money in the yearly budget for the implementation of NTIS. According to MoCS officials, the government had allocated just Rs 30 million in the previous fiscal year and Rs 50 million this fiscal year. “We have requested for Rs 120 million for NTIS implementation from the Ministry of Finance for the upcoming fiscal year,” the official said preferring anonymity. “Against this backdrop, we are looking for Germany´s consolidated support on product development.”

Govt set to reopen rice exports

Farmers complaining about low price of rice in the market will soon have a reason to rejoice. The government is preparing to lift up the ban on exports of rice imposed since 2008 owing to low production.

The Ministry of Agriculture Development (MoAD) has said it will allow export of up to 100,000 tons of rice from the next fiscal year which begins from mid-July.

The Ministry of Commerce and Supplies (MoCS) has said it will open up two customs points -- Tatopani and Rasuwa -- for rice exports. But it has yet to fix the exact quantity that would be allowed to be shipped out of the country.

"Although the MoAD has okayed exports of 100,000 tons of rice, we are planning to limit it to 50,000 tons for now," Lal Mani Joshi, secretary at the MoCS, said. "The decision has to be approved by the Prime Minister´s Office."

At present, the government has decided to open only two border points, Tatopani and Rasuwa, for exports as these areas were hubs for illegal exports of rice. "We hope this step will control smuggling of rice," the official said, adding, “Opening up of customs points for legal exports will also ensure that farmers will get higher returns for their products.”

According to MoAD statistics, the country enjoyed food surplus of 443,000 tons in the fiscal year 2010/11. It has forecast a food surplus of about 800,000 tons for this fiscal year, of which 300,000 tons will comprise rice, the statistics show.

The preliminary estimation of crops production of MoAD shows that paddy production reached 9.45 million tons this fiscal year, up 9.8 percent compared to the last fiscal and 21.8 percent compared to the fiscal year 2009/10.

Despite surplus paddy production, the government is reluctant to open up exports of rice from other customs points citing unethical behavior of traders.

"There is a risk in opening rice exports from other customs points," an official at the MoAD said. "Bangladesh has a huge demand of rice of almost 1 million tons that might lead us to another trouble." The official´s statement stems from the fear that Nepali traders re-export rice imported from India to Bangladesh.

IB prioritizes 6 mega projects, starts informal talks with investors

Investment Board (IB) that was assigned to develop procedures and select investors for 14 mega projects has put six projects, including five hydropower and Kathmandu Metro Railway (KMR) project, in its priority list and has started informal talks with potential investors for their earliest implementation.

It has also asked different government agencies that were looking after those projects to forward it all the documents related with them. “We have also invited the interested investors for informal discussions,” said a senior IB official.

He told Republica that the IB has prioritized Tamakoshi III (650MW), Upper Karnali (900MW), Upper Marsyangdi (600MW), Arun III (900MW), West Seti (950MW) and KMR for immediate action. The government had handed over 14 projects to the Board in May, asking it to speed up their implementation in a fast track mode.

“All the 14 projects are national-pride projects and equally important for us; we prioritized them just for the sake of convenience and to remain focused,” said the source.

Under the fresh initiative, the IB is soon holding informal talks with the Chinese hydropower developer - Three Gorges - to take forward the West Seti Hydropower project. Similarly, it would also hold talks with Satluj Jal Vidyut Nigam Ltd (SJVN) and GMR Ltd - the two Indian developers that have expressed interest to invest in the remaining 4 hydropower projects.

“We had received their expression of interest after we endorsed a template of new Power Development Agreement (PDA) few weeks back,” said the source.

Both the Indian companies had expressed dissatisfaction over the PDA that the government proposed earlier, and stopped works at their respective projects. GMR has been developing Upper Karnali while Satluj has been working on Arun III.

Confirming these developments, Radesh Pant, CEO of the IB, said the board was dealing with the mega projects on project-to-project basis so that it could make a substantial progress for their earliest implementation.

“Investors are interested on those projects. Still, it will take a lot of time and careful touch to make these projects happen.”

In order to consolidate its work, the IB has written to the Ministry of Finance (MoF) to furnish it all the documents related to West Seti in order to start a formal negotiation with Three Gorges.

“Presently, the discussion is being held informally,” the source said, “The formal negotiation will start once we reach at a point from where we can move forward positively. If everything moved well, we will be able to sign a formal agreement on those projects by coming two months.”

Apart from the six prioritized projects, the IB is holding coordination meetings with all the government agencies which were leading the remaining eight projects, including 76-km Kathmandu-Tarai fast track, Nijgadh international airport, and project to upgrade Tribhuvan International Airport.

“The board is also closely working with all the concerned offices of the government in order to know the current status of the projects and move from those points,” said the official.