Nepal – Can one still do business there?

The most important question that comes to everyone’s mind is ‘Can you still do business in Nepal? This was also echoed by the members of SBF (Singapore Business Federation), members of ISAS (Institute of South Asian Studies), members of the business community as well as by Ambassador Gopinath Pillai in this opening address at the workshop organized by SBF to showcase Nepal. We keep on watching and reading the setbacks like regular protests, obstruction of the Parliament, the recent walkout of the Maoists from the Government and a new coalition Government being put in place etc in the Media and wonder if Nepal is really a safe place to be in and to do business.

Although we have been through a 12 year conflict ridden environment in the recent past, I must say that the economy, to a large extent, was still on track during this period with a growth of around 3% throughout. Of course, post the peace agreement which happened 2 years ago, we have seen an unprecedented pace of development across the board and the growth rate jumping to 5.6% in 2008.

As a consequence of this conflict there have been some critical departures as well as structural changes, both on the economic front as well as on the social front. Nepal, with the good wishes of the international community and its neighboring countries, has the distinction of managing this conflict into the mainstream politics. In the process, the 240 year old Monarchy had to be abolished so that the new Republic could take birth and I feel that this is what started the process of creating a new era for the country and its development.

 

Just a New Nepal or an Economically Vibrant Nepal?

When the Maoist started their revolution they always talked about a “New Nepal” and we from the business community used to always question them about what the New Nepal was from their viewpoint/perception. Was it an “economically more vibrant Nepal” or a Nepal which was once again going to have some of the dilemma of the age old orthodox conviction of a communism state, so to speak? These were the questions which were crucial to establish the future direction of the country.

We engaged in dialogue with the Maoists and had a series of interaction with them over a period of two years even before they joined the mainstream politics. We learnt that the Maoists were prepared not only to join the mainstream politics but also to support an economic agenda which the private sector had put forward.

In this context, CNI (Confederation of Nepalese Industries) had put forward an economic agenda for a “Double-Digit Growth” right after the Constitution Assembly election took place. In fact the inauguration of our Economic Summit, which was planned, designed and organized by CNI, was the first formal program which the then Prime Minister Phuspa Kamal Dahal ‘Prachanda’ addressed. This Summit gave us all an opportunity to talk about business and achieving a rapid, inclusive and sustainable economic growth and development as well as the change in the social agenda which perhaps had been causing a sequence of political changes in one form or another time and again.

 

The Economic Agenda and the Challenges

The last government, which was led by Comrade Prachanda, came out with a clear roadmap to achieve 10% growth in 3 years time. This required investments form 175 billion Nepalese Rupees (close to 2.5 billion US$ and which is the current level of both private and public investments) to 400 billion rupees, close to 5.5 billion US$. It meant increasing the total investments by more than two folds which was the single biggest challenge.

To achieve this we needed a system which is functional and relatively more disciplined. The system also required to be capable of effectively dealing with some of the core issues of the particular strata of the society that always remained outside the mainstream politics which was not addressed during the 50 years of Nepalese politics. Social agenda like these had to be appreciated, understood and adopted by people like us while the Maoists had to show the same commitments towards our economics agenda which dealt with the liberal and market economy.

The International Investors community had to be given the confidence and comfort that their investments will not only remain safe but it will grow and give a better return than many of our neighboring countries. This was not such an easy task as India and China are both well poised to become the world’s largest economies sometime in the near future.

During the Maoist led Government, the then Finance Minister Dr. Babu Ram Bhattarai clearly define roadmap for growth built into last year’s budget and recorded 40% growth in collection of revenue and taxes. And I am saying this on behalf of the business community that it was by and large without any kind of unreasonable or unsustainable taxes being imposed but this was possible due to better compliance. There was finally a sense of discipline in the system.

The parliament and constituent assembly where I sit in, out of 601 members you will find almost 500 such faces that belong to the strata which could never be integrated into the national economic and social mainstream. When I say social integration this is with reference to education, health, employment and above all food and shelter. They were always left out and politics used them. Politics was done in their name. However, now the strata have finally awakened and have found their legitimate place in the nation’s polity. I’m personally convinced that nobody can make this 50% strata revert back to their previous state/condition without meeting their legitimate rights. The state will have to support their legitimate expectations, give them quality education so that they can compete or they should be given reservations for jobs.

Coming from a business background, I was never comfortable with words like “reservations” “State Subsidies,” whether for the old, unemployed, for the marginalized etc. But after carefully studying the agenda that had been put forward and my personal observations, I, in my capacity as Member of the Constituent Assembly am happy that finally this agenda has come to the center stage.

 

The Global Economic Meltdown Vis-à-vis Nepal

When economic downturn stated back in September last year everybody was worried because we had 2million people working in different parts of the world remitting back home 3 billion US$ annually because this was part of the reason why we have a BOP surplus and that is what has kept the industries floating and markets growing.

Sometimes being not so closely integrated with the world economy helps and this is precisely what happened in the case of Nepal. Surprisingly, we saw the trend of foreign remittance increasing rather than going down. Not being a high cost and very expensive destination we were able to maintain the inflow of tourist into the country. The Stock Market continues to remain strong and vibrant, the Real Estate market continues to remain vibrant and the enthusiasm of the investors remains at an all time high.

 

The Future Plan and Requirement

I have received numerous advices in course of my interactions with SBF, ISAS, Singapore Chamber of Commerce, Indian Chamber of Commerce, etc that this is probably the best time that Nepalese companies will find to promote collaborative efforts from Singapore. Singaporean companies are looking for new countries and opportunities, irrespective of whether small or big and Nepal has liquidity, untapped potentials and the will of the business community to grow. In addition Nepalese businessmen have also demonstrated that it’s a highly resilient force. Particularly when we are not looking for capital, the whole process becomes easier and more palatable to the Singaporean companies.

v  We are seeking human capital, technology, new ideas, and we are seeking credible companies to come and work with us in creating infrastructure. That’s going to be the next single biggest priority.

v  We have got to build new airport, highways, new railways linkages and dry ports and more importantly we have got to build Special Economic Zones, both on the Chinese side as well as on the Indian side to attract not just investments but also technology, brands, managerial skills. Just imagine –  I gave this example and I wish to repeat it once again –  if the Nepalese Government invites the private sector to come in and take over the management of Tribhuvan Airport ( Nepal’s only international airport) which I’m sure most of you are familiar with, and to build another outside the valley, and if there was a company like Surbana, planning, developing, and doing the construction management, and if a company like Changi Airport was to operate it, the financial would follow. Because the track record is powerful.

v  Generally, in Nepal, politics have overtaken the Hydropower development. Contrary to this for the first time in the history over 2000 MW of Hydropower projects (in the nine months of rule of the Maoists/UML) were granted survey license and substantial number of Power Purchase Agreements (PPA) were signed. Now Hydropower projects totaling 7000 MW are in advanced stage of being licensed.

To me, this is the greatest change! On one hand we are addressing some of the economic opportunities that could not be addressed for decades and at the same time we are also addressing the social agenda, and that social agenda once addressed is going to make Nepal a bigger market, much bigger than many in South Asia as Nepal is home to close to 30 million people.

Nepal has the distinction of still remaining in path in terms of economic recoveries despite a confused and self-centered politics. It was possible because of the deregulation and emancipation of private sector led economy which started in 1990. Likewise now there is a new social agenda on the plate with national consensus. The direction cannot change. Whether Dr. Babu Ram Bhattarai presents the budget or Surendra Pandey or Binod Chaudhary, the key components of the budget are not going to change! It has to address the social agenda which is pretty much set; it has to address the reconstruction of major infrastructures for which the projects have been identified and priorities have been set.

This is the first year where Nepal spent 113 billion rupees towards our administrative as well as development budget. Of course there were problems, structural problems as well as institutional problems in implementing 100% our development projects. But we collected 120 billion rupees in taxes. This is probably the first time that Nepal has seen a year with surplus between the total revenue and expenditure. Perhaps the first time that Nepal has met the entire expenses without using any of the borrowings or donor contributions. Even after spending in administrative and development budget, the donor contributions remain untouched. At this point I feel like we are on track. We have come a long way, although the process was definitely painful, but I think it’s beginning to give us the result.

 

CONCLUSION

In conclusion, I wish to say that the stage is all set for the economy to move in the right direction. However, the speed of the progress gets impeded because of the divergent politics which Nepal is trying to sort out in the present juncture. Unfortunately after the collapse of the Maoist led government, the politics of consensus has lost the direction. It was also because there was a crisis of confidence among the Parties in Government and in Opposition. Maoists could not give the comfort to the other Parties that they would deliver the provisions of the 12 point agreement which includes returning private properties, containing their unarmed force like YCL (Youth Communist League) and not disturbing critical institutions like the Army. Likewise the other parties could not give the confidence to Maoists that even post integration of PLA (People’s Liberation Army) Maoists are safe and they would be treated like any other political party. This crisis of mutual confidence led to the latest ‘army fiasco’ leading into the fall of the Maoist Government in a completely untimely and uncalled for manner.

However the good news is that everybody believes that the need of the hour is to write a Constitution that creates a positive environment to address the aspirations of 30 Million Nepalese people, who have suffered for decades as I described above. For this we have to work together like we did against the erstwhile regime with the help of 7 parties, the Maoists and the International community.

Therefore there is no option but to bring in all the parties together and all the parties will have to agree that our national government remains stable till such a time when the social and economic agendas are implemented and the constitution is written.

 

09 June 2009, in Singapore