Nepalwatch

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3rd of February 2023

Government’s policy is to increase imports rather than produce; foreign investment should be brought in

In China, 20 percent of earnings is given to exporters, what do we get in Nepal?

Kathmandu. The economy of Nepal is small. Our practice is that every year we identify a certain target in revenue estimation. The foundation of a such target should be prepared by looking at the product.

But with us, import is done by projection. After that, the attention of the state is focused not on increasing production but on increasing imports. The main focus should be on creating an environment for export-oriented industries to flourish by reducing imports. If production is oriented, employment will increase and the economy will become more dynamic, but the state does not have any vision for it.

Registration of business at the Department of Industry is equally complicated. It is not easy to run a business as well. We do not focus on how to make it simple by simplifying it. There is a tendency of postponing everything for the next day, which never comes. When an industry is established, it provides employment, pays revenue, and eventually benefits the government.

However, the government does not think from this angle. Instead, they think it is only to show off. We industrialists will never be a priority until the thinking that the country runs only on imports is changed.

We have been running the industries by struggling significantly. Compared to the profits we have made by running the industry, our economic growth has not been as much as it should have been. As a result, there will not be a huge investment in the industry and no substitution of imports. The industrialist can’t work on such a basis provided by the state. The government itself is responsible for the lack of growth of industry and investment.

We do not have the competent capacity to bring in foreign investment to the country. This is because we do not know about it. Now our per capita income is less than 1,500. We are targeting to make 3,500 by 2030. This requires an investment of hundreds of billions. Of that, 70 billion should come from the private sector. But we do not have the capital to invest 70 billion. When there is no capital, the investment must be brought from abroad.

It is impossible to bring in foreign investment based on the current policy guidelines. The policies set by the Central Bank of Nepal are such. The industry department also has a tedious process. Everyone discusses online systems but unfortunately, the work that should be completed in a week takes more than a month to complete. Monitoring should be done where the investment has been made but unfortunately, it does not happen. We are worried about what kind of investment is it and suffer from doubts about whether it falls under the anti-money laundering system.

There is a problem with investment because the state doubts more than it is a necessity. For example, when transferring money from one bank to another bank, there is a check in the banking system itself. Every account has KYC. If KYC is updated in one place it can be updated everywhere at once. But here the works are process-oriented and take a long time to complete the work.

When a foreign investor wants to come to Nepal for investment, there are problems for him to bring the money. The Government should allow them to transfer money from a foreign bank account to a bank account in Nepal. This kind of transfer within the banking system is equally transparent. But this kind of transfer is not allowed. The process to start a company is very long. That company will disappear without registration.

No one invests without expecting a certain return, the return could be short, medium, or long-term. There are also different types of industries. It may be industries of daily consumption that can be imported immediately, which can create an investment environment resulting in quick returns. The industry is not only a matter of goods for consumers but basic needs and industries for infrastructure. Cement, steel, and electrical products industries are the basis for infrastructure and construction. Industries could be of daily use such as food, garment, etc.

There can be medium and long-term benefits to importing industries. The state should also give priority to such industries. In some cases, 10 years exemption is said, but it is unclear which one and how much.

The tedious process of industry registration had to end forever. The registration process must be completed within the defined period. They should clear all the needs initially and should not ask for the additional document in due course. This tendency ruins time and resources. Although Nepalese can understand the time taken in the registration process, foreign inverters do not want to indulge in this tedious registration process.

Investment in infrastructure, hydro, road network, and transport is a long-term project. It takes at least 15 years. In the industry, it is expected to get retunes in 10 years and returns from infrastructure investment are estimated after 15 years. At Hydropower, we look for returns every five years. But there is no return in five years.

To find a return in five years, there must be an agreement somewhere. That’s why we have to be clear about how much tax exemption and how much subsidy we will give in the long term. Because it is the property of the state. We have a tendency to seek immediate profit. Therefore, we focus on conducting trade base industries ignoring long-term industries.

If a hydropower of 100 megawatts is to be built, two hundred billion is required. An investment of 200 billion cannot be raised within Nepal. You have to invest in the ratio of 70 and 30. Even our bank’s investment is not enough for 70 percent. Hence, foreign investment is a must.

The bank has its conditions when bringing in foreign investors. The various things matter like interest, the value of the dollar, and time resources. This is why investors get fed up and leave.
This is the main reason why we are not being able to generate large investments. Lack of decision-making capacity is also responsible here. Paschim Seti, Arun, and Karnali with big investments should have come much ahead.

Such industries and projects can transform the country. For example, let’s talk about our Kathmandu-Hetauda road. It has cost 1.5 to 2 billion dollars. Investments in things that require more than one billion will come to Nepal. How big a financial impact does it create? How many jobs will it create?

It would be better if we could bring such a project through a fast-track process. But the Ministry of Industry and Investment Boards of Nepal did not have that mechanism and capacity. Our physical ministry does not have that capacity either. The fast track mechanism is important and should have been brought. A lot of studies have to be done on how big its impact and results are, which has not been practiced in Nepal. This is also one of the reasons why a large amount of investment is not entering Nepal.

We discuss investment; the investment board happily passes it but unfortunately, it is not the end. Decisions keep changing. For example, the Budhi Gandaki Hydropower project was given to one investor by one government, but as soon as the government changes the other government decided not to give the earlier one. The same happened in Karnali and Arun. This is not a good policy.
It is not enough to draft policies to attract investment, those policies must also be implemented.

It is better to set a time limit. Accordingly, expertise is more important. Be it Investment Board, Ministry of Industry, Ministry of Energy, or Ministry of Physical and Tourism, wherever large investments are made, expertise is a must.

Nepal has great potential in the aviation sector. However, why are foreign airlines not coming? Why are they not coming to the joint venture? Why airlines in Nepal has not been able to expand? Why can’t we buy an aircraft? The reason behind this is doubt. We doubt almost everything.

The policy of the Investment Board is a one-door system. Even by adopting the such policy, the board is having to work hard. Let’s talk about the neighboring country India. The documentation part is rigid however, it does not take time as they have expertise with them. We are not able to find a way out to bring in investment.

Our businessmen and private sector cannot make a huge investment. We must bring foreign investment. We are poor in technology as well. Likewise, we lack good management so we should import. Hence, we should import investment, technology as well as management. Only if we can manage it, we can gradually move toward the capital formation.

What should we do to increase the capital expenditure?

Political groups are also an obstacle for the private sector. Even more, obstacles are being made by the administrative group. I don’t know what the people in the administrative group think. In my opinion, we (businessmen) and them (employees) will build the country together.

If the government civil servant says I am a national servant, then we are too national servants in the private sector? What are we? We do business. We provide service. So we are also national servants. The difference is, we are national servants without government employees.

They are government employees. The goal of both is to build a state, increase economic activity, empower, make the state rich and provide facilities to citizens. So the partnership had to go smoothly but there is doubt among the partners. There is no trust between both parties. It is thought that the private sector works for its benefit, and the state does not benefit. Their job is to facilitate us. Not to stuck us. In the end, the loss is to the businessman, His capital is invested, time is wasted and it affects them significantly.

The country will not be built with the tools they are trying to build. For example, if I said that I will build a factory and give employment to 500 people, and, if it took five years to build a factory, I failed to increase imports and exports. It should have a specific deadline. Human Resources are needed accordingly to progress and fulfill it on time. If the work is done on time, it is easy to bring investment.

If the administrative structure and political leadership are honest, does the law prevent businessmen from achieving their goals? Another serious question has to be pondered here. In particular, our law is also an obstacle. From the administrative sector, the laws are drafted to control the entrepreneur. A law can give multiple meanings.

The goal is right. But the law has not been enacted based on the target set. The laws drafted are so complicated that we cannot get the job done on time. Moreover, there is no accountability as well. In a private organization, everyone is handed over certain responsibilities. We timely monitor and evaluate them. Based on their performance, we hire fire, reward and take action against them. But this is not the case in the government sector.

An employee may get a rank, or be promoted. But it is not reflected or visible in performance. If the industry is to be developed, the customs tariff must be applied at least one level lower on the raw materials brought and the finished products. Otherwise, there will be a processing fee. Where can we raise revenue? Shall we collect from customs or collect revenue by running an industry by reducing imports and increasing export?

Firstly, revenue generates immediately when importing. The industry will not give immediate benefits like imports. But the value addition is better when the company processes. The employment situation is created and mobilized. That is a benefit to the state. Isn’t the big revenue coming from there? This is how we don’t think.

There is also a need to reduce the rate of customs. If we reduce 15 percent to 10 percent, we mean to add 5 percent value add from here. Employment created by a 5 percent reduced value will help to pay the debt of the state.

Increasing employment increases income. An increase in income means an increase in purchasing power. Increasing purchasing power also means increasing economic activities. Thus, reducing the customs rate does not mean reducing revenue rather, it is trying to increase it in a long run. This is how we can run an industry. Our production cannot be enhanced by increasing the revenue. Our production is limited because of imports. If there is no import there will be no employment, in case the industries do not exist. Hence, in a long run, increasing revenue does not help us. Why don’t people do not understand this?

Another talks about insects. Why did the company want us to be comparative? If we get the same kind of provisions as the neighboring countries, we will be comparative. It means do-to-door whack. We want to take it back. How can we be competitive after saying, “You have got profit, you should keep this provision”? A 20 percent earning is given for exporting in China. What do we get?

If we believe that indigenous products should be used, consumption will increase. The company will originate. Employment will also increase. If it is believed that after going to the WTO, you should do business in the global competition, then there should be similar facilities. Roads, roads, water, and electricity are available to everyone. Therefore, there should be an increase in production. Only then can we be competitive. We have not been able to make that. After being asked to go to global competition, you have to make your provision and structure. Otherwise, we can’t go. The Government should be able to make it.

Exporting manufactured goods is a secondary thing. I have a different perspective, the first one is what kind of quality have we produced? Quantity of products? Where should have we been in the beginning? Multinational companies come to Nepal, not because this is also their marketplace.

Coming up with the “Made in Nepal and Making Nepal” concept means the multinational brand can get to work here. Because of that, we can provide employment. It is meant to say that there is a valuation to some extent. For that, you have to go for a quality product. Should be standardized. Only then will the market be sought. The Ministry of industry did work well on that.

As soon as any foreign ambassador arrives, he meets the businessmen and businessmen. The first task of a foreign ambassador is to promote economic activity. Only then will work for diplomatic relations. But our ambassadors are not interested in this. Their daily life is spent in political events.

A multinational company coming to Nepal is beneficial for us. Because, after they come, we have to go to the competition. Based on his products, we should also make ourselves proficient. In other words, the competition should be real. Let me give you an example, It was said that if Unilever came to Nepal, the soap industry in Nepal would be destroyed. Before that, there was ‘Mayalu’ soap. Where did they go? But after Unilever came, other products gradually increased their quality to compete with its standards. It seems to have a positive effect to some extent.

Therefore, the state itself had to help the local industries to make them competitive. The state should also give priority to companies trying to compete. But it doesn’t seem The Government is doing so.

Let me share my own experience. I have worked by bringing foreign investment and technology to Nepal. It is benefiting me as well as helps in quality improvement. We can export abroad only if such an environment is created. Therefore, foreign investment should be promoted. But for that, it is necessary to increase the quality and quantity of domestic production.

There is significant discussion about bringing trains and ships to Nepal. What are we going to export using those trains and ships? It is also necessary to think about this in advance.

We send back tanker empty. This is going to double the price. If we were producing ourselves, this would not have happened. Cargo is expensive in Nepal. If we could send it from here, we would not have to go empty and it would not be expensive. Therefore, by identifying the goods that can be exported, we had to maintain their quality and increase their quantity.

It is said that we do not have any ‘genetic’ to do business. Most people think of getting a job. I think there is a problem with it somewhere. Many people in Nepal study business, research, marketing, industry, and other subjects. But the type of industry that should be there, the business mechanism and policy system that should be there, is not there.

When I work, I don’t think that I will increase the business much in five years. This kind of thinking is not found even in the big families with industries in Nepal. The state policies do not encourage it. Entrepreneurship is about creating opportunities in the ‘gap’. We need both thinking and the ability to meet the demand. Because of this, foreigners are getting into our market. We are not able to ‘take over’ the foreign market by sharpening ourselves.

As long as the private sector is viewed suspiciously by the state, the challenge will remain. Both the political party and the government apparatus should analyze the suggestions given and adopt the policy accordingly, leaving us the challenge of attracting investment.

The government should challenge us by saying how much investment we bring and how many jobs we give if we draft such policies. Then only we can show our potential. As soon as we become competitive, the market itself thrives.

Both India and China are in front of us as markets. Nepal has its products. Why are the herbs in Karnali not sold? Why is there no processing? Because the production cost is high. The process is also complicated. A lab test should be done to take it outside. We have neither lab nor standard.

We have to send it raw. When I bring goods from Elam to Hetaunda, if I pay taxes to every local level there, my production costs will be high. The wood of Nepal is rotten and wasted, yet we bring it from abroad. We are doing such work with a narrow mentality. Should we make a mechanism to prevent theft or stop the trading of goods?

Currently, there is agenda about encouraging marijuana cultivation. Is there a structure for the production of medicine before the cultivation of marijuana? Who cultivates how much marijuana, how much is stolen and exported, and whether there is any kind of mechanism to manage it? It is necessary to prepare beforehand. But we are talking about marijuana cultivation without accounting for any of these things.

Marijuana cultivation has flourished abroad, that too in a controlled manner. Because there are structures built for that. The topic we raised is good. But do we have that mechanism? Can it be prepared?

Nepal is also said to be rich in Yarsagumba. How much Yarsa is produced in a year, and where is it produced? It should be studied. But there is no progress in this regard.

These are the discussion about problems. Now the state itself has to do a thorough study to solve it. Likewise, the state has to adopt the policies accordingly and work on the system. This requires a process. There is a tradition in Nepal that big people (with class) don’t follow the rules and the common ones are stuck by these rules and laws.

This has played a negative role in creating an investment-friendly environment. We have spent more than 90% of our time dealing with the problems. How can we invest in this situation? The government should make a system, the system should not know the people, only the process should be known. Only then can we reach our destination.

(Edited part of the statement made by Kush Kumar Joshi, the former President of FNCCI in Nepalwatch’s television presentation ‘Policy Dialogue 2022’. The program is hosted by former Vice president of National Planning Commission, Dr.Govida Raj Pokharel)

Here is the full video link of the program that on airs every Sunday 8:00 PM on AP1 Television.

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