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Just like other growing sectors, the Nepali advertisement indus­try has been evolving and grow­ing in its own unique way. This sector has undergone big changes, which comes with increasing challenges.The contemporary advertis­ing sector of Nepal faces multiple challenges. It lacks adequate man­power, effective plans and policies, as well as competent agencies. But the absence of an advertisement board and an advertising regulatory body are our major concerns at the moment. These two organizations are supposed to control the unnec­essary flow of advertising, catego­rize advertising agencies according to their capacities, and look after other issues that affect advertising. But we don’t yet have any such body.

We have talked to the Ministry of Communication and Informa­tion Technology several times in this regard. According to officials, these bodies will be formed soon. When that happens and the bod­ies come into operation, Nepal’s advertising sector will gain new height. In that case I foresee much progress in this sector.

Another big issue is the steadily increasing number of media outlets. Many media houses have vested interests rather than the motive of informing people responsibly. Such media also form their own advertising agencies to make easy money. It is difficult to say whether they are real media to inform people or fraudulent businesses to make money. This practice harms genuine ad agencies.

Also, there is unhealthy competition between media houses over advertising. Some media outlets run advertisements for the sake of visibility, without signing any contract. So although they seem to be run­ning many ads, they don’t make money and can’t pay their employees.

To resolve the issue, media houses and concerned people should be able to discern proper ways to advertise. They need to distinguish between experienced adver­tising agencies and novices. Placing all agencies in the same basket will be unfair to us. We must sit together, have proper coordination, and work together to find a way out.

On the other hand, the print media are running weak content these days. They have lost reader­ship for this reason. For instance, different newspapers give different data for the same news. If there is a bus accident, one newspaper will report the death toll as five, another reports 10 deaths and, a third, 15 deaths. Confused readers will then lose trust in the papers. Because of this paper readership is shrinking, affecting the advertising sector. Besides, the emergence of dig­ital media and smartphones has significantly lowered the scope of newspapers.

In the past one and half years, digital media has robbed at least 25 percent of the print media’s market. The flow of adver­tisements to the print media has dropped by 40 percent, which has been cap­tured by the digital media. Smartphones and reality shows have a big role in this. The only possible way to overcome this situation is for the print media to focus on winning public trust through reliable and worthy content.

As the chairman of the Advertising Agency of Nepal (AAN), I have been trying for the past one year to boost this sector’s growth. Finally, the gov­ernment has decided to introduce clean feed—a provision by which the content of foreign TV channels will have no advertisement. As per the clean feed policy, only advertise­ments created for Nepal with local content, characters, and language can be aired. I am hopeful that clean feed, which will be implemented from October 23, will be a boon for Nepal’s advertising sector.

We also lack an advertisement act and a code of ethics, another essen­tial area that we need to consider if we are to lift the advertisement sector. The government should look into this at the earliest.

The ad sector is directly related to the country’s economic growth, as the ad industry plays a big role in promoting economic activities, and vice versa O

The author is Chairman, Advertis­ing Agency of Nepal (AAN)

(As told to Prasun Sangroula)

 The government is completing two years without much to show in terms of meet­ing its own economic and development targets. It promised a high growth rate and better budget execution along with sound governance and formulation as well as imple­mentation of reforms to boost investment. The government was able to pass some invest­ment and social security related bills from the parliament, but their implementation is not satisfactory. In terms of major macroeconomic indicators, the government has undershot its own targets. It promised 8 percent GDP growth in 2018/19, and has set an even more ambitious 8.5 percent target for 2019/20, and a dou­ble-digit growth in a few years. However, according to the Central Bureau of Statistics, the economy is expected to grow at just 6.8 percent at basic prices (7.1 percent at mar­ket prices) in 2018/19. Although this marks the third consecutive year of 6-plus percent growth, it is still less than the government target. It does not indicate the economy is on a solid footing with strong fundamentals. The base year effect after the slump in economic activities due to the earthquake and block­ade, and temporary fiscal stimulus related to post-earthquake reconstruction and spending during the elections, have underpinned high growth rates in past three years. Surprisingly, despite all the talk about investment-friendly laws and regulations, there was a contraction of industrial output and a decline in net for­eign direct investment.

The government is set to miss the growth target in 2019/20 too. Although the finance minister continues to assert that the gov­ernment will be able to achieve the ambi­tious milestone, the consensus forecast right now is around 6 percent. Unfavorable mon­soon together with slower than expected industrial activities are exerting downward pressure on economic activities. In addi­tion to accelerated work in major infrastruc­ture projects, the pick-up in post-earth­quake reconstruction and tourist arrivals will be crucial to sustain around 6 percent growth this fiscal.

Perpetual underachievement

The progress on the fiscal sector is also one of perpetual underachievement. While intro­ducing 2019/20 budget one-and-a-half month before the start of the fiscal year, the govern­ment promised improved budget execution, specifically capital spending, and better coor­dination in terms of planning and implemen­tation among the three tiers of government. However, the data till the second half of this year show that the pace and pattern of budget execution won’t be any different from previ­ous years. Of the Rs 408 billion earmarked for capital budget, it was able to spend less than 15 percent by the first half of 2019/20.

Further, as in the past, we will most likely see bunching of spending in the last quar­ter. The government usually spends or dis­burses about 40 percent of actual capital expenditure in the last month of fiscal, raising concerns over quality of spending and gover­nance associated with public spending. From the beginning the budget lacked a robust, credible and a time-bound implementation plan to spend the earmarked money. There was no improvement in allocative efficiency during budget preparation. The same old issues have been plaguing budget execution: structural weaknesses in project preparation and implementation, low project readiness, bureaucratic hassle in approving and reap­proving projects, poor project management and contractor capacity, high fiduciary risk in project implementation at subnational level, and political interference both at planning and operational levels.

On the revenue front, too, the government is missing its own target. Revenue growth target of around 29 percent was ambitious in the first place, but the finance minister kept asserting that it is achievable. In the second half of 2019/20, the government is facing a revenue shortfall of nearly Rs 90 billion already. Revenue mobilization has been hit by declining imports and general slowdown in industrial activities. It appears the efforts to raise tax and non-tax revenues by boosting economic activities, to plug revenue leakages, and to formalize economic activities have been inadequate. The high government spending but slow revenue growth has led to widening fiscal deficit, which is projected to be above 6 percent of GDP. This deficit binge is putting pressure on interest rates.

Bad to worse

On the monetary front, things are not rosy either. Inflation is rising and will likely over­shoot the government’s 6.5 percent target. The consumer price inflation in each of the first five months of 2019/20 was higher than in the corresponding period in 2018/19. The average inflation so far this fiscal year is 6.3 percent, much higher than 4.6 percent in the first five months of 2018/19. This is largely driven by increase in prices of food and bev­erage, vegetables, fruits and spices. Overall money supply in the economy has declined too owing to the deceleration of remittance inflows. Both deposit and credit growth have slowed, but the latter is still higher than the former. The asset-liability mismatch remains unresolved. The low level of nonperforming assets, as per central bank’s statistics, is too good to be true. Evergreening of bad loans and dubious accounting of banking assets are real possibilities.

The vulnerabilities in the external sector remain. Exports have increased but imports have decreased, leading to a lower trade deficit compared to the first five months of last fiscal. The increase in exports is largely due to the export of palm oil, which alone constitutes 35 percent of total export to India. Nepali traders are adding nominal value to imported palm oil or related raw materials and exporting them to India by taking advan­tage of the preferential tariff. Meanwhile, the decline in imports is due to the decrease in demand for imported vehicles, gold and petroleum products. It has helped to reduce current account deficit, which was already at a high level.

Overall, the economic activities and gov­ernment’s performance are not up to the expectation. Progress in most indicators is undershooting the target set when the finance minister presented the budget for 2019/20. The government needs to be realistic about what can be done in the short-term given the constraints it is facing, particularly on financing ballooning expenditure needs and its capacity to deliver. The economy is not on a stable footing and the often talked about dividends from political stability is yet to be realized. The working culture of bureaucracy and the government is not much different from the past trend.

Bombastic statements about the soundness of the economy alone are not going to please worried investors. Some industries (such as cement, iron & steel, and hotels) that drasti­cally expanded capacity in the hope of accel­erated infrastructure development are now facing overcapacity or excess production. The tepid demand is affecting cashflows, which in turn hurt firms’ ability to repay interest and principal on time. There is a possibility that the loans owned by these industries and by small to medium scale hydropower projects might go bad. This will drastically affect the nonperforming assets of the banking sector

We are on the brink, yet again, it appears. Public outrage is rising against the old and the new crops of Homo Deus that have successful­ly corrupted to the core the new political system that replaced, barely a decade ago, the old, dys­functional one following a wave of political movements and a bloody, decade-long insurgency.The massive political change—marked by the toppling of rem­nants of a monarchy severely weakened after the Royal Mas­sacre of June 1, 2001, and decla­ration of the unitary democratic state into a federal democrat­ic republic—became possible after a marriage of convenience between the ‘revolutionary force’ and the political parties that had a key role in making the multi­party polity unpopular by using ‘democracy’ to protect their petty political interests.

Apparently, such a change would not have been possible without generous support of the international community to Maoist leadership and main­stream political parties, which had become an albatross around the neck of the ‘democratic pol­ity’, after engaging in one scam after the other. Chief among them were the Lauda Air Scam, Chi­na Southwest Air Scam, Dhamija Scam, LC Scandal, and the Sudan APC Scam. At the height of cor­ruption, there were rumors that candidates eyeing the job of gov­ernment school teacher or police officer had to pay certain sums to higher-ups.

Going by those scams, irregular­ities and blatant breach of public trust, it appeared the leaders were in a hurry to compensate for years spent in jail for democracy and human rights. Now, it is an open secret that the dear neighbor was providing safe haven to Maoist leadership and siding with main­stream parties in putting an end to the old polity with the monar­chy, which was showing certain proclivity towards the northern neighbor.

Consigning the old polity to the dustbin of history was in the interest of both the West and the dear neighbor. By systematically dismantling traditional institu­tions and belief systems, the west, especially some European coun­tries, could conduct all sorts of social experiments here.

For the dear neighbor, ensuing chaos during the switch from the old polity to the new one could turn out to be a boon as it would give it yet another opportunity to fish in the troubled waters of Nepal. Indeed, the recent gifting of more of our lifelines, includ­ing the Arun and Upper Karna­li, without a two-third majority in the parliament for the dubi­ous deals (thanks to a watered down constitution), is a clear proof of this.

The territorial aggression of our land, formalized by cartographic aggression, and the government’s inability to raise a strong voice against it, will do little to increase public trust in this system. The inability of the Nepali state to maintain territorial integrity, one of the foremost duties of a state, means that the state is fledgling, yet again.

At the time of a deepening crisis in the life of this country, public trust towards the state is on the wane, what with irregularities in the purchase of a wide-body air­craft, a high-level scam involving the transaction of government land in Baluwatar (Lalita Niwas scam), plus a controversial lease of the property of the royals.

As if this were not enough, maligning of the new political system continues with the polit­ical leadership making, very recently, a controversial appoint­ment in a highly visible consti­tutional position, with rare sup­port from the much-maligned main opposition. Various inter­est groups have already started crying foul against this appoint­ment, taking it as a blow to transitional justice.

At this point, yours truly thinks it will be relevant to note that Nepal has for years been revolv­ing around two seasons: The win­ter of discontent and the summer of unrest. People are not hitting the streets, but their discontent towards the state, and especially the functioning of the govern­ment, is growing. Anyway, the freezing winter is not an appro­priate season for protests. Rather, this is the season when anger and frustration against the prevailing system keeps building. With grad­ual rise in temperatures, public outrage is likely to reach a boiling point and push the masses on to the streets, giving birth to anoth­er season of political unrest.

There will be no dearth of support for this protest from domestic and foreign forces with diverse vested interests. A much-maligned and discredited political leadership would do well to make sincere effort to garner public trust towards the politi­cal system if it

Province 5 is gearing up for an Investment Summit in next few months to attract domestic and foreign investment into provincial level infrastructures and to finance other development works. But the federal government’s laws on for­eign direct investment (FDI) give the Department of Industry (DoI) full authority to decide whether to let provincial governments process any foreign investment. The fed­eral government alone needs $15 billion a year in investment to meet infrastructure gaps, and struggles to keep up with the demands of the provincial and local governments. Yet despite the dire financial need of local and federal governments, there is no conducive environment for investors. Unfavorable regulatory envi­ronment, lack of infrastructure and absence of credit facility are major hindrances for the country’s small and medium enterprises. Large infrastructure projects face even more complex challenges such as in availability of land and long-term financing mechanism. Although the World Bank’s new Doing Business Index has por­trayed Nepal as a better destina­tion for investment compared to some earlier years, actual invest­ment is minimal. The FDI inflow in 2018/19 was around $130 million, or 25.7 percent less than previous year. Overall non-farm enterprise growth in the country is bleak. Yet Nepal has still been ranked 94th in 2020, almost 16 positions up from last year’s position among 190 countries ranked.

Government efforts to attract FDI and engage private sector to develop infrastructures seem mostly ritual­istic. The Ministry of Finance, and especially finance minister Yubaraj Khatiwada, made possible the For­eign Investment and Technology Transfer Act (FITTA) 2019 and the Public-Private Partnership and Investment Act (PPPIA) 2019. These bills were major ‘showpieces’ during the March 2019 investment summit. But the summit organized to present Nepal as a favorable global invest­ment destination has yielded almost no fruit. Nepal’s competition is with countries such as Bangladesh, Kenya and Philippines, which have made significant strides in terms of attract­ing FDI.

Implementation is always a criti­cal hurdle in Nepal. The PPPIA aims to make Investment Board of Nepal (IBN) more functional by dividing it into investment and PPP units, in order to more efficiently manage pure investments and PPP activi­ties. But the government has shown no interest in this pragmatic mea­sure. Only endorsing bills won’t be enough to get more FDI if the acts cannot be implemented.

Engagement of domestic private sector in infrastructures and invest­ment in services is also limited as the government perception of property rights is negative. Finance Minister Khatiwada’s remarks on imposition of property tax while transferring inherited property has played a role in keeping the private sector away from economic activities. Overall performance of the economy might seem healthy as our growth figures are above the average of the past one decade. But the non-farm enter­prises growth is declining and con­tribution of manufacturing sector in GDP is decreasing.

It is a challenge to attract invest­ment given the long list of indus­tries and businesses restricted for foreign investment. Moreover, lack of institutional coordination and communication among institutions such as the Department of Indus­try (DoI), the Nepal Rastra Bank (NRB) and the IBN creates further hindrances for foreign investors. Similarly, undermining the merito­cratic process in appointment of top leaderships of such institutions has direct impact in undermining insti­tutional good governance. In the absence of institutional good gover­nance within key organizations, the process of attracting foreign invest­ment and engaging private sector remains hamstrung. Having a team of weak negotiators on the other side of the table is a waste of time for genuine investors.

In the federal context, provin­cial and local governments should be allowed to attract investment without any intervention from the center, and these provincial and local governments should also be empowered to manage small to medium size foreign investment. Similarly, the government decision to increase minimum FDI threshold from $50,000 to $500,000 has sig­nificant implications on FDI inflow. This policy hurts small and medium enterprises (SMEs), which have been a major driver of Nepal’s service sector. In fact, the contribution of service sector, almost 57 percent of the economy, has been increasing in the past one decade. Against this backdrop, the government should revisit its new FDI cap O

The author is an economist