Pushpa Raj Acharya of APEX talked to Bhawani Rana, President of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI). Excerpts:
How would you evaluate the country’s investment climate?
The country has a stable government after a long time. We experienced the decade-long conflict and another 10 years of political stalemate before the constitution’s promulgation. This is an opportune time for the private sector to grow rapidly as the government has emphasized economic development with its vision of ‘Prosperous Nepal, Happy Nepali’. Private sector is considered the engine of economic growth as it contributes to 70 percent of total investment in the economy. But the government does not see the private sector as a trusted partner.
Trust deficit between the government and private sector is hindering investment and private sector growth. The private sector had a huge expectation that the government will join hands to translate its vision of rapid socio-economic development. We had expected economic policy reforms and accelerated infrastructure development to attract fresh investment. But the government focus seems to be more on regulating instead of facilitating the private sector. The business sector is also terrorized by the arrest of prominent businessmen in cases where the civil code is attracted. On the other hand, enforcement of multiple regulations simultaneously contributed to a lack of confidence in private players.
A private-sector organization like the FNCCI can approach the highest political level. And you have had several rounds of meetings with it over various regulations. How do you see this engagement?
Earlier, we were facing problems like labor unrest and frequent power cuts. These issues have now been resolved. But the higher lending rates of the Banks and Financial Institutions (BFIs) are yet to be resolved. In the meantime, the government has enforced multiple rules and regulations on the business sector, like the mandatory Permanent Account Number (PAN) bill in transactions above Rs 1,000, vehicle consignment tracking system, abrupt changes in tax policies, enforcement of social security scheme, among others. These compliances add to the cost of operating business. The government does not even consider it necessary to consult the private sector before formulating different bills. The government has been feeding antibiotics to the private sector to make everything perfect, however, the antibiotics are resulting in side effects. The prescribed pills have not been able to treat the ills they are targeting. Based on the size or classification of business, there are multiple categories of business from micro enterprise, small medium enterprises (SMEs), to largescale enterprises. But the government has kept all of them in a single basket.
What should the government do to encourage the private sector?
The private sector suffered a lot during the conflict and the political transition, and the government should carefully diagnose this suffering. Rather than slapping new taxes and increasing tax rates, the tax net should be expanded to generate more revenue. We are in favor of pleasant taxation. The government should collect tax and enrich its treasury slowly by soft and pleasant taxation just like a cub slowly grows on cow milk. The government must accelerate infrastructure development. Development works are slow-moving, which cannot trigger private sector investment. Against this backdrop, private sector investment is key to attracting foreign investment. Unless the government can get domestic investment, it cannot create ground for foreign investment. The domestic private sector investment can play the role of a catalyst. The government is lacking SMEs policy, even though they are the economy’s spine. Even our southern neighbor, India, has a separate ministry, i.e. Ministry of Micro, Small & Medium Enterprises, to facilitate micro, small and medium enterprises. They are crucial in sustaining grassroots growth and are effective in inclusive economic development and poverty-alleviation. The government can replicate such policies and best practices to make the investment climate more favorable.
You also mentioned economic reforms. Could you elaborate what sort of reforms you seek?
Nepal saw major economic policy reforms in 1990s, and private investment was opened up in many sectors through economic liberalization. That expanded the country’s economy, and government tax collection increased substantially. We need similar reform to expand the economic pie now. Almost every economic sector is stagnating, and in need of fresh investment. Investment comes with economic policy reforms. The government together with the private sector should think out of the box to trigger and sustain growth to achieve our targets like being a middle-income country by 2030 and achieving Sustainable Development Goals (SDGs). The government should come up with economic policies that lure investment. We have to reform every sector from agriculture, manufacturing, to services. Low yield in agriculture hinders private investment, and our youths do not want to enter agriculture.
How do we initiate reforms in these sectors?
The government can reform agriculture through contract farming policies, irrigation facility, improved seeds and fertilizers along with other extension services, and easier access to credit. Similarly, tourism can be another major sector of competitive and comparative advantage. Many tourism potentials are still unexplored in the absence of better tourism infrastructure, and such is also the case with manufacturing and services. We can see how private investment triggered hydropower development after the government announced purchase of electricity generated by independent power producers (IPPs) in take-or-pay contract with the Nepal Electricity Authority. This shows the private sector is ready to invest if the government protects it and ensures return of investment. The government should resolve the economy’s structural constraints in coordination and collaboration with the private sector