E-Kantipur

KATHMANDU, JUL 16 -

Suraj Vaidya was elected the president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) in April, 2011.Given the fractured polity, the FNCCI recently came with a report titled ‘Nepal Economic Growth Agenda’ which urges the consensus between parties over the economic agenda. The Post’s Mukul Humagain and Gyanu Adhikari sat down with Vaidya to discuss the state of Nepal’s economy and its prospects. Excerpts:

Briefly, can you give us a snapshot of the economy?

The mood is very depressing. There’s a sense of not having any direction on economic issues, especially after the constitution, and the full budget failed to materialise. Business wants stability and a predictable cash flow for at least five years. But the country sees a change in government, and bureaucracy, too frequently which results in a lack of policy reform. There’s absolutely no mood for investment.

Has this changed in the last ten years? What trend do you see in terms of confidence?

If you look at it, the growth in the late 1980s and early 1990s, we had growth of about 6.5 percent, which was not too bad for Nepal. But if you look at the last seven to eight years, we’ve really come down to around three percent and four percent maximum. For Nepal, with all the potential it has, this is not acceptable.

What’ll be the impact of not having a full budget on the economy?

I see a dangerous trend here of development expenditure not being used properly. When the politicians are in the government, they speak one language. When they’re in the opposition, it’s exactly reversed. Let’s look at the direct impact on development expenditure. Melamchi should’ve been completed by now, at least the tunnel part. In the mid-hill highway, which is such an important link that will open up the hills for better business, at least 90 percent work should’ve been completed by now, instead of the 60 percent that’s done. Some of the biggest irrigation projects which should’ve begun construction with World Bank and Asian Development Bank’s funding have not even issued tender forms yet. For the amount of money that’s been poured in the health sector, the indicators aren’t good. The same applies for education.

Has FNCCI noticed political parties investing or setting up businesses?

There’s a lot of hearsay. We’ve been told that parties have opened up schools, colleges, banks, hospitals, newspapers, media—this is all hearsay. If it’s true, we need to start exposing who are the owners behind these businesses. We need to find out where the money’s coming from. It’s easy, but it’s up to the government to do take the initiative to find out.

The private sector has asked the government to come up with a common minimum economic agenda. What’re the main issues you’re raising?

Let’s face it, political stability is not going to be achieved for some time. We’re in a political transition. Accepting that fact, and the fact that we’re between two of the world’s largest economies in the next twenty years, the agenda looks at a few sustainable areas. One of them is infrastructure. Nepal is underdeveloped and the investment that can come in building our infrastructure is tremendous. You’re looking at hydropower, airports, highways, railway lines. Look at India and China. India is the largest democracy in the world and China is one of the least democratic countries. But why is foreign investment going to China and not to India? There’s one single reason: the infrastructure in China for doing business is fantastic. The physical infrastructure has been laid out and the policies are stable. There’s a long-term policy. Second is agriculture.

Even now, monsoon determines the success of the economy. We need to upgrade our production—go into processing to get into industrial agriculture. Then there’s tourism, which is unwisely concentrated into this golden triangle of Kathmandu, Pokhara and Chitwan.

How keen are the parties on the minimum agenda? For example, on budget, where they could agree on having a full one every year?

Despite the fact that we were not able to convince some of the parties on the importance of a full budget, they’ve given a full consent on the minimum economic agenda. The Maoist party has to address a few issues openly: on freedom of ownership of property, rules involved in foreign investment for each sector and the role of trade unions. The Congress, UML and the Maoists have to give a clear verdict on where they stand on the linkage between productivity and social security concerns. If they only want to move forward with workers’ rights, they should make that clear. Also, the Madhesi parties need to give us a clear indication on the ‘one Nepal market’ concept. Are we all open for the one Nepal market concept or not?

Are the businesses worried about federalism fragmenting the market?

This is especially relevant given the talk about creating states along ethnic lines. It needs to come up in discussions that Nepal is one market, so movement of goods from any part of Nepal should be allowed without any harassments or duty structures. There has been a lot of talk about ethnicity but little about the economy. The parties have also brought the idea of cooperatives in the three pillar concept [government and private sector are the other two pillars]. Give us clear indications as to what is the difference between cooperatives and the private sector. There are risks that cooperatives will turn into another trade union, since all cooperatives are running along political lines.

Why isn’t there a consistent policy on infrastructure, especially on energy?

The government has no vision. So far our vision has been to depend on donors for most of our development projects. Either you’re waiting for the Chinese to give you a soft loan or you’re waiting for the Indians, or you’re looking at the Americans to help you in the health sector. What they haven’t realised is the strength of the private sector’s investments. Our position is that no matter how much we protect NEA [Nepal Electricity Authority], most of its projects are running through grants from a donor. What we should do is have the projects in place and invite the private sector to invest: it will be more competitive, more productive, and more timely and result-oriented.

But does Nepal’s private sector have the capacity to develop big hydropower projects, say West Seti?

I don’t mean the private sector only within Nepal. It’s a global economy. All the highways being made in India are not being made by Indians alone. There’s a lot of Malaysian, Thai and Chinese technology. We need to open up these sectors while keeping national priorities in place. We need a clear policy on which sectors need foreign investment. For example, anything over 100 MW is difficult for a Nepali company to build.

But is our private sector really serious about investing in infrastructure? In the past four years none of the big business houses have announced new investment projects.

I agree. In the last four years, investments have gone to the real estate sector. Traditional industries have been stagnant. So it’s true that no large investment has been announced. The reason is simple. There’s no investment-friendly environment. Frequent change of governments, policies and priorities of the country means it’s difficult to forecast a five-year business plan. When investment does come back, it’ll be capital intensive rather than labour intensive because of the obvious problem with labour unions.

Traditionally, Nepal’s economy has been very India-centred. Do you see a change in the trade pattern of Nepal over the years?

The reality is India is going to be a big part of the economy. But Nepal needs to start looking at other markets beyond India. If you put all your eggs in one basket, there could be a disaster. Nepal needs to start exploring east Asia. We need better ties with Asean [Association of Southeast Asian Nations] countries: Vietnam, Combodia, Thailand, Malaysia, Singapore. We need to start working with these people a lot more. We should use tools such as Bimstec [Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation], which is available to Nepal. We need to look at China also in a major way because the development of the Tibetan plateau could largely be helped by Nepal’s development.

Has our trade engagement with China, or Chinese investments here, increased over the years?

I don’t think so. It’s not because China doesn’t want to invest in Nepal. The Chinese tell us Nepal is not ready to take in their investment. If you look at South Asia, Chinese investment in Sri Lanka has increased by about 600 percent in the last four years. In Bangladesh, it’s trebled, and in India, they’ve put a huge investment and trade is increasing fast. Because we don’t have a political system—and more importantly, policies—there has been little Chinese investment. But once Nepal becomes stable, I see major investments coming in.

Posted on: 2012-07-16 08:34

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