PRIVATE SECTOR'S ECONOMIC AGENDA
The Nepali private sector has been calling upon the political parties to make public their economic agenda for a new Nepal . While the political parties have turned a deaf ear to the request, what is the economic agenda of the private sector itself?
The question may appear redundant. Given the fact that Nepal is already a WTO member, there is little room to maneuver in policies that are already fixed under the WTO rules and the terms of Nepal's accession to WTO. Moreover, though the accession to WTO was completed during the royal rule, the preparations for this were made before the royal takeover and when the Nepali Congress, Nepali Congress Democratic and CPN-UML were in government. Yes, the Maoists say that they are against the WTO system, but they will find it very tough to withdraw Nepal 's membership from the global body. Though many powerful countries have managed to circumvent the WTO in a number of respects, Nepal surely is not in a position to do so, no matter what the Maoists may say.
However, the question is not about the WTO. All the basic issues that will determine Nepal 's economic future are presently at a formative stage as the country is moving ahead to elect the Constituent Assembly to frame the Constitution and decide on the basic philosophy of the state.
The efforts of New Business Age to glean the views of the private sector as to what sort of a new Nepal it envisions and what it thinks are the basic principles to guide the country's future was not as successful as expected. However, here are some of the ideas collected, though they are more like questions raised and less like definite answers.
Basic Philosophy
The Nepali private sector seems to be unanimous in accepting that the basic principle of a New Nepal should be inclusive democracy. But there still seems to be a problem with the its definition. Particularly, the problem is with the issue of reservation. While there is no objection among the business community for reservation in politics, they are still to make up their minds about reservation in private sector jobs. While some countries like Malaysia have opted for reservation on private sector jobs and that strategy is regarded to have proved very successful, the Nepali private sector still has its doubts on whether the same strategy will be successful here given the fact that the socio-cultural diversity in Nepal is much wider than in Malaysia .
Another basic philosophical question is regarding federalism which in economic terms translates into the rights of the local authorities to impose taxes and own natural resources. In this regard, it should be borne in mind that the private sector has been very critical of the authority granted by the Local Self Governance Act to the local government bodies to collect various taxes. The complaint is that the local bodies so far have been illogical in using the right to impose these taxes. For example, they have been taxing exports more heavily than imports while economic logic advises the opposite. Moreover, there also are complaints that the same consignment is taxed several times from the stage it leaves the production site till it reaches the final market. If federalism reinforces this authority of the local government bodies and they continue in the same manner in the future, the private sector is of the opinion that it will further hinder business growth.
The issue of ownership over natural resources is related more directly with water resources though the case also applies to private forestry. Independent power developers have been complaining that there are multiple owners of rivers with undefined rights, thus complicating power project development exercises and causing cost escalation by several multiples of the initial estimates.
Land Reforms
Another thorny issue currently being debated upon is related to land reforms and property rights. The private sector says that the country's basic philosophy should be to honour the sanctity of private property and the right to earn and enjoy private property. Some private sector leaders say that as land is a natural resource the state can have some control over it, but in case of man-made wealth, the state should have no control at all except in imposing some tax on such property. Since even communist China has come up with a new policy to honour private property, the private sector hopes the Nepali political parties, including the Maoists, will see the logic behind it.
This follows that the private sector wants the privatisation of productive assets currently under government control. However, there is still no consensus among the private sector about the privatisation of education and health. Moreover, they are not unanimous on the method to be followed to develop the private sector. For example, should Nepal follow what the Ministry of International Trade and Investment did in Japan ? That system of selectively nurturing some businesses and business groups was followed successfully in countries like Korea and Taiwan and even China is doing it now. But recently this policy has started to be regarded as distortionary and is not allowed under WTO.
However, the Nepali private sector at present is bogged down in more immediate issues like the survival of the business rather than deliberating on the long-term vision. But the sooner it starts thinking about long-term issues the better it will be. For this it should work to publicise in Nepal the learnings from Malaysia , China , Vietnam , South Africa and even Bangladesh and Pakistan where a lot of philosophical and strategic transformation has taken place in the economic agenda resulting in very fast growths.
Private Sector View in Changing Context
By Dr. Chiranjibi Nepal
The Federation of Nepalese Chambers of Commerce and Industry (FNCCI), the apex organisation of the Nepali private sector is actively involved in the promotion of socio-economic development through private sector-led economic growth. It has been bringing out the private sector’s views on various current economic issues and also pointing out the need for a national consensus on the basic tenets of the economic policy.
Everyone is familiar with the challenges that the new government is faced with in all areas of governance. Political consolidation and reforms through election to the Constituent Assembly and eventually a general election to the Parliament remain top priorities. Nevertheless, the challenges on the economic development front should be boldly dealt with, as Nepal cannot tolerate human miseries and deprivation within our society when other nations are thriving. It is therefore urgent for the government to initiate reforms and strengthen institutions and public service delivery so that people, who have sacrificed for the restoration of democracy, could feel some relief and satisfaction. We know that their efforts can’t materialise overnight, but actions should be initiated right now so as not to repeat past mistakes.
The government’s priority should be to create an atmosphere of trust and confidence among all Nepalis through the establishment of peace and security by completing the urgent political and democratic reforms. But improvements in economic policies and governance for establishment of the fundamentals for sustained growth are equally urgent.
Scaling up of investments in social sectors to promote inclusive development and wider political participation through empowerment and community level mobilisation should be the top priority. For this to happen, the foremost priority of the government should be to arrange for smooth and quick election to the Constitution Assembly for a new state structure and to facilitate wider participation of people’s representatives in governance and accountability. Only such a socio-political arrangement would bring all sections of the society within the state’s embrace.
Market Economy:
The tenets of growth based upon private motivation and their entrepreneurship calls for a hassle-free (liberal) business environment.
Changes in the international business environment cannot be wished away as they will stay, determine and influence the trade and economic trends in each country – small or big. It is in our interest that we continue with the liberalisation process and integrate Nepali economy into the global one but at the same time seriously analyse the shortcomings in our implementation process which may have hindered the fruits of the reforms from reaching the masses.
Wages and price controls:
The price of commodities and services being offered in the market should be left to the market itself. Minimum wage may exist and in exceptional cases some utilities may be priced by the government for the time being. But overall, prices and wages should be market-determined.
Subsidies should be applicable only in exceptional cases. Existing price controls and state monopolies on public utilities such as electricity, water, fuel oils, telecommunication, broadcasting, etc. should be phased out.
Financial reforms:
Opening of the financial sector to private institutions is a welcome step which should continue. Banks should have greater autonomy and be closely monitored and supervised by the central bank. The central bank, however, should move away from commercial banking and should not interfere with the commercial banks.
A credit delivery system should be based on the projects’ viability and not merely on the collateral and personal guarantees.
A mechanism for risk management such as risk insurance, risk rating agencies, and other such devices need to be developed in line with international trends.
The state should legislate appropriate new Acts and amend the existing ones so as to adquately safeguard the interest of the borrowers as well as the lenders.
Foreign banks should specialise in certain sections of innovative banking so that banking technology can improve and additional funds are made available to the promoters at competitive rates of interests.
Sectoral strategies:
In an environment of emerging new technologies, the relevance of traditional advantages are shifting to new areas and it is upon the government as well as the private sector to visualise the trends worldwide and fix their own position in it.
The investment plans, priorities rules and regulation governing agriculture need to be revisited. The ceiling on land ownership and inadequate irrigation facilities have negated the potential of agriculture. Agro-based industries hold promises in the realm of edible oils, tea plantations, horticulture, high altitude crops, live stock and dairy for which specific incentive packages need to be announced. These packages have to compete favourably with other countries in the region.
For tourism to prosper in Nepal our entire infrastructural facilities and administrative system need overhauling and a face lift. The approach has to be more target specific and integrated with other sectors too.
Hydropower potential has recently gained a very high status in the private sector and government priorities but despite much progress in this sector at the policy level, investment so far has been minimal.
SAFTA and the Bilateral Trade Treaty between Nepal and India have opened up new opportunities for Nepal to be the suitable location for manufacturing. Some of the Fast Moving Consumer Goods (FMCG) for export to the eastern part of India , Bangladesh and Bhutan have good opportunities. These need to be promoted not only among the Nepali private sector but also among the promoters abroad especially among entrepreneurs of the SAARC region.
Regulatory reform:
Control-oriented administration has bred distortions, corruption and nepotism. Nepal can derive its competitive edge among the SAARC countries by simply instituting a simple, uniform and none discretionary regulatory system. Free movement of goods, hassle free entry into any trade/business (except ones which create public nuisance), no quotas and no licences should be the basic principles guiding the regulatory system in Nepal . For this to happen the existing laws will have to be amended to make them confirm to the free trade regime and new legislations will be required to respond to the new situations. The judicial system will also have to be upgraded to the international standard.
Tax reforms:
The government needs to carry out comprehensive tax reforms so that the tax net is widened, tax revenue is increased and subjectivity in determining tax amount is curtailed.
At present, the tax revenue as a percentage of GDP is very low. Additionally most of the revenue comes from import based indirect taxes. This dependency has prohibited policy makers from taking corrective measures in favour of industrialisation or encouraging or curtailing consumption and has prevented an efficient and fair tax collection system from evolving. The first priority should be to project collection of indirect taxes for the next five years with lower weightage on import revenues and better collection from domestic production and consumption through an efficient tax collection system.
The systems of valuation for imports has to be immediately modernised as per the international system.
VAT management needs to be made friendly to the tax payer.
Investment reforms:
l Domestic capital based growth strategy should be the mainstay of our investment policy.
l Foreign capital’s role in the economy should be supplementary and not competitive. It should be a long term investment.
l The focus on private sector as the main carrier of economic growth should be permanently instituted in the thinking process of those in governance. For this, a political consensus and change in attitude at all levels of bureaucracy is required.
l Protection in the form of level playing field is a prerequisite for domestic investment. Dumping, under valuation for custom purposes, international brands and differential custom tariff pose formidable threats to industrialisation and the production of goods in Nepal .
l The labour policies and the relative Acts should be made contemporary and in line with liberalisation and conducive for the generation of employment and improvement of productivity.
l As the demand in the industrialised countries is on the decline too much emphasis on export to developed countries alone may deprive us of the opportunity to export to the SAARC region specially the Indian market.
Fiscal reforms:
Government expenditure should not be curbed but directed to productive investment and social sectors especially education, health and transport infrastructure.
Social issues:
For people to be employed in Nepal or abroad their skills, knowledge and productivity will have to be enhanced to international levels. This will be possible only if the government along with the private sector initiates an intensive and extensive programme of human resource development in Nepal in the urban as well as the rural sector.
(Dr. Nepal is Senior Consultant of FNCCI.)
New Nepal & Private Sector’s Perspective
By Surendra Bir Malakar
The new Nepal should focus its attention on proclaiming the next 10 years a “Decade of Development” during which it will meet bold economic targets for growth and social development. The Nepali private sector is of the view that there are two basic pillars of economic development: human development and economic growth. While human developmentis about empowering every individual to reach his full potential as a healthy and educated citizen, economic growthis about broad based and sustained increase in per capita GDP.
Sustained economic growth depends on favorable business conditions, high level of private sector investment, technological upgrading and successful integration into global markets. The approach to development should be based on the empowerment of the marginalised, restoring the dignity of the poor and reducing their dependence on the government. “Growth with justice”should be the motto.
A series of summit meetings between the leaders of the Seven Party Alliances and the Maoists have finally culminated in a historic agreement, paving way for the formal entry of the Maoists into peaceful political mainstream and in effect putting an end to the decade-long armed conflict. The Peace Accord signed between the SPA and the Maoists has clearly opened the avenue for cultural and economical transformation of the country. In this regard, the Nepal Chamber believes that Nepal should aim for a double digit growth and for this, the government should pursue a common minimum programme (CMP) reflecting the interim Constitution and the Peace Accord.
The CMP should be formulated after strenuous home work is done among all the stakeholders.
The Nepal Chamber has already submitted a framework of the strategy to be taken for development of the economy to the National Planning Commission. According to this, the strategy to be adopted should be: promoting investment of private sector, strengthening the country’s competitiveness, developing new sources of national income, and enhancing supply effectiveness.
For these strategies to be successful, the Chamber believes that the new Nepal should speed up the process of industrialisation, implement trade policies at domestic and multilateral level, formulate effective programmes for export promotion, and implement policies of economic development with the motto “Growth with Equity”.
The Government of Nepal should review the present FDI policy, laws and by-laws in order to attract more foreign investment. Since the non-resident Nepalis (NRN) have already declared their interest in investing in the socio-economic sectors of Nepal , the government should capitalise on this opportunity.
The CMP to be agreed upon by all political parties including the Maoists should have a long term vision which should be clearly stated. Even though there has been wide debate regarding the economic agenda of the CPN-(Maoists), the general public including the private sector are still in the dark. So, the CPN-(Maoists), the new political forc should clearly define their economic agenda to the people. The parties have somehow already accepted globalisation and liberalisation. However, the private sector has sensed differing views among the major political parties on the “revolutionary land reform” agenda of the Maoists. We believe that this will severely affect both local and foreign investment. Therefore, we urge all the parties of Nepal to have a common ground on this issue.
While talking about the ways to develop a new Nepal , the private sector feels that development of hydropower is crucial in the present context. Nepal has to attract FDI in the hydropower sector. The Chamber has formed a core group on hydropower and in the near future will present a report to the government regarding the same. Meanwhile, Nepal should aim to promote and facilitate sustainable and equitable tourism bringing together all the stakeholders from the public, private and NGO sectors.
In order to alleviate poverty, we feel that a rural self-employment programme should be implemented. Apart from this, programmes like rural financing, financing without collateral for the poor and deprived people should be implemented. Moreover, the agriculture sector should be commercialised in order to uplift the poor. Nepali agriculture has so far been based on subsistence farming and there is little time to change this into commercialised farming.
The private sector feels that labour policy will play a crucial role in industrialisation. In the interim Constitution, the labourers’ rights have been included in the Directive Principles of the state and the Fundamental Rights. But for a sound industrial environment to flourish, there should be harmonious relations between the government, the employers and the employees. We have heard recent instances of closure of industries because of labour problems and we feel sorry to say that the Nepali labour policy has not helped much. So, it should be reviewed and made flexible in order to sustain Nepali industry and help it grow.
It is said that Nepal is rich in natural resources but we have not been able to utilise them fully and effectively. In order to help our country prosper, there should be a common agenda to use these resources optimally and the right policy and regulations should be put on place to utilise the bio-diversity of Nepal.
The recent publication of the World Economic Forum has put Nepal in the 110th position out of 125 countries in global competitiveness ranking. So, the different pillars of the competitiveness should be reviewed as enunciated in the report. Nepal has a very weak competitive and comparative edge over foreign products, but it also has niche products and markets. SMEs and techno-entrepreneurs – the backbone of the Nepali economy as they contribute over 80 per cent in employment – should be taken due care of.
The establishment of Export Processing Zone (EPZ) or the Special Economic Zone (SEZ) – be it traditional or modern – should be established with a view of attracting FDI and domestic investment. Investment should also be drwan in projects under BOT and BOOT to further the Public Private Partnership approach.
The Chamber has always been lobbying for the changes in industrial, trade and economic laws and policies to make the industrial environment more competitive. In order to facilitate investment, there should be a one-stop service centre rather than only one. The existing system in which the tendency is to set up one more one stop service centre.
Madhesis, women, Dalits, indigenous people, janajatis, the poor, the marginalised and conflict victims should be included in the development process by devising the appropriate modality. They should be provided district level trainings related to micro, cottage and small industries.
The concept of one-village-one-product and “Let us be entrepreneurs and increase youth employment” should be aggressively launched for employment promotion.
Effort should be made for a favourable and conducive environment to attract foreign investment from NRNs and People of Nepali origin. In order for the industrial competition to be systematic, the customs duty, anti-dumping duty, equalising and countervailing duty, and provisions of the competition law should be made compatible. Mergers of small companies should be encouraged to form bigger and stronger companies.
As an investment for poverty alleviation, a business incubation system should be developed and industrial business cluster should be promoted. With a view to facilitate trade, Nepal should focus on simplification, standardisation and harmonisation of the activities related to trade.
India has been proposing the Comprehensive Economic Partnership Agreement and a consultation process with the stakeholders should be initiated to reach a consensus on this regard. Export Trading Houses should be allowed the facilities available to the manufacturer exporters.
Nepal has become the 147th member of the World Trade Organisation and also has membership in regional groupings like SAFTA and BIMSTEC. These memberships have brought both opportunities and threats in a developing Nepal . It should therefore devise a plan to turn these threats into opportunities in order to build a prosperous new Nepal .
(Malakar is the President of Nepal Chamber of Commerce)
