RBB mgmt hand-over hits new snag

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KATHMANDU, April 8:The long-running saga of the management hand-over of the state-owned Rastriya Banijya Bank (RBB) has engulfed into another complexity after the government refused the plea of Deloitte Touche Tomatsu (DTT) to relax some binding performance conditions in the final agreement.

According to a highly placed source at the Ministry of Finance, the government informed the DTT on Friday about its rejection of the requests made by DTT. The government argues that it is unacceptable and against the international practice to seek changes after signing final agreement and such a step can be taken as a breach of agreement.

Earlier, in its letter to the central bank about a month ago, DTT, the US based consultative firm, had expressed its inability to fulfill some of the conditions of the agreement that was signed between the central bank and the company. In the same letter, it had also raised concern over the security situation of the country. The DTT had even indicated that it could break the agreement, if its demands were not considered.

The DTT has asked the central bank to relax some of the binding conditions of the final agreement put by the government in order to prevent an easy way out for the client after the completion of two years’ agreement period. The company has argued that its basic job is to find out the actual financial status of the bank and to suggest viable options to improve its financial health.

The central bank has been struck with the idea that there should be no negotiation on binding performance condition and has sought suggestions from the Ministry of Finance and the World Bank, the principal lender of banking sector reform project.

The Ministry of Finance, in its suggestion had supported the stance of the central bank and had said that the government is ready to talk to DTT on security arrangement. However, the World Bank refused to make any specific comment and urged both the parties to solve their differences through negotiations.

As per the agreement singed on January 31, the DTT, among others, is compelled to improve the financial health of the bank up to an acceptable level. Also, the DTT has to improve the accounting system of the bank to international standards and reduce the existing non-performing assets of the bank by half.

The source also said that it was a mistake of the DTT to sign the contract by promising to improve the financial health of the bank, whose actual financial condition is still unknown to DTT.

Despite the latest row between the two parties, the central bank has indicated that some of the conditions of the DTT, except for the binding performance indicators, can be considered once it started operating the bank. The NRB, in its letter, has also urged the DTT to come to Nepal to start its operation.

The source also said that government has made up its mind to cancel the agreement with the DTT, if it repeatedly disobeys the conditions of the agreement. "The bid bond of the DTT would be forfeited if it breaches the contract," said the source.

Earlier, the DTT and the NRB had signed a final agreement regarding the hand-over of the management of RBB on January 31 after it bagged the contract bid. The company’s bid, with US $ 5.9 million as a consultant fee, was the lowest among the bidders. During the singing ceremony, the representative of the DTT had said that the DTT would take-over the management of the RBB in the first week of March. However, due to the ongoing controversy, the final takeover of the bank has been lingering since last two months.

The government had embarked upon the management-transfer-project after KPMG Barents, an international auditing firm, declared the two banks technically insolvent in its report last year.

CAAN holds talks to resolve airfare row

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KATHMANDU, April 8: Civil Aviation Authority of Nepal (CAAN) called the domestic airlines today to discuss on the ongoing scuffle in Aviation Sector that arose following the unilateral decision of the airlines to increase airfare.

"We asked them (airliners) to discuss the matter to solve the problem before taking action against them. We requested them to withdraw their decision until the solution is found," said Medini Prasad Sharma, Director General of the CAAN. We will try to solve the problem without much ado, he added.

However, the CAAN will not endorse the increased airfare without solving the legal complications, he added. "And if necessary the government will take action after the hearings from the airlines is completed."

Defying the order of CAAN not to fly at hiked price, the domestic airline operators are flying their aircraft at increased fares since Sunday.

"We flew our aircraft today also at the increased airfare," said Bikas JB Rana, President of Airlines Operators Association of Nepal (AOAN). The fare was hiked by 7 to 12 per cent. In absolute terms, the fare increased from a minimum of Rs 100, to a maximum of Rs 300, depending on the flight sector.

The operators in the previous week announced to increase the domestic airfare citing high operational costs, but the CAAN ordered them not to increase the fares.

Operators, however, are determined not to bow down in front of the government to roll back the fare hike. "If the revision as made by the airlines themselves is not endorsed, and the government attempts to take action against any of the airlines, we will close down the flights immediately," said Rana.

Nevertheless, the airlines say that they would scale down the fares only if the government slashes the hike in various fees that it had announced recently. The decision of the airlines to hike the fare came just after the government announced to revise various fee structures, including those of registration, renewal and operating licenses.

Exporters demand arresting pilferage of exported goods

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KATHMANDU, April 8:Representatives of Garment Association Nepal (GAN) and Nepal Freight Forwarders Association (NeFFA) underscored the need to curb incidents of pilferage of exported goods on the way.

According to a press release issued here today, speaking at an interaction, the GAN representatives requested the NeFFA to prevent pilferage of goods transported to the third countries, especially by roads via India. They also asked the NeFFA to slash down the transportation cost for securing price effectiveness of the Nepali garments.

However, office-bearers of the NeFFA asked the exporters to pay special attention while dispatching their goods as in most cases the goods are stolen without breaking the seal. They even denied the possibility of cutting down the transportation rates at present.

However, they agreed to constitute a committee to sort out the problems seen on transportation of exported goods.

"Representatives of Nepal Chamber of Commerce (NCC), GAN, NeFFA, Central Carpet Industries Association (CCIA), Handicrafts Association of Nepal (HAN) and government officials would be the member the committee," the release adds.

Experts emphasize on understanding buyers

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KATHMANDU, April 8:Foreign Trade Consultants, Juergen Weilandt and Bruni Weilandt speaking at a cross-cultural seminar on "How to do Business with Companies in Germany and the European Union" today stressed on better understanding of mentality of the people around the globe for successful execution of business activities.

They highlighted the culture, business norms, ways to select reliable partners, benefits of trade fairs and business opportunities with Germany and the EU.

Earlier, Jim Tomecko, Team Leader of the Private Sector Promotion Project (PSPP) of German Technical Cooperation (GTZ) viewed that currently downtrodden economy could be revived by the active growth and participation of the private sector.

Referring to the bilateral trade relationship, he said that the German market, already a largest among the Nepali tea importers, could absorb more produce, if properly promoted, which in turn would fetch high price for small farmers.

He also underlined the need to use trade fairs for trade promotions, not only through sales and exhibition of products, but also by building up a long-term relationship. "With the participation of the cross-cultural business personnel, trade fairs will put Nepal in the trade map as well," he stated.

B K Shrestha, President of the NGCCI and Pushkar Man Shakya, Treasurer of the NGCCI too shared their views on the occasion.

The seminar was organised by Nepal German Chamber of Commerce and Industry (NGCCI) with a view to facilitate the businessmen facing problems while doing business in Germany.

Private-sector-led-growth: A rhetoric or reality

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KATHMANDU, April 8:The private sector has played a vital role in the country’s development, especially in the post-democracy era. It was in the early 90s that the government pursued open and free market policies with a view to promote the private sector as the engine of growth. Undoubtedly, in line with its vision, the government formulated policies conducive to the growth of the private sector. And the positive impact of policies is evident from the statistics of the past decade.

Past Performance

As a testimony to the contribution of the private sector, the real Gross Domestic Product (GDP) at factor cost jumped from Rs 145 billion in 1991 to over Rs 392 billion in 2001. Likewise, exports surged from around Rs 13.7 billion to Rs 57.2 billion in the same period. The number of joint venture industries, primarily as a result of private sector initiation, has surged remarkably. Over 250 joint ventures are operating today, with almost 50 under construction. Such a rise in foreign trade and the number of industries in the ten-year period shows a satisfactory picture of the Nepali economy. And the main reason for an upsurge in economic activities to such an extent can be attributed to the liberal economic policies adopted by the government.

Impact of Violence

Unfortunately, the last 12 years’ achievements are at risk with the ongoing Maoist insurgency. Repeated attacks on infrastructure and business establishments are deterring investors from investing. Though a host of international events too have impacted Nepal lately, the worsening laws and order situation has become an overriding concern. The escalating Maoist violence against business establishments in recent years, including Dabur Nepal, Nepal Lever, Shah Distillery, and a host of others, has dealt a serious blow to business confidence, pulling down the morale of the so-called ‘engine of growth’ to its lowest. And this partly explains the latest fiasco that the economy is faced with. Exports in the first half of 2001/02 declined by 6 per cent, first time in twelve years. Total imports too dipped by 8 per cent during the period, indicating a decline in industrial activities. However, the business community is still hopeful that a solution to the current crisis would be found, and which they believe would pave way for further development.

Policy Implementation

While containing the increasing violence is the topmost priority of the private sector, their concerns are also on a number of other areas, which can see drastic improvement if sincere thoughts are given. One of the most important challenges faced by the private sector is the implementation of business-friendly policies formulated by the government. Weak implementation of high sounding policies and poor participation of the private sector in policy formulation has constrained the extent to which the private-sector-led-growth could have taken place.

Public-private Partnership

Most of the past policies were formulated by the government without soliciting recommendations of the private sector. Some of the recent decisions reflect its indifference and lack of sincerity to the warnings of the private sector. The recent decision to change the Financial Act 2001/02 through an ordinance is just an example that shows the government’s indifference to the wails of the private sector. The government took no suggestions from the private sector before taking such a major decision. The increment in taxes came when the economy was in a serious trouble, and more importantly in the midst of repeated requests from the private sector for rescue packages. In addition, the government formed various consultative bodies including the Board of Investment, Environment Council, Industrial Promotion Board, Revenue Consultative Committee and Export Promotion Committee, among a host others, to enhance public-private partnership. However, most of them have remained largely defunct, plagued by high degree of government intervention. Only the Nepal Tourism Board, which has greater private participation, is functioning as per initial expectations.

Liberalisation

The government had committed to pursue liberal economic policies in the early nineties. It liberalised various sectors of the economy pushing them into a new era of growth and diversification. However, the pace of liberalisation did not live up to the promises and many of these sectors that could have grown impressively continue to fare hopelessly under the government. One of the areas that saw good growth since the adoption of open market policies is the banking sector. The banking business today stands as the most lucrative sector for investment. Likewise, since the government opened up aviation, the sector grew impressively except the state-owned Royal Nepal Airlines Corporation (RNAC) which has perennially been incurring losses. Similarly, the telecommunications sector continues to be blighted by the government’s protectionist attitude.

The present global economic experiences reaffirm the notion that market forces play a paramount role in accelerated development. Whatever economic achievements have been in the past decade is due to the private sector. The government’s role in the economic activities has to be minimised to promote private involvement to bring efficiency and effectiveness in production and quality of goods and services. However, the government has failed to speed up the privatisation of sick state-owned enterprises. So far only 18 enterprises have been handed over to private hands, while around 39 enterprises continue to fare hopelessly under the bureaucracy. One of the glaring examples of sluggish privatisation of state-owned enterprises is that of the Butwal Power Company, one of the few profit-making state-ventures, which took over three years of controversy before finally being settled.

Competence Enhancement

Core competence is the buzzword in the economic world today. The government must embark on taking steps to ensure that Nepal survives the threats globalisation would bring. This calls for revision in plans and policies, including the regulatory and legal framework, making it WTO compatible and aiming to enhance the competitiveness of Nepali businesses, unless they would not survive the global competition. The government now must take bold decisions – which may be challenged in the near future, but beneficial to the economy in a fairly long time.

Legal Framework

The growth of the private sector depends to a large extent on the policies that the government formulates, and the legal framework that guides the private sector. For efficient functioning of market-oriented economies and for the growth of private sector enterprises, the legal framework needs to be simple, unambiguous, transparent and consistent to the needs of the private sector. Unfortunately, while the government talks of liberalisation and open market policies, the laws are not congruous to its intentions. And sometimes even if the government is really serious, the actual implementation is not. Formulation of the Industrial Policy and the Foreign Investment Promotion Policy in 1992 to promote industrialisation and greater investment in the industrial sector was one of the many notable steps taken by the government. The policies provisioned for one window policy to aid in the setting up of industries and clearance for foreign investment. However, the policy has largely been rhetoric and the system of under-the-table payment still prevails. Another example is the labour-biased regulatory framework. The government must review the labour laws, which is a basic prerequisite for private sector enterprises to flourish.

Resource Utilisation

One prime concern of the private sector is the efficient utilisation of resources by the government, which has time and again proved its inability to manage resources meaningfully and optimally. The money paid by the taxpayers is grossly misused. There lacks regulatory and legal framework to oversee that the taxes paid by the public and the business community is properly utilised. Creation of a taxpayer-friendly environment as well as competent and professional tax administration capable of functioning in the changed context of global economic integration has become imperative.

Private Sector Pitfalls

There is no argument that the government’s main thrust in the post-90s was on the private-sector-led-growth. However, care must be taken to ensure that the private sector plays its role well. A number of areas in which private sector was allowed have performed hopelessly. Entrepreneurs are seen to be running for more short term profits rather than long term returns. A glaring evident is the hydropower sector. The government adopted liberal hydro-policies to attract private investment. However, the interest shown by the private sector has been negligible. Similar was the case in fertilisers whose supply did not improve despite its deregulation in 1999. Likewise, the private sector’s failure is also seen in the banking system, where huge amounts of loans and advances have been granted against the central bank’s regulation.

Present Standing

Whatsoever the present standing of the private sector is, it responded to the policy reform initiatives in the 1990s dramatically. However, the impetus was not sustainable, especially after 1996 when the real average GDP declined, manufacturing value addition and employment fell back, and real investment stagnated. While the Asian crisis, unfavourable weather and changes in the policies in key export markets for Nepal may partly be blamed, but the domestic factors: poor implementation capabilities, increasing resource gap, lack of legislative framework and miserable bureaucracy are more responsible for it.

What Next?

The government now must take concrete steps to reverse the current trend. And the outright participation enjoyed by the private parties in the recently held meet of the Nepal Development Forum (NDF) is seen as one of the most important achievements in recent years. The government, prior to the meet, held a series of consultations to solicit the views of the entrepreneurs for policies that the government would be adopting for the next few years. If sincerely implemented, incorporating the genuine recommendations of the private sector, the upcoming policies can be expected to be more encouraging to the private sector. And for a true private-sector-led-growth to occur, the government should be liberal, while at the same time, the private sector must maintain the ethics and norms of business and abide by regulations.