Developing SMEs in Nepal

By SAMBA DEV PANT

A thriving small and medium enterprise (SME) sector has long been  recognised by economists as one of the characteristics of a prosperous and growing economy. SMEs contribute to development in multiple ways, creating employment for an expanding urban workforce, and providing much needed flexibility and innovation in the economy as a whole. Such benefits, however, have not been realised in most Asian economies, where the SME sector is underdeveloped and underperforming. Concerns that the Asian economic crisis would be especially devastating to the smaller scale firms in the region have prompted greater attention to this sector. Consequently, new assistance efforts by governments and international donors are now being directed toward SMEs, particularly in the countries of Southeast Asia, which have been most affected by the economic crisis.

Ensuring that this assistance is appropriately and effectively utilised is essential if the long-term potential of smaller scale business is to be realised. Over the years, donors, Asian governments, and non-governmental organisations, both domestic and international, have tried a wide range of strategies to bolster this sector. Some approaches have been aimed at improving the performance of SMEs generally, while others have targeted SMEs owned by members of disadvantaged groups. The emphasis of one of the most common programmes has been on increasing access to small loans (often referred to as micro credit), usually at market interest rates but sometimes at subsidised rates. Other programmes focus directly on firm-by-firm assistance, and address constraints largely "internal" to the firm, such as poor management, outdated technology, and a lack of knowledge of markets.

As globalisation continues integrating the world market and promoting the large enterprises, smaller countries like Nepal are facing difficulty to retain its small and medium scale enterprises.

With annual population growth rate of 2.6 percent and 42 percent of the population living under the poverty line, the development challenges of Nepal continue to be formidable. Economic concerns are assuming importance of significant proportions as political stability and achievement of substantial development goals are becoming increasingly contingent.

In Nepal, an Act made to provide for the industrial development was published in the Nepal Gazette November 12 , 1992 Industrial Enterprises (First Amendment) Act, 1997 published in the Nepal Gazette 22 Aug 1997. According to this Act and the revised amendment cottage industries mean the traditional industries utilising specific skill or local raw materials and resources, and labour intensive and related with national tradition, art and culture shall be named as cottage industries. The small industries include the industries with a fixed asset of up to an amount of thirty million rupees shall be named as small industries. In the schedule 1, the cottage industries inter-alias, include: handlooms; pedelooms and semi-automatic looms, warping, knitting; hand-knitted woollen mats and blankets (Radi and Pakhi); woollen carpets, pashmina filigree, etc.

The Industrial Enterprise Act, 1992 and the Amendment 1997 state medium industries as industries with a fixed asset between thirty million rupees and one hundred million rupees shall be named as medium industries. The small and medium Enterprises play a pivotal role in the industrial and economic development of Nepal in achieving the minimum needs of the people by the turn of the century by creating employment opportunities, meeting the increasing market demands, increasing the rural income development, traditional skills and technology, helping to increase foreign exchange earning and saving foreign exchange by export promotion and import competitiveness.

The importance of export growth for the developing countries cannot be overemphasised in the developing and the least developed countries like Nepal in particular. The traditional export markets in the developed countries were facing increasing protectionism for the product of developing countries.

The importance of promoting the traditional technology for promoting rural industries in the context of Nepal cannot be underestimated. We can refer to Gandhian dictum of return to the soil. The natural organic matter was an example of alternative technology to increase production vis-à-vis chemical fertilisers. Chemical fertilisers degrade land, pollute water and make the foodgrains less nutritious. There is an importance of improving the traditional skills in agricultural implements e.g the sickles and spade.

The Nepali workforce, skilled or unskilled, is on the whole, respectful of authority and has good relations with management. Every establishment is legally bound to have a labour relations committee of workers and employees for developing healthy industrial relations based on mutual participation and co-ordination. All large enterprises have one or more labour unions. Union membership is voluntary. Labour legislation helps to avoid many disputes. Negotiation of wages and employment conditions between management and union is an accepted practice. Such negotiations usually result in collective agreements, which when registered with the government are valid and legally enforceable for the agreement period.

In a recently concluded meeting, experts have suggested to increase investment in support services like information on foreign markets, assistance in financing new technology, advice on productivity improvement, design and quality control for the timely growth of small and medium enterprises (SMEs). New orientation and new ideas are required to address the needs of the SMEs. In this context, subcontracting, exporting information technology (IT) and targeted programmes to disadvantaged group are some of the key issues that need to be addressed. The majority of small and medium enterprises in Nepal share some common features. Most of the small and medium enterprises are family owned and managed. Therefore, the decision-making is highly centralised. Most small and medium enterprises lack professional management on which depends the entrepreneurial skills and abilities of the owner-manger. Recruitments of human resources are guided by kith and kin relationship.

There is low use of improved technology and it is limited in capacity and often breaking down. There are a few export oriented small and medium enterprises, which allow a limited market, confined within the economy. Small and medium enterprises in Nepal are human resource intensive. However, human resource development has remained a neglected aspect in building the capacity of small and medium enterprises.

Disadvantage of being tenant

By BHASKAR SHARMA

I love Kathmandu. There’s no doubt about it. But when it occasionally occurs to me that I live here as a tenant, I do feel disturbed. Not because I don’t own a house, nor that I am rich. I don’t need a house right now, and as for my sustenance, including my education and daily living, my salary is enough. Nevertheless, what disturbs me is the fact that a fat chunk of my income goes in paying off my rent, which, going by my standard, is a bit too high. But then I don’t want to live in a too crammed house.

But, nonetheless, when I reflect upon my experiences as a tenant, it does amuse me. And sometimes I believe, living as a tenant, if you take it in a right attitude, has its own charm. And the host of experiences that I gathered as a tenant are worth sharing.

The worst (or maybe the best) part of living as a tenant is the hunt for a suitable place to live in. This may not be a problem to those whose income is good enough and who can afford to live in posh flats or even those who live in families, and the father looks innocent enough not to run away without clearing the rent. But for young and bachelor guys like me, looking for a reasonable two-roomed flat could be one real big problem. And I am sure, others must have faced similar problems.

First, even if we manage to hunt down two rooms and a kitchen suitable for us, the toilet would be horrible. And sometimes, when everything looks fine, water would be the problem. And when we finally do manage to find a flat with two rooms, a kitchen, separate toilet and 24-hour water, other issues would arise. Looking at our faces, landlords don’t seem to agree that we would not disappear without paying their rents. It takes quite a lot of sweat and energy to convince that we would pay our rents well in advance. If the landlord settles on the monetary issue, he would have other doubts in mind like boozing. And finally when that is also settled and the landlord is convinced, and the good looking flat seems to be our new home, another issue would strike his head. He doesn’t seem to like the idea of two eligible bachelors living in his house. He would then say a defiant ‘NO’. That’s just because he happens to have beautiful daughters. Unfortunate us!

After encountering the above encumbrances, when finally we do settle somewhere, other surprises would be in store. The landlord turns out to be pesky. He would begin showing his true self as each day passes by. ‘The garden is dirty. You come too late at night.’ Such would be the complaints of the pestering landlord. And he doesn’t seem to look at the reason for the dirt or my delay in returning home in a rational and logical manner. The landlady throws all rubbish out of the kitchen window above and the landlord asks us to clean them. Also, he does not seem to understand the very nature of my work, which demands me to remain in office at least till nine, and sometimes even past 12.

Nevertheless, the picture I may have portrayed of landlords and the obstacles encountered in house hunts in Kathmandu is not a general one. I have met many landlords who are really cooperative, kind and understanding. Whatsoever, the conviction I had that being a tenant is fun, is now changing. The French thinker Joseph Joubert once said: "We only know just what we meant to say after we have said it." Joubert seems to be cent per cent true. That’s because, as I put down my experiences in words, I realise what I have gone through. Now I would say that being a tenant is not so charming after all.

Education, economy and government

By SHIKHAR SHRESTHA

The Nepalese government spends about 260 million US dollars annually on  development projects. More than 50 percent of this money comes in the form of foreign aid and loans. But the present economic status of this country manifests a gaunt presentation--no individual is ready to accept the fact that the international aid and loan borrowed is used properly.

Nepal is currently burdened with many internal conflicts; it’s volatile politics, the escalating Maoist insurgency, declining cultural and social status and a deteriorating economy. More than half of the nation’s people still live under abject poverty, marking the travesty of the whole working of democracy.

The government’s economists do try to bring the nation back on its feet. But the whole government personnel’s performance and their listless attitudes make the proceeding too tardy for the Nepalese to see any sudden change for a long while. Being regarded as the "third world developing country", Nepal seems to draw plenty of international attention, both for its natural charisma and for its economic hazard. Nepal is considered to be one of the largest foreign-aid receiving nations as termed by the United Nations. On the very flip side, it is also one of the world’s largest indebted countries, with a large debt still to be paid back to the World Bank (WB) and the International Monetary Fund (IMF). The amount nearly exceeds 60 million US dollars. The amount is so large that it seems adequate to bring about needed changes to the country’s economical status and poor infrastructure, but corruption and internal turmoil have impeded and impaired the whole progress towards elevation.

The main quandary lies when the question is raised over how to cut back on international borrowing and avoid anomalies in government’s development schemes. The best answer suited for all the governments of poor nations is to pursue sound economic policies - competitive markets and free trade -- that let the private sector grow.

The country needs to learn to depend on its primary sectors and manufactured imports. The government is not taking their goods of comparative advantage to their benefit. The agricultural sector and the handicraft industry can pick up fast if they are given adequate attention and financial assistance. The tourism industry has been considered extremely volatile in the Nepalese context, and the ongoing Maoist insurgency has drastically reduced the number of tourists coming to Nepal.The Maoist insurgents have kept the government up on their toes. Though the mobilisation of the army has instilled a sense of security among the people, the turmoil and chaos within seem to have diverted the government’s attention.

However, the government should not let the educational sector be tampered with the current turbulence. The fettered educational schemes have not been able to foster rapidly in Nepal as we may have expected. If the level of education is low, the government is probably the only organization that can undertake the provision of needed schools, teachers, training centers, and universities. In the remote areas of Nepal, private education is unlikely to be provided and only a few, if any, could afford even if it were there. Above all, education is an investment by a nation in its future, and is best carried out by the state. Similarly, if capital requirement is great, the government is probably the only body, which has the resources or the finance to carry out the large investment projects, which are necessary to expand the infrastructure of this country.

The factor that is actually impending and impairing Nepal’s economy is corruption. So colossal is its effect that the economy is in tatters, and its long-term viability is, at best, in an uncertain state. The agricultural productivity, manufacturing sectors, infrastructures, irrigation scheme and domestic saving facilities created in the course of development don’t seem to last in its present form due to corruption. The potential energy and entrepreneurship of the private sector has been channeled to the unproductive sector. Corruption has adversely affected the motivation of the civil society. People encourage public officials to contravene rules and regulation for their benefit. It seems to be the main way to get contract, promotion, and appointments. Tax evasion is widespread but corruption has the worst effect on the polity. Money plays a dominant role within and outside the state institution and political organisation and the distribution of power in the political space is determined more by money than political exercise. Corruption poses a complex challenge to its people and for the development. Therefore, the people of Nepal should fight against the corruption and the corrupt people.

It is now high time the nation’s economist and individuals in high-places sought to overturn this economic misbalance and obscurity. Corruption and misemployment of the foreign donation seem to be an ominous medium for our economy. Nepal should reinforce a good international trade policy and enhance the quality making of the comparative goods it produces. In the midst of a major global transformation and globalization, the country, if works with more brains than brawls, can make things possible that the Nepalese will start to see needed changes in the economy. Finally, it is the government which is able, better than anybody else, to lay down guidelines for the country’s development and arrange a list of priorities so necessary in a country where resources are scarce.

The problem of development is not susceptible to any solution, and what has been discussed so far only touches upon only a few aspects. Above all, the problem is not entirely an economic one. The whole nature of society must be questioned, its values and ideals. Perhaps the aim of economic growth conflicts with other values which society cherishes. To achieve the matter of development, one has to be ready for all contingencies, anticipated quagmires and anomalies. Above all, one must return to the people.