NATIONAL 3 -(Spotlight Weekly)

Small Is Beautiful

Nepalese economy can benefit from Small and medium scale enterprises. But are we paying attention?

BY AKSHAY SHARMA

As globalization 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.

Sitting on a foreign debt of more than US$ 2,500 million and an annual merchandise trade deficit of US$758.3 million representing 15.8 percentage of the GDP, Nepal has an urgent need to boost exports. This should be seen in the context of the fact that trade including both exports and imports, continues to play an important role in development of

many developing economies in Asia Pacific region.

"Small and medium enterprises including in South Asia have sometimes fallen victim to the rush of globalization which accepts the theory that the weak must give a wait to make the strong even stronger. This principle is equally acceptable in a national context. Many of the smaller enterprises have a purely or national reach," said Secretary - General of SAARC , Nihal Rodrigo, during a round table discussion on Strategy Development of Small and Medium Enterprises.

Because of easy and quick return, people in Nepal have preferred to be involved in trade than in industry. Professional business advisory services are inadequate. Following the entry into market economy since early nineties, business services have substantially developed in a short time.

"Strategies to develop small and medium enterprises need to be worked out benefiting from the experience of other South Asian nations in particular. Every individual country may differ but lessons and success stories can help, " said Rodrigo.

Most of the studies have focused on the problems and prospects of small and medium enterprises in Nepal and briefly elaborated small and medium enterprises policies and legislation including the support institutions to facilitate competition.

"Measures to avoid monopolistic and oligopolistic collusion or behavior to ensure competitiveness are desirable besides deregulating and import liberalization. Some attempt has been made to address business environment by explaining government's tax reduction policies and measures together with trade and industrial policies. These policies include reforms in income tax, custom duties, indirect tax as well as tax administration," said Dr. Bishwambher Pyakurel, President of Nepal Economic Association and chairman of Nepal Industrial Development Corporation..

Small and Medium scale enterprises play an important role for the development of national economy. "Small and Medium Enterprises constitute the backbone of development . They contribute about 40 to 60 percent of the total output or value added to national economy," said Dr Govinda Ram Agrawal, professor of Management at the Tribhuvan University.

The contribution of manufacturing sector to Gross Domestic Product (CDG) of Nepal was about 10 percent in 1998/99. 98 % were Small and Medium enterprises with fixed assets investment not exceeding Rs. 50 million. 87 percent of the total employment was generated by Small and Medium Enterprises. 40 percent of total gross fixed assets belong to Small and Medium Enterprises and 63 percent of the census value was added by Small and Medium Enterprises.

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 centralized. Most Small and Medium enterprises lack professional management. Which makes the entrepreneurial skills and abilities of the owner - manager relied upon. Recruitment 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 few export oriented small and medium enterprises which allows 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.

"FNCCI could also consider creating a dedicated e- commerce cell which could coordinate all e-commerce related activities. Along these lines FNCCI should take initiatives in forming an alliance with international Trusted Third Parties (TTP) and leading provider of trust services like VeriSign Inc of USA (www.verisign.com)," said Mohan K Bhattarai, Information and Communication Advisor , Urban Health Program.

Even though a number of challenges do exist in making full fledged e-commerce a reality in Nepal, a wholehearted effort must be made to facilitate the growth and development of e- commerce. The government in conjunction with the private sector can and should play a role in this regard.