National 5 (Spotlight Weekly)

All Words, No Action

Amid economic gloom, the business community lobbies to make Nepal an attractive investment destination

By A CORRESPONDENT

The violent Maoist insurgency, unpredictable Nepalese polity coupled with global economic slowdown, among others, have presented a deadly ìcocktailî for the prospective investors who would like to come and invest in Nepal.

Despite such hurdles, there would not be a dearth of investors in Nepal, who would be eyeing to vast markets of India to the south and China in the north, if the government came up with appropriate policies. According to a ìWhite Paperî prepared by Nepal-India Chamber of Commerce and Industry, along with five other bi-national chambers, Nepal is far behind than Bangladesh and other bordering Indian states in terms of offering facilities to prospective investors.

Various policies brought out by the government, e.g. the fiscal policy, industrial policy, labour policy, monetary policy have failed to attract private participation and foreign investment in industrial enterprises. The situation gets worse as these policies are not cohesive with each other and the other repeals facilities provided by one policy, said the document publicized through leading newspapers last week.

According to the study, Nepalese ggovernmentís regulations and approach towards industries are prone to frequent changes. Investors therefore are unable to take a long-term view on their investments and endeavor to businesses that have very short payback periods.

The recent budget announced for FY 2002/03 clarifies that interest paid to banks and financial institutions even by a foreign controlled entity shall be fully allowed for deductions. A regulation to the contrary was provisioned in the new Income tax Act announced only three months ago. Likewise, the new Income Tax Act and subsequent rule allowed deduction of all provisions for possible loan loss as specified by Nepal Rastra Bank. Now this deduction has been capped at 5% of the total loan outstanding. Taxing of export sales at the prevailing corporate tax rate against concessions provided earlier is another glaring example, where there is a mismatch between the industrial policy and fiscal policy of the government, the study said.

The major findings of the study are as follows:

There are no comparative advantages for any investor whether domestic or foreign to start a business in Nepal when viewed against the benefits available in adjoining states of India, Bangladesh and Sri Lanka. The investment opportunities in these countries and the facilities provided are more attractive than that made available by Nepal.

One window committee has become ineffective due to lack of co-ordination and competing priorities of the Ministry of Industry and Ministry of Finance. MOI seems interested in facilitating the industrial sector but MOF is hugely revenueñdriven and act as a deterrent rather than a facilitator.

There is no exit policy for potential foreign investors. The fact that stock exchanges and securities market run on socialistic concepts; management control, issue of shares at premium of exits difficult. Foreign investments can be encouraged only if exit routes are clearly specified.

Officials say the government is trying to address these issues in the proposed long-term Industrial policy and has started works to amend a number of other laws and related regulations. ìBut things are unlikely to change until a new government takes over later this year,î said a top government official, on condition of anonymity, Tuesday.