COVER STORY (Spotlight Weekly)

INFOTECH
Caught In A Web Of Dreams

Despite harping on the potentials of the sector for years, the country is yet to export software products in any substantial way. The initial enthusiasm over IT-enabled services is dying down, too, with last year's closure of a major company. The only things going for IT in Nepal are the students' zeal for higher computer education, their growing interest in the Internet and the rising number of PC users. But will this be enough to sustain the sector?

By SANJAYA DHAKAL

The year 2001 had brought many promises for Nepal's Information Technology sector. The government had just introduced an IT policy that was dubbed by the private sector as a dream-come-true. Dozens of colleges providing computer education had sprung up and students lined up for admission.

IT-enabled service was also making a remarkable entry. A number of private companies had opened services of Medical Transcription (MT) and call centers. But as the year rolled on, a major MT firm closed down. The promised boom in call-center industry just didn't happen.

A young boy using computer : Rich source of knowledge

Even a company specializing in geographic information system pulled down its shutters. "The year 2001 was a depressing year for the IT sector in the country," says Allen Tuladhar, CEO of Unlimited Numedia, a leading software company. The gloom in the IT sector was part of the larger malaise created by the June 1 and September 11 events, upsurge in Maoist violence, emergency declaration and the global recession.

The only silver lining was the boom in Internet use. Atma Ram Ghimire, general secretary of the Computer Association of Nepal (CAN) estimates there are now around 200,000 Internet users in the country ó a figure double that of last year. This number rose so rapidly because of the mushrooming of cyber cafes. "In fact, there is now one cyber cafÈ for every momo shop," says Sachin Bista, a regular cyber cafÈ visitor. Bista goes to the Internet cafÈ twice a week to check on his mail and chat with friends abroad. He uses the Internet to find information on admission possibilities in US education institutions.

Thousands of youths like Bista have now become hooked on to the World Wide Web. "Earlier, people used to surf the net mostly for entertainment. Now they are doing it for specific purposes," says Ghimire.

Industry Turnover

In spite of the terrible situation, a silent revolution is still going on, say experts. It is estimated that the total annual turnover of the industry in the country has reached Rs 3 billion, quite high from the figures of Rs 700 million-800 million only a couple of years ago. "We came up with this figure by calculating the total sales of computers and accessories," says Gaurab Raj Upadhyaya, CAN member and avid writer on IT issues. According to him, 35,000 computers were sold in Kathmandu, of which 50 percent were taken outside the valley. These computers need a considerable quantity of accessories.

Still, the turnover falls short of the government's target of Rs 10 billion by the year 2005. This target was set by the IT policy. "The government is committed to promote the IT sector for the benefit of the country's economy," said Bhakta Bahadur Balayar, Minister of State for Science and Technology (See interview).

Everybody says Nepal has a competitive edge in providing IT-enabled services like MT and call centers. As these services are a billion-dollar industry in the US, tapping even a small fragment of it could dramatically change the sector's position here. Unfortunately, earlier this year Himalayan InfoTech, a company providing MT services, closed down suddenly, sending negative signals across the Nepalese IT spectrum.

Meanwhile, Unlimited has reached an agreement with the Employment Promotion Committee (EPC) to train 1,500 people for MT services. According to the agreement, the EPC was to provide interest-free loan as living expenses to the selected trainees, whom Unlimited would provide jobs in MT. "It was to be an ideal public-government partnership. But unfortunately, we are now running into rough waters," says Tuladhar (See box).

"As far as software production is concerned, Nepal still does not have the necessary expertise to do so. The only thing we can do is handle contract jobs," says Ghimire. It seems the country is still far from exploiting the economic potentials of the industry.

Human Resource

IT entrepreneurs concede that the country still lacks high-end manpower required for driving the software development business. Against this backdrop, the Ministry of Science and Technology (MoST) is preparing to provide high-level skills to 400 people and semi skills to 10,000 people this fiscal year. Over the next three years, it plans to train 50,000 youths.

"The government understands the significance of human resource development and the ministry is working towards achieving the objective of providing computer education to all by 2010," says Minister Balayar.

The ministry is also working closely with the Ministry of Education to make changes in the primary and secondary level curriculum to inculcate necessary IT education in students right from the beginning. Besides, the government also plans to start IT centers in 1,500 Village Development Centers initially.

According to Upadhyaya, there are 20 different colleges providing software/hardware education in the country. They are all run by the private sector. "The products of these institutions will start coming to the market from 2004/2005," he said. Experts hope the IT sector will gain new momentum after these trained students enter the industry.

One of the major reasons for India's successes in the IT sector is its rich pool of human resources. It has in place what is called the four pillars of IT — keen government, academic institutions funded by the government, vibrant IT industries and enabling sectors. India's earnings from IT alone run into tens of billions of rupees annually. Indian cities like Bangalore and Hyderabad have turned into silicon valleys of Asia.

Policies And Flaws

The IT policy introduced by the government one and a half years ago is yet to be implemented. The institutions like National IT Council and National IT Center remain to be set up. "The cabinet has just passed the National IT Center after which the council will also be formed," says Minister Balayar. The promised venture capital fund of Rs 100 million exists only on paper.

The IT park is still two years away. "Things have began to move now. The construction of IT park in Banepa will be finished in next two years, the National IT Center is being formed and the central bank has also recently gave green signal to set up the venture capital fund" says Bimal Prakash Nepal, IT consultant at the MoST.

Despite tall promises, the private sector is still hesitant to take the government at face value. "I have found government to be more of a hindrance than a catalyst," says Tuladhar, citing his bitter experience. Although the IT policy clearly laid out that software companies, upon recommendation from MoST, can import computers and related items by paying only 1 percent custom duty, Tuladhar couldn't release 550 computers he imported after the finance ministry refused to comply with the policy.

"We were really upbeat when the IT policy came out. But now the reality is hitting us hard. It was better if there were no policies, at least we wouldn't have encountered surprises," says Tuladhar.

In order to provide firm legal backing to e-commerce and e-business and to govern issues of the IT sector, the government has already formed a draft cyber law which is currently being studied by the Ministry of Law. "We will definitely introduce the cyber law at the forthcoming winter session of the parliament" says Minister Balayar. The question lingering at the back of the minds of IT-entrepreneurs, however, is whether the cyber law, too, remains confined to the statute books.

CAN InfoTech

Every year, the CAN InfoTech show draws the country's focus on the sector. "We have been able to raise awareness among the general public as well as the government about the importance of IT sector by organizing the annual show," says Ghimire.

This year the CAN is organizing the Eighth InfoTech at the Birendra International Convention Center (BICC). "Basically, such shows help in two ways. On the one hand, it helps in expanding relations in the international sector. On the other hand, it acts as a forum for advocacy of the sector within the country," says Minister Balayar, whose ministry is also supporting this year's show.

"Discussions will be held, which will help in improving legal provisions. The private sector can utilize such shows as forum for promoting their business also. People in general can also benefit by knowing about the current trends of the IT sector in the country. New products and latest technologies will be on display. Customers can utilize the show for making buying decisions. Students can also take advantage of the show by learning about the opportunities of IT education as well as employment. All in all, the show will have positive effect on every aspect of the sector."

The CAN started organizing InfoTech from 1995. Back then, the main theme was to create awareness. "But from last year, we changed our modality. Now it is more focused on the importance of a knowledge-based economy. New technologies are put on display. Seminars are conducted where experts from around the world speak about the sector. It gives a platform for technology and knowledge transfer," said Ghimire.

This year there will be 75 stalls at the BICC. There will be quite a few new technologies on show. "This year, one of our main sponsors is from Netherlands. The Temenos, a Dutch software developing company, is the gold sponsor of the show. It indicates the international interest in our technology show. Though incidents of September 11, Indo-Pak tension and the domestic situation has proved to be a set-back for us as it led to many cancellations from the United States and Japan, we still have 30 speakers from 10 different countries, Ghimire said. The association expects 100,000 visitors to visit the stalls in the show.

Almost all the major players in the IT sector will have their stalls at the show. But there will be notable absentees. "This year we decided to stay away from the show because we are now more focused on overseas market, which is not catered by the show," says Tuladhar, clarifying Unlimited's absence.

Still, the CAN InfoTech will highlight the sector once again and give rise to impulse buying, which many expect to drive the IT sector out of its despondency.

‘The Government Seems More Of A Hindrance Than A Catalyst’

— ALLEN B. TULADHAR

ALLEN B. TULADHAR is the CEO of Unlimited Numedia, a leading software company currently involved in providing such IT-enabled services as Medical Transcription. An experienced IT entrepreneur, he spoke to SANJAYA DHAKAL on various issues facing the sector. Excerpts:

How do you assess the achievements of the IT sector over the last decade?

Definitely, certain progress has been made. However, we need to look at progress in a comparative manner. And who do we compare with? We can compare ourselves with Sri Lanka, Bangladesh, Vietnam, Myanmar and so on. I don't think we can make comparisons with India. In this sense, the development we have made in the last ten years is simply not enough. The achievements we made was a bit on connectivity and the Internet, a bit on market share, a bit on awareness and training. But we have totally missed the boat in the potentials of providing services to the rest of the world, which could have helped the economy. Even today, the contributions of the IT sector on the economy are not large enough to make the government realize its potentials. A few companies are doing well; but they are exceptions. There will always be some lotuses in the dirt. Whereas if you look at in India, each and every company is geared towards software export ó some small-scale ones managed by ten people, others larger ones managed by thousands. Looking at the development of the IT sector over the last decade in Nepal, my biggest fear is that we might have missed the boat. A world in an economic depression today does not have space for out-sourcing their services to third world countries, they would rather employ their own citizens even though that might be little expensive.

Last year you had said that with the advent of IT-enabled services, the snowball effect has started. Is that snowball getting bigger?

For our company, yes. But at the same time, the sorry thing to say is that I did not see any other company, besides two call centers, start up. If you look at the entire year of 2001, there are not too many things that happened in the IT sector. I think it is little depressing to do the post-mortem. There were only few companies that have done well. A few closed down. I believe CAS has closed its software division. Himalayan Infotech also pulled its shutters down and so has Geo-spatial and C-mode. Pilgrim Asia, which was an American direct investment closed down two years ago and went to Bangalore. The growth has happened only in the training side. I don't think growth in training alone can sustain the sector. We need to understand that the most important thing for the country today is to be able to successfully get foreign direct investment in IT and to successfully get out-sourcing jobs, dollar-paying jobs. That hasn't happened. We have seen 2001 has been a very bad year for Nepal with June 1, September 11, the Maoist problem, emergency declaration, Afghanistan war and Indo-Pak tension. All this has hit this sector, too. We have had more bad news than good news in the IT sector this year.

The government came up with an IT policy one and a half years ago. How has it affected the sector?

I would cite a very personal example. The IT policy in its Section 6.6.1 says one percent customs duty shall be levied on hardware, software and computer spare parts imported by training institutes related to IT. I had 550 computers lying at the airport customs primarily to train 1,500 people. The Ministry of Science and Technology had given recommendation for us (for the 1 percent duty). Now, the Ministry of Finance says it is only a policy and not a law and hence cannot be enforced. As a lay man, we have made our total investment based on a document that has been backed by the parliament. After making 1.8 crore rupees investment, we are in a fix. Its been 15 months since this policy came out and not even an iota of implementation has been shown. The council has not been formed. The government is only giving a politician's lip service. They are not serious. I am proud to say that whatever has been achieved in the IT sector has been due to private sector only. The government appears more of a hindrance rather than a catalyst. I have always been vocal that the best policy is no government policy. And this incident has proven my point. We expect no facilities from the government. That way, at least we do not come to any surprises.

So you don't have much expectation from the proposed cyber law as well?

The cyber law is a necessary component to drive the electronic business in the country. The electronic business can only be possible when more and more people use electronic means of doing business. Today if I go to a shop and use credit card, I will be penalized by being charged 3 to 4 percent more. So most of the time I would rather pay cash. That is the trend of our merchants here. The cyber law will definitely give a level of confidence to the very cautious banking community. The business community is willing to take risks, but it is the banking community that is very conservative. They need this law more. Moreover, after they get on to the e-com and allow e-transactions many pressures like spending a half a day to pay electricity, telephone bills will be reduced.

Your company reached an agreement with Employment Promotion Committee (EPC) to provide jobs to 1,500 people on Medical Transcription program. How is it taking off?

We just started the program from last week in Pokhara. Next month we will be opening our Kathmandu office. We have already bought 16.5 ropanis of land in Itahari where we plan to build a showcase complex. Until today, we have received zero paisa from the government. They have only provided guarantee. So far, it has been our own investment. Eventually, they (EPC) will start paying. We want this project to be ideal government-public partnership. The government will be providing interest-free loans not to us but its citizens. During the training phase, they will be paying the trainees. The biggest fear now is that with 30 percent of development funds going to defense, we do not know how that would affect us. Besides, the EPC had also promised to provide Rs 1500 as interest-free loans to trainees on monthly basis. Now they say they will not be able to provide that. So the fear is, will the government keep its promise? Had it been any other country in the world, the government would have been the most trust-worthy partner. But not in Nepal. Even the banks do not think so. We though we had a big winner with this agreement but once we started talking to the banking people for investment, financing, our biggest drawback was the contract with the government. They immediately lost trust once they saw the contract with the government. Therefore, it comes with the pinch of salt. In fact, I think it would have been lot better had we decided to provide loans ourselves. On the other hand, this time we had to face a lot of pressures during the selection (of trainees) process with pressure being applied right from the chief of the country's office. The pressures came with lots of insults, conditions, threatening ó stones being pelted at our office. All sorts of manipulative and unscrupulous pressures were applied. A common man is never given a chance unless he has contacts in high places. While we made 1,500 friends, we also made 13,500 enemies (those not selected from the pool of 15,000 applicants).

What are the plans of Unlimited Numedia?

Now we would like to specialize on Medical Transcription, which itself is a huge business. It is a 15-17 billion dollar a year business in the US. The MT business has increased after the September 11 recording double-digit growth. At present, we have one big US client and we are talking to 11 others. Unlimited today is into four areas of business ó ISP, software development, IT-enabled service (MT) and software distribution. This year what we would like to do is spin-off these four divisions into four different companies. Already we are discussing to make our software development unit a joint venture with a European company. We want to make it foreign export-oriented unit. At present 35 percent of our business is focused on the domestic market. Eventually, we would like to become multinational company and we want to open our offices at least in the US. We plan to increase the share of overseas market (for our business) to 95 percent by the end of next year.

‘The Absence Of Operational Modalities Has Put A Brake On The Policy’

— ATMA RAM GHIMIRE

ATMA RAM GHIMIRE is the general secretary at the Computer Association of Nepal (CAN). The association has been at the forefront of promoting information technology in the country. Like every year since 1995, the association is holding a grand information technology show from January 25-29. He spoke to SANJAYA DHAKAL about the achievements and prospects of the sector on the eve of the Eighth CAN InfoTech. Excerpts:

What is the present state of the IT sector in the country?

There are vast potentials as far as the sector itself is concerned. But considering the fact that we had first initiated this sector in Nepal way back in early 80s, IT is yet to take off in a desirable way. In recent years, though, with the promulgation of the IT policy and the drafting of cyber law, there is room for hope. On the human resource development front, the government has committed to provide training to 10,000 people in this fiscal year and to 400 students at the university level. These are positive sides. From our side too, the CAN is also taking some steps in this regard. However, we realize that this is not enough.

How do you assess the growth of this sector?

One of our major weaknesses is that we still lack the vital statistics. The CAN came into being in 1992. We still do not have resources to collect information. The reality is that we do not have a database. We do not know exact figures on how much software we export, how many PCs we have and things like that. The association is planning to set up a separate resource wing to collect these data soon. Anyway, we can definitively say that there has been a growth. There are almost 150,000 email users. The number of internet users and PC owners, too, is rising. The growth rate of this sector roughly is 15 percent. The rapid growth rate in recent years has been fuelled by the equally rapid price-slashes in the PCs the increasing number of IT students and overall interest.

The annual turnover of the IT sector is said to have crossed Rs 3 billion. Is this true?

There is no way we can confirm that number. However, considering the volume of work in this sector, we think the number is correct.

It is said that the IT sector is highly Kathmandu-centric. What do you say?

It is because Kathmandu has the infrastructure. The telephone lines are here, all ISPs are based here. The use of email and the Internet is high here. However, this is changing gradually. Places like Pokhara are coming up. Even the CAN has several branches now. The spreading has started. But in rural areas, the sector has not seeped in due to lack of infrastructure.

The government came up with an IT policy one and a half years ago. How has the policy reflected on the development of the sector?

The policy is good. But it remains to be implemented. The institutions envisaged by the policy, like the National IT Council and National IT Center, are yet to be formed. Things like attracting foreign capital and building a Technology Park have not taken off. The policy also had the provision of venture capital fund of Rs 100 million. However, the government has not set up that fund. The absence of operational modalities has put a brake on the policy.

The CAN has been organizing InfoTech every year. What have been the achievements?

The CAN started InfoTech from 1995. Back then our main theme was to create awareness. We also wanted the government to look seriously at this sector. But from last year, we changed our modality. Now it is more focused on the importance of knowledge-based economy. New technologies are put on display. Seminars where experts from around the world speak about the sector are held. It gives a platform for technology and knowledge transfer.

There has been a lot of talk about e-commerce, IT-enabled services and software export. What exactly is happening?

IT-enabled services definitely are one area where we have the competitive edge. Many private companies are involved in this area currently. One private company has even reached into an agreement with a government body to provide employment to 4500 people in the Medical Transcription. As these companies have just started, it is too early to pass judgment. However, they are showing lots of promises and scope. In the software development front, though we do not stand chance in software product, we have many possibilities in contract programming. As far as e-commerce is concerned, now there are many such portals. The handicraft, pashmina, carpet and other industries have set up their own e-com portals. The number of websites (of Nepalese institutions), too, is rising.

How do you see the status of IT education in the country?

Of late, a number of software colleges have sprung up in the country. The products of these institutes will start coming to the market in few years' time. After 2004/2005, around 200 such skilled students will come out every year to the market. Still, we lack basic IT education and primary and secondary level.

What are the highlights of this year's CAN InfoTech?

All the 75 stalls at the Birendra International Convention Center have already been booked. There will be quite a few new technologies on show. This year, one of our main sponsors is from Netherlands. The Temenos, a Dutch software developing company, is the gold sponsor of the show. It indicates international interest in our technology show. Though the incidents of September 11, Indo-Pak tension and the domestic situation has proved to be a set-back for us as it led to many cancellations (of participation) from the USA and Japan, we still have 30 speakers from 10 different countries. We expect 100,000 visitors to visit our stalls.