Growing Industrial Insecurity
Last few months have been dramatically destructive as far as industries are concerned. The Maoists attacked Reliance Mills, Jyoti Spinning Mills and imposed blockades and forced shut down of tea-estates in various parts across the country. Consequently, the confidence of the investors and businessperson was dipped to a minimum low. The Unilever faced weeks of closure even as Colgate Palmolive decided to shift its factory to Himanchal Pradesh of India . The growing and targeted attacks seemingly aimed at crippling national economy are definite to have short and long-term implications on the nation’s economic survival
By SANJAYA DHAKAL
On the night of August 17, Wednesday, a group of armed Maoists launched a sudden attack against the country’s first Yarn Mill – the Jyoti Spinning Mills (JSM). Properties worth around Rs 200 were destroyed after the Maoists exploded bombs at its factory in Parwanipur of Parsa district.
In what appeared like an offensive against security installations, the armed Maoists barged into the factory, overpowered security guards before dousing the factory with kerosene and setting it to fire along with exploding bombs. Both the godowns and reels of readymade thread were gutted in fire. Three machine plants were also destroyed.
In July, the Maoists attacked Reliance Mills in Janakpur and forced the closure of tea estates in the eastern region of the country.
In a setback to Nepal ’s efforts to lure investment, a multinational company Colgate Palmolive decided to trans-locate its factory from Hetauda to Himanchal Pradesh of India . Another MNC Unilever faced weeks of closure.
These ominous developments have sent dangerous messages – that the industrial sector could now face the wrath of violent conflict. Although never untouched by the conflict and violence, the industries are facing targeted and military-style attacks in recent months.
Business As Peace Zone
In the aftermath of attack against JSM, the umbrella organization of the private sector - the Federation of Nepalese Chamber of Commerce and Industry (FNCCI) – organized a major peace rally in Birgunj on August 30 appealing for declaration of business sector as peace zone.
Chandi Raj Dhakal, president of the Federation of Nepalese Chamber of Commerce and Industry (FNCCI), has repeatedly called for an immediate end to the use of business enterprises as political tool. “It is sad while the government raises revenue from industries, it has failed to provide security,” Dhakal said.
In a desperate move, the FNCCI along with other business community has asked for the respect of business as a peace zone. “We want to see that conflicting parties do not drag us to the conflict. At this moment, businessmen, traders and entrepreneurs are the people who have been working even in remote places providing service and goods to the people in need. If this sector is disrupted, the total economy would collapse,” Dhakal said.
Likewise, the Confederation of Nepalese Industries (CNI) has called on all the ‘warring parties’, media and civil society to become sensitive towards the plight of the business community. “Now we have reached to a point where if we do not do anything (to save the business and industries), we might not be able to do anything later on,” said Binod Kumar Chaudhary, president of CNI. “The livelihood of hundreds of thousands of people is now at stake,” he said.
The CNI has appealed the concerned parties, at least, to separate politics from business activities and allow the minimum level of business transactions to sustain the lives of millions of people.
“In other countries suffering from conflict, too, business and industries are not destroyed like this. Let one section of the country do its job so that the country keeps running and some semblance of order remains in the country,” said Padma Jyoti, chairman of Jyoti Group (see box)
Not only the domestic business community but also the Industrial Security Group (ISG) and the European Union (EU) have condemned the recent Maoist attacks on business enterprises and denounced the rebels for threatening the business owners with violent reprisals.
“The Maoist actions violate the rights of workers and cause great damage to the livelihood of thousands of innocent people, their families and the overall economy of Nepal ,” the ISG said in a recent press release. The ISG comprises of Indian, American, British, German and French Embassies in Kathmandu as well as their bi-national chambers of commerce and industry. “The ISG believes that the Maoists’ claim that they represent workers’ interests is a pretext for extortion and an illegitimate means to achieve political ends.”
Livelihoods Threatened
The JSM employs 100 workers directly and has a share of 6000 individuals. Likewise, thousands were employed by Reliance Mill and Colgate Palmolive. Due to the attacks, the livelihood of these workers and their immediate families has been jeopardized.
According to Rajendra Khetan, an industrialist and vice president of CNI, private sector business and industries have provided livelihood to around 1 million people. Any disturbance to this sector would, therefore, have direct impact on the daily life of these people.
Besides, there is an increasing danger of capital flight. Already the Colgate Palmolive has decided to shift its factory to India . If the pressure of insecurity is kept on the industries through demands for extortion, attacks, physical actions, strikes, blockades and so on, more could follow the route taken by Colgate Palmolive in the days to come.
Nepal has already witnessed a mass exodus of its able workers. Almost one million Nepalese now work overseas and send remittances helping to sustain the economy of their country. This clearly points out to the serious problem of manpower flight.
And now, the danger of capital flight, investment diversion and hold-ups could ultimately unravel the whole economic edifice.
In the last nine years of insurgency, infrastructures worth around $ 500 million have already been destroyed including power stations, government buildings, telecom towers etc. Ultimately, these destructions are going to affect the overall economic environment, as industries cannot function in the absence of these vital infrastructures.
The Country Assistance Strategy of the World Bank for Nepal (2004-07) states that the insurgency has increasingly challenged the fragile economy – the costs have been estimated at 8-10 percent of GDP (that is estimated at Rs 590 billion at present), including: 1) damage to infrastructure – eg over one-third of the 3900 VDC buildings have been destroyed; 2) lost economic activity due to bandhs, strikes etc. that have been taking place with greater frequency and often lasting 2-3 days; and 3) a generally low level of economic activity caused by decreased business confidence and low tourism. Furthermore, there has been large direct impacts on the livelihoods of millions of primarily rural-based individuals, for which killing, extortion, confiscation, forced recruitment, and infrastructure destruction have created fear and resulted in migration, decreased agricultural production, and a decline in living standards – it is estimated that approximately, 300,000 people have migrated to the Kathmandu valley in recent years.
These factors suggest that Nepal is standing at a critical juncture not only politically but also economically and unless wisdom prevails, the country could slide down towards extremely anarchic situation.
“Industries Are Being Made Pawns In The Political Game”
-- PADMA JYOTI
PADMA JYOTI , chairman of Jyoti Group of Industries and former president of Federation of Nepalese Chamber of Commerce and Industry (FNCCI), is one of the leading industries in the country. He spoke to SANJAYA DHAKAL on issues related to industrial insecurity and the consequences of recent Maoist attack against the Jyoti Spinning Mills – the flagship company of the Jyoti Group. Excerpts:
Recently, Maoists attacked Jyoti Spinning Mills destroying millions of rupees worth of equipment and endangering the livelihood of thousands of poor Nepalese. What do you have to say about this incident?
This was a very sad and uncalled for incident because industries are innocent victims of this conflict. The industries had tried to stay out of this political fight and carry on their main duty of giving employment, producing goods ands services needed by common Nepalese. So far, they have been concentrating on that. But this particular attack or any other attack against any other industry, is very sad. In my opinion, they are being made a pawn in the political game. I hope everybody realizes that nobody gains by this and they will not resort to such unproductive things.
Clearly the attack against Jyoti Mills has hit at the Nepal ’s capacity to produce yarns. To what extent has it hit the domestic industrial sector? How much had the Mills been contributing to the national yarn/textile industry? Will it resume operation to the pre-attacks level?
Jyoti Spinning Mills is the first industry that started (16 years ago) producing yarn for the domestic industries as well as for exports. We are producing something very basic, which is used for producing clothe for common people. We produce yarn that is turned into fabric and various clothes. We used to produce 7000 tons of yarns a year. At the moment, almost half of our production goes to domestic industries like carpet factories, hosiery units, small and big weavers. So, as a chain reaction, all of them will be affected by the closure of our industry. After the unfortunate attack, we have tried to clean up, investigate the extent of damage and gradually bring them back to operation. Slowly we are doing it. We took almost three weeks to go through this process. Now, we hope to start with about 60-65 percent of our capacity and go up to 80 percent in the very near future. Dashain festival is very near and we are concerned about the jobs of our workers. Over 1000 workers are directly employed by the factory. So we are making extra effort to start the factory to the extent possible. We also feel a sense of duty to all our stakeholders.
Of late, the Maoists have targeted the business and industry sectors frequently. What do you think would be the impact of such targeted attacks on Nepalese economy?
This is a very unfortunate development. Nobody can understand the rationale behind this. These industries, these factories and these equipment are all national assets. No matter who comes to power or which political color sways in the country, they will continue to be needed to provide jobs to Nepalese within the country. It is difficult to understand why these industries are being targeted in this violent manner. I hope the good sense will prevail on all and we will not be made party to the violent conflict. We are very defenseless. All industries are in the area where villages are nearby. We do not have security. Our security guards carry nothing more than a whistle and a stick. Realizing our vulnerability and since we are not a contributing factor to the conflict, such attacks should stop as they would ruin everybody.
Why, do you think, the business sector is being targeted?
I don’t know why. If they have some reasons, institutions like FNCCI will be willing to explain why it shouldn’t be like that. I think the FNCCI is ready even for dialogue and so on.
Increasingly, the business leaders are warning of total collapse of national industries and danger of capital flight if the situation does not improve. What do you say?
National industry is a very important part of national economy. We are worried about the entire economy. When all industries are targeted to such physical violent attacks, then who would invest in this country? Anybody who has money will just put it in safe without any value-addition and without creating any wealth in the country. If there is no value-addition and no wealth creation, what will be there to distribute within the country? This is a common sense. This is what is happening in the recent months. And these things have a very long-term impact on the confidence of the investors, people, manager and workers. Once this confidence is destroyed, it cannot be restored easily and the country will be pushed back by years in the world economic scene. All over the world, everybody is progressing so fast including our neighbors. We will be completely left behind.
There is a call to make business/industry sector a peace zone. Do you think that will help?
Entire country should be a peace zone. That is the first requirement. Children, schools and daily livelihood – all should be peace zone. But if that is not possible at the moment, then the FNCCI and business community has said – try to keep industry out of this fight so that one section of society is keeping the country running and providing people with some money to make their ends meet. In other countries suffering from conflict, too, business and industries are not destroyed like this. Let one section of the country do its job so that the country keeps running and some semblance of order remains in the country.
What do you have to say to the government regarding the industrial insecurity?
We can understand the problems the government is facing in all fronts. I hope the government also realizes the long-term implications of the insecurity in industrial sector. We should not only worry about short-term but the long-term consequences on the economy, on the country and the social unrest that might follow. Therefore, the government has to try to solve it politically. Reconciliation among all the parties is necessary. Nobody should take rigid stance making the conflict worse and causing further polarization. That will be a disaster. They should start taking some steps towards reconciliation, making some compromises so that the society again moves in a peaceful path where there will be civilized ways of addressing differences of opinion without resorting to killing each other, destroying each other and maiming each other.
“The Industrial Growth Has Stopped”
-- RAJENDRA KUMAR KHETAN
RAJENDRA KUMAR KHETAN is a prominent industrialist and vice president of Confederation of Nepalese Industries (CNI). He spoke to SANJAYA DHAKAL on issues of growing insecurity in industrial sector. Excerpts:
How do you assess the current situation of business-industry sector?
If you look at the economic indicators, it is not bad. Revenue has increased; employment level has not decreased remarkably; and there is no big deficit in foreign exchange transactions. Due to big trade gap with India , servicing of Indian currency has faced difficulties. However, the sector that has received biggest setback due to insurgency and instability is the tourism. And this sector needs relief package.
What do you think would be impact of growing attacks on industrial enterprises?
The impact is going to be very bad. In the immediate term, the impact has been observed with the closure of Colgate Palmolive plant, the near closure of Unilever and depression among multi-nationals. Let alone expansion and diversifications of businesses, the industries are finding it difficult even to survive. We are already witnessing flight of capital and human resource. In the mid-term and long-term, the impact could lead to the economic failure. However, here I must add that the contribution of industrial sector to GDP is still less than 15 percent. Agriculture and remittance is equally contributing to the economic growth. But it would be safe to say that the industrial growth has stopped.
Could you elaborate about the danger of capital flight?
Just consider – most of us have some relatives who have shifted to the United States . Clearly, they have taken brain as well as resources along with them. If you multiply these resources by thousands, that will have a big impact on a small country like Nepal . Secondly, we have seen increase in remittances, which again mean that thousands of human resources have left the country. Thirdly, we find there is slowdown in local money supply, purchasing power and trading activities – which means people are saving money. But that money has not been saved in bank because the liquidity of the latter has increased only due to absence of lending opportunities. Therefore, that money must have gone somewhere else. And this, I think, is a natural global phenomenon.
Do you see threats of more companies shifting their factories like the Colgate Palmolive?
Well, for Nepali industrialists who were born here and who have to die here, there would be no option other than to close down the factories and stay home if the situation deteriorates. However, for those with business ambitions, this option (of trans-locating industries and investment) could be open - not only for the MNCs but also domestic industrialists. And if this, indeed, happens then that will seriously affect our revenue and employment.
What would be the impact of attacks on industries on the livelihood of common people?
I would like to present you with a simple calculation. Assuming that four persons depend on the income of one, if the total population of 24 million is divided by four, we are left with 6 million individuals. Of them, one million are engaged in government service, one million have left for work overseas and one million are engaged in private sector employment. The remaining three millions are engaged in agriculture, traditional professions with many still unemployed. This fifty percent of population are in unstable condition. If attacks on industries are stepped up the livelihood of one million will be jeopardized leading to further conflict and destabilization. Here, I would like to urge the Maoists to consider the effect on national industries due to their attacks. Take for instance, when Jyoti Spinning Mills was attacked, the people did not stop buying clothes – which means that the imports of yarn increased directly benefiting foreign powers. Therefore, this issue is also close to nationalism. And attacks on national industries are not fair. That would not be nationalistic. The Maoists should consider this and hold dialogue with us if they want.
Could you elaborate the proposal of Business as Peace Zone?
In the last 12/15 years, the democracy opened up many opportunities and created flagship industries and spurred entrepreneurship. But now the situations are pushing us toward a state where our economy could fail. Therefore, what we have urged is for minimum understanding on few issues like national security; foreign policy, economy; health and education; and social inclusion.
What do you suggest for the resolution of these problems, then?
The solution lies in politics. The King and the political parties must first reach some understanding following which they should negotiate a settlement with the Maoists. In the meantime, we should not wait to deepen our efforts to end prevailing economic disparity and social exclusion. I believe that the proposal presented by then government during dialogue with the Maoists two years ago in Hapure could provide an excellent baseline to work in this direction.
You have been recently appointed a board member of Institute of Foreign Affairs – a foreign policy think tank. What role will you play in advancing economic advancing?
Nepal ’s political relations are basically with only a few countries like India , China , the US , the UK and EU and Pakistan to some extent. With the remaining countries, we only have economic relations. Therefore, at IFA we want to work to advance for trade-related economic diplomacy and to make Nepal a country of opportunities as a South Asian hub. And the ball has already started rolling in this direction.
