John Morrell is the regional director for Asia and the Pacific at the Center for International Private Enterprise. In this role, he leads a worldwide team of accomplished professionals and is responsible for a regional portfolio of dozens of programmes on anti-corruption, democratising opportunity, public and private sector governance reform, and creating political space in closed countries. Morrel is a noted and widely published expert on issues related to corruption and governance. Morrel’s professional background is in the private sector. The Post’s Anil Giri caught up with Morrel and discussed how Nepal can attract investment and support private sector growth. Excerpts:

How should the government play its role in attracting foreign direct investment (FDI)?

From an economist's perspective, the government should set and enforce the rules when it comes to attracting investment and boosting trade to drive the economy. For instance, a referee in a football or basketball match enforces the rules. But the referee doesn't tell the players how to play. The role of the government is also to set the rules, not to tell the players how to play. Talking about the FDI, in the Philippines, there are restrictions on foreigners to own land. A foreigner can buy property, buy a company and invest in a company, but only up to 49.99 percent. From an economic point of view, it’s a restriction. If you allow foreigners to buy more, it would attract more foreign capital. For countries like Nepal, there are some issues about capitalism and the questions they raise. Nordic countries like Sweden, Finland, Norway and Denmark have high taxes, and booming economies, mostly through international trade. They're thoroughly capitalists. They have high taxes because they have a generous social safety net.

What measures can the government take to create a more favourable investment climate?

It's more of consistency. Nepal, however, has a very big problem when it comes to corruption. Corruption is not unique to Nepal. There is corruption in the United States, and even in Singapore. An entrepreneur, small-scale entrepreneur in Nepal, encounters corruption, and if he/she needs to bribe people constantly to get permits, it’s always bad for the country’s growth. Now a bigger company, maybe with foreign backing, can get permits easily. And because people know, they probably have lawyers, it’s easy for them. But in a smaller company, maybe a young kid who has an idea and wants to start a company and wants to be an entrepreneur, and if he doesn't have connections and a lawyer, he's easy prey. As a foreigner, for me, the brand of Nepal is its beauty. There are things you can see and do in Nepal that you can't do anywhere else in the world. That's a big part of Nepal’s brand. It's why the tourism sector here is growing despite several challenges. Talking about consistency and stability, the Cabinet reshuffle happens in governments all over the world. Many countries are comfortable with that. But in the context of Nepal, business people, governments and investors around the world view Nepal as not politically unstable, but policy unstable. That’s a big problem in attracting the FDI. Nepal needs to stimulate more entrepreneurship to grow.

What strategies should Nepal implement to mitigate political and economic risks, particularly for investors?

Unfortunately, I've been learning that small-scale entrepreneurs in Nepal face hassles. And this sends the message that it’s a cumbersome and unpredictable place to do business. But when it comes to how the government works, and its service delivery, yes, this makes the market unpredictable. The market can adjust to high taxes or high tariffs, what a market can't adjust to is unpredictability. So, the key is that the more Nepal can be predictable in its policies, the better it will be. The more the government can standardise service delivery, the more it builds the investors' confidence. Politics is politics. There will be a shake-up and the Cabinet ministers will hate each other. And they'll talk about each other in the press. That's politics.

As an economist, how do you assess Nepal’s policies in attracting the FDI, particularly after the Covid pandemic?

Cambodia and Nepal joined the World Trade Organisation on the same day. The civil war in Cambodia killed almost a third of its population. One out of every three people were killed during the civil war. And then Cambodia was invaded by Vietnam, it was a colony of Vietnam. Cambodia didn't become an independent state until the mid-90s. Cambodia was a war-torn, destroyed country. In 2022, FDI net inflows into Cambodia reached 11.9 percent of the country's GDP, according to the World Bank. What is Cambodia doing that Nepal can't do? Nepal is comparing itself to Australia, Japan or South Korea. Compare yourself to Cambodia. Cambodia emerged from a war and they were able to grow their economy. They were able to bring in FDI and now it has the strongest investment momentum.

How can Nepal leverage the public-public-private partnership model to meet its investment gap?

If you want a company to sustain itself, it has to get its money back. A company invests because it wants to make money. An example is a highway. In many countries, the highway is constructed under the public-private partnership model. The model allows the company to run on a profit basis, which makes it sustainable. It allows services to grow because it's not reliant on the government subsidy. An investment is an asset that is purchased with the hope that it will generate income in the future. The post office, for example, has been privatised by some countries. I don’t know if it's good or bad, but DHL and FedEx are making money on delivering mail. Post offices, which have historically been a public service, are increasingly being run on a business basis. You have to identify what services could realistically be delivered by the private sector, acknowledging that the private sector needs to get its capital back. Bangladesh is a pioneer in this, allowing utilities to be run on a profit basis, which makes them sustainable.

What are the challenges faced by the state-owned enterprises?

The governments can own shares and companies. The US government had at times owned shares in companies, which made them state-owned enterprises. It's more a matter of transparency. Commercial state-owned enterprises are things like airlines. If a state-owned enterprise has no competition, has no disclosure requirements, then it becomes a black box that no one has. The public doesn't know about these companies and no one has any idea what goes on in there. There's massive theft, fraud and embezzlement. But it’s wrong to say that the government shouldn't own shares in companies. But state-owned enterprises, if they're operated transparently, operate based on competition, and if they're forced to make a profit, it’s good for the country’s financial health. But if these state-owned enterprises are losing money, and they operate with no transparency, ultimately, it's the taxpayers who are on the hook. And if one out of every four Nepali tax money goes to support opaque state-owned enterprises and not to build roads, or sewage facilities, then the economy suffers. Transparency is the key. These state-owned enterprises have to submit quarterly financial reports just like the Nepal Stock Exchange is doing. Why can't state-owned enterprises have quarterly disclosure requirements? You can pass a law to make sure that every entity has to disclose its financial transparency and allow the public to own shares. This realistic piece of legislation could make a big difference.

Is there any success story of the state-owned enterprise's transformation that Nepal can learn from?

The Philippines provides an example. The Philippines, until very recently, was notorious for political appointments to the boards of directors at state-owned enterprises. So if you have lots of state-owned enterprises, each of which has a board of directors, that's a lot of gifts that the President can give to people. There is now a state-owned enterprises council and a standardised process to appoint the board of directors. Members of boards serve a fixed term. They have fixed compensation. So there's less room for political shenanigans on appointing boards of directors. That’s a simple act, just to change how you select members of the board but has had a big impact. Nepal can pass laws to appoint board members and make them disclose their financial reports quarterly. This is straightforward legislation, uncomplicated to write and enforce. Nepal doesn't have to just learn from the US and Britain, it can learn from Sri Lanka.

The interview has been edited for clarity.