Get it doneThe government will have to act on its promises consistently to attract potential investments
If you happen to be around government corridors, private sector honchos, major media outlets and inner circles of Kathmandu’s crème de la crème this week, you would hear the words ‘economic growth’, ‘investment’ and ‘stability’repeatedly. The Nepal Investment Summit 2019 has reinvigorated economic deliberations and streamlined Nepal’s priority to achieve prosperity. There is also a sense of unanimity in the belief that investment—in the form of foreign direct investment and domestic investment both—is crucial to transform our growth trajectory.
Being an attractive investment destination is not an overnight feat. And it certainly doesn’t materialise with just lip services. Apart from political commitment, much depends on policy reforms, favorable business climate, laws and acts that protect investments and their effective implementation, incentives, good governance, security, stability and certainty of profits. If the government shows urgency in translating pledges made at/before the Summit into results, there is no reason to doubt that Nepal’s economy is ready to be unleashed. This Summit can be a positive beginning.
The promulgation of the 2015 constitution has formed the bedrock of our exercise in nation-(re)building. Liberal economy with market-oriented policies and an inclusive democracy with social justice are among the salient features envisaged by the constitution.
The current government came into power with the claim that stability is key to economic progress, and rightly so. We now have a strong-willed political leadership and a learned finance minister with decades of experience in the field of economic development. We also have in place several reforms in laws and acts to improve overall business environment and our competitiveness as well as a realisation to strengthen the Investment Board as a key partner agency to boost investments. These are positive aspects.
However, stability also means policy consistency, improved security, harmonious political environment, simplified procedures, rule of law, removal of bureaucratic red-taping and leading by example in governance. The recent bomb blast at the NCell corporate building, and constant threats for donations by the Netra Bikram Chand-led outfit have instilled fear among investors. But at the same time, the government’s quick action against Chand’s outfit on the bomb blast incidence has given some sense of hope to investors.
The recent controversies surrounding the wide-body aircraft and the accusation of corruption levelled against bureaucrats by the contractor of Melamchi Drinking Water project are a blot on our record as we aim to improve our doing-business indicators. Registering businesses or seeking permission through government agencies in Nepal is quite tedious. Any process that requires approval from the government agencies for entry, operation, repatriation of profit is cumbersome and potential source of corruption. It not only discourages potential investors but also sets a negative precedent for future. To address this, the government must demonstrate its commitment not through loose investigations but through stringent actions.
In terms of policy reforms, the government has introduced the Foreign Investment Technology Transfer Act as well as the Public Private Partnership and Investment Act in order to make Nepal an even more competitive destination for investment. The Industrial Enterprises Act and the Special Economic Zone Act were also brought to boost the manufacturing sector. In a major boost to the energy sector, a trade treaty has been signed with India, paving way for exporting electricity to India and most likely to other South Asian countries. What’s more, the government has guaranteed that no foreign investment in Nepal can be nationalised. In other words, private property is protected, along with guarantee of profit repatriation.
However, the much pushed-for ‘One-Window Policy’, where investors would be provided all the necessary arrangements to do business in Nepal under one roof, is yet to be completely simplified and delivered. Yet efforts have been made through the PPPI Act. Another major concern that the government should look into are the regulations on land acquisition and environment, which investors still see as major bottlenecks.
As Nepal aims to graduate from the status of a least developing country status to that of a developing country by 2022, and to become a middle-income country by 2030, we require about $13-18 billion per year to bridge the investment gap in infrastructure. We need to achieve over 8 percent growth rate on an average to become a middle-income country by 2030. So the government should target for a consistent and sustainable level of growth rather than just depend on favourable weather conditions to increase agricultural output, a rather shrinking contribution of remittances to our GDP, and reconstruction works post-earthquake in 2015.
The government also needs to focus on bringing a serious budget expenditure plan and implementing it. Furthermore, it needs to make sure all concerned agencies are constantly in coordination if it is to improve its sluggish capital expenditure level.
To conclude, Nepal can achieve a sustained high level of growth only if creates a solid investment friendly environment. Consistent reforms are necessary, and tax incentives should be provided in more sectors. FDI will help achieve high growth and generate employment, which, in effect, will help reduce poverty, widen export base and address trade deficit. Our strategic location between two big economies—China and India—allows us to tap into a huge market of over a billion consumers. The government will have to keep up with its hype and promise, in action and in performance.
Ghimire is a political economist.