Reviving Nepal’s Economy – The Role of Private Sector

Following the massive 7.8 magnitude earthquake that struck the central region of country in April 25, 2015, and the hundreds of subsequent aftershocks, the death toll has crossed 8,500, over 22,000 people have been injured and there has been a property loss to a scale never before seen in a single incident in Nepal (USD 10,000,000,000). An initial survey carried out by the Nepal Engineers Association found out that around 35 percent of buildings in Kathmandu are uninhabitable or unsafe. Over 150,000 buildings have already collapsed and 600,000 houses are damaged across the country.  On the macroeconomic front, we are set to see further decline in the GDP growth rate, which already stands at a negative real growth position. People have lost jobs, they have been forced to go back to their villages, which they left in the past, in search of economic opportunities in Kathmandu or abroad. Farmers have no seeds to go back to farming right away. Tourism has been so hit that people earning their livelihoods by showing the tourists around the city have lost their profession altogether, at least for the mid-term.

Overall, there is much that needs to be done. The reconstruction phase needs to focus not just on building back the structures affected by the earthquake, but also reviving and revitalizing the economy. It would indeed be a tall task for the government, if people were to expect it all from the government of or if the government to take charge of all reconstruction and rebuilding efforts.

It is, under the given scenario, to discuss the role of the private sector of the country in reviving the Nepalese economy that Samriddhi, The Prosperity Foundation organized an econ-ity on “Reviving Nepal’s economy: The Role of Private Sector” on the 2nd of June, 2015, at Hotel Annapurna, Kathmandu.

The session was moderated by Prof. Dr. Bishwambher Pyakuryal, Senior Economist. He started the session by setting expectations from the discourse. He wanted the discourse to lead to identifying and analyzing the ongoing and binding constraints to Nepalese economic growth, and the role of private sector in dealing with those issues. In the meantime, he stated that the loss estimates that different parties have made public thusfar are not scientific and therefore we need to be careful while devising monetary and fiscal policies to deal with the effects of the earthquake.

Other panelists, and the main theme of their deliberations were:

  1. Mr. Anil K. Shah, VP, Nepal Bankers, Association

Mr. Shah first talked about the silver-lining in the dark clouds, before sharing his opinion on how the private sector can contribute at the moment. Despite all sorts of loss we have faced due to the earthquake, our major source of income is the remittance and the prospects of remittance still remain the same. It is only in Nepal, the earthquake struck – the gulf nations and Malaysia have not been hit. He also expressed his positivism about other economic sectors reviving themselves, shortly. The recent quake has also made people realize the need of insurance.

He then went on to talk about the need of an economic revival committee including members from the government, the central bank and the private sector in order to promote coordination among these different stakeholders in terms of decision making. An example of coordination failure can be seen with the central bank’s decision to provide housing loans at 2% while word is out that no building permit may be issues not houses over 2 stories.

  1. Mr. Hari Bhakta Sharma, Vice President, CNI

Mr. Sharma opined that the government needs to come up with, and announce a number of organisations (say 10) as partner organisations which can then lead the reconstruction effort, given that the government is not capable to handle the entire reconstruction phase alone. In order to mobilize the private sector, the focus sectors need to be identified where they can already start making contributions.

He also talked about the possibility of holding an interim election in the next two months, which will create local authorities for at least the next three years, so that local needs and demands can be represented and coordinated.

He hinted towards provisioning line of credit facilities for non-line insurance companies in Nepal ecause they have low paid up capital and high immediate claims. This facility will help ease releasing settlement claims, allowing consumers with access to money, and ultimately increasing consumption.

He finally talked about the downtik trend in the demand and production in the economy. Therefore he suggested that the government needs to increase the cash-flow in the economy, increase liquidity in the market by buying bonds (instead of selling them), increase consumption by slashing VAT to (maybe) 10% for the next 2-3 years, slash income tax for the next 5 years and make all efforts to keeping inflation at check.

  1. Dr. Hemat Dabadi, Senior Fellow, Samriddhi, The Prosperity Foundation:

Dr. Dabadi talked about the loss in terms of asset loss and production loss. He talked about how we have still not started talking about production loss, despite its potential to hamper the economy the most.

He then went on to opine that this is not the time for Nepal to be talking about the need to build small houses; instead, NepaI should be talking about how to build secure houses. Insurance companies can use this period as a platform to increase their penetration in the market.

He further suggested that we need to reform the capital market regulations such that we do not have to rely solely on banks or private savings alone for capital. We need to make reforms such that capital markets can contribute more to reviving the economy from this point on. Additionally, new avenues need to be created for venture capitals to flourish.

He ended his deliberation by stating that if relocation is being done, the people need to be relocated in areas where there are economic opportunities, such that we do not give rise to a dependency culture in the people.

  1. Mr. Kamlesh K. Agrawal, Secretary General, NCC

Mr. Agrawal started his deliberation by reflecting briefly on the impact of the earthquake. The earthquake has caused damaged equivalent to 50% of the GDP of the country, and the GDP growth will likely be stuck at 3-3.5% from the expected 5.5%. He further expressed, migrant workers may now come back, imports will increase, exports will go down, revenue collection will go down, and this event has therefore caused a great economic loss to the nation.

He then talked about the need to maintain transparency in mobilizing the funds coming in through donors. In the meantime, private sector needs to live by the motto of ‘Sevice first, profit second.’ Further, there needs to be a concentrated effort towards marketing a safe Nepal in the international arena.

Mr. Agrawal then talked about the role of free trade in improving the trade deficit position. He talked about the need to promote exports.

Given that Nepal has to graduate from the list of Least Developed Nations in 2022, and that requires double digit growth of the economy until 2022, Nepal needs to reform the existing laws to encourage and capacitate the private sector to increasing investments. He finally opined that we need to devise mechanisms by which the penetration of insurance can be enhanced.

  1. Mr. Pashupati Murarka, Officiating President, FNCCI

He started his deliberation by reflecting on the loss faced by the privates sector. The private sector loss stands at least Rs. 100 billion.

Next, he talked about financing of the reconstruction phase and suggested that government give cash subsidies, if ever need be. But, he stressed on the need to involve private sector in the reconstruction and rehabilitation. He also talked about the need to allowing and encouraging the NRNs to bring in investment in Nepal.

He opined that the government should not introduce any new taxes at this moment. Further, the inflation factor needs to kept at check and made sure that it does not surge out of control.

He finally iterated that the banking, insurance, and entire private sector needs to coordinate their efforts with that of the government and the government needs to allow the private sector to make their contribution.

The participative and interactive audience further talked about possible avenues to allow the private sector to make contribution to reviving the economy.