Set the agenda right

– This article was originally published by Ayushma Maharjan in the Himalayan Times on the March 10, 2019.

An underdeveloped country aspiring for high and sustainable economic growth needs policies and initiatives that enhance the business and investment environment. For Nepal, which aims to graduate to a developing country by 2022 and a middle-income country by 2030, improved confidence among domestic and foreign nationals to conduct business is a pre-requisite for this ambitious transition.

The political and administrative leaderships, through the various business and investment summits, have committed to removing barriers to investment. Nepal has indeed also made some hopeful strides along its political and legal front of late. Elections have ensured some degree of political stability, and the reforms and amendments of industrial and investment laws should now look to build a dynamic market-based economy. However, despite laudable initiatives, Nepal has not been able to establish itself as a major investment destination. Initiated reforms have been able to generate only moderate improvements and lack of investor confidence in the Nepali market still persist as a daunting challenge for the economy. This indicates that a conducive environment has various dimensions and formal institutions alone does not suffice. Many unseen barriers that disrupt investment have been grossly overlooked. These unheeded aspects have created a sense of insecurity towards investment in the nation.

Senior government representatives have expressed dissatisfaction with the fact that the Constitution of Nepal protects property right as a fundamental right of the citizen because that then means that the government cannot expropriate property at will. The underlying idea behind the dissatisfaction seems to be that various development projects (like infrastructure) could be carried out more easily if government were at the helm of these properties. However, they have failed to recognize that in doing so, it highly increases the sense of insecurity among investors. These investors will always fear that the government might revert the constitutional provision. Many other developing countries, in order to attract various investors, have started putting effort to send a solid signal to investors about their property and investment’s protection; such loose statements from the Nepalese government is likely to divert its potential investors towards these other nations.

Secondly, Nepal is trying to make it mandatory for all big private companies including multinational companies to list themselves in the Nepal Stock Exchange as public company. Conversely, once an investor or a group of investors has privately secured capital to set up an industry or any company, these investors, should be the one who decide over the ownership and management structure of the company. Going public means that the investors lose the very two controls and in fact are also bound to share profit for which they secured the capital solely by themselves. Furthermore, public companies are inherently more bureaucratic than private companies and decision making is often much slower than the private companies. This compromises the competitive edge of private companies. Yes, public companies come with their share of benefits too, but dictating how to run a company will invariably act as a deterrent to higher investments.

Thirdly, the government has proposed to provide up to 120 days’ unemployment allowance per year to those who are jobless in a bid to uphold people’s right to employment enshrined in the constitution. The government has also promised to provide employment to 100,000 unemployed citizens by creating a link between unemployed people and employers to help the unemployed find a job. In fact, the government wants the private sector to notify the government of their labour/ human resource need before hiring privately. The only way that the government can keep up with its populist promise is by supplying labour to all sectors where deficit is felt. Employment service centers are also being set up to facilitate that. The government might be able to deliver as per its promise this way but it surely cannot guarantee if the private sector is getting the right human resource to do its job. For investors, this is a huge intervention where somebody else makes big decisions for them; another thing that investors do not want. Moreover, such practice not only takes control away from their owners, but also run a huge risk of industries themselves becoming admission centers for political party cadres.

A low-income and underdeveloped country like Nepal cannot compete with its neighbouring giants or even many other rapidly growing countries in the region in many aspects. But Nepal can compete with every other country in the world in one thing – policy clarity and stability. For many investors, there are also the two things that matter the most. That should be the major agenda of this government.