-This article has been originally published by Jai Venaik and Sambriddhi Acharya in The Himalayan Times on August 20, 2017.
One of the major obstacles to growth and development has been the realization of reforms for the people to kick start their own enterprise. This not only fuels the economic activity and investment in the country, but also provides for a higher standard of living to foster social growth. As we move towards a maturing democracy, it is important to look at what provisions guarantee economic freedom for the people of Nepal.
The constitution explicitly maintains that economic progress and prosperity shall be one of fundamental subjects of Nepal’s national interest. Furthermore, the Right to Freedom guarantees freedom to engage in occupation, establish and operate industry, trade and business in any part of Nepal. The Right to Property guarantees every Nepali to have professional gains from his/her property. Constitution also talks about achieving economic prosperity by stressing the roles of the private sector. Thus, it is imperative to look at some of the characteristics of the new federal divisions and look for best practices, where private Nepali citizens can gain from their freedom to prosperity.
Small and Medium Enterprises (SMEs)
Nepal has opted to hand over executive power over SMEs to local governments after its complete transition to a federation. The extent of regulatory autonomy the local government will have is still, however, not clear. OECD countries, known for their strong economy, constitute largely of SMEs – 99% of all firms are SMEs according to the World Bank report in 2010. These countries have taken a decentralized approach in promoting SME growth and consequently the role of local and regional governments has expanded over the years.
Local (and provincial) governments are more connected to the entrepreneurs, and understand their issues better, compared to the federal government. Therefore, they are comparatively more apt in providing different forms of support to enterprises operating within their respective jurisdictions. Of course, there are various other contributors besides decentralization that have helped stimulate sustainable SME growth in OECD countries, some of which are regulatory exemption and tax relief for such enterprises. However, it is definitely worthwhile to keep in mind the benefits SMEs can derive from appropriate distribution of responsibility among different levels of government.
Pendency rate of commercial cases in the fiscal year 2012/13 as sourced by Registrar’s Office Supreme Court Nepal is recorded at 51.4%. Furthermore, Nepal ranks 152nd in enforcing contracts according to the World Bank report on ease of doing business 2016. We can conclude from given information that Nepal needs to seriously consider reforms in the subject area of dispute settlement. UNCITRAL Model Law provides an extensive framework to signatories of the New York Convention (1958) for effective conflict resolution in order to incorporate pressing needs of international commercial arbitration. Nepal, being one of the signatories should in fact take this framework as a foundation for more effective and efficient arbitration procedure on a domestic level.
Usually, the higher the ease of doing business, the higher the inbound foreign investments. Nepal ranks 107th out of 190 countries when it comes to ease of doing business; this might be one of the reasons for low level of foreign investment.
The federal constitution of Nepal has given legislative and executive powers over business and industrialization to provincial level while industries are governed together by the federal and provincial levels. As we can see, the distribution of powers is quite vague in terms of what areas the subjects cover, and to what extent each level of government is allowed to exercise their authorities in these matters.
Malaysia, third largest economy in the ASEAN, brought in around 9900 million USD worth of foreign investment in 2016 – fourth highest FDI inflow among the ASEAN countries. Unsurprisingly, Malaysia ranked 23rd in the same year according to the World Bank’s doing business index.
When we look at the land administration matter, which influences the ease of doing business to certain extent, it has been shared among federal, state, and local governments in Malaysia. State governments legislates and regulates land ownership including foreign ownership. All in all, Malaysia has a strong protection law for real property owners, which could be a contributing factor in inducing establishment of foreign corporations.
While tourism is Nepal’s largest industry and accounts for 7.5% of its GDP according to annual Economic Impact Research report of 2017, it lags behind other Asian countries in terms of total number of tourist arrivals. Nepal still has room for improvements with regards to policy formulation and implementation in the tourism sector – former is under the jurisdiction of federal government and latter under concurrent jurisdiction of federal and provincial governments.
Mexico ranked 8th for international tourist arrivals (32.1 million) worldwide in 2015. Tourism policies are formulated at the federal level which are in turn implemented by the state and local authorities. The coordination among three levels of government in regulating tourism industry could have provided the impetus for growth in this sector. Nevertheless, Mexico is still working on further strengthening vertical coordination to align policy priorities at each level of government for better policy implementation.
The first few words of the Constitution, “We, the people of Nepal,” in itself stresses the legitimacy and use of the living document to foster growth and development in every Nepali household. It upholds the individuals’ rights to freely engage in and earn his/her livelihood. But it is important to note that the same cannot be achieved by mere rhetoric, we need to examine and continuously cross examine our policies to explore options from case studies from the world in order to realize the vision the Constitution envisions.