– This article was originally published by Akash Shrestha in The Himalayan Times on November 4, 2018.
The rapid economic growth of India and China has changed the paradigm of Nepal’s economicposition and development strategy. Nepal’s locational characteristics have changed from being a land locked country away from the global market centers to a potential center of a market of more than 2.5 billion people with rapidly growing disposable income. The location has become strength from liability. Nepal sits on a treasure of natural resources holding the potential to put Nepal in the league of developed countries with much less effort than many other nations in the world.
This puts Nepal particularly in a great position considering three of our own internal factors too. First, Nepal’s constitution enshrines the goals of perpetual peace, prosperity and equitable development. Prosperity in that sense is the new national agenda. Mid and long- term plans of the Government of Nepal also identify our graduation from the list of Least Developed Countries by 2022 and ensuring that Nepal becomes a mid-income country (i.e. per capita income of USD 2500) by 2030 as our national version of economic prosperity. The Nepal Communist Party-led government of Nepal which has a two-third majority has also committed to working towards ensuring a Prosperous Nepal and Happy Nepali during their tenure. Thus, all domestic interests are aligned in favour of pursuit of prosperity and creating employment through necessary economic policy reforms for an investment-friendly business environment.
What is required now is dissecting the structure of Nepalese economy, identifying what policyenablers and hurdles exist that affect Nepal’s pursuit of prosperity, and ensuring that wecontinually make necessary policy reforms that will create an enabling environment for growth and prosperity.
But, while the country has been dependent on the performance of foreign economies –whether for aid and grant or for remittance, the local industries and businesses have been closing down rampantly, pushing the country further downhill. The trade deficit has grown multi-folds in the last decade. The total export is not even enough to finance the import ofone commodity, the petroleum products. Nepal’s local businesses and industries are getting weaker day by day due to a list of hindrances that lie in the path of prosperity. Some of the major problems Nepalese economy is facing currently are as follows:
I. Policy instability: Even though we have achieved some political stability, the same cannot be said about the policy regime. For example, the government announced it would allow the private sector into petroleum trade business, but within 2 weeks, reverted the decision. The absence of policy stability has lowered the confidence of potential investors. This is one of the major reasons for the degrading economic condition of Nepal.
ii. Weak institutional mechanism to implement policies: One of the necessities of development, besides a good public policy, is a strong implementation mechanism and institution. The frequent political interference in the bureaucratic system of Nepal has weakened the policy implementing institutions so much that the policies, however forward looking and beneficial for the country, fail to deliver.
iii. Non-conducive investment environment: Lack of security of life and property, excessive red-tape, rampant corruption, anti-competitive practices, and poor and inadequate infrastructure all make for a deadly blend that severely deters investment at a time when people and capital are moving across national boundaries more than ever before, and Nepal should in fact look to tap in on this.
iv. Anti-competitive practices: One or the other form of anti-competitive practices like monopoly, cartels, syndicates and price fixing affects almost every sector of Nepalese economy. Such uncompetitive practices prevent competitive and innovate entrepreneurs from entering the market that results in the prevalent entrepreneurs enjoying monopoly powers. This discourages any innovation and competition.
v. High cost of finance: Entrepreneurs need access to credit not only to start their ventures but also to operate and expand their business. The trend of Nepali banks to lend only to established businesses and that too on the basis of mortgage of land and property has discouraged the emergence of new entrepreneurs who are neither from established business houses nor have large portfolio of property to mortgage. There are limited opportunities for accessing finance besides conventional methods—existing banks and financial institutions and friends and families. Nepal needs a legal framework in alternative investment channels like private equities, angel investments and venture capitals.
vi. Fragmented private sector: As economic agendas and importance of private sector is being ignored by the mainstream political discourse of the country, it is necessary that a unified private sector emerges to convey the importance of private sector in leading economic growth as well as advocate for policies that facilitate the overall growth of the private sector rather than rent-seeking behaviors.
vii. Dearth of skilled HR: There is also a massive mismatch between the kind of investments (both domestic and foreign) that we need, and are looking for in this pursuit of our shared goal of prosperity and the absorptive capacity of the existing human resource.