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Nepal Investment Year (NIY) 2012:Where's the bright lining?

Investors are not interested to invest in Nepal as it is unable to provide minimum requirements. The government's announcement of NIY with the goal of doubling the FDI will remain a failure if everything else remains the same

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KAMAL RAJ DHUNGEL
Nepal Tourism Year (NTY) 2011 is over, and two questions are raised: how successful was the year in bringing in more tourists, and what are its consequences in terms of employment and income generation? The number of tourists coming by air and surface to Nepal in 2011 is not encouraging when compared to the previous year. The annual average growth rate was 2 per cent of the number of tourists who came to Nepal during 2000-2011, which is nearly stagnant. It indicates that NTY 2011 in aggregate was a failure. The answer to the second question is a subject fit for conducting a study for investigation.

Big talks are on about the Nepal Investment Year (NIY) 2012. The government has proclaimed it with a view to doubling the Foreign Direct Investment (FDI), which of course, seems quite ambitious. It has also formed the investment board to deal with the domestic as well as foreign private investment. Can this board be successful in attracting planned as well as desired level of investment?

No doubt, there are a number of unutilized economic sectors, as Nepal is rich in natural resources. These resources are waiting for proper investment to tap the potential. Nepal can be a potential country to invest in because of its cheap labor and raw materials. However, there is a need to identify sectors which are most preferable and could cater or serve national, regional and international interests, and attract both public and private investment.

The potential sector for domestic as well as foreign investment could be agriculture, particularly food processing, medicine manufacturing industries for which Nepal’s Himalayas provides adequate herbs, hydro-power for which its rivers provide a potentiality of 40 GW of power, tourism industry for which Nepal has bounty of natural attractions, and the cement industry for which Nepal possesses a huge stock of limestone. All these potential sectors have not yet been utilized properly. They are waiting for policies conducive to attract adequate investment for their proper utilization.

Moreover, Nepal is an investment friendly country. Investors have ample opportunities to foster and promote companies and earn reasonable profit by producing goods and services with their investment for which a number of reasons can be put in place. First, Nepal has abundant human resources. Companies have an opportunity to employ cheap labor varying from unskilled to highly skilled.

Second, as described above, there are a number of untapped potential sectors which are waiting for proper action for their utilization. Third, there is a huge market within and across the country for the products produced from these potential sectors.

Fourth, the resources available for investment would be channelized to the productive sector, which as per the past trend had been channeled to unproductive sectors.

But, why is Nepal unable to mobilize capital both domestic and foreign when it has ample potential sectors to invest in? The answer to this question is straightforward.

The domestic investments are limited. Foreign investment needs a lot of prerequisites which Nepal is unable to meet. First, historical evidences reveal that Nepal has not been able to get a leader with full of vision, who is unselfish, bold, consistent, popular and patriotic. As a result, political instability has become a major issue which puts good governance at threat. Since the past several years, Nepal is plagued with corruption, fraud, inequality, insecurity and many more anomalies because of the absence of good governance.

Second, the behavior of political parties to protest any action of the government is to undertake strikes, lockouts, Bandhs, threats, abduction and even killings. This puts the general people, and, more strictly business people, in fear and insecurity. In such a situation, investors, whether they are domestic or foreign, feel insecure to invest their scarce resource.

Third, trade unions put demands in a way that any organization is unable to meet. Many industries in Nepal were closed down due to the labor unrest. Fourth, electricity is the major factor of production. To undertake any sort of business, electricity is the first and foremost prerequisite. Instead, Nepal faces shortages of electricity for the past several years. Even today, there is no plan and program to increase the supply to meet the growing demand for electricity. Fifth, policy and programs of the government are not investment friendly. If there are any, they are not in action due to red tape. Sixth, ongoing projects are under threat because of the dispute with the local people. Finally, there is no consensus, not only within the party concerned, but also among the parties associated with both the foreign and domestic investments.

These all put the investors in a difficult situation. Investors are not interested to invest in Nepal as it is unable to provide minimum requirements.

The government’s announcement of NIY with the goal of doubling the FDI will remain a failure if everything else remains the same. Instead, the expenditure for the investment board may exceed the limit for seminars, workshops, foreign visits, and so on.

source: Dhungel, Kamal Raj(2012),"Nepal Investment Year (NIY) 2012:Where's the bright lining?", The Himalayan Times,19 Feb 2012

2012-02-20

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