Create a level playing field for Nepali investors

Shekhar Golchha

Senior Vice-President, FNCCI

The economy is set to see almost 7 per cent growth in more than two-and-a-half decades. The government and political parties have shown seriousness about the economic agenda. Many foreign and domestic investors are pouring their money in different sectors. But the private sector is slightly discouraged as the government has failed to heed the reforms as suggested by it. 

Against this backdrop, Modnath Dhakal of The Rising Nepal talked to Shekhar Golchha, senior vice-president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI). Golchha, who is also the head of the largest business house in the country, the Golchha Organisation, has already been anointed as the next chief of the FNCCI. He spoke his mind on various economic issues. Excerpts;

How do you assess the current business environment in the country?

As per my assessment, the current business environment can be termed as ‘a lost opportunity'. The GDP growth rate has reached almost 7 per cent after two-and-a-half decades, but we are not prepared to sustain the economic progress. It needs a better vision and policies to utilise the opportunities created by the higher economic growth rate. We are over dependent on remittances, which have contributed to higher consumption and better revenue collection. Our per capita income has also improved because of the remittances. The growth rate of remittance is decreasing while incidents relating to diplomatic tensions in Qatar might have severe repercussions for our foreign employment, which can put pressure on us. We do not seem to be paying much attention to all these variables that can directly or indirectly hit the economy in the future. We need to increase exports, and for that the cost of doing business should be drastically brought down in order to be competitive in the international market. Likewise, the spread rate should be narrowed down.

The FNCCI has presented its recommendations to the government to provide subsidy to export-oriented businesses, and remove the cartels and syndicates in the transport and other sectors. The cartels have significantly increased the transport cost. Similarly, non-tariff barriers and lack of infrastructure are also the reasons behind the poor business environment in the country. Increasing export and attracting foreign direct investment (FDI) can be a remedy to the balance-of-payments problem should remittances fall.

What exactly should be done to attract FDI?

There are still some hurdles in attracting FDI. The Foreign Investment Act has just been approved by the Cabinet and may take many months to get it passed in the Parliament. Many other policies and legal instruments as well as procedural reforms need to be implemented at the earliest to facilitate the foreign investors.

The Labour Act and Social Security Act should be enacted as soon as possible, otherwise the provisions of the Industrial Enterprise Act, which were approved by the Parliament last year, cannot be implemented. I have heard that the Social Security Act was okayed by the Parliamentary Committee recently and Labour Act will also be taken forward as soon possible. The private sector is hopeful that more policy reforms will be carried out to improve the business environment.

The import-export gap is ever increasing while most of the businessmen are shifting to trade. Has the manufacturing sector lost its charm?

When the government is revenue-oriented and makes revenue collection its topmost priority, the private sector automatically moves to trading. The bureaucracy still believes that if the revenue collection increases, the decision is right else it thinks otherwise. If any government decision contributes to loss of revenue to any extent, it's not considered to be a good decision. They think that increased revenue is always in the 'national interest'. We still need many facilities, like subsidy and trade facilitation, in order to successfully run manufacturing and export-oriented industries.

Strikes have almost become a thing of the past, and there is a seamless supply of electricity. Furthermore, the government is very positive about fulfilling the demands of the investors and businessmen. Will these developments not have a positive impact on the economy?

The electricity problem has been solved by 70 per cent, and for the very reason, industrial productivity has increased by more than 10 per cent. So we can say that the industrial sector is growing faster than the national economy. We have been receiving investment commitments from both domestic and foreign investors in large projects, like hydropower and cement. Likewise, bank lendings have also increased significantly this year. Therefore, I believe that the private sector is enthusiastic and hopeful about the business environment in the country and will invest more. But, there are certain things that the government should do. We simply lack infrastructure. Roads are insufficient and are of poor quality, the capacity of the international airport has been saturated. We have suggested the government to address these problems in the next fiscal year budget.

The private sector is unhappy with the budget of the coming fiscal year 2017/18 because, as you said, it did not incorporate the suggestions given by the business bodies, such as the FNCCI. What recommendations were not accommodated in the budget?

As I said earlier, we had recommended to the government to expedite the construction of infrastructure such as roads, airports and railways. Similarly, we asked for subsidy for export-oriented business and trade facilitation, tax reforms, prioritising the energy sector and many more. There were also many suggestions from the district chambers of commerce and industry. But due to the election code of conduct, the government couldn't accommodate our suggestions or announce new policies and programmes. Here, what I would like to say is that the economic agenda should not be overshadowed by the country’s politics. The first priority should be the economy, and it should not be ignored in any situation.

It is high time to develop our infrastructure on a war footing. The economy should be the main agenda of the government and all the political parties. Sad to say, the political parties seem to be paying only lip service to the economic agenda.

The government was successful in having foreign investors commit about Rs. 1.4 trillion at the Nepal Investment Summit. How much of this will materialise?

The success of the Investment Summit has delivered two messages: there are many foreigners who want to invest in Nepal, and there have been positive developments in the country which will make the country even better in the future. We should take it positively, although it's up to us to realise the intended money.

 What would be the role of private sector business associations like yours and individual businessmen in realising the intended investment?

Sometimes, we put the cart before the horse. Without making significant reforms in policy and process, we must not dream of attracting large FDI. The new Foreign Investment and Technology Transfer Act, and Labour Act are yet to be ready while the environment-related laws are not investor-friendly. Every foreign investor minutely observes the legal provisions, including the business registration and exit process of the destination country. They are concerned about what would happen when they close their business here and want to move out. We have not done much in this regard. It’s very inspiring that the foreign investors expressed their intent to invest a large amount of money in Nepal. I don't want to say that we will fail, but we must expedite the process to reform the policy and create a better business environment in order to materialise the intended investment. It's up to us to realise the amount of money we want to actually bring in. As a co-partner in organising the summit, we are very positive in this regard and will extend every possible help to the government.

Some of the businessmen don't want a foreign rival, especially a large one, in the business sector. Cement is an example. In such a scenario, how can we believe that the government will be getting support from the private sector?

I don't think Nepalese businessmen are against FDI. But we are concerned about the facilities that are provided to a foreign investor but not to a Nepali one in the same sector. The government should not favour the foreign investors at the cost of domestic business, and ensure a level playing field for the Nepali businesses. Some sectors should be protected. The government has signed BIPPA (Bilateral Investment Promotion and Protection Agreement) with foreign countries, including India. What has it done to protect domestic investment? We have raised such issues with the government.

The FNCCI had created a project bank a couple of years ago. Has there been any progress on selling those projects to investors?

The project bank was very popular, and many domestic and foreign investors had taken references from it in establishing their businesses. However, we have not assessed the current status of the project bank’s implementation.

You belong to a family that has a long history of association with business, including trade, manufacturing and service. To what extent has a family business like yours promoted a corporate culture in Nepal?

As of now, we don't have an alternative but to bring in a corporate culture in our business. Professional management is the key to staying aloft in market competition and making a business successful. Traditional family businesses have been adopting professional management for the last one-and-a-half decades. As business grows, you have no choice but to resort to the modern management system. 

(Published in The Rising Nepal Daily, June 19, 2017/Asar 5, 2074)