Some years ago, when the country was undergoing an acute shortage of energy with a16- hour-long power outage a day, the Federation of Nepali Chambers of Commerce and Industry (FNCCI) convened a meeting of the top political leaders of major parties that made their commitment not to disturb the construction of any hydroelectricity projects and support in creating investment-friendly environment. Speaking at the Nepal Investment Summit 2019 in March this year, Vice-President and chief Executive Officer of the World Banks' Multilateral Investment Guarantee Agency (MIGA) Keiko Honda termed Nepal 'a rising star in South Asia' in terms of investment-friendliness. He appreciated Nepal's efforts to improve its investment climate and become a competitive investment destination. WB's Vice President for South Asia Hartwig Schafer assured every financial and technical support to Nepal. In the immediate aftermath of the devastating Gorkha Earthquake 2015, Nepal organised two investment summits, two infrastructure summits and multiple sectoral investment and promotion summit. Development experts as well as political leaders of neighbouring countries and other developed and developing countries offered their learning and technical expertise to Nepal and urged the international investors to invest here. And the development and investment rhetoric has been changed lately.
Concrete actions Instead of tall talks and abstract call to the business community and investors to come to Nepal and make investment, the ministers and leaders have started to talk about the concrete actions the government had taken in terms of policy reforms, process simplification and project feasibility as Minister for Culture, Tourism and Civil Aviation Yogesh Bhattarai, while speaking at the Infrastructure Summit last month, presented the priority areas of the government in terms of aviation infrastructure and also said that his ministry was in discussion with the European Union to lift the ban on Nepali airlines to fly in the European skies. The long-running trend of vandalising foreign investment projects and companies, extortion and donation seeking has drastically gone down to almost zero save the Biplav-led Maoist outfit. The government has also decided to provide security services to each industry or project when required. Similarly, the government recently launched a wave of multi-sectoral reforms to attract both the domestic as well as foreign investment. It enacted Public Private Partnership Act, Foreign Investment and Technology Transfer Act, Labour Act, Special Economic Zone Act to create more conducive environment for business and environment. However, the efforts seem inadequate and unenthusiastic since the country has largely failed to attract Foreign Direct Investment (FDI). According to the report of Nepal Rastra Bank, the FDI inflows in Nepal are substantially low compared to neighbouring countries. It shares only 0.01 per cent of total FDI in the world while the South Asia received 3.1 per cent of total FDI inflow in 2016. Investors are hesitating to come to Nepal due to cumbersome business registration process, difficulties in obtaining visa and work permit and complex repatriation system. According to some foreign missions in Kathmandu, Nepal's cap on FDI has also impacted negatively.
The greatest challenge, however, is that the industrialists are not proactive. Just making a call to Nepali and foreign investors to invest in Nepal is meaningless and will have little impact if they are not impressed by the local policies. The government's job is not just to urge the investors to invest their capital but to create a situation whereby investors would come here automatically. Did the government urge any investors to invest in health sector and establish modern hospitals? Did it suggest the businessmen to establish profitable schools in the cities? Did it ask the investors to invest in cement? The answer is no. What happened in these sectors was that the government implemented liberal policies and created favourable environment in these sectors which attracted the investors. Take an example of cement industry.
The cement import has been reduced to 80,000 tonnes per year from 800,000 tonnes some years ago. There are 61 cement industries – 40 grinding plants and 21 integrated plants – with 15 million tonnes of installed capacity. The Cement Manufacturers Association had projected that by mid-July 2021, cement demand would reach 12.2 million tonnes per annum while the installed capacity would be approximately double the size.
Spontaneous impact It all happened without government making a call to the investors while the largest cement industry, Hongshi, established a couple of years ago, has forced the market to reduce the price as well. The progress was the result of the government policy to invest in the study of limestone mines across the country, develop access roads up to the site with its own budget and easy process to acquire license for mine. Similarly, the tax concession and promotion of private institutions in the education sector had inspired thousands of private institutions across the country which are not only delivering good education and creating competitive human resources but also create employments in a large number.
Unless the political parties do politics for development and leaders take the economic agenda seriously, there are less chances of the flow of large number of investors in Nepal. Less investment means less job creation, more trade deficit, pressure on the balance of payment, triggering high frustration among the people.