How Nepal can invest in improving the investment climate

18 March 2019

Anil Chitrakar

If we all stopped saying ‘no problem’ to everything and started actually implementing real solutions to Nepal’s real problems, we as a country would be much farther ahead than where we are today.

Nepal, Inc., Suman Joshi

Attracting and retaining the flow of foreign direct investment is a no brainer for a country with such potential as Nepal. Foreign Direct Investment (FDI) is not just cash coming in, it is knowledge, international exposure and experience, technical knowhow, and a decent rate of return on invest made that can be repatriated.

Currently, houses are being built, taxis are bought, and many restaurants are operating in Thamel or Pokhara with some kind of FDI or other. We just need to invest in improving the investment climate in Nepal, and scale these outlays up to include larger infrastructure projects.

The government has put out a list of 63 projects at the Nepal Investment Summit 29-30 March in Kathmandu which will be worth over $30 billion dollars. There is also a negative list where FDI will not be allowed to protect local investors and producers, mainly in agro-based industries.

However. building trust will not be easy in a country where we are used to promise much with no thought to fulfilling them. This lackadaisical ‘ke garne’ attitude pervades politics and the bureaucracy. Internationals do not trust us, they take our assurances with a dollop of salt.

We should take the summit as an opportunity to remind ourselves that what matters more than what we say is what we do. Blowing up cell phone towers is not the way to collect taxes, renegotiating business deals every time a minister changes does not inspire confidence, extorting international contractors is not how you finish long-delayed water or airport projects.

Investors in high-risk zones know that things can change, but even unpredictability has a limit. Nepal has just promised that FDI approvals will be processed in just seven days. Really? Don’t promise what you cannot deliver.

There are 330,000 foreign firms with investments in China, and the country plans to institute changes in the next three months, including the protection of intellectual property. At present, Nepal and China are both ruled by communist parties, yet the way we interact with foreign investors could not be more different. Uncertainty is what keeps investors away, or in wait-and-see mode. Investors have a wide variety of choices of where they can take their money, and Nepal must be competitive.

If we could invest in new road and ensure that their alignment complements future hydropower project sites, it would make those investments more cost-effective. Attracting FDI would be easier if we augment the grid so that evacuation of the power produced to potential consumption centres. Land acquisition is so expensive and complex that it is usually several times higher than the cost of any project.

Some countries actually attract FDI because the children of the executives get to attend good schools. Kathmandu’s air quality is actually linked to Nepal’s investment climate. Investors do not want to be sick. Land, water, and power supply needs to be regular, but with so many young people sucked away by foreign labour markets, human capital could be a constraint in the short term.

Despite everything, Nepal can still be attractive to foreign investors. There is a reason why Shesh Ghale and others are building new hotels here. Tourism, energy, agriculture, education and health are low hanging fruits. A country of 30 million with 2.5 billion people living next door is not a small market.

We need to make an honest effort to enable investment, open markets for products and services, allow investors to make a tidy profit which they can take away without having to bribe everyone, and file for bankruptcy if the venture does not work out. The last part has not been easy in the past.

Corruption and hidden costs of doing business in Nepal’s rent-seeking state can turn honest people away, and only the crooks will invest. The competition between the seven provinces and local governments could give investment a boost if procedures are streamlined.

Foreign investors gravitate to places that have an entrepreneurial and competitive culture. This it the opposite of Nepal’s jagir mentality where a job means a life time guarantee. Cartels enforced by violence, lack of the rule of law, militant unionism, extortion and corruption need to go. Investors should also be careful not to partner with people who claim to be well connected. Any mention of ‘mero manchhe’ by a local partner should be first signs of problems ahead.

Anil Chitrakar is President of Siddharthinc