Nepali Times
Strictly Business
Fight for FDI


Earlier this year, two researchers at Georgia State University in the US tested 200 economists on concepts of economics. To their surprise, the researchers found that 80 per cent of the respondents gave wrong answers to a simple multiple-choice question about opportunity cost. That most economists were wrong about an issue was nothing new. That, despite holding doctorates, most appear not to have understood a central concept of their science was shocking.

Closer to home, Nepali economists fare no better. They too misunderstand and then misapply the basics of economics routinely. While US economists face challenges from their peers and the press, their Nepali cousins know that flashing credentials alone absolves them from any responsibility of arguing the basis of their views in public. A case in point is Bhola Chalise's article in Himal Khabar Patrika (1-16 September) on foreign investment and trade.

Labelling the present government's decision to open up tourism and retail sectors to foreign direct investment (FDI) as "foolish", Chalise makes three arguments against it. First, he says that since trekking agencies and supermarkets are doing well in Nepal, there is no need for FDI in those sectors. Second, the government's wanting to bring in FDI can only mean that it wants to destroy thriving Nepali entrepreneurs. And third, the government wants to attract FDI to confer legitimacy on its authoritarian rule.

Even when one subscribes to Chalise's politics, it's hard to see how anyone can intellectually defend the honesty of his arguments on account of economics.

First, just because a sector is open to foreign investment does not mean that FDI will immediately start flowing. Indeed, if Nepal's experience with FDI is any guide, we still have a long way to go to make our laws friendly to foreign investors-most of whom are far more likely to share tales of woe related to doing business here than spend time plotting against local businesses.

Second, FDI can only work when investors see a lower opportunity cost in Nepal to produce goods or services. Investors know that the only way to see their money grow is to ensure that consumers buy more goods and services. And consumers buy more when quality is high and prices are low. In this respect, FDI is attractive not so much for the owners of trekking agencies and supermarkets but to consumers who want to access varieties of goods and services at competitively lower prices. By bringing additional capital, new technology, know-how and contacts to a sector, FDI helps make it leaner, more sophisticated and competitive.

True, unable to adapt, some Nepali businesses will fold in the process. But should a self-described liberal economist's concerns be directed toward saving a few businessmen's firms or toward welcoming opportunities that exploit the comparative advantage that Nepal has in ultimately offering better value to consumers?

It is one thing to slam the government on legal grounds by arguing that since it does not reflect the will of the citizens, its decisions are illegitimate, and stop at that. But it's silly to slam the government by portraying FDI as an instrument that furthers authoritarianism and destroys all local businesses. Cash-strapped Nepal, no matter who runs its government, needs more FDI and economists must do their bit to make the public aware of the benefits of attracting capital from abroad to invest in the country's untapped potential.

This task has become all the more urgent because, to paraphrase my fellow columnist Artha Beed's piece last week, not doing so is only going to raise Nepal's opportunity cost to be a player in today's Flat World.

(11 JAN 2013 - 17 JAN 2013)