The people have very high expectations of the new government, but it faces immediate challenges of resolving the food and fuel crisis. Participants from the business community at a Budget Roundtable organised by Himal Khabarpatrika and Nepali Times on Sunday said the coming budget should bring about a paradigm shift in governance and development priorities and spur investment. Excerpts from the discussions:
BINOD CHAUDHARY (Chaudhary Group)
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This time, there are multiple crises: inflation is in the double digits, neither the consumers nor the dealers are happy with the fuel price increase, there is a food crisis, Nepal's exports to India are plummeting and this year alone we sold dollars to buy INR 200 billion to finance imports, export of vegetable oil to India has stagnated and industries are being closed down. This winter, there will be a crippling electricity shortage.
Meanwhile, the government-in-waiting plans to employ 1 million youth in 4,000 villages and increase grants to local governments to Rs 2.5 million. But governance capacity has gone down and only half the Rs 30 billion for development in the last budget has been spent. Rapid growth requires investment: both in infrastructure, manufacturing and services. But to have 20 percent economic growth, we need to spend Rs 500 billion a year. It's not just a question of getting and setting aside the money, can we spend it?
There are ways to immediately raise living standards: by training 50,000 workers so instead of earning $150 a month they earn $300. That alone will double remittances. The bill to allow private sector into the petroleum sector has been pending for two years. There are applications in the ministry for 28,000MW worth of energy, yet there is a power crisis.
ANIL SHAH (Nabil Bank)
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As a nation we have gone through revolutionary change, people's expectations are very high. The new budget must try to meet some of these expectations, and it should reflect the economic philosophy of a Nepal. The question is, will it do so by making the rich poor and bring everyone down to the lowest common denominator, or by making the poor richer?
The priority now is to restore business confidence, reassure people that private wealth is safe so as to stop capital flight. Then you have to try to bring that capital back. Only in the third stage do you start trying to encourage FDI.
Our economic vision should concentrate on our core strengths: agriculture, tourism, services sector and infrastructure. Agriculture productivity can be enhanced not by redistribution, but consolidation of farms. In tourism, visitor numbers are not enough, what is the yield? The services sector, IT and banking have great potential, but banks can't be penalised for good performance by further raising taxes. Then, for double digit growth there must be investment in cement and hydropower. Nepal is now the 39th most populous country in the world, manpower should be seen as an asset not a liability, and we must try to increase the earning potential of our migrant workers through vocational education.
Whoever comes to power, they have a two year window to deliver, otherwise the moderates will be replaced by radicals. The Maoists are the largest party, let's give them a chance to prove themselves. We have to therefore completely change the way we do business, business as usual is the path to ruin. Perhaps one way is to set up an independent economic thinktank to come out with implementation strategies to advise the government.
RAJENDRA KHETAN (Khetan Group)
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What were the aspirations of the people during the Jana Andolan of April 2006? They wanted peace, development, end of discrimination, jobs, rule of law? They felt an election to a Constituent Assembly was the path to achieve these. But today, they are already starting to get disillusioned. The rich aren't so badly affected by the crisis, and their wealth is growing, but the poor are getting poorer and this is an untenable situation.
The future government must try to meet the people's aspirations with the new budget by encouraging business so jobs are created. Cost of doing business here is already too high, we aren't competitive because of the size of economy and transportation complications. It's not just capital that is leaving the country, so are people.
On the positive side, a solution will likely be reached and we will have a new government. Now there has to be a common minimum understanding on economic policies so that businesses can be assured of a certain level of stability and increase their confidence level. We must start planning for post-WTO and attract investment in areas of comparative advantage to create jobs.
The government should stop taxing the sectors that are doing well, and bring those not in the tax bracket within it. For economic growth, it should trigger a paradigm shift by agreeing on a common minimum program to support investment, keep the government out of business, lower the chain of command to give a free hand to the private sector. And stop thinking that only FDI is investment, there are also domestic investors.
KUMUD DUGAR (KL Dugar Group)
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The country is a mess, and only multinationals with a market in India are doing well. Within Nepal, we suffered 180 days of shutdowns in the past year, some 90 percent of manufacturing industries have closed. The only reason some of us have survived is because the prices of some products have gone up.
Hydropower has long been gestating, tourism depends on stability. For immediate impact, we have no alternative but to address agriculture, on which 80 percent of the population depends. We must stop the fragmentation of landholdings and go for large-scale farming through land reform and mass production in agro-based industries. We must encourage value-added products. For example, the same farmer with the same land and same labour cost earns five times more if he switches from coarse rice to basmati. This way, farmers will benefit from the rise in food prices.
Our parties have only talked, there are no results. It is getting late for the politicians to deliver. They should think of high impact programs for short-term, medium-term and long-term impact. Business shouldn't be regarded with suspicion. I could take my business to India where there are better incentives, but I am here because I am a Nepali. Our transit cost is very high, we can improve it immediately by turning the Birgunj dry port into a full port and use the Bombay port for export and import at lower costs.
For immediate double digit growth, investment in agriculture can change the scenario, for the medium term we have to focus on hydropower and in the longterm, investment in infrastructure. We need a 'Vision 2020'.
KAMRAN BAKR (Unilever)
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We must figure out where we want the economy to move? If we go the service route, we have to remember that we need better education. We have to move up the value chain, through vocational training. It is a globalised world economy and to compete with countries in the region we must have a model that takes people to the next level of experience. Nepal borders the fastest growing countries in the world, in every budget in India and China there are new tax incentives for industries. In Nepal, budgets only add to the tax burden. Why should the investors come here if they can get a tax holiday and other incentives elsewhere? We seem to be waiting for things to happen, but things will not happen on their own. If you want to promote manufacturing, you need to see incentives for manufacturing in the budget.
It will be foolhardy to expect things to change overnight, but we can start the process of recovery through a package of incentives for investors. We are at a very critical juncture, and the private sector must be seen as a partner in growth and job creation.
SANJIB RAJ BHANDARI (Mercantile)
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The next budget will be seen as a political document irrespective of which government announces it. Therefore it will be closely watched by businesses within and outside the country. People vote with their wallets: will there be capital flight and human flight? Will the new government treat the private sector as a class enemy or as a partner?
We have to reconcile ourselves to the fact that even if there is peace in this country there won't be stability in the foreseeable future. You don't need a great deal of stability for growth, but ours is a unique country both in politics and economy. Energy producing countries around the world are predominantly unstable. So instability alone will not deter investors in the energy sector. People are willing to risk it because the rewards are so high. Manufacturing tends not to do very well in periods of instability, but as long as there is no state of war we can still progress. Even tourism flourishes in instability as long as there is no violence. This and subsequent budgets should plan for several years of instability. If you plan for the worst, then you'll do damn well if things get better.
DIWAKAR GOLCHHA (Golchha Group)
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You can't expect one budget to work miracles overnight. This budget has to meet the expectations of the people for a dramatic improvement in their lives. But the budget will be coming at a time of crises. The new ideology has been promising the world, now they will have to deliver on those promises. Snatching land and doing some showcase redistribution will not work. We need a clear economic roadmap for the next 10-15 years and we will have to work in an environment where politics will dominate discourse and there will be hung parliaments.
The reforms after 1990 were private-sector led, but the deterioration after that can't just be blamed on the Maoist war, the politicians and ministers had a rent-seeking mentality and forgot that they were elected to serve the people. One legacy of that is the current electricity crisis.
Sri Lanka had an insurgency, but investors still flocked in. People are not investing in Nepal primarily because of government indecisiveness.
