Get on with it

Now that the second Constituent Assembly elections have been held and the results declared, it is time everybody in the country accepted the results for what they are, and started working on completing the tasks at hand. Unfortunately, this is not happening.

Ever since it emerged that the Nepali Congress and the UML have become the two largest parties in the new Assembly by far, several people in Nepal—including many journalists and those in the intelligentsia—have been talking about the regressive nature of these two political parties and what that may mean for the country. A few of these supposed neutrals had begun to lament even as the results had only just started trickling in, and started making calls for more progressive policymaking from the Congress and the UML.

These were the two parties that were most maligned by the other political parties. They were constantly described as regressive and as comprising of old fogeys. The failure of the first Constituent Assembly to write the constitution on time was blamed squarely on these two political parties. Here are two parties that only want to perpetuate the hegemony of the higher castes, it was said.

All of the above may have been true. But the fact is they have emerged victorious in these elections despite all of this. This goes to show that they do have a clear mandate from the people who approve of their policies, regressive or otherwise.

The success of these two parties, however, is now very conveniently being attributed not to their manifestoes and their policies, but to the electorate’s disappointment with the performance of the Maoists. It is being claimed that the polity’s disenchantment with the Maoists has worked in the favour of the Congress and the UML but there is a clear reluctance to admit even consider that it may have been the less destabilising policies of the Congress and the UML that may have appealed to the electorate.

Some have even suggested that the Congress and the UML should not forget the aspirations of the people and should not revert to their regressive agendas. Does it just escape them completely that the so-called regressive parties have actually won an election, and that they have beaten all the so-called progressive parties rather comprehensively?

In these circumstances, we in the media have the responsibility to analyse the election results and understand the sentiment of the electorate, rather than make assumptions about their voting preferences. The view that the Congress and the UML did well in the election only because of the ineptitude of the other political parties is a hypothesis that cannot be tested. Hence to make this claim authoritatively is misleading and assumes the voter is stupid.

It is time for us to accept what the electorate wants, rather than assume what it does.

 

(This column first appeared in the Himalayan Times on 22 December 2013).

Almost forgotten

In the build-up to the last Constituent Assembly elections, the Madhesi parties emerged as a major political force to be reckoned with – one that had enough clout to make or break governments, besides of course, being in a position to influence the lives of the people the constituents they were representing.

In doing fantastically well in the first Constituent Assembly elections, they defied expectations, particularly considering how little was known about them until a year or two before the elections.

Their performance in that election brought to the forefront of Nepali politics, issues that were forced under the carpet for decades prior. It also vindicated the longstanding view that the people of Madhes had long overlooked by the erstwhile major political parties that had their roots—and their interests—in the hills. Madhesis believed that for too long, they had been ignored and often maligned. The Madhesi parties captured the moment beautifully by ramping up the noise, asking more rights for Madhesis, for representation for them in all organs of the state, and also aspiring for a united Madhes.

For a while in the lead up to the last elections and just after it, the “struggle” for Madhes was among the most prominent national story. There was much anger in the southern plains and the Madhesi parties capitalised on it fully. The people of Madhes (largely) associated with the movement and connected well with the leaders, buying into their promise of hope.

Five years down the road, however, as Nepal moves nervously towards another election to the Constituent Assembly, one of the big changes is that the rhetoric around Madhes seems diminished—almost muted. The Madhes movement seems to have run out of steam and the increasing fragmentation among the Madhesi parties is perhaps a reflection of as well as a reason for this happening.

In part, this is also due to the failure of the Madhesi political leaders to stamp their authority on the political process. Post-election, they had a real chance to capture the moment and to make their presence felt by living up to the expectations their constituents had of them. One could argue that they have made their presence felt, but not often in very constructive ways.

What the people of Madhes needed at this point was a cohesive movement, led by individuals willing to put aside their personal differences to forge consensus on a united election campaign dictated by a common goal. What they managed to get instead is hardly that. Today, there are more Madhesi parties than one can keep track of, and if there has been an effort to put aside differences for the good of the people, it has not really been evident. In recent weeks, there have been last-ditch efforts made forge electoral alliances so that the Madhesi vote is not split too many ways, but one fears that all of this might be too little, too late to make a real impact. 

(This appeared as a column in The Himalayan Times on the 17th of November, 2013).

Celebrating stagnancy

As Nepal readies itself for a second election to a Constituent Assembly, to be held next month, there is much excitement and hope among people. Most political parties have released their manifestoes and their candidates have started campaigning with fervour, going door-to-door in their constituencies. A few election observers from the European Union have arrived in Nepal, and more are expected to make their way before the 19 November elections. The army has started being deployed in the constituencies to provide security for the duration of the elections. 

The stage is set, and so it should be, for this is a singular moment in Nepal’s history – one that celebrates five years of failure on the part of leaders from all political parties. It is a celebration largely of their ineptitude and myopia, which has resulted in their failure in providing Nepal with a constitution in five years. The urgency of moving the democratic process forward seems to have escaped them at some point.  

In 2008, Nepal had its first elections to a Constituent Assembly. Its primary task was to write a constitution for the country that would pave the way for elections to a government that could carry out its primary task, which is to govern. None of this came to pass and the country does not have a constitution. 

This isn’t to suggest it was an easy task, for there were multiple stakeholders with diverse aims, leading to frequent clashes over ideology, over state structure and the like in relation to the elections. Yet, it must be argued that the Constituent Assembly had but one key task—that of writing the constitution—and it failed miserably at that. The state’s resources have been wasted (is there a more appropriate word?) and the tax payer has consistently been made to feel stupid.  

We now have another election funded by the tax payer, who, in several cases, will not even cast a vote. Not because he doesn’t care, but because he cannot find candidates that care enough. Conversations with scores of Nepalese, both young and old, reveal a common sentiment when it comes to the elections: “Does it matter who wins? They are all the same.” These elections are about indifference.  

Come November, the election tamasha will return to town and the country will witness a party of the leaders, for the leaders and by the leaders. Promises will be made, speeches delivered, brickbats thrown and crores of rupees spent. Hope will be sold and we will watch.

 

(This post appeared as a column in the Himalayan Times on 27 October 2013.)

Big gamble, or best chance?

Ever since the near inevitable has happened and Narendra Modi has been named the BJP’s candidate for prime minister in the upcoming Lok Sabha elections, most of the media coverage around his candidature has been centred on the big ‘risk’ the BJP is taking with this nomination. Several articles and editorials assert that his nomination is a big gamble on the part of the BJP, which has been in the opposition for almost a decade now.   

They suggest that Modi’s refusal to apologise for his actions (or inaction) during the Gujarat riots and his reluctance and failure to reach out to the Muslim community—which makes up about 14% of India’s population—since, will greatly hamper the BJP’s chances in the 2014 elections. His history is enough to make even several Hindus squirm.   

While this is not incorrect, far from being the BJP’s big ‘gamble’, this column is of the view that he is the BJP’s best chance, and perhaps even the ideal choice from the party’s point of view. Since the fading—and pushing—away of the old guard, he has emerged as the strongest leader in the BJP, a party without many other forceful personalities.  

His impressive, albeit frequently challenged,record of economic growth and development in the state of Gujarat make many young people yearn for a leader as ‘decisive’ as him at the centre. Frustrated with years of mismanagement of the country’s economy and a near paralysis in policymaking, many Indians favour a leader such as Modi, who they believe will do a better job. Economic growth in India has petered out over the last few years and there is more than a shadow of doubt about its prospects going forward. To many, Modi is seen as the person who could, at the very least, give the country some sort of direction.  

One other area where Modi has distinct advantage over whoever the Congress puts up as its candidate for prime minister is his reputation for clean government. The scale—and even diversity—of corruption scandals that have plagued the current Congress administration has meant that corruption will be a key campaign issue, something that sits perfectly within Modi’s ‘good governance’ platform. In a country where corruption is rife and has never been more prominent on the national conscience as over the last couple of years, Modi’s reputation for clean government is no trivial matter.   

What I have gauged from my interactions with young Indians who would typically fit the bracket of intelligent and well-educated is telling. Many of those uncomfortable with the idea of Modi as prime minister even two years ago, are not today. These are not religious hardliners or right-wing nutcases, and they fully acknowledge that Modi has a chequered past.  

While as recently as two years ago they were willing to overlook his impressive economic record and formed their opinion of him on the basis of his chequered past, now they are reluctantly willing to overlook the same past and are hopeful of him winning the election on the basis of his agenda of good governance. This is admittedly not a large enough sample, but is nevertheless indicative of a possible change in the mindsets of several Indians.  

It is a wave the BJP ought to ride. There is no better person than Modi to steer this ship, that has, for the better part of the last decade, struggled to find direction. He is their best chance.

 

(This appeared as a column in The Himalayan Times on 22 September 2013).

Two sides to a coin

The UPA government has had a troubled term, with the Congress having to grapple with a variety of scandals and controversies incessantly dogging its administration. In the lead up to the General Elections, the government has attempted to implement several policies to purportedly benefit India’s poor. It is no secret that these policies have been implemented with more than a key eye to the upcoming elections.

The government has come in for a lot of criticism from several quarters and much of this criticism is indeed warranted.  In a bid to salvage the situation somewhat and to counter the seemingly irrepressible Narendra Modi tide, the Congress is attempting to use any tool available at its—or rather, the state exchequer’s—disposal.  Populist policies designed to appease scores of millions of the Indian poor are designed to win the UPA another term in government. While one bill passed is grossly irresponsible, another is likely to stand the country in good stead.

The food security bill, for long the Congress’ chief policy goal, has been successfully passed and is on the verge of becoming law. The bill proposes to make food a legal right for Indians by subsidising it for about two-thirds of the population. The bill will provide the poor with grain such as rice, wheat and millet for almost free, in the process costing the exchequer about $20 billion every year, a luxury India most definitely cannot afford.

The will place an immense strain on its already floundering economy. Problems relating to corruption and the logistics of such a grand operation are another matter altogether.

On the other hand, the land acquisition bill passed last week is perhaps as populist, but—in this column’s view—is different in that it will actually benefit the Indian economy. The bill ensures that farmers and small landowners will get paid fair compensation for the sale of the land, and also requires that 80 percent of people living on the land must acquiesce for anyone to buy it.

Furthermore, the bill lays out that farmers and small landowners will have to be paid up to four times the market value for land acquired in rural areas and twice the market value in urban areas for their land. This is good news for small landowners in India.

The bill has naturally come in for criticism from Indian industry, which contends that it will hamper industrial investment in the country and could make projects unsustainable as a result of the high costs associated with the acquisition of land. This view conveniently overlooks the fact that at least a template has now been laid for the acquisition of land, a bitterly divisive issue over the last few years with little to no clarity.

The lack of regulatory clarity over land acquisition has been one of the major reasons stalling investments in several industry sectors, with projects sometimes having been put on hold for years or sometimes even scrapped altogether. It has also been a pressing issue for those looking to invest in the country’s infrastructure.

What this bill will (hopefully) do is remove uncertainty surrounding the purchase of land. It does so at a high cost that the government stipulates should be borne by industry, but the benefits likely to accrue to them are only going to be significantly greater.

And unlike in the case of the food security bill, the land acquisition bill may actually serve to solve some problems rather than creating others.

(This was a column that appeared in The Himalayan Times on 8 September 2013)

Private fears

Over the last few weeks, this column has looked at ways for the government to revive Nepal’s economy and suggested measures it can take in certain sectors to boost activity. The government does not have enough in its coffers to kick start economic activity across multiple sectors and hence, the need for private participation and investment cannot be emphasised enough.  

It is abundantly clear that for Nepal’s economy to grow at anything more than 5 percent there is a need for considerable private investment in sectors such as tourism, hydropower, education, infrastructure and agribusiness. These sectors are key for the economy and present a plethora of opportunities for the private sector, either because Nepal has a distinct advantage in them, or because it has a dire need for services in some of them. Either way, there are opportunities for entrepreneurs.  

Over the last few years, large scale capital investment has slowed to a trickle in Nepal despite all these opportunities that we speak and write about. Sure, there’s a need for private capital and the returns from private investment in Nepal can be high – yet there’s a barrier preventing investments. 

This barrier is the presence of a government, and the lack of a functioning one. For all the opportunities that are seemingly available for private investors, there has been only minimal participation from them. This is largely because the government has not been able to create an environment conducive to private investments. The country has not had an elected government for the longest time now and there obvious problems with accountability. Needless to say, continuity in policy is now an almost alien concept.  

The writing of the constitution was of paramount importance before the constituent assembly failed miserably at doing so, and so now the focus has shifted to another election. So the political process in the country has actually moved backwards, contrary to what several observers believe. There are now parties working hard to ensure elections in November do not go ahead as planned. All the parties spend their time in trying to ensure they can come up with some sort of a working solution that is acceptable to parties along the political spectrum. It is not an easy task, because it is sometimes not clear what the parties themselves want out of this process.

As a result of all of this, the economy continues to be ignored and economic policy just remains a textbook phrase. With little to no attention from the politicians who are too busy buying time from one another to decide what it is they really want, Nepal’s economy continues to stutter along. From time to time, some senior politician or the other will play up the need for private investment and foreign investment in the country and perhaps assume that will do. Private entrepreneurs in Nepal are frustrated and have been experiencing what can only be described as an implementation of ‘how really not to run a country’ manual.  

For them to invest more in Nepal—with the continued policy paralysis and paralysis of all other kinds—is rather wishful. There are opportunities, but the environment needs to change and systems implemented. Give the private investor at least a degree of confidence to invest, and the money will come. If the trepidation investors have is not addressed, private investment will also become merely a textbook phrase.

 

(This was a column that appeared in the The Himalayan Times on 1 September 2013)

Roots of growth

For a country with about two-thirds of its population employed in the agriculture sector, the development of Nepal’s agribusiness industry should be among the most important goals of the government. But while much lip service has been paid to the making of Nepal into a hub and a key player in the agribusiness space, successive governments have not quite been able to put Nepal on the agribusiness map as yet.  

The first problem Nepal faces is that of farm productivity. Only a small percentage of Nepal’s land area is arable and hence, it is important for the government to push for increased productivity in the farming sector. As with several other areas of the economy that this column has referred to in weeks gone by, here too the government is short of sufficient finances to address some of the most pressing concerns.

As such, the importance of private sector participation cannot be emphasised enough, either as a direct participant or as a financier. In the agribusiness sector in Nepal, there is a shortage of quality fertilisers; very poor access to finance; the unavailability of machines; little to no electricity; and not sufficient knowledge. In all of these areas, the private sector can plan an effective role and contribute to the development of the industry.  

However, once again as has been explained earlier, there need to be conditions that are conducive to private sector investment in the first place. Nepal has to encourage the private sector to invest in the agribusiness sector. The most critical aspect at present is to remove issues pertaining to the security of private property. Secondly, private players willing to engage in this sector should be provided with tax benefits in the first few years following their incorporation and these companies should be given incentives to export their products. They could also receive access to cheaper inputs from government to make the investing in the sector a more palatable proposition for other potential investors. 

Equally importantly, the government has to simplify the whole process of registering and conducting a business. While this is not a problem plaguing the agribusiness sector in isolation, it is essential that processes are fast-tracked for at least certain sectors of the economy and the agribusiness sector ought to be one of them. 

Nepal should focus on tea and coffee, certain sought after herbs, honey and other agro-processed goods that can be sold in the global markets. The private sector is already involved in the manufacture of agro-processed goods and food in a big way and the success of a few brands serves to demonstrate that focusing on this sector is likely to benefit Nepal in more ways than one. Investment in the sector can have wide-reaching benefits such as the creation of jobs, income generation, greater foreign exchange income, and the eventual creation of a thriving small industry space.  

As compared with sectors of the economy, promoting agribusiness will require less capital investment on the part of the government, but that is not to suggest that the government can go it alone. There are several opportunities for the private sector in agribusiness and in peripheral, related sectors, but it is imperative for the government to create the right environment that convinces investors of the security of their investments and also to provide incentives and benefits.  

It is making all the right noises. Now the next steps need to be taken. 

Road to growth

For a predominantly mountainous and landlocked country as Nepal is, the prospects of development are closely tied with the reach and the quality of the surface transport network. The nation’s topography makes the laying of rail tracks across the country quite unrealistic, thus leaving the country with just a road network to rely on for the movement of goods and people.

The presence of a well-developed road network is an important tool for poverty reduction in Nepal for a variety of reasons, chief among which is that it provides the poor with access to services such as healthcare and education which would otherwise be out of reach. Roads have a huge multiplier effect and are a cheaper means of providing services to those living in far flung, remote parts of the country.

Today, Nepal has about 24,000 km of roads, but about 70 per cent of these roads are earthen. This means travelling on them is slow and cumbersome and the transport of goods from one place to another is not efficient. Moreover, much of the roads that are paved are in dire need of repair too. Today, road density in Nepal is among the lowest in the region at less than seven per 100 km. If the country is to boost its rate of growth, it needs to invest in infrastructure development, and particularly in the development of the road sector.

So far, Nepal has seen extensive support for the development of its road sector come from donor countries such as India, China, Japan and the UK, among others, and multilateral institutions such as the World Bank and the Asian Development Bank. However, the impetus rests on the government to promote the participation of the private sector in this area.

The development of the road sector will help in the development of trade and the tourism sector, besides of course providing the population with access to basic services that are essential. It will help connect markets domestically and lead to a boost in economic activity.

There is, however, a funding gap in Nepal’s road sector and filling this gap requires the government to take a proactive role in creating funding structures in partnership with the private sector. It needs to provide cheap credit and other financial incentives to private investors who are willing to invest in the development of roads.

Investors need to see the potential for return in order to be interested in investing in anything and one of the best ways for the government to invoke that interest in Nepal is to provide financial incentives and tax benefits for those willing to take a chance of investing in what will essentially be green field projects.

Nepal should also follow the lead of governments such as the Philippines and Indonesia which have put in place structures for public-private-partnerships, and are benefiting from the increasing involvement of the private sector in the space of infrastructure development. Most importantly, the government will have to promise investors with efficiency and ensure that fraudulent practices are checked and contracts are issued out to reliable, qualified partners.

As with so much else in the country, the road sector also presents the private sector with ample opportunity. However, overriding all of this ample opportunity is the complete lack of faith the private sector has in the administration. The lack of political stability and the absence of any sort of political direction lie at the root of minimal private sector interest — but well, that is a story for another day.

(This was a column published in The Himalayan Times on 4 August 2013).

The big push

In recent years, Nepal has been among the countries to have taken the greatest strides in improving human development. According to the Human Development Index, a composite measure that takes into consideration health, education and income, Nepal has shown more rapid progress as compared to other late developers.  

This improvement can be attributed to improvements in the areas of education and mainly healthcare.  While incomes have also increased over the years, the rise has been only marginal when considered in real terms.  

Despite the rapid advances Nepal has made in the areas of health and education, it is worth bearing in mind these advances have been made from a very low base. The lack of social infrastructure still has huge consequences for the Nepalese economy. While much still remains to be done in the area of healthcare services, they have improved dramatically in Nepal over the last three decades. In the education sector, on the other hand, the improvements have been sporadic and concentrated in the urban sectors.  

Adult literacy in Nepal today stands at around just 60 percent, thus highlighting that while significant improvements have been made, they only tend to mask all the work that is still unfinished. Thus far, the social sector has been the primary catalyst for the improvements seen in Nepal in the education sector. NGOs, charities, donor countries and multilateral institutions among others have been instrumental in supporting the development of the education sector in Nepal.  

The government itself has been too preoccupied over the last twenty years with first trying to establish a democracy, then dealing with the Maoists, and then plotting the end of the Monarchy, to now finally squabbling over the new constitution and the structure of the state. The development agenda has pretty much been outsourced to the non-government sector. And it does not help matters that the state just does not have enough money to invest as much as it should.  

The time is now right for the private sector to make investments in the education sector. There just aren’t enough schools in the country; teacher-student rations are too low; the quality of education being imparted leaves a lot to be desired; education is not easily accessible to many living in rural Nepal; the surrounding infrastructure has not been adequately developed.  

There is a massive demand for education that can only be met through private investments building schools and vocational training schools. Second, the demand for education is relative inelastic and constant, presenting opportunities for the private sector to generate a return.  

On the other hand, the government needs to focus more extensively on the education sector as more and better education brings both direct as well as follow-on effects, whose benefits are accrued over years. Education will increase the employability of Nepal’s youth and it will allow industries and companies to find the talent they seek. Moreover, it will lay the foundation for greater economic development in the country. It is therefore essential for the government to promote investments in education. 

The private sector should undertake the setting up of new schools and other infrastructure that schools may need. The private sector can also play a key role in scaling up educational institutions that have been set up by various charities and non-government organisations.  

The numbers looking to get educated will only increase as incomes in the country rise. Not only will people want to study, but those studying will want to study longer. Currently, Nepal does not have the social infrastructure to support the aspirations of so many students. If it is to meet requirements, it must act swiftly to incentivise the private sector to invest in education. That is a big push the Nepalese economy can do with.

 

(This was a column published in The Himalayan Times on 28 July 2013)

The won't just come

Nepal’s tourism story, much like several other stories, is the ‘what could have been’ story. Endowed with some of the world’s highest mountains and its most beautiful landscapes, Nepal also presents visitors with a heady mix of different cultures, beliefs and traditions. But they need to be drawn to Nepal.

However, the performance of the tourism sector in Nepal has been patchy at best. Tourism numbers have increased, but only gradually and the sector’s relative importance to the economy has stagnated over the years. While it still remains one of the mainstays of Nepal’s economy, its contribution to the economy has not been nearly enough.  

Tourism is the largest source of foreign exchange in the country, following money sent back home in the form of remittances. In 2012, Nepal saw almost 600,000 tourists, a 10 percent increase over the previous here. Most tourists into Nepal last year were from India, China, the US, Japan, the UK and Australia. However, if one were to look back at 1999, the number of tourist arrivals stood at 421,000. This means that the number of tourist arrivals into Nepal has increased by about an average of 3 percent per annum – hardly the kind of growth that can make Nepal a major tourism destination.  

For a country which considers tourism a key pillar of its economy, very little has actually been done to promote the tourism industry in the country. Customary ad-campaigns have been launched and certain days of year have been commemorated in support of tourism, but actively and on the ground, much remains undone.  

This is unfortunate because the sector provides employment to three quarters of a million people throughout the year and it provides revenues of $370 million per annum as of 2012, showing its significance to the country. Perhaps more importantly, the secondary impact of increased tourism activity on domestic economic activity is immense too, and cannot quite be quantified.  

One of the key reasons Nepal suffers from poor tourism performance is poor air connectivity between Kathmandu and the rest of the world. This means it is tough to get to Kathmandu from most cities around the world, and it is extremely expensive to travel in too. The lack of sufficient flights has meant that the few routes that are currently plied have excess traffic and very high fares. The Nepalese government has to proactively encourage the national carrier to improve its services and enable an increase in the number of destinations it can fly to through the purchase or lease of additional aircraft.

One of the ways to improve air services in the country is to encourage foreign participation and investment in the country’s airports and national airline. Today, the services of both are well below par and not indicative of a country that is taking itself seriously. Most tourists enter Nepal from Tribhuvan International Airport – an experience usually so bad it is best forgotten. Greater foreign investment into the sector will invariably bring along with it better services and a better experience for tourists. Nepal also needs to improve road infrastructure. Most of the movement domestically is by road, and the poor state of the network or its complete absence prevent tourists from getting to some of the country’s most beautiful areas.  

Tourism infrastructure in Nepal requires much greater spending by the government and the private sector if Nepal is to meet its goal of receiving two million tourists a year by 2020. It is an admirable goal, but not much has been done thus far in achieving it.  

(This was a column published in The Himalayan Times on 21 July 2013)

Let there be light

‘Performance must meet potential’ is a commonly used refrain in sports commentary—especially in reference to exceptionally gifted players or teams that continue to underperform and to frustrate in equal measure.  

The hydropower sector in Nepal is not any different. The country has more than 80,000 megawatts of hydropower potential of which 43,000 megawatts is technologically and economically feasible. Yet Nepal’s grid-connected generation capacity is currently lower than 750 megawatts, or about two percent of the feasible potential.

Around three-fifths of the country’s population does not have access to electricity, and those that do are sometimes faced with load-shedding of up to 18 hours a day. The lack of power is the biggest infrastructure bottleneck obstructing the growth of Nepal’s industrial sector and the economy at large. 

Several industries in Nepal today are almost entirely dependent on diesel-powered generators for their operations and with the Nepalese rupee in a freefall, entrepreneurs are really feeling the crunch due to increased diesel costs. The lack of a regular power supply is a big deterrent preventing companies from investing. Moreover, even the electricity that is supplied to industries is at tariffs among the highest in the world.  

Some changes are happening for the better in Nepal’s hydropower sector, especially with the government and the multilaterals realising that building huge dams is not really the way to address energy woes. The focus has distinctly shifted towards smaller projects, most of which are run-of-the-water. These projects are relatively less expensive, take less time to build and are easier to manage. 

Nepal needs to reduce its dependence on multilateral institutions such as the Asian Development Bank and the Word Bank, and other donors. As long as multilaterals are putting money in more money into the sector than private investors, it is a clear indication Nepal has not managed to address risks associated with investing in the hydropower sector. Investing in hydropower is a long-term play and for investors to put money in the sector they require assurances from the government. That the multilaterals are still the biggest investors in Nepal’s hydropower sector means that the private sector still does not the propensity to take the risks involved.  

The government’s main task is to address these risks as companies are still not very comfortable with the risk-reward pictures they have in mind. The Nepal Electricity Authority (NEA) is the sole buyer of electricity in the market and that brings with it payment risks centred on the NEA’s potential (in)ability to pay for what I buys. Construction risks are another concern, with almost no project being concluded on time and hence leading to higher costs. Finally, the political risk and the fear that there may be changes in policies such as tax structures or tariff structures is another concern for investors. However, on recent evidence, the last of the three seems to be more of a perceived risk than a real one. It must be said that despite periods of abject governance interspersed with no governance, various administrations have managed to bring about a certain degree if continuity in policy and in expectations.  

Money is beginning to enter the sector. For instance, the China Three Gorges Corporation is developing the West Seti hydropower project while Indian energy major GMR Energy is working on the Upper Karnali project. Similarly, on the multilateral side, the World Bank approved a project in May this year, while the ADB and other investors agreed to a $430 million financing for the Tanahu Hydropower Project.  

A lot of work remains, and the new government will have to improve confidence in Nepal. Investors obviously know making money is not going to be easy, but in order to invest, they too need to see the light at the end of the tunnel.

 

(This was a column published in The Himalayan Times on 30 June 2013)

Arranging growth

One of Nepal’s primary economic concerns has been the stunted growth of its industrial sector. Despite moderate growth of 4.6 percent in the economy in the financial year ending July 2012, the industrial sector grew only marginally by a poor 1.7 percent. A variety of factors have contributed to this, chief among which are labour disputes, persistent power shortages and the protracted political transition and the disturbances it brings along with it.

There are opportunities still in the Nepalese market, but many of these have been untapped for a variety of reasons, not least the political uncertainty that has plagued the country for half a decade now. The caretaker government led by the Chief Justice cannot really take any decisions without the approval of the four major political parties. As such, there is very little confidence in the economy as no policy is being articulated. 

Nepal heads to the polls in November this year, and it is imperative for any interim government that is formed after these elections to the constituent assembly, to prioritise economic development. Social inclusion is important, but it cannot come at the expense of the pursuit of economic development.  

The new interim government will need to identify areas of the economy where there is either greatest potential for growth or those that require the highest levels of investment to kick start economic development in the country. The paucity of financial and human capital resources means that the government will need to take a measured approach towards economic development and not try and do more than what is feasible.  

Such opportunities do exist. The most talked about of these is the hydropower sector, the development of which will have a dual benefit on the economy. On the one hand, it will help address power shortage woes by providing industries with access to a regular supply of electricity, and on the other, sufficient electricity generation will improve the country’s trade balance as Nepal will export more electricity to neighbouring Indian states. 

Nepal is primarily an agrarian society, with the agriculture sector employing three quarters of its population and contributing about two fifths of GDP. The sector should form the base on which Nepal’s economy is built as it is critical for sustainable economic growth. Besides being home to traditional food and cash crops, Nepal also has the potential to become a preferred destination for the cultivation of rare species and herbs, homegrown or otherwise.  

One of the mainstays of Nepal’s economy is tourism. Few countries are as well-endowed as Nepal is in terms of natural beauty and postcard landscapes and it should be a natural choice of destination for Asians looking for short vacations. Yet, it isn’t. There is tremendous scope for private investors and the government alike to invest in the tourism sector to make it as important a pillar of the economy as it should be.  

Holding all of this together is infrastructure—both physical and social—of which there is a dire need in Nepal. There are opportunities to invest in toll roads, airports, bridges, the power sector, and social infrastructure such as hospitals and schools. Investing in these sectors, however, requires a long term commitment from investors which will only come about with some certainty in policy. The sector presents several opportunities, which will in turn provide a fillip to wider economy at large.  

Over subsequent weeks, this column will seek to address an opportunity at a time, dwelling upon what needs to happen for these opportunities to become viable; and suggesting steps the government needs to arrange growth in this manner.

 

(This was a column published in The Himalayan Times on 23 June 2013)

We fool no one

On his visit to Yunnan province in China recently, vice president Parmananda Jha made an appeal to Chinese investors to put money in Nepal and benefit from the investment-friendly environment in the country. Among other things, he urged them to invest in sectors such as tourism, hydroelectricity and infrastructure development.  

Several of Nepal’s leaders traveling abroad over the past few months have made similar appeals for investment and similar assertions of an investment-conducive environment.  

The assumption these leaders make is that foreign investors will put money to work in Nepal simply because Nepal needs investment and because there are significant opportunities available in the country. While the availability of opportunity does provide the basic premise for interest in a country like Nepal, it is imprudent to imagine that the availability of opportunity alone is enough for them to consider investing. It is a necessary but not sufficient condition.  

Once the ground that there are opportunities to invest in Nepal is laid, the search for clarity begins in earnest. Investors looking at frontier markets such as Nepal need clarity at several levels. They need clarity in terms of labour, land and other economic policies; clarity that these policies will not be changed frequently; clarity that the state’s bureaucracy will be a facilitator for business or at least not a hindrance; and clarity that their interests will be protected.  

It seems to escape our leaders that investment decisions are ultimately not dictated by interest and opportunity, but the prospect of generating returns. And until investors have complete clarity, they will not put money to work as the risks will be considered too high. 

While vice president Jha was talking about Nepal’s investment-friendly environment on his visit to China, Suraj Vaidya, the president of the Federation of Nepalese Chamber of Commerce and Industries (FNCCI), was talking about Nepalese industrialists being ready to shut down their industries for good rather than bow down in the face of pressure and threats from a trade union, which is currently not even a legal entity.  

For long now, domestic entrepreneurs in Nepal have been faced with various pressures from trade unions, the youth wings of political parties and a politics of lawlessness, strikes and bandhs. A few have already shut shop.  

If the Nepalese government cannot provide an environment conducive for domestic entrepreneurs—who despite understanding the economy and the ground realities better than the rest are unwilling to invest in the country—then the likelihood of foreign investors buying into the Nepal story is bleak, however much the politicians try to embellish it.  

There is a clear contradiction between the statements of vice president Jha in China and those of FNCCI president Vaidya at home. These contradictions do not escape the attention of prospective investors. And when there are such contradictions, there is no clarity.  

Nepal has to acknowledge that investors are smart. Money is not going to flow into Nepal just because it is strategically located between China and India. Nor is Nepal going to see an uptick in investment inflow simply because it is in need of foreign capital. Rather than trying to lure foreign investors into Nepal by constantly trying to play the investment-friendly-location-card, the government should perhaps look closer home.

 

(This was a column published in The Himalayan Times on 16 June 2013).

Fix Fixing

The scourge has struck India again. In the last couple of weeks, details of spot-fixing in the Indian Premier League – among the biggest cricketing events globally – have continued to emerge, providing more than a peek into the murky workings of the world of illegal betting. And this is probably just the beginning.  

Police investigations are ongoing; the media continues to think its own “investigations” are more meaningful; former cricketers are thriving in the role of holier-than-thou preachers; and several supposed fans of the game are sitting in glee, overcome with the I-told-you-so syndrome.  

But what will come out of all this? Some cricketers may be banned from the sport, a board president may be forced to resign, a few bookies may be held, and scores of fans may lose their faith in the format, and some in the game altogether. Most importantly, and worryingly, the basic foundation on which the multi-billion dollar fixing industry thrives will still be untouched. 

Betting is illegal in India, and hence the activities of the entire gamut of actors involved in this malaise fall outside of the scope of what the government can regulate. In the view of this writer, the legalising of sports betting in India is the best way forward. While it will not eliminate fixing altogether, it will go a long way in ensuring that the activity is not seriously damaging.  

Some argue there is a problem with the sport. Others opine that the problem lies with the IPL as a tournament, as it offers a glut of matches and involves a huge number of lesser players who are more likely to be financially gullible. Yet others claim the whole thing is only reflective of where is India as a nation – both in terms of rapidly growing wealth and in terms of a chalta hai attitude towards corruption.  

All of these arguments overlook the fact that in having a blanket ban on all betting activity in the country, India has created conditions that are ripe for black market betting. The IPL is merely the safest and most convenient vehicle for these activities. Legalising sports betting will help bring illegal betting syndicates to a near halt, and has other potential benefits. It will help bring accountability and ensure that large sums of money are not transferred through illegal channels. This can lead to a reduction in cases involving spot and match fixing and money laundering.  

According to the Federation of Indian Chambers of Commerce and Industry, India loses an estimated $2.1bn-$3.6bn in tax revenue through black market operations in sports betting. But allowing private betting operators and taxing them is just one model.  

The second model, and likely a better one, is to have a government-owned betting agency like they do in Singapore. Singapore Pools, the country’s only lottery and sports betting operator, is wholly-owned by the Singapore government. It is a non-profit making organisation that provides a legal avenue for betting, and channels all its surplus earnings to the benefit of the community. It is one of the largest grant-making organisations in Singapore today and supports hundreds of projects across areas such as social services, healthcare, sports, education and community development.

The intricacies will undeniably have to be modified to suit India’s vastly different requirements; but as a model that really works, one will be hard-pressed to find any better.

 

(This was a column published in The Himalayan Times on 2 June 2013).

What India wants

A very interesting picture revealing how Indians view their lives and the world has emerged from the results of a recent opinion survey conducted in India. The survey throws up some unexpected results, especially in terms of what they believe some of the biggest threats and challenges facing their country are.

 

Indians have a lot of expectations from their government, if the results of the survey — conducted by the Lowy Institute and the Australia India Institute — are anything to go by. However, there seems to be this huge gap between what the government thinks it needs to do and has done, and what people actually want it focus on.

 

Indians’ perceptions about threats to the country’s security are revealing. In sharp contrast to what this columnist (or several others) had assumed, Indians today believe that energy shortage is the biggest threat to the nation’s security, with 85 per cent of those polled believing so. One could be forgiven for having assumed that terrorism, extremism or external aggression from the likes of China and Pakistan would be the biggest cause of worry for Indians, but it is not. The next three big threats according to those polled were water shortages, environmental issues such as climate change and food shortages.

 

This is a remarkable sign, for it shows that a vast majority of Indians are most concerned about their own wellbeing and real issues that they are facing, as opposed to being driven by national pride and jingoism, or the forces that push these agendas. The threat of war, extremism and separatism could very easily have been seen as the biggest concerns expressed in a similar survey 15 years ago, but not anymore. Similarly, the threat posed by the Naxalite uprising, which has been on this administration’s agenda for the longest time now, is also not seen as serious a threat as energy, food and water shortages by a majority of the people.

 

This mindset is also reflected in Indians’ views on what are the most important domestic policy goals. Tellingly, 82 per cent of those polled believe that maintaining social peace and harmony was a very important policy goal, as compared to just about seven in 10 who believed the big task is to improve infrastructure such as roads, railways and electricity, or making the economy grow, or the protection of democratic rights. This is not to suggest these are not pressing issues, but people value stability and harmony more.

 

As India stands at an important juncture with general elections round the corner, these are important cues for the government as it looks to prioritise its objectives. Most people in the country are mainly concerned about the basic necessities in life. They want to live in an environment that is free of disharmony and disorder. Whilst there are obviously other concerns relating to security and other requirements in terms of policy goals too, it is clear that for now, Indians want their own houses and lives in order first.

 

It is not too much what the people are asking for. But first the government must acknowledge what it is that people are asking for.

 

(This was a column published in The Himalayan Times on 26 May 2013)

The sceptics have won

More than two months have passed since Khil Raj Regmi was sworn in as the head of Nepal’s interim government. Its singular mandate was to pave the way for another election to the Constituent Assembly by June 21. 

Regmi’s appointment of prime minister as a (largely) consensus candidate among the parties split opinion in the country, as most things in Nepal do. Some viewed it as an ingenious move of Bhattarai and the large political parties that could ultimately help resolve the rather longstanding limbo in the country. 

He was the Chief Justice and perceived to be a man of utmost integrity with no vested interests or political leanings. The move to appoint the Chief Justice as prime minister, certain legalities aside, was not without merit and offered a realistic possibility of getting things done. As a neutral of considerable public standing, Regmi was thought to be Nepal’s least bad choice for prime minister in the circumstances. Many alternatives had been tried, including a shambolic game of orchestrated musical chairs between the three key political parties, without yielding any results. 

Yet, his appointment had its share of sceptics. One kind, including this columnist, argued that his appointment could potentially create various conflicts of interest and scenarios that would become very difficult to resolve because the country simply did not have the mechanisms in place to address them. Were he to decide he quite liked his new title and post, there would be very few checks and balances on the power he enjoyed. Fortunately, his actions have largely been constitutional and not opposed to best interests of the country. 

The second bunch of sceptics believed that this was just an attempt by political parties to shift responsibility for the repeated failure to hold constituent assembly elections onto someone else. If anything, it would buy everybody more time and check increasing public discontent with the political parties. They believed from the beginning that the move to appoint the Chief Justice as the premier would only complicate things further and create another broker in a game that was already loaded with too many. 

The big doubt these sceptics have had is over the ability of chief justice — or any other institution of the state for that matter — to influence the ways and decisions of three big political parties. The political parties have refused to back down from their stated positions and the premier has been unable to set a date for the elections. An election that was supposed to be held by June 21 will definitely not happen by then and doubts are being cast over the likelihood of elections being held anytime this year. 

The political parties say they have still not been able to find common ground even after days of political parleys and meetings. Besides smacking of rather high levels of inefficiency, it is also hugely ironical that the parties want to arrive at common ground over everything before, rather than after the election. One would think the purpose of an election is for people to elect represent-atives who will stand for their different interests. Here, we are seeing a bizarre attempt by the political parties to go into an election with pretty much a common mandate. This is obviously beyond Regmi’s control. 

As we watch Nepal gradually become permanently interim, the sceptics have won. Yet again. 

(This was a column published in The Himalayan Times on 19 May 2013)

Recycling Capital

There is a buzz around venture philanthropy these days. It is an idea which, although developed almost a century ago, has only taken shape and obtained a structure over the last two to three decades, primarily in the West. It is now finally taking root in Asia, although it is still at a nascent stage.

There is an increasing focus on alternative models of development and an increasing acknowledgement of a few facts. The first is that most governments have neither the capabilities nor the means to meet social and economic development challenges on their own and hence, any help is beneficial.

Second, doling money out in the form of grants is not always helpful as is evident from the case of Nepal. Despite a few performance targets being put in place, the problem with grants still lies around the idea of accountability. Enterprises receiving grants are almost not accountable to donors. When there is a shortage of capital flowing into the lower end of the economy, there needs to be some degree of accountability to ensure that resources are effectively utilised.

Third, the other approach towards development has been that of loans. While bringing in a semblance of accountability, the issue with loans is that they often place a huge burden on the recipients who can struggle with the repayment terms.

In this light, venture philanthropy has the potential to play an important role. For starters, it brings greater participation of private capital. It is the idea that capital can be invested for philanthropic purposes, debunking the notion that only selfless giving can make a difference to the lives of others. Philanthropic investors also seek financial returns from their investment, but the capital they put to use will necessarily need to bring about some positive social impact. By actually investing in a business, investors retain a say in the management of the enterprise and hence, enterprises are made more accountable for the money they receive. Investors can also contribute to the success of domestic enterprises though providing technical assistance and helping train human capital.

For a nation as heavily dependent on aid as Nepal is, social venture capital funds or venture philanthropy funds can play a very important role in ensuring that small enterprises get access to capital they need. Gazaab Social Ventures, for instance, is one such organisation. The organisation seeks to create social entrepreneurs and to empower them economically such that they can help solve problems in their communities. There are other similar organisations in the country and the proliferation of the same could potentially reduce dependence on aid as it would bring more private capital into play.

The big challenge with venture philanthropy is finding the right opportunities to back, and subsequently, the right channels to exit enterprises once they have scaled. It is not as if there is no capital in Nepal – the big issue is not the unavailability of funds. Rather, it is that there are budding entrepreneurs cannot make use of capital markets to further their businesses. This is a gap that venture philanthropy and social investing can successfully fill.

Nepal already has a thriving non-profit sector focused on social activities. It is about time the pushed for something similar to focus on economic development. There will always be skeptics who will question the ethics of earning profits off social causes, but the importance here lies in scaling solutions and that is something that requires capital. What better way to do it than to have a model in place though which capital can be recycled?

(This was a column published in the Himalayan Times on 12 May 2013).