For
several years now, entrepreneurs in Nepal have cried hoarse over the need for
greater foreign direct investment into the country. These years of effort on
the part of the private sector have been matched with years of inability on the
part of successive governments (whenever we have had one) in convincing the
world to seriously consider investing in Nepal.
The
intention to promote FDI is evident, but it has rarely been accompanied with
concrete steps to the same effect. For instance, one of the most seemingly
compelling arguments in favour of greater FDI into Nepal is its location
between economic behemoths China and India and its potential to serve as the
natural trading corridor between these two economies. It is an argument that is
often made, and yet, we have not really seen much being done to realise this
potential.
In
fact, the word ‘potential’ is perhaps the most commonly used word in Nepal’s
economic development lexicon today. And ‘hydroelectricity potential’ is
undoubtedly its most commonly used phrase.
Hydroelectricity
has been Nepal’s nearly industry for several years now. Far from servicing a
large part of India’s demand for power (as hoped for), more than half of all
Nepalese households today do not have access to electricity; and of those that
do, most don’t really see too much of it.
The
state of the hydroelectricity sector in Nepal today is both a cause and a
symptom of low levels of FDI inflow. The grossly inadequate supply of power is
a deterrent for any potential foreign investor looking to set up an industry in
Nepal. On the flip side, because there is such little foreign investment coming
into Nepal, the country’s hydroelectricity potential remains just that, and the
nation’s power woes continue unabated.
This
is just one example of the kind of challenge Nepal is confronted with. It would
be foolish to believe that with the kind of political instability, uncertainty
in the labour market and the poor infrastructure we see today, foreign
investors will be willing to take a risk investing in Nepal. It is hence
imperative for the government to create conditions conducive to the inflow of
capital. For too long, we have relied on ‘potential’ and have hoped – and even
expected –members of the global investment community to park capital in Nepal.
The results have not been flattering thus far, with just US$95 million of FDI –
equivalent to 0.5% of GDP – flowing into the country in 2011.
Different
approaches have to be tried now. The government could start at home, by
encouraging domestic entrepreneurs to invest locally with assurances of
stability in policy, and economic incentives. Increased economic activity
domestically is potentially the biggest catalyst for increased FDI inflow into
Nepal. Till such time Nepalese entrepreneurs themselves are not convinced about
investing greater sums of capital in Nepal, it would be imprudent to hope for
increased FDI inflows. Nepal is competing with several other late developers
for the same capital and it is essential to provide investors with compelling
reasons to invest, because potential is enough only to pique the interest of
investors, and not much more.
It
is true that Nepal’s leaders are simultaneously grappling with a number of
other challenges that some would argue are more pressing, but it is also worth
remembering that several of these challenges are of their own making. In trying
to resolve the continuing political crisis in Kathmandu, economic initiatives
have taken a backseat. As important as political consensus is, economic
development cannot be forgotten.
(This was a column printed in the Himalayan Times on 17 February 2013)
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