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).