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).