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).