Hari Bhakta Sharma is President of the Confederation of Nepalese Industries (CNI), the apex organisation for Nepal's big industrialists, and one of the members of IBN representing the private sector. Sharma has been closely watching Nepal's economic performance and business climate for the last several years. Talking to IBN Dispatch, he shared his views, as an investor and leader of the business community, on Nepal's economic prospects and the challenges and opportunities for investment in Nepal.
As a leader of the Nepali business community, how do you assess the current economic situation and business climate in Nepal?
We have seen sluggishness and a host of difficulties in Nepal’s economy for a long time. A strong investment climate could not be established against that backdrop. However, the significant amount of remittances sent by our young migrants has kept our economy afloat, even during difficult periods. Our economy has been dominated by imports, which have pushed our trade deficit to an alarmingly high level. At the same time, our industrial production has remained nominal, compared to the goods we import every year. So our economy is bloated by huge imports, as we lag far behind in industrial production and technology. However, we have huge potential in many sectors of the economy, but have failed to attract the desired amount of investment. We have many things to do to establish our country as an ideal destination for investment. We are hopeful that the expected stable government will be instrumental in creating a favourable investment climate in the country.
What are the comparative advantages for investors to invest in Nepal?
I have not seen so many competitive advantages for investors in Nepal. But, it is high time that we managed to convert challenges into advantages. The biggest disadvantage in Nepal has been the political instability. Outdated policies and laws are still governing the business sector, making investment promotion very weak. We have huge potential in tourism, commercial agriculture, hydropower, and medicinal herb production and processing. To harness the potential in these sectors we have to ensure political stability, undergo massive legal reforms and ensure the development of quality industrial infrastructure. We are excited by the successful completion of elections for all three levels of government under the new federal set up. We are also hopeful that stable government in coming days will bring policy stability, which will clear the deck for industrial development, investment promotion, employment generation and infrastructure development. It is the right time for the government, private sector and people in general to demonstrate that Nepal is a business and investment-friendly destination. We should not lose this opportunity.
We have embarked on a fully-fledged federal set up with the successful completion of elections for federal and provincial bodies. As a leader of the business community, what would be your suggestions to achieve the desired economic development under the new state administration structure?
We have completed the political transformation phase. Now the time has come for us to focus on plans and strategies to achieve economic prosperity. The in-coming government should give high priority to creating a business and investment-friendly environment and carrying out legal and policy reforms. The government should formulate plans to establish at least one industrial zone in each province, linking them with strategic highways and upgrading industrial infrastructure at the regional level. The government should come up with a package of programmes integrating infrastructure development with investment promotion to keep our economy dynamic.
The governments in all seven provinces should identify their development priorities, as well as investment potential, and chart out a plan to promote investment by offering incentives to investors. Provinces that are liberal and investor-friendly will attract more investment and achieve more economic prosperity. We have examples in many countries where provinces that are welcoming to investors perform economically better than others that are not so favourable to investors. For the next few years, the provincial governments should focus on enhancing the confidence of investors, giving tax exemptions and other incentives. Investment cannot be promoted if the government concentrates on collecting taxes from business people. We are ready to offer our suggestions to support the government in formulating business and investment-friendly policies.
What are the problems and challenges facing Nepal's industrial sector?
We have a burgeoning trade deficit due to our weak supply capacity, compounded by slowed industrial production. The government should encourage investment by offering incentives to investors and carrying out legal, as well as policy, reforms to stave off the deepening unemployment and soaring trade deficit. We are strategically located between Asian giants – India and China – who can be great sources of investment and markets for companies operating in Nepal. We suffered a setback in industrial production and infrastructure development due to power shortages in the past. However, the utilisation of installed capacity has improved with the reduction in load-shedding since 2016. But our industrial infrastructure is weak, making the production and delivery of industrial goods costly, time consuming and difficult. Uncontrolled imports of goods have posed a threat to the survival of domestic producers, because we lack an equal playing field for business. The low productivity of domestic labourers is also hampering industrial productivity. In the past we could not sensitise policymakers, the political leadership and the common people about the significance of industrial development. Now the time has come to establish a collaboration among those forces to move ahead jointly for industrial development.
What should be the role of IBN in investment promotion?
IBN is a high-level government body mandated to promote investment, especially foreign investment. IBN should be strengthened as a one window service agency to provide effective services to investors in large-scale projects. The in-coming government should enhance the capacity of IBN to promote and facilitate investment for such projects in an effective manner.