Mr. Shekhar Golchha is the president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), a representative body for Nepal’s private sector. Mr. Golchha, who is also the promoter of Nepal’s leading business house – Golchha Organization, is closely watching the current economic performance of the country. Talking to IBN Dispatch, Mr. Golchha delved into the role of the private sector in boosting investment and generating employment in the country. Mr. Golchha holds a firm view that Nepal’s private sector is capable of contributing to the national economy as desired by the 15th Plan of the Nepal government. He stated that the high cost of doing business is the key underlying reason for reduced attraction in industries.
As the leader of Nepal’s private sector representative organization, how are you assessing the impact of Covid-19 on the overall private sector?
The Covid-19 problem emerged abruptly across the world. Nepal is naturally not immune to the pandemic’s effect. Consequently, our overall economy contracted significantly. Various reports suggest that industrial production came to a halt leaving tens of thousands of workers jobless during the lockdown and travel restriction period. Now, the economy is recuperating with improved economic activities. We are in a position to attain better economic growth this year compared to other economies.
The 15th Plan envisages 55.6 percent of the total investment coming from the private sector for Nepal’s graduation into a middle-income country by 2030. How can our private sector make the desired contribution?
Foreign investment and domestic private sector investment are both essential to meet our development targets. Our private sector is capable of making the desired investment to upgrade Nepal to a middle-income country by 2030 as envisaged by the 15th Plan because the Nepali private sector has successfully dealt with many adverse situations and showed its risk-taking ability. This capacity of Nepali business people has greatly helped them overcome past crises. The private sector also showed its resilience during labor problems, acute power shortages, and other problems in the past. However, there are still some problems in developing the private sector in Nepal, especially the industrial sector. If such challenges are properly addressed, the Nepal private sector will be well-prepared to contribute higher investments as envisaged by the plan.
Nepali business people are more interested in the service and trading sector than industries. What are the factors that are making investments in the industrial sector less attractive?
A few years ago, the contribution of the industrial sector to gross domestic product (GDP) was up to 20 percent. If we exclude the mining sector, the share of this sector to our GDP is now below five percent. Trading has emerged as a major driver of our economy, backed by a spike in remittance-boosted consumption. Nepal’s private sector is also profit-oriented like its counterparts in other countries. The private sector has both profit-making motives and a risk-taking appetite. Until and unless we resolve outstanding industrial problems, only a few businessmen will prefer this sector. More business people will switch to this sector when the government comes up with favorable policies to ensure better returns.
We must analyze a few aspects that are pushing up the cost of doing business in the industrial sector. First, the acquisition of land required for any industrial venture is difficult to achieve. Second, a higher logistic cost for transporting raw materials and finished goods also weakens the competitive edge of industries. The third reason is higher labor costs. As per a report of the International Labor Organization (ILO), our labor productivity is the lowest in Asia while wages are far higher. Fourth, the cost of energy is also higher which has discouraged industrial investors. Energy costs here are higher than in India and some other countries. Fifth, the interest rate on credit is also high and volatile, a situation that weakens the confidence of private investors. The above-mentioned factors are responsible for reduced attraction towards the industrial sector leaving this sector to be a low performer over the last few years.
Foreign direct investment (FDI) is vital for economic prosperity. However, some business people are against FDI in certain sectors, why?
For over a decade, we witnessed an average GDP growth below five percent. To boost our economy, we have no option but to promote FDI. We always welcomed FDI recognizing its significance to the economy. Foreign investors are also making handsome returns from their investments in Nepal. Our private sector has also got an opportunity to penetrate into this FDI-ecosystem. We are only demanding that the government offer incentives to domestic investors at par with foreign investors. We are against the special treatment of international investors, discriminating against domestic businesses. Private sector people are demanding that the government not allow FDI in the agriculture and dairy industry, where a big network of farmers is existent. Such crucial networks and production-supply ecosystems will be broken with the entry of foreign players, we are for blocking FDI in such critical sectors. And FDI should come in the form of cash, not through credit or bank guarantees.
You have recently assumed the responsibility of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) president, what are your major priorities for your tenure?
It is clear that our country cannot materialize our dream of prosperity without collaboration with the private sector. The private sector needs recognition and should be trusted by the state accordingly. The private sector is still deemed as mere profiteers. We want to make a profit in a dignified way. In the name of market monitoring by the government officials, we are defamed from time to time and such acts have disrespected the whole provide sector. On the one hand, we dream for prosperity, on the other hand, we don’t respect the private sector, which is the real agent of prosperity. To clearly define priorities and problems in the economy and ways to achieve economic prosperity in the country through the active involvement of the private sector, we are formulating a vision paper. This vision paper will mainly focus on three sectors – industry, service, and agriculture. The formulation of the paper is my top priority. The paper will outline the requirement of investment, existing challenges in the development process, lessons learned from other countries, and ways to resolve these problems and challenges. The vision paper will show the way to achieve double-digit growth and generate employment opportunities for more than 400,000 people each year within the country. Our vision paper covers the vision of the private sector to lead the economy in five or ten years outlining key priorities. Policymakers are aware of the problems and some of them have been resolved as well. However, issues of small and medium enterprises (SMEs) are still put on the back burner. In the vision paper, we are also aligning different commodity associations and district chambers and prioritizing SMEs, which are the backbone of our economy. Besides this, I have put the institutional development of FNCCI as a top priority.
How can we enhance our supply capacity in the national and international market to contain our trade deficit?
The trade deficit is one of our biggest challenges. It will invite an alarming situation if we continue to depend on remittances that have so far been stimulating consumption. Hence, we need to boost domestic production to offset imports and enhance our supply capacity. Our upcoming vision paper spells out these issues and challenges the industrial sector is facing and provides ways to increase exports.
If you are asked to suggest five transformative projects in Nepal, which ones will you pick?
Hydropower is the most vital sector that offers high-value addition and a competitive advantage for Nepal. Agriculture is another critical sector that holds huge potential to be transformed into a profit-based component of our economy. Until and unless the farmers prosper, the country will not achieve prosperity. Profit-based farming leads both farmers and the country to prosperity. If we establish a fertilizer industry in the country, we can achieve a major turnaround in the agriculture sector. Commercial mining and food processing (organic tea, coffee, Jumli Marsi) can also be crucial drivers of the economy. Similarly, engineering, especially metal engineering, and hydropower engineering, is a high potential area that can significantly contribute to the economy.
You are a promoter of a vehicle assembling plant for the production of two-wheelers and three-wheelers in Nepal. How can an assembly plant contribute to the national economy? What is the prospect of Nepal becoming a manufacturer of vehicles?
Any automotive industry begins with an assembling venture. Once the assembling industry becomes robust, ancillary industries will grow and ultimately are destined to become vehicle manufacturers. India and China, which are leading automotive manufacturers, also passed through a similar phase and now they are international players in the automotive market. Encouraged by their positive experience, we opened a state-of-the-art assembling venture in Nepal. The venture, which has been producing 300-400 vehicles/day, employs more than 500 engineers in addition to other staff. We are in the process of building backward integration for it with the plan to produce at least 30 percent of its components within two years, offering job opportunities to at least 2,000 more people within the complex. It will also pave the way for the development of other ancillary industries.
How can we enhance the capacity of the Investment Board Nepal (IBN) which is the apex body for investment promotion and facilitation?
We have seen a number of positive initiatives in investment promotion and facilitation following the inception of IBN. We are also witnessing the gradual growth of FDI in Nepal as a result of fresh initiatives. However, we have a long way to go to enhance our capacity to attract more investment. We need to improve our service delivery and facilitation functions. As envisaged in IBN mandates, a one-stop service (OSS) must be effectively implemented. Two investment summits were organized in Nepal for FDI promotion. Now, we need to showcase ready-for-investment projects to potential investors so that they can directly choose projects for investment. We have high hopes for IBN in FDI promotion. ♦