Sunday, March 25, 2012

Indian investment in Nepal

Here is a fairly detailed reporting on Indian investment in Nepal and troubles faced by Indian investors. The post below is adopted from an article in The Economic Times.

India Inc in Nepal: Has the political will to woo Indian investment come back?

Last month, Hindustan Lever subsidiary Unilever Nepal remained shut for two weeks after its workers put up demands related to pay hikes and more perks. The trade union, affiliated to the Maoists, had locked the factory gates to press for their demands.

The management could reopen the factory only after an assurance from Nepal's prime minister Baburam Bhattarai to a delegation of Unilever representatives and other business leaders of the Federation of Nepalese Chamber of Commerce and Industries (FNCCI).

But the consumer goods giant is not the first company to face a difficult terrain in Nepal. Back in November 2008, Colgate Palmolive India announced its decision to move out of Nepal and transferred its shareholding in the subsidiary to Nepal-based Everest Hygiene Products, for an undisclosed amount.

This followed unrest at the factory, with angry workers attacking the general manager on fears of job losses. The Colgate Palmolive subsidiary, which was set up in 1998, had been facing problems rising out of the decade-long agitation by Maoist insurgents and had discontinued production of toothpaste at its Hetauda factory, way back in 2005.

Troubled History

India Inc's journey in the Himalayan kingdom has, in fact, been a tortuous one. Surya Nepal, the ITC joint venture, which started operations in Nepal in 1986 and is one of the largest private sector enterprises there, shut down its garments factory in eastern Nepal following prolonged labour unrest last year.

Indian infrastructure giant GMR, which is part of a consortium setting up a 900-MW hydroelectric project in Nepal, also faced an attack at its project site by suspected Maoist militants while the Manipal group's medical campus in Pokhara was hit by a junior doctors' strike, last year.

Indian companies are present in various sectors in Nepal including infrastructure, hospitality, FMCG, electronics and education.

According to a survey by Federation of Indian Chambers of Commerce and Industry (Ficci), strikes, extortion and threat to life and property have hit Indian investors and the business community. Industries have also been badly affected by acute shortages of power and raw materials, the study found.

"The difficulties faced by Indian joint ventures in Nepal emanate in a large measure from the turbulent political developments in the country, especially since 1996, when the Maoist insurgency began. Some Indian JVs have had to close their operations," says Jayant Prasad, Indian ambassador to Nepal. Other challenges include poor power infrastructure and connectivity, high fuel costs and in some cases labour union action.

Time to be Upbeat?

But despite militant trade unionism and the onslaught of Maoists, Indian companies in Nepal enjoy big commercial and social advantages. And that is probably the reason why there are efforts within the business community on both sides to leverage these pluses. Indian managers and business leaders who have been in Nepal point out that it feels more like home than a foreign country. "The friendliness and warmth of the Nepalese people makes it feel like home.

A strong political resolve to allocate more priority to industry and use it as an enabler to solve the socio-economic issues is the way ahead," says Udayan Ganguly, Dabur India's business head for Nepal, Bangladesh and Sri Lanka.

For sure, the times are changing for the better. The Nepalese government has accelerated the process to integrate former Maoist guerillas as well as frame a new constitution. Business confidence is likely to pick up on the back of these steps.

Last week, Bhattarai, who is from the Unified Communist Party of Nepal (Maoist) summed up the new sense of confidence by stating at an Indo-Nepal business forum that "democracy plus hydropower equals the new Nepal".

Industry bodies in both the countries such as Confederation of Indian Industry, Ficci, FNCCI and Confederation of Nepalese Industries are taking steps to jointly address many of the problems faced by businesses in Nepal.

"Such partnerships will help domestic industry and MNCs and will also strengthen economic ties between India and Nepal. Often the problems they face are caused because of political reasons and can be addressed through long-term economic solutions," says Binod K Chaudhary, who is member of the constituent assembly and parliament of Nepal. He is a third-generation businessman of Indian origin whose family emigrated to Nepal from Rajasthan.

Still an Uphill Climb

With the governments of both the countries taking small steps towards encouraging cross-border trade and investments, Indian Inc is now more upbeat about Nepal. "The country offers huge potential and opportunity in many sectors including agri and food processing, hydropower, cement, education, travel and tourism," says Sanjiv Keshava, managing director, Surya Nepal.

For him, non-availability of a skilled workforce due to the extremely high migration from Nepal to South Asian countries and West Asia is another problem to be grappled with. Surya Nepal, however, is in the country for the long haul and is investing in a second factory and exploring the possibility of setting up a hotel.

There are signs of an improved business environment. Independent power producers were given survey licences for hydro projects for over 8,000 MW five years ago, following international competitive bidding.

Most of these licences are held by Indian companies. Even if licensing were to be granted to Indian firms for the development of between 1,500 MW and 2,000 MW, it could attract over $2 billion investments within a short span of four to five years.

But the Nepalese government has to do much more to fast-track steps to improve the investment climate. Foreign investments in Nepal have been low - a meagre $300 million in the past 25 years from India.

And that is 44% of the total foreign investments. Worse for Nepal, prospects for Indian JVs have improved in other neighbouring countries such as Bangladesh and Sri Lanka and Indian industry has a wider choice in the region. Just saying, "Swagatam, daju" may not help.

Business Register

ITC : Surya Nepal Pvt Ltd is an Indo-Nepal-UK joint venture, which started operations in Nepal in 1986. SNPL, a subsidiary of ITC Ltd, India, is among the largest private sector enterprises in Nepal.

SNPL's business includes manufacture and marketing of cigarettes and readymade garments along with garment exports. Their total turnover is over $100 million.

Dabur: Dabur Nepal Pvt Ltd was set up as an independent group company in 1992. The company reported a total turnover of Rs 525.47 cr in 2010-11 In 2010, the company faced raids by the Nepal government on allegations of stocking contaminated juice.

GMR: A consortium comprising GMR Energy Limited, GMR Infrastructure Limited (GIL) and Italian-Thai Development Project Co has signed a MoU with the government of Nepal, for developing the 900 MW Upper Karnali hydro electric project in Nepal. The plant is scheduled to be commissioned by the end of 2016.

In 2011, GMR's project site in Karnali was attacked, looted and a log cabin was torched.

Unilever: HUL has set up a subsidiary in Nepal, Unilever Nepal Limited (UNL), and its factory represents the largest manufacturing investment in the Himalayan kingdom.

The UNL factory manufactures HUL products such as soaps and detergents for the domestic market and exports to India.

Last month, Unilever Nepal remained shut for two weeks after its workers put up various demands.

Asian Paints: Asian Paints (Nepal) Pvt Ltd is the leading paint company in Nepal. The company started operations in 1985 in Nepal and has a manufacturing facility at Hetuada industrial estate with a capacity to manufacture over 8,000 kl of paints annually.

Manipal Group: Manipal College of Medical Sciences (MCOMS), Pokhara, opened in 1994 with an MBBS degree programme. The 700-bed Manipal Teaching Hospital (MTH), Pokhara was inaugurated in 1998 MCOMS is affiliated to Kathmandu University. The college is a collaboration between the Manipal Group and the Nepal government.

In 2011, the college was hit by a strike of junior doctors. The strikers, loyal to the Maoists, alleged pay disparity.