Sunday, March 31, 2019

Few points on Nepal Investment Summit 2019 and the days ahead

Nepal Investment Summit 2019, one of the flagship events of PM KP Sharma Oli's government, ended yesterday. The two-day event was organized to showcase key projects in Nepal and to sensitize investment opportunities in Nepal. The IBN said there were 735+ foreign delegates representing 300+ foreign companies, 40+ countries, 600+ domestic participants and 100+ domestic companies.

The government highlighted what it considers key achievements to create a conducive investment climate: political stability, approval of legislation (PPP and Investment Act 2019, amendments to SEZ, forest and labor bills, hedging regulations, FITTA amendment, contribution based social security scheme, etc). Particularly,  the focus was on 'one-window service' for investment approvals either through IBN (Rs 6 billion and above, and 200 MW and above hydroelectricity projects) and DoI (rest of the investments). To improve budget execution, the government is planning to bring a separate law that allows the PM to directly oversee implementation of national priority projects.

The government and private sector showcased dozens of projects (about 77) for investors to invest in agriculture, education, energy, industrial enterprises, tourism, transport, and urban infrastructure. The application received for some of the projects are listed here. Here are the list of MoUs signed or announcements made during the summit (note that some of these projects were in pipeline already and would have happened irrespective of NIS 2019).
  • Chaudhary Group and Sharaf Group for the development of multi-model logistics park
  • Chaudhary Group and SkyPower for the development of 600-MW utility-scale solar projects
  • CG LifeCell and Turkcell for 5G Mobile Network Service
  • Province 2 govt and CG Infrastructure for the development of Solar Photovoltaic Energy
  • SAPDC (Sutlej Nepal) and State Bank of India, Everest Bank and Nabil Bank for financing 900-MW Arun-3
  • Yunnan Xinhua Water Conservancy and Hydropower Investment, Hydro Solutions and Shanghai Investigation, Design and Research Institute for development of 164-MW Kaligandaki Gorge
  • IBN, IFC and SEZ Authority for development of Simara SEZ
  • Sincere Consulting and Resources Himalaya Boutique Village Resort for development of Himalaya Boutique Village Resort (Banepa)
  • NRNA and Ministry of Industry for setting up of Rs 10 billion fund
  • National Collateral Management Services and Nepal Warehouse Company for development of Grain Ware House
  • FCAN and Myanmar Licensed Contractors’ Association for infra-development cooperation
  • Financial Closure of $650M for development of216 MW Upper Trishuli - 1 by KOSEP
  • Investment of Rs 399m by Muthoot Finance, India on United Finance
  • IBN and Investment Board, South Africa for mutual cooperation
  • Api Power and Kandel Group, UK for development of energy projects

Here are a few cautionary pointers for the days ahead:

First, it was a signature event of the government that is doing everything it can to present a case for high FDI in Nepal. Nepal organized similar events in 1992 and 2017. As is usually the case, everyone sounded optimistic and praised the government for actual as well as intended reform measures. The output will be seen when they transition from talk to action

Second, the real deal is on follow-ups and implementation. Having a law is one thing, but effective implementation with all the policy, regulatory and institutional frameworks in place is another. Both are important. Nepal has been really bad in the latter. Updating or amending a law is a regular task to ensure that the investment opportunities and provisions are safer and competitive than in other countries. This is a means to an end, not an end in itself. The IBN has allowed investors to apply for any of the showcased projects by April 20. Then the government will choose the most suitable investors and proceed with realizing the investment. This is where the most important task lies. Investors will compare the government's promises against the system in place for them to realize the promises. This means a true 'one-window service', hassle free approvals, policy consistencies, etc. Lets recall that the result from NIS 2017 is almost nil. 

Third, the private sector representatives were all optimistic about opportunities in Nepal and the ease of doing business. But, they are also the ones who have been complaining about difficult times and batting for cartel associations to control resources or to seize sectoral opportunities. Furthermore, rent-seeking among government agencies is not a new thing. 

Fourth, the government will have to sort out inconsistencies in laws or clarify that there are no inconsistencies. This matters because approval and implementation hassles crop up when there are ambiguities in laws. And, there are plenty of ambiguities related to layers of approval requirement, bureaucratic discretion, income repatriation, visa restriction, negative list, etc. Also, private sector is hesitant to join the contribution-based social security scheme due to the confusion over conflicting clauses in the amended labor bill. 

Fifth, the apparent discord between the IBN and Minister of Industry, Commerce and Supplies was visible during the event too. The industry minister is not happy with the way the ministry was sidelined during the summit. Also, he has differences with the PM regarding IEA amendment. This is what breeds failure of inter-ministry coordination. 

Sixth, since IBN is taking the lead on these events, we also need think how sustainable the efforts will be given that most of the staff it has now are temporary consultants hired through an external firm (with donor funding). There needs to be an exit strategy for active donor support for recurrent spending. The government should build internal institutional mechanism with reliable revenue stream to retain and sustain experts based on the need. IBN is so reliant on donors that over 90% of its budget and staff requirement (without any O&M survey as is customary in government agencies) are fulfilled through non-government sources. What is the financial and institutional sustainability plan of IBN? It is especially important now because of its increased workload (investments over Rs6 billion and PPP work) and concerns about accountability. 

Seventh, the biggest challenge is in transforming the bureaucracy's mindset from problem-pickers to problem-solvers or facilitators. Investors repeatedly complain about the hassles they face when they have to deal with bureaucracy, which is quick to identify problems rather than to solve outstanding issues to facilitate investments.

Eighth, doing business rank may bump up this year considering the fact that the government amended major investment laws to ease approval processes. Of course, this presupposes other countries haven't made equally or better amendments to facilitate investment. Implementation aspects are not well reflected in DB rankings. 

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