It was published in The Kathmandu Post, 07 March 2019.
Inviting foreign investments warrants the right time and the right audience
Based on content, commitment, and coherency, Prime Minister KP Sharma Oli’s speech during the recently concluded Kantipur Conclave was probably one of the best speeches delivered by him on issues pertaining to the opportunities for and suitability of the country for foreign investment. Many viewed it as a rehearsal for the Nepal Investment Summit scheduled for March 29-30. The prime minister’s impassioned appeal to investors came at a time when foreign direct investment is decreasing, concern over the actual policy direction of the communist government is growing, attack on foreign-owned investment assets is intensifying, extortion of businesses is ratcheting up, and fiscal, financial and external sector stresses are increasing.
PM Oli stressed that the government has a clear vision, steadfast commitment, and result-oriented action plan to achieve its overarching goal of becoming a middle-income country by 2030. He made a case that the country has the right attributes for development: natural resources, stable system and institutions, sound and clear policies, young hardworking population, favourable external environment, and a government singularly focused on achieving prosperity within a short period. Additionally, he laid out broad sectoral priorities such as agricultural transformation, hydropower generation and transmission, infrastructure and human capital development, tourism, manufacturing, and ICT, among others. He assured foreign investors of secure opportunities and profitable investments and invited them to bring in money and technology. The content and setting of the speech were perhaps more suited for the summit in Davos—where he spent more time lecturing how the media should operate than making a pitch for investment in Nepal—instead of a conclave where experts deliberated on the ways to unleash the country’s potential.
Right message
Nevertheless, such an open-hearted commitment to welcome foreign investment in almost all sectors and to amend laws and regulations to facilitate investments by a chairman of a ruling party whose ideology is grounded on socialist distributive principles is always positively noted by investors. PM Oli even solicited advice from investors to improve the investment climate and to eventually establish a signature product that can be identified with Nepal (similar to Toyota with Japan, Ali Baba with China and Infosys with India).
Investors are always looking for concrete signals from the top leadership on improving investment regime and in the security of their investment and assets. Now, other ministers—particularly, finance and foreign affairs ministers—and officials from investment promotion agencies need to categorically explain to investors what PM Oli meant in the speech and what the government has in store to realise the commitments made. Unfortunately, instead of elaborating more on the broad areas touched upon by the prime minister in his speech, the ministers and officials are pretty much narrating the same thing repeatedly. This shows a lack of homework on their part.
For instance, if the prime minister is committing sweeping changes in investment laws and regulations, then the ministers and government officials need to explain what exactly they are, how they are different from the past and from what other countries have, and how the government is going to execute them. This specificity is missing amidst the self-gratifying banal talk on improved political stability and a new federal setup. These are means to an end, not an end in itself.
Investors will pay serious attention to the commitments made by the prime minister only if the ministers and officials representing investment promotion agencies clarify the vision and lay out a credible roadmap to achieve the vision. This should include the key pillars as well as enabling factors, and an implementation plan that departs from the past and is more credible and competitive than what other competing economies have. Importantly, the pitching needs to vary according to the audience.
Right audience
First, it is important to identify the right audience and know their interests and concerns. For instance, multilateral institutions have a mandate to not only invest but also to work on improving legal, regulatory and institutional capacity so that it ultimately facilitates greater private sector investment. Bilateral institutions such as EXIM banks and development agencies are interested in strategic projects rather than sectors and ideally want procurement tailored to their country’s interest. Meanwhile, private sector investors are interested in profitable projects without cumbersome regulatory compliance and bureaucratic hassles. An investment summit should be targeting the last category of investors, as the first two will not require much coaxing anyway. Furthermore, the summit should also target the financiers (such as the large private sector investment banks from the West and from the neighboring countries) and analysts who shape opinion about a country’s sovereign and investment risks.
Second, investment pitch should be simple and to the point. Hackneyed remarks on political stability, changes to laws, and investment security alone are not going to cut it. Specifically, investors like to know what is different now and how is it going to positively affect their return on investment and security of their assets. Ministers and officials need to categorically explain the solid legal basis to shield their investment from ad hoc bureaucratic or political or policy or licensing overhaul and guarantee unhindered access to internal and external markets. Note that the investors’ confidence is eroding due to the government’s meek response after the violent attack on a foreign-owned mobile company and a large hydropower project.
Third, they need to lay out why this is the right time to invest in Nepal. For instance, we have a rising middle class with increasing disposable income and a liberal trade regime with India that allows comparatively greater and easier access compared to regional rivals.
Fourth, investors love policy surprises and big announcements during such summits. For instance, moving on from the past tendency of incremental reforms to transformative measures such as generous tax regimes compared to other countries, special committees to address grievance, a strict norm to follow timelines, easier visa and work permit regime where necessary, ease in earnings repatriation, guaranteed access to enabling infrastructures such as electricity and roads, and enhanced security provision are some of the popular measures.
Finally, a proper process to follow-up on commitments made to investors is also important. We have been notoriously bad on this front.
