Tuesday, November 13, 2018

Nepal Investment Summit: Rhetoric vs Reality

It was published in The Kathmandu Post, 12 November 2018, p.8

Tangible outcomes must be met before holding the next Nepal Investment Summit

The government is planning to organise an investment summit around March 2019 despite having nothing much to show since Nepal Investment Summit in March 2017. The Investment Board of Nepal (IBN), which is spearheading the idea of organising the summit, wants to boast about the government’s ‘stable politics’ and investment policies, especially after the elections. However, this rhetoric means nothing to investors if the government cannot show them tangible outcomes that would facilitate investments in ways that are different from previous years.

Organising a grand summit for fleeting fanfare does not constitute promotion of the country as an investment destination. Investors will be more interested in concrete accomplishments since the last summit, the government’s promises vis-à-vis its pro-activeness in amending and implementing legislations, and the resulting number of successful commercial deals and projects signed. Or else, it will simply be yet another summit that leaves us with little more than photo-ops, self-glorification, and never-ending commitments.

Little progress

Investors from seven countries signed letters of intent to invest US$13.5 billion-in sectors including hydropower, airlines, tourism, agriculture, railways, and infrastructure-during the investment summit in 2017. About 61 percent of it came from Chinese investors.

The summit in 2017-organised to promote Nepal as an investment destination for the next decade-targeted diplomatic missions in the country, current and potential foreign investors, media, nonresident Nepalis, experts, and private actors. The hype before the event and the rousing fanfare immediately after the investment commitments were made tapered off in no time. The investment promotion agencies have not been successful in transitioning from intent to commitment to investment. Although the summit had broad political support, the IBN has failed to do the required follow-up work with the seriousness it deserves. All we are getting is bureaucratic lip service. 

Let’s look at the outputs thus far. First, foreign direct investment (FDI) commitments increased from 0.6 percent of gross domestic product (GDP), or about Rs.150 billion, in 2016/17 to about 1.9 percent of GDP (Rs556 billion) in 2017/18. However, none of the investment commitments in new projects can be traced back to the investment summit in 2017. Meanwhile, actual FDI investment increased from 0.5 percent GDP to 0.6 percent of GDP over the same period. Again, none of these are even remotely related to the investment summit.

Second, one of the main points trumpeted by the IBN to justify the new summit is that the time is different now. Yes, the two big communist parties forged an alliance, forming Nepal Communist Party, and formed a majority government not only at federal level, but also provincial and local levels. However, this alone is not a harbinger of political and policy stability. The previous summit had support from the same political parties and politicians. The co-chair of the ruling party was the prime minister during the investment summit last year.

Third, a cosmetic change in government leadership but not in governance style that produces promised outputs does not mean much to investors. They are interested in whether the government is keeping its promises in a timely manner, and how easier it is for them to invest, earn and repatriate income. There is hardly anything to show on this front. The previous summit was tagged as an effort to promote Nepal for the next ten years. However, after just two years, devoid of any commendable result, the IBN is proposing for a new investment summit. It does not send a good signal of consistent leadership with concrete vision and viable work plan. Furthermore, inconsistencies, especially policy reversals to benefit a particular group of investors, unnerve genuine investors. For instance, the controversy over re-awarding Budhi Gandaki project by the cabinet to a foreign firm with a questionable record in Nepal is a case in point.

Fourth, latest global reports that track the progress of our economy relative to itself and to other economies are not encouraging either. Nepal ranked 109 out of 140 economies in the Global Competitiveness Report 2018, which evaluates an economy on a range of factors such as institutional quality, state of infrastructure, business dynamism and innovation capability. Nepal’s rank was 108 in 2017 but it slipped by one position to be the least competitive economy in South Asia. In terms of enabling environment such as institutions, infrastructure, ICT adoption, and macroeconomic stability, Nepal’s relative standing is not encouraging.

Similarly, Doing Business Report 2019 indicates an economy that did not make any progress in making business operations smooth and hassle-free last year. Nepal scored 59.63 (rank 110 out of 190 economies), lower than 59.95 last year, indicating that doing business, in fact, was made burdensome. Nepal fares notably low in enforcing contracts, resolving insolvency, getting credit and paying taxes.

Simplify process

The overall outcomes since the last investment summit are not encouraging at all. The economy is not agile and future-ready enough to entice investors. It doesn’t even have basic infrastructure and proactively supportive institutions to create a foundation for enhancing productivity. Instead of wasting time and resources on another investment summit, the IBN should do the necessary to follow-up on the investment commitments made during last year’s summit. Meantime, the government should be doing the needful to develop a conducive legal and regulatory framework to attract more FDI, starting with approval of foreign investment and public-private partnership legislation.

The next five years should be marked by notable progress in reducing barriers to doing business in Nepal: aiming for the best investment destination by ensuring speedy clearance of investment proposals, requiring the lowest number of documents to enter, operate and exit the market, and making bureaucracy and government leadership the most efficient in South Asia region. Boasting about these tangible milestones is more meaningful than just claiming political stability under the communist leadership, which is already vulnerable to a resurgence of factionalism within the party. 

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