“NRB should have given at least four years”

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“NRB should have given at least four years”

Shiv Ratan Sharda is the Chairman of Sharda Group, one of the largest private industrial and trading conglomerates of Nepal. The Group has an annual turnover in excess of USD 150 million. Sharda is also an executive member of the Confederation of Nepalese Industry (CNI) and former executive member of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI). In an interview with New Business Age, Sharda shared his business Groups’s journey so far and expressed his views on many other issues. Excerpts

Sharda Group is one of Nepal’s biggest industrial and trading conglomerates involved in a wide spectrum of operations since 1970. How do you recall the group’s journey so far?
Sharda Group’s journey is not just four decades old; it is active for more than 60 years. Our first venture in the industrial sector was Pashupati Rice Mill which was established in Lahan more than six decades ago. Before that, my father and grandfather were small traders buying rice, jute, mustard seeds ect from villages.After Lahan, we set up rice mills in other places as well. Back then there was no rice mill in the Terai. Farmers or traders would go to India and sell paddy. So, my father and grandfather saw an opportunity and established rice mills at different places – four in Lahan, one in Rajbiraj, one in Golbazar, two in Siraha and one in Janakpur. We also started a khadsari sugar mill in Lahan but this project failed.

I came to Kathmandu some 40-42 years ago and got settled here; some of my brothers went to Biratnagar. Back then there was only one iron re-rolling mill in Nepal – Himal Iron Mill. So, we decided to set up a re-rolling mill of our own and established Everest Iron and Steel Industry in Biratnagar and another re-rolling mill named Hetauda Iron Industries in Hetauda. Then we entered the solvent extraction industry. Soon we started vegetable ghee manufacturing as well. Later, we set up an oxygen plant in Biratnagar. Then we set up a factory manufacturing wires and cables. Then we gradually set up flour mills, daal (pulses) mills, noodle factory, sports shoes factory etc. We also entered carpet manufacturing and export. Lately, we have entered cement production as well (Shivam Cement) where we have been able to sign agreement for foreign investment as well. Only about a year ago, we started manufacturing biscuits under the Goodlife brand. We have also set up a grain spirit factory which is basically aimed at displacing imports. We have also entered the hydropower sector. We are already involved in Ridi Hydropower and some other hydropower projects are in the pipeline. We are also present in three banks – Kumari Bank, NMB Bank and Sunrise Bank - as one of the promoters.

In Shivam Cement, we have invited a Chinese company (Hongshi Group) as a joint venture partner. The investment Borad has already given us the go-ahead. It will be perhaps the biggest joint venture of the country.

In the trading business, we import almost all electrical goods. Similarly, we have been operating an agency for Datsun vehicles. We are also marketing heavy equipment manufactured by Hyundai. Besides, we are also into the housing sector. We have already completed two housing projects.               
Leaving a project or two, almost all projects of your Group have been quite successful. What are the reasons behind this success?
Hard work, honesty and diligence are the main reasons behind our success. Another reason is most of our projects are joint ventures. We have a tendency to seek partners in areas where we do not have expertise. This, too, has helped us become successful.

Your Group, it seems, is quick to understand the market demand. This, too, must be a reason as well?
Maybe you are right. But projects still fail despite market demand. As I said earlier, most of our projects are successful because they are JVs.      

You talked about inviting Chinese investment in your cement factory. What is the latest progress?
The government has made certain commitments to us. If the government fulfills these commitments, then we will start producing 6,000 metric tonnes of cement a day within two and a half years. There are certain issues related with the environment and forest ministries. If these hurdles are addressed through a one-door policy, then there is no reason we cannot start production within two and a half years. Through this year’s budget, the government has announced that a cement project with foreign investment that can produce up to 3,000 metric tonnes of cement a day and has a limestone quarry from where at least 4,800 metric tonnes of limestone can be excavated has to be handled by the Investment Board.  However, as the Ministry of Environment is not positive, things have stuck.  IB has been allowed to handle joint venture (foreign investment) cement projects with the production capacity of up to 3,000 metric tonnes per day. But who will handle such projects producing 6,000 metric tonnes per day?

So, what are your expectations from the government?
The government has to set its priorities right. Hydropower and cement are two commodities which Nepal has the potentials to export. But the government hasn’t paid enough attention to this fact. Foreign investors should not be made to make rounds of a dozen government offices before they can start their projects in the country. There are some I/NGOs which exaggerate environmental issues. What we need to understand is the countries which are developed today wouldn’t have developed had they thought as much about environment as we do today. We visited the factories of our JV partner in China. In China, the government does everything when you want to set up an industry. It even relocates settlements without losing time. This is why today China produces 55 per cent of the world’s cement. 

Any plans to invite foreign investment in other sectors as well?
Nepal is not the only market for investors. Government policies are the most crucial factors for inviting foreign investors. Policies in Nepal are not very supportive of foreign investment.  Take for example the new constitution. It talks about establishing socialism. The mention of such words in the constitution could work to repel foreign investors. Instead of socialism, why couldn’t they mention free market economy? Foreign investors will ask such questions which we too are asking.

FDI will create employment, no doubt. But for FDI to come, the government through its policies should create the right environment. It requires political will as well.

Shiv Ratan ShardaIt’s been more than a year since you launched Goodlife brand of biscuits. How has been the market response?
Displacing import was also one of the reasons why we started biscuit production and launched Goodlife brand of biscuits. We know that several biscuit factories have been closed over the years. However, we believe that quality biscuits can be produced in Nepal itself and that helps reduce imports. That’s why we dared to launch Goodlife brand of biscuits. Our products have been successful. The market response is good. Consumers have liked our biscuits.      

Your group is also involved in banking. How have you taken the NRB’s directive to increase the paid up capital of commercial banks to Rs 8 billion from the present Rs 2 billion over the next two years?
It’s an old policy of the NRB to encourage mergers among banks. Former governors, too, tried to encourage mergers in the banking sector. That is why the paid-up capital of commercial banks was raised from Rs 1 billion to Rs 2 billion some years back. Mergers are not bad. Having bigger banks is a good thing, too. I am talking about mergers because for most banks merger will be the only option to meet the new paid-up capital requirement. However, I feel that the time period given to raise the paid-up capital is a bit short.

I understand that NRB has introduced this policy thinking that bigger banks will be able to invest in bigger projects. That’s not bad thinking. But mergers also face ego problems from the people running the banks. They seem to be worried about their positions in the merged bank. However, if a bank increases its paid-up capital four times, it has to increases its capacity four times. Increasing capacity four times means increasing profits four times, increasing investment four times and so on. Given the market situation, it will not be easy to increase investment four times within two years. That’s why I feel the NRB should have given at least four years to comply with the new paid-up capital requirement.          

How do you see the current business environment in the country? 
Talking about the environment, let me give you an example. It has been years since the Industrial Enterprise Act (Second Amendment) Bill was tabled in parliament. It is ready for discussion in parliament. But it seems nobody in the House has time to discuss economic issues. We have been focusing only on the new constitution for the past six-seven years. It would have been good for the economy if our parliamentarians would have managed some time to discuss the economic issues in the House. But that has hardly happened. Several governments have changed over the years, but it seems nobody has time to even think about the economic issues. It is unfortunate. Political and economic issues should have moved together. The ultimate goal of any political system is the economic development of the country.

The country is going to adopt federalism. In what ways could this affect trade, industry and business? Or there won’t be any effect?
Federalism is not a bad concept in itself. There are countries which have adopted federalism. But the case of Nepal is different. One, it’s not a very big country with just about 28 million people. There was no major problem in Nepal that would require federalism to be addressed. It’s a small country. But there could be unforeseen problems once the states are formed. Today, if we manufacture something in eastern Nepal, the product can easily be sent to the western parts of the country. What I am trying to say is a product manufactured in Morang can easily reach Kailali today. We don’t know for sure as to how many states will be formed in the country. Industrial products manufactured in one state will have to cross many states whose rules and regulations might be different. There could be various barriers. So we are suspicious and apprehensive. There could be a situation where the industry would be in one state, its mines in another state and the industry would be receiving electricity from yet another state. How to synchronize in such a situation? The centre should make sure that the products are taxed only once though they have to pass through various states. One state might say I won’t supply electricity to industries in other states. Similarly, another state might say the customs offices lie in our state, so we will take all the revenue collected there. Today we have to deal with one government. Once there is federalism, we will have to deal with 6-7 governments. 

Umbrella organizations of the private sector such as FNCCI, CNI and NCC made various suggestions for the new constitution. But it seems those suggestions have been ignored. What do you say?
Perhaps for the first time in Nepal’s history, representatives of all three major umbrella business organizations which you mentioned collectively met the heads of all four major political parties after the constitution draft was made public. We jointly made a number of suggestions to them. I was a part of this joint delegation and was present in the meetings with the heads of the four major parties. During the meetings, the chiefs of the four major parties reassured us that our demands will be addressed. I hear that they have tried to address one of our suggestions that there should be no representation of workers in the management of a company. But not much was changed. 

The constitution doesn’t see the need for foreign investment in hydropower. Instead it talks about encouraging domestic investment in hydropower. What do you say about this provision?
It is difficult to develop Nepal’s hydropower sector without foreign investment. The government should encourage both domestic and foreign investment in hydropower. Foreign investors give equity shares as well as free electricity. Most importantly, the ownership of such projects will be transferred to Nepal government after 30 years. This is not bad. I don’t understand why the constitution does not talk about encouraging foreign investment in hydropower.

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