The Covid-19 pandemic has translated into a global economic crisis and a developing country like Nepal finds itself surrounded by unprecedented economic headwinds. The lockdown imposed by the government to stop the spread of coronavirus has aggravated the crisis with the economic engine of the country coming to an abrupt halt and all sectors of the economy being hard hit by the global health emergency. The government has eased the lockdown but the economic activities are yet to gather momentum after months of severe disruptions. The Nepali private sector is currentlyin a state of dismay with the inadequate response of the government. Shekhar Golchha, senior vice president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) thinks that the recovery will be slow with the clouds of uncertainty hovering over the economy like never before. In a conversation with NewBiz Editor Mukul Humagain, Golchha talks about the government’s response to the crisis, relief measures announced in the Federal Budget, current and future challenges to the private sector, the outlook of economic recovery and FNCCI’s upcoming election, among other issues. Excerpts:
The Covid-19 pandemic has created an unprecedented crisis the scale of which has been very different for us compared to the past crises. How are you as a private sector leader and a businessman handling the situation?
The Covid-19 crisis is unlike anything we have ever experienced. There are a few role playing factors in this regard. First is the magnitude of the crisis. Generally, the daily economic transactions in Nepal amount to Rs 10 billion which slumped to Rs 1 billion during the lockdown. Losing 90 percent economic transactions on a daily basis for around three months will certainly impact the country’s economy for a long time. The lifting of the lockdown or easing of restrictions can help to recover the losses to some extent, but there are high chances that the large portion of the losses won’t be recovered. Remittance is expected to drop by 20 percent which will put pressure on the government’s current account further weakening the economy.
In the past, people used to express their concerns over the situation of employment in Nepal. But the concerns were about sluggish employment generation in the country and not the absolute crisis in the global job market currently being unraveled by the Covid-19 pandemic. The government was mostly free from the pressure to generate employment as some five million youths had gone abroad to work and no unrest ever occurred demanding jobs within the country. The private sector for a long time had warned that sluggishness in employment generation would lead the country to disaster in the future and the government had also agreed to this argument. Nevertheless, very little was done to create jobs. It is because we were adhering to a convenient formula that the high inflow of remittance would continue to go uninterrupted to boost consumption enabling the government to easily sustain its recurrent and capital expenditures. Living in this comfort zone made us complacent towards the future prospects and risks.
Now a huge shock has occurred all of a sudden shaking the very foundations of Nepal’s economy. 500,000 Nepali youths are returning to the country after losing their jobs abroad. Similarly, 500,000-700,000 people working within the country,majorly in sectors including, tourism and hospitality, transport and also in manufacturing, are at risk of losing their jobs imminently. Besides, the 500,000 youths who enter the job market every year won’t be getting any work. It will take a monumental effort to manage some 1.5 million jobless youths in the country. For the first time the government has to face a challenge related to employment of this magnitude. I suspect the frustration of the youths we’ve seen on the streets over the last few days will intensify in the coming days. In the meantime, the social fallout of the crisis will be very huge for us. The Covid-19 crisis has shaken the comfort zone we’ve been living in for a long time. Overall, I see a very rough road ahead for Nepal. It is not that our economy won’t rebound, but the revival will be much slower than past recoveries.
Now the government has eased the lockdown, how do you think will the recovery move ahead? What hurdles and challenges are there on the road to economic recovery?
It has to be understood that lockdown was/is not the solution to the current problems created by the Covid-19 pandemic. The rise in Covid-19 cases in recent days in Nepal has shown that the lockdown has not helped to stop the spread of the deadly pathogen. Lockdown has only proven as a means to postpone our problems to buy more time in strengthening our public health infrastructure, managing quarantine facilities and repatriating Nepali citizens stranded abroad. In this respect, whether or not the government worked efficiently is another topic for argument. But the main thing here is to see how effective the crippling measures such as lockdowns have been to control the spread of coronavirus. A country like Nepal remains in the high risk zone in terms of contagion. It is because over five million of its citizens are working abroad and about 700,000 – 800,000 foreign nationals are working here. There will be a significant movement to and from the country during turbulent times like the present and the risk of contagion will increase.
We now need to analyse the comparative advantages and disadvantages of the three-month long lockdown. The risks that will come upfront after coming out of the lockdown should be evaluated. It has been predicted by the World Health Organization (WHO) and health experts that Covid-19 transmission in Nepal will peak by August with cases reaching to 50,000-75,000. We need to be mentally prepared to face this situation, follow health safety standards and move along with our daily activities.
The government has eased the restrictions in the last month of the current fiscal year. This has presented additional challenge as we are required to clear tax dues, pay installment of bank loans and manage other liabilities besides making an effort to recover months of losses. Furthermore, the monsoon has arrived, and it will be difficult for businesses to recover for the next two months due to the rainy season. I can think of a ‘V’ shaped recovery in a few areas, whereas it will be a ‘U’ shaped one for a lot of other sectors.
The government has been sharply criticised for its handling of the Covid-19 crisis. What big misses on the part of the government did you see?
In hindsight, there are six big misses on the part of the government. First, managing of quarantine centres and enhancement of health infrastructure was poor to cope with a health crisis like this. Second is allowing people returning from India without PCR tests to enter Nepal. Third, extending lockdown frustratingly for such a long time without any plan ‘B’ was itself a disaster. Fourth, the management of domestic migrant workers within the country was bad as many found it hard to travel from one part of the country to another during the lockdown even though avoiding a situation like in India where it has been a catastrophe. Fifth, non-engagement of the private sector in Covid-19 testing and treatment; it could have helped tofillthe gaps inthe government’s Covid-19 medical responses.
The sixth one which I feel strongly about, as it is very sensitive, is the plight of migrant workers who are stranded in foreign lands. As per the existing arrangements, the government charges migrant workers some fees while providing them permits to work overseas ensuring that they will be rescued in times of difficulties.It is the sole duty and responsibility of the government to rescue and repatriate those who are stranded abroad, conduct their Covid-19 testing, keep them in isolation facilities and transport them home at its own expenses. This should have been the topmost priority for the government. Ironically, the biggest failure has been in rescuing the remittance senders whose labour is a lifeline for our economy. There is a big question mark over why the government has not mobilised the fund which is said to be Rs 6 billion collected from migrant workers.
FNCCI’s response to the relief measures announced in the Federal Budget for FY2020/21 was more critical than other private sector bodies. What made you say that the measures announced in the budget do not form a stimulus package ?
FNCCI had already provided a general view of the situation and suggestions to address the problems being faced by the business community. This is no ordinary budget as it was announced under extraordinary circumstances and we have hoped that the government would seriously pay heed to our suggestions. The 7 percent economic growth rate target set for the upcoming fiscal year in the budget is unrealistic as the recovery will take a long time. Second, the Covid-19 pandemic is not only a public health emergency, it has also created an economic crisis and it requires huge government investment to respond to the economic impacts. The responses announced in the budget in this regard are not adequate. For instance, we have suggested the government to come up with a stimulus package equaling 5 percent of the country’s GDP. We have also suggested distribution of food materials and cash to the needy population to increase the aggregate demand in the market gradually moving the economy which came to a grinding halt due to the lockdown.
In the meantime, the government announced measures equaling 4 percent of GDP. Several of our demands such as a refinancing programme and other measures have been incorporated. Nonetheless, the reliefs announced in the budget have come in a very scattered manner. Many programmes that were already in the government pipeline have been included in the relief measures. So we have doubts on the level of relief the budget will actually provide to the crisis mired business sector.
Refinancing, lowering of bank interest rates, discount on demand charges of electricity, changes in some tax rates are some positive aspects in the budget. But our demands to lower the electricity tariff by up to 20 percent for the manufacturing sector to boost industrial productivity and a much wider tax relief have not been addressed. Similarly, pressing issues related to workers have also gone unaddressed.We have not been able to bring workers back to work because of a confused policy.
The budget is ambitious in terms of revenue collection and economic growth target. Likewise, Nepal’s relatively low debt-to-GDP ratio, which provides big headroom to borrow foreign and domestic loans and print more money, and other alternatives, also, weren’t explored.
Can the upcoming Monetary Policy fix some of the issues that the budget has not addressed?
First, the lending interest rate should be lowered to 2 percent; the parameters set for commercial banks should be made flexible to lower the base rate which would reduce lending rates. Second,the central bank needs to modify the refinancing programme so that the fund is also accessible to small and medium enterprises (SMEs). Third, there should be an arrangement in place to restructure loans without any additional bank provision and collateral.
Traditionally, our financing has remained collateral-based; we have the world’s highest collateral-to-loan ratio. In today’s world, financing should be risk-based and project-based. The current crisis has provided us an opportunity to make a departure from traditional financing. Entrepreneurship in the country will flourish if financing is risk-based and project-based.
The Covid-19 crisis is causing levels of distress to grow between employers and workers as both sides are showing no signs of budging from their positions in terms of salary payments. How can this issue be resolved?
We have proposed to pay 100 percent salary to workers of industrial enterprises who come to work and 50 percent to those who are unable to come to work. But after the government directed us to pay 100 percent salary to all, workers stopped coming to work altogether. This has forced us to pay extra money to workers to run industries increasing the production cost and ultimately resulting in a price hike of essential goods in the market. We have raised this issue twice in the meeting of the Labour Coordination Committee. We strongly believe the government needs to revise the directive to pay full staff salary during this time when businesses themselves have been victimized by the economic downturn. Unilateral decisions like this create misunderstanding between employers and employers and distort labour relations which have improved noticeably in the recent few years.
The government has announced to deposit the monthly 31 percent Social Security Fund (SSF) contributions on a soft credit basis to the employers. Currently, only a small portion of the 1.5 -1.6 million organised sector workforce has been registered at SSF till date. So, the government announcement will only provide relief to a small number of formal sector workers. I hope the issues related to staff salary will be resolved to some extent soon. Together with the World Bank, the government is working to launch a programme to provide a one year interest-free loan worth three months ofthe salary of workers. We have also received a draft of the policy and are working on it.
The sharp rise in joblessness within the country and high number of foreign returnees due to the Covid-19 crisis will only exacerbate unemployment in Nepal. What suggestions do you have?
Of the Rs 800 billion Nepal receives yearly as remittance, Rs 400 billion is sent back home by 900,000 foreign nationals working here. We now need to find ways to replace the foreign workers with our workforce. It is estimated that 50,000-70,000 Indians are working as barbers in Nepal. Similarly, almost 100,000 Indian workers are said to be working in the jewellery business. Besides, most of the construction sector labourers are from India and technicians such as electricians and plumbers here are from the southern neighbour. It is high time that we also start finding ways to remove the social stigma attached to certain jobs.
SMEs, who are actually the drivers of our economy, are complaining that they have been ignored by major private sector bodies during the current crisis. What do you think are the ways to revive SMEs?
Currently, SMEs are facing problems in cash flow management. We have been working to make the fund accessible also to SMEs after the central bank introduced the work procedureof theRs 100 billion refinancing fundwhich was announced in the Federal Budget. Accessing loan on 5 percent interest rate will reduce the cost of operation and help them to maneuver in this difficult time. The interest-free credit programme I mentioned earlier will be launched keeping SMEs in focus. Similarly, the debt restructuring for businesses has included SMEs. Meanwhile, the flexibility in organisational adjustments and restructuring to employ and layoff staff during difficult times that we’ve been lobbying for will also be helpful for them as well. The reduction in demand charges of electricity will also benefit SMEs despite the fact that it is an issue related mainly to big industries.
The problems being faced by SMEs are mostly related to regulatory issues such as renewal charges, inspection and fines, among others. Besides, they also face challenges in access to finance and market, information and technology. I have some plansfor SMEs which I want to implement after I become the President of FNCCI.
The Covid-19 pandemic has altered the way we continue our daily lives. As a business house which emerged from agribusiness, do you see a revival of the agricultural sector in Nepal?
It requires big transformative steps to develop Nepal’s agriculture sector. Pertinent issues such as widespread land plotting and the lack of mechanisation persists. Moreover, a change in general understanding about agriculture is necessary. While many people have advised me not to talk about it, I think it is important to know that there are no rich farmers in Nepal. Nobody is working in agriculture to get wealthier. It is due to the low advantages in the sector and also because of legal and other hurdles that stops mechanisation and the commercialisation of agriculture. In order to develop the sector, we should look into the competitive advantages it has for us. For example, we can import the staple food rice from India at cheaper costs than producing it here. Instead, we can utilise the paddy fields to cultivate other high value crops such as different organic fruits and vegetables or use the land for animal husbandry and fishery.
There is a need to see how we can best utilise the climatic conditions and biodiversity in the country to our advantage to generate significant profit from agriculture. Agriculture in our country has remained mostly as a subsistence activity. But there are some success stories also. Those engaged in the farming of tea, coffee, cardamom, ginger, kiwi and exotic animal husbandry have enjoyed big incomes.
The uncertainty surrounding the AGM of FNCCI has deepened with the rift in the Federation’s leadership becoming wider in the recent days. How will things move ahead in FNCCI now?
For me personally, FNCCI is an institution in which my father and grandfather invested their blood and sweat. A meeting of six industrialists held at Meera Home in Kathmandu six decades ago mandated my late father Hulas Chand Golchha with the responsibility of drafting the first statute of FNCCI. In later years, my brothers were engaged in expanding FNCCI. In this way, the Golchha family has played a huge role in making FNCCI the organisation it is today. Till date, all executive committees of the organisation have the participation of Golchha family members.
I grew up in an environment where FNCCI and private sector issues were discussed even in my house. Having invested myself for several years in this organisation, I envision to bring back the past glories of FNCCI and to enable it to face the present and future challenges of the Nepali private sector. There are heaps of issues from large industrial enterprises to SMEs to be resolved. I am ready with my own blueprint in this respect and waiting impatiently to implement the plans once I reach the leadership position for the next three years.
I believe in a smooth transition of leadership in FNCCI. But at the same time, the lockdown stopped us from holding the AGM. It will convey a negative message if the AGM is organised during this time of crisis. As someone who is very keen on protecting the integrity of FNCCI, I have proposed that the executive committee meeting to decide on the AGM be held as soon as the lockdown is lifted.I know many people are not happy with the postponement of the AGM. It is obvious to have opposing views within a big organisation like FNCCI, but things turn problematic when comments are made on a personal level. It only degrades the image of the organisation which has the interests of the government as well as the general public at heart.