Last month, the Confederation of Nepalese Industries (CNI) launched the ‘Make in Nepal-Swadeshi’ campaign setting some ambitious targets to boost Nepal's industrial productivity. Also, CNI is in the process of issuing certificates of origin to its members, which the private sector body says will be an important step in terms of export facilitation. However, factors such as the sluggish economic recovery and rising political uncertainty aren’t providing a positive outlook. Satish Kumar More, president of CNI, says that there are signs of improvements and hopes for the situation to become better in the coming days. In an interview with Sanjeev Sharma of New Business Age, More also talks about the CNI’s flagship campaign, post-pandemic opportunities and constraints to economic recovery. Excerpts:
What are the major objectives of ‘Make in Nepal-Swadeshi’ campaign? What support do you expect from the government to realise the objectives?
The main objectives of the ‘Make in Nepal-Swadeshi’ campaign are to ramp up domestic production, increase the demand for Nepali goods and services and raise competitiveness of domestic industries. This campaign aims to help the local industries to become self-reliant by expanding the country's industrial base.
Our aim is to establish 1,000 industries annually, create 1.5 million industrial jobs each year and increase annual exports to USD 3.4 billion in the next five years. Through the campaign, we have targeted to contribute 26 percent to the country’s GDP by 2030.
We envision to improve Nepal’s rank in the Doing Business Index. We think the country’s rank in the index can go up 30 spots to 64 from the currently 94 in the next five years if we work sincerely. These are the things we are discussing closely at the moment. The objectives of our campaign need to be understood not only by the government and the private sector; an environment should be created so that common citizens of the country will also participate in our campaign which can spur the country’s industrialization process and economic development.
We have put in a lot of effort to start the campaign. We formed a research cell comprising of experts who did extensive research for four months to design this campaign. We have already submitted the research findings and have suggested to the Minister for Finance and the Minister for Industry, Commerce and Supplies and government secretaries ways to boost the industrial productivity. We have suggested the facilitation required in different areas. The response of the ministers and the government secretaries has been very positive, and we are seeing that a consensus is being built that this is the right time to work for boosting our economic productivity.
But given the high cost of production in the country due to several reasons, don’t you think the campaign is overambitious?
Our research team headed by Dr Biswo Paudel has developed a modality for industrial development and modernisation of the service sector. It comprises of pillars of production and consumption in the country. We have also concluded that marketisation of domestically produced goods will boost production; it can be achieved with the participation of the general consumers.
Similarly, the team has found ways to lower the cost of production to increase our business competitiveness after studying the production scenario in countries like India, China, Vietnam and Bangladesh in detail. In the roadmap of the ‘Make in Nepal-Swadeshi’ campaign, we have suggested a number of improvements to be made for removing policy and bureaucratic bottlenecks that adds to the cost of production.
The pandemic-stricken economy seems to be reviving with industrial and business activities resuming across the country and with life quickly returning to normalcy. What do you make of the current pace of the economic recovery?
Except for some hardest hit sectors like tourism, hospitality, aviation, hydropower and education, normalcy has returned to all other sectors. But it is very hard to tell when and how the hardest hit sectors will recover as the government is yet to make a clear pathway for the revival of businesses.
In the last few months, the supply system throughout the country has normalised with industries and businesses putting all their efforts into bringing things to order. Overall, the situation for the private sector has improved over the last couple of months. But health related risks still remain as most of the private sector workforce is yet to get vaccinated. It is unfair that people working in the private sector, which contributes to 70 percent of the government revenue, are still to be proritised for vaccination. The vaccination of private sector workers and executives is important to add momentum to the country’s economic recovery. The Confederation of Nepalese Industries (CNI) has asked the government to give due priority in this respect. If there are constraints for the government to vaccinate private sector employees in terms of financial resources, certain charges can be levied to carry out the vaccination.
We need to look how other nations have opened up to recover from the pandemic-induced economic slump. We can take the examples of Maldives, Sri Lanka and the UAE to see how these countries are working to bring their travel, tourism and other sectors back to pre-Covid positions following the health safety protocols. I visited Dubai a few weeks ago and observed that international travellers are required to stay in quarantine just for a day upon their arrival and wearing face masks is mandatory for all. We can also revive the tourism sector like Dubai by forming and implementing pragmatic health safety protocols.
What sectors do you think should we focus on in the post-pandemic period?
Tourism, hydropower, mining, agriculture and education have the highest potential for investment. With proper plans and strategies, we can excel like many countries which are considered top tourist destinations. The bio, cultural and geographical and climatic diversities existing in our country have largely remained untapped. A few months ago, I visited Rara lake and observed huge potential to develop tourism infrastructure there; there are other numerous locations across the country virgin for tourism investment. People are ready to invest, but the main bottlenecks, such as infrastructure deficiency and land acquisition need to be removed which is up to the government.
The private sector has been doing everything it can for the growth of the tourism sector. The attempts of investors like Chandra Dhakal is laudable who worked relentlessly to transform a place like Chandragiri Hill into a top tourism destination in the country in such a short span of time. Another example is the Manakamana area which has developed noticeably after the establishment of the Manakamana Cable Car. Similarly, the excellent climatic conditions also allow Nepal to become a major education and medical hub in the South Asia region.
Talking about agriculture, the sector will remain underdeveloped unless we change our ways. It is because, exorbitantly high land prices in many parts of the country coupled with continuation of agricultural and farm activities using traditional technologies results in low yield. So, adoption of newer technologies and maximum utilisation of arable land is important for commercialisation of agriculture. If we can bring in agri technologies used in countries like Israel, the yield will increase, and the effects of higher cost of land and manpower can be offset.
In its mid-term review of the Monetary Policy, the central bank has claimed that the measures it introduced have boosted economic activities. Do you agree?
Monetary measures announced by the central bank have played an important role in the economic recovery process. Some important measures like reducing the base rate to lower the lending rate have been implemented as suggested by CNI. Lending rate has now come down to as low as 7 percent which was 13 percent a year ago. This has helped industries to gain access to cheaper money, thereby reducing the cost of funds and production costs. Similarly, the rescheduling of loans, which has been further extended to the end of the current fiscal year in the mid-term review of the Monetary Policy, has also supported the businesses in this time of difficulty.
However, the arrangements related to refinancing have not been pragmatic. It is because of the maximum refinancing slab of Rs 200 million provisioned in the policy. This amount is too low for many businesses, particularly those in the tourism, hospitality and aviation sectors where large investments were poured prior to the Covid-19 pandemic. For instance, the refinancing of Rs 200 million will be of little to no help to investors who invested Rs 5 billion in a hotel project. It will help them a lot if the refinancing is 20 percent of the invested amount. While the government and the central bank have agreed to our demand in principle in this regard, I don’t know what is stopping them from getting it implemented.
Despite the moratorium measures announced by the central bank, financial institutions are blacklisting borrowers, particularly SMEs, for failing to clear their credit dues causing friction between banks and businesses. How do you think this problem can be resolved?
The pandemic-induced crisis has been really hard for businesses while the banks also have their own obligations to recover debts. I think the problems can be sorted out by analysing specific disputes between banks and their borrowers. CNI also is ready to help resolve such disputes between banks and business owners. We can talk to Nepal Bankers’ Association (NBA) and Confederation of Banks and Financial Institutions Nepal (CBFIN) to find a solution to this problem.
In every forum, finance minister Bishnu Paudel is seen expressing his support for the private sector unlike his predecessor Dr Yubaraj Khatiwada. Is the finance ministry under him really supportive or is the support only in words?
The situation has improved for the private sector. There have been changes in some policies which have helped economic activities to gather momentum. After a year of crisis, a good environment for investment is being created. The government has commenced establishment of special economic zones (SEZs) and industrial parks in different regions of the country which is an important step. We also launched the ‘Make in Nepal-Swadeshi’ campaign observing the improving situation.
But formulating policies or announcing implementation of new infrastructure projects only does not bring real changes. It is the implementation of policies and announcements which matters the most. Government agencies need to look at how private sector companies have become successful over the years. They work according to the plans to achieve the business targets. There is a good system of responsibility and accountability in many companies. I think there should be similar practices and systems in the government agencies.
There are many rooms for improvement. One area is the sluggish capital expenditure which reached just 14.4 percent of the total capita budget in the six months of the current fiscal year. To expedite the capital expenditure, targets should be set for each official of the agencies along with a proper system of monitoring and evaluation of progress on a monthly basis.
In November last year, CNI suggested the government to create a high-level permanent committee to resolve the problems related to ‘sick’ industries. How has the government responded to CNI’s recommendation?
The government has agreed to form such a body in principle. A committee has been formed to take the matter forward. But the meetings of the committee are yet to take place to decide on forming the body proposed by us. We have recommended to classify and categorise ‘sick’ industries according to their conditions.
We need to look into what made the industries ‘sick’. There are two factors for the ‘sickening’ of businesses—external and internal. Mismanagement, wrong business and investment decisions are the internal reasons. Meanwhile, not being able to cope with economic and political uncertainties, among other reasons, are the external reasons. On top of all these, years of delay from the government side to decide on reviving or shutting down such industries add to the problems making the industries more ‘sicker’.
We have been saying this for years which is also true for the businesses hard-hit by the ongoing pandemic. If the government does not decide to support the travel, tourism and hospitality and other businesses highly affected by the pandemic, it is likely that they will become ‘sick’ industries after a few years from now. This is why CNI has argued that the refinancing amount to be 20 percent of the money invested in businesses. It is important that the businesses are rescued before their condition becomes critical. The government needs to support such businesses that have fallen victims to the forces that are beyond their control.
CNI has been authorised by the government to issue a Certificate of Origin to exporters exporting products to India, China and SAFTA countries, which the Confederation has sought for many years. How is CNI planning to rollout the certificates?
We would like to extend our gratitude to the government of Nepal for allowing CNI to issue the certificate of origin. This has ended a compulsion for our members to go to other private sector bodies to get the certificates for exporting goods. Earlier, we were authorised to issue certificates of origin to third countries which has now been extended to India, China and SAFTA countries. It will not only help CNI members to get export-related services easily but will also enable them to identify new exportable items and markets for their products. As boosting exports is one of the key objectives of our ‘Make in Nepal-Swadeshi’ campaign, we are ready to facilitate to resolve the problems faced by Nepali exporters.
Clouds of political uncertainty have surrounded the country in the last few months. How do you think it will affect the economic recovery?
It is unfortunate that we are facing this situation when we need stability the most. However, the political uncertainty has not gotten to the point where it has a direct impact on the economic recovery. Existing businesses will continue to run, but new domestic and foreign investments will be affected in the coming days as the confidence of investors will become weaker due to the political gridlock. Let’s hope the political parties will be able to overcome this situation and the clouds of uncertainty will go away.