SIGNS OF POSITIVE ECONOMIC GROWTH

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SIGNS OF POSITIVE ECONOMIC GROWTH

The Nepali private sector has faced various challenges in every era. In the past, we went through a heap of problems including the worsening of labor relations, up to 18 hours of power cuts, and the 2015 earthquake and border blockade. Now we are facing the Covid-19 pandemic. However, we also saw materialising of a good concept like privatisation in the 1990s and an atmosphere of respect for the private sector. At that time, huge investments were made in sectors such as airlines, banking, insurance, education and health.

In the last two years, we are in a situation which no one had imagined. Not only the private sector but the entire society is reeling with the impacts of the Covid-19 pandemic. However, as we are moving ahead facing this crisis, our efforts have started to show positive signs of economic recovery.

I see the situation in Nepal from two perspectives. First, the informal sector has been badly affected by the pandemic. Small businesses that form a large part of the economy and generate employment in large numbers have been the hardest hit. The repeated lockdowns and prohibitory orders have pushed such businesses into brink of collapse. But the problem is we do not have data about the informal sector. And we don't know the exact details of the damages incurred by this sector.  

Talking about the formal sector, there are signs of positive growth in sectors except for tourism, entertainment and transportation. The tourism and entertainment sectors are struggling due to external reasons. The private sector had invested heavily in hospitality and travel businesses hoping that the Visit Nepal 2020 campaign will attract a large number of visitors in Nepal. But with no business for nearly two years, tourism entrepreneurs now say that their businesses have gone bankrupt. They also complain about the government's apathy to their problems. Although tourism sector businesses have received some respite such as restructuring of loans and interest rates, they seriously need hand-handling from the government to come out of the deep slump.

The entertainment sector is also struggling like tourism. Cinema halls have remained closed for almost two years now.  Although the sector, which employed thousands of people, is on the verge of collapse, the government has not assisted to get the businesses back on their feet. The few facilities provided in the monetary policy and budget are insufficient.

On the other hand, many other sectors are recovering from the crisis. Statistics have shown that FMCG, food industry, construction sector and automobile sector have already recovered to some extent. For example, growth of the construction sector, which is directly connected to the business of cement, steel, roofing, and different types of construction materials, has not slowed down but is growing.  

Similarly, the situation for the FMCG industry has improved significantly. The textile industry has also been affected greatly. But now the textile producing companies seem to be operating at less than 50 percent of their capacity. Similarly, it is estimated that over 70 percent of the automobile sector is in operation at present.

Though the signs are optimistic, the confidence of the private sector for long-term investment has weakened. There are concerns about how long the pandemic will go and the situation will be for investments. Even now, Nepal has a huge trade deficit. Increasing domestic production and exports will help to narrow the widening trade gap. The pandemic has added psychological challenges for investors. When the situation is volatile and fluid, they are reluctant to invest in the long term. Many economists opine that Nepal's private sector is capable and there will be no shortage of resources if the investment climate in the country is conducive. But the problem we have is the high cost of doing business.

I have always said that Nepal's private sector businesses are profitable as businesses of other countries. Profits are needed to keep the economy afloat, and investment is just as important. If we look at earning profit in a negative light, there will be no investment and without investment, there will be no job creation. In such a situation, we would only become a 'trading economy'.  

(Golchha is President of Federation of Nepalese Chambers of Commerce and Industry. This article is based on a conversation with him.)

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