Based on “Last Thursdays” talk on December 2011.
Mr. Radhesh Pant, CEO of the recently established Investment Board in Nepal , believes that life is all about change. He sees much opportunity in Nepal from hydro-power, to tourism, agriculture and so much more. He believes that if used to its fullest potential, anything could turn into gold in Nepal. But the problem he sees is that we have not been able to capitalize on our potential and hence we are more focused on short-term gains like international aid, land buying and selling and other small areas. He adds that we have not been able to see the long-term vision which would eventually benefit the economy of Nepal. Because of this, he decided to join the Investment Board started by the Government of Nepal. Here’s a summary of his talk followed by questions and answers.
Investment Board – Its Role and Future
Investment Board is a Nepal government established board with the aim to create investor friendly environment for both domestic and foreign investors. To do this, it plans to offer one-window solution where, an investor who enters its office should be able to get all his/her issues resolved from the same place like – registration, licensing, immigration issues, and bill clearance to even acquiring a SIM (mobile) card. The idea is to offer a full-fledged service from the same office. For this to happen, one should look back to the laws and acts and start the work.
The Prime Minister is the Chairman of the Board along with Minister of Finance, Minister of Industry and Minister of Forest. The Governor of the Central Bank, Vice Chairman of the Planning Commission and the Chief Secretary of Government of Nepal are its members. There are four people from the private sectors and the board can add expert advisors, national and international.
In the future, Investment board plans to find investment ready projects. A long-term strategy for inviting investment is essential as they do not happen overnight, and when investors do happen, they must be sure that their investment will not be confiscated by the next government. These investment ready projects should contribute directly to the overall development of the economy. At the end of the day, the Board wants to be extremely transparent. A regularly monitored mechanism will be followed which will be transparent and hence corruption would be minimized. The Investment Board can offer incentives to projects – from land to tax holiday but this would be done within a framework.
It is the right time to raise the issue of foreign investment in Nepal. The talk about many projects being on line has always been in the news but many are not completed, some have even been discontinued. Hence, we have always lagged behind. He argues that we have always enjoyed the blame game with political instability being the main reason along with bureaucracy and corruption. But at the end of the day, we are the ones who suffer and are at loss. So we should be the ones trying to do something about it. Investment Board has come up in the right time because many foreigners have shown interest to invest in Nepal.
The Investment Board has the authority in all the sectors including hydropower, infrastructure, financial sectors, insurance, and mining, SEZ (Special Economic Zone), IT and many others. The business, which does not fall under the Investment Board, can also apply at the investment board. I see a huge potential to make a difference but it is not easy and huge support is needed from all the sectors.
The financial market of Nepal isn’t deep enough, overall deposit is now 750 billion rupees. We are talking about 10,000 mega watts of hydro power which needs 20 billion rupees. The commercial banks has less than 10 billion rupees overall. So if we really want to see a prosperous Nepal, we need to get Foreign Direct Investment (FDI’s). The banks would then be stronger with FDI’s and invest more into these kind of projects.
Banking Sector and Entrepreneurship
The current banking sector is over-crowded with too many commercial banks and financial institutions. Due to this, there is a high chance of consolidation and many banks are talking about merging. One of the good things the banks are doing is of giving loans to young entrepreneur of Rs 300,000 to a million. However it is very difficult to get it because the banks ask for collateral. It is well understood in the banking sector that young entrepreneurs and collateral does not go hand in hand but the banks have their own obligations to fulfill. In Nepal, we do not have social security numbers that can keep track of credit worthiness of an individual, and we have our fair share of crooks. So when a person takes a loan from the bank without any collateral and when he/she does not pay back the loan, he/she is sent to jail. But thanks to our legal system, they get out the next day and the case would be pending in the court for a long time. So that is the problem faced in many cases when banks have given loans without collateral. All this happens because the legal framework is not very strong in Nepal, and this is another area the Investment Board would have to tackle in the long-run.
Q. What role does the Investment Board have in terms of finding investment opportunities? Are there local organizations who recommend the Investment Board?
A. There have been studies done by organizations like FNCCI, CNI in the past about the priority sectors. The main sectors being hydro-power, infrastructure, tourism, agriculture, export industries, education, etc. The plan of the Investment Board is to start projects that complement each other like hydro-power and tourism. This can make the cost of both the projects less and add value to each other too. The Investment Board is also responsible for Investment Year 2012/13 and the plan is to come up with at least 10 project in the next 2 years.
Q. What are the difficulties and challenges for the Investment Board?
A. There has been no difficulty yet because it has been 2 weeks the Board has formed. In case of challenges, there will be political, vested interest groups coming in. Changing the mindset of people would also be a major challenge for the board.
Q. What are your plans to encourage people to invest in long-term projects like hydropower with less immediate result but has a long term benefit?
A. The capital market does not have much capital and hence the idea of long-term bonds. Since all the money can’t be invested in one sector, long-term bonds would be good to invest in infrastructure and other sectors. A public private partnership is very essential to complete projects and once few projects are completed, 10-20% will be funded by the local investors. The most important part is to get the confidence of the people.
Q. Do the banks provide loans if the business plans are reliable?
A. It has been clearly stated in the central bank that loans cannot be given without collateral.
Q. Do you think there is venture capitalism in Nepal?
A. People are trying to raise money by themselves but the time for venture capitalism has not come yet.
Q. Is the investment board ready to help foreigners invest in Nepal?
A. Yes, that is why we are trying to build a one-window policy so that the foreigners would not have to run around offices to fix their issues. These problems would be addressed to make doing business in Nepal easy for foreigners.
Q. Do you have any plans to change the current banking system to a one which promotes entrepreneurship?
A. There is a problem in the banking sector. In other countries, one can raise the capital in the capital market itself. The process for a bank to give loans without collateral will take some time in Nepal. Few companies are raising money by themselves and are investing in new ideas so there is a chance to tap those investors in the current context.
Q. Why has Nepal not been able to bring capital from India and China?
A. We have not been able to convince our neighbors to invest because of lack of business environment. We lack good product and competitiveness too. Due to all these reasons, capital flow has been difficult.
Q. Why has the banking sector not given importance to the agriculture sector?
A. Banks did not focus on micro finance, agriculture because banks are profit-making businesses and they always go to sectors with minimum risks and most benefits. Currently the trend is changing because the banks are now interested in new agricultural ideas like organic farming.
Q. What do you want the “youth” to do apart from their regular studies and encourage them ?
A. The first thing is that the youths need to be clear of what they want. Secondly, there are platforms as this one (Entrepreneurs for Nepal) where you get to discuss on issues which will, in one way or other, help find solutions to problems. You should be able to make people understand what is right and what is wrong.