The inflow of foreign direct investment fell by 30 percent during the fiscal year 2011-12 compared to a year earlier. Contribution of the manufacturing sector in the gross domestic product (GDP) has been stagnant at 6.2 percent for the last two consecutive fiscal years. Nepal’s trade deficit is constantly increasing with almost all of its trading partner countries. Its total trade deficit ballooned to Rs 419 billion during fiscal year 2011-12, up from Rs 332 billion in the previous fiscal year.
The economy has been so vulnerable that remittance and foreign aid are the only lifelines. Domestic production and supply chain is almost paralyzed and bureaucrats and experts say all this is merely because of politics in the country. But, to the contrary, it’s just not politics. The major reason has to do with factors such as laxity of bureaucracy towards reform.
For instance, the government, through a cabinet decision nearly eight months back, decided to identify sick industries in the country and provide relief packages to revive them. However, the Ministry of Industries (MoI), which is entrusted to carry out the relief program to sick industries, has not even identified the actual sick industries so far. The ministry has failed to execute the program that was assigned to it. And political stalemate has nothing to do with it.
In the past decade and a half, the government formed more than a dozen committees to study actual sick industries so that it could provide necessary support to oxidize them. All the reports made recommendations to revive sick industries. Unfortunately, the task of identifying such industries is still hanging fire.
The slow and lethargic working style within the bureaucracy is the primary reason for such sluggishness in our economy. Officials in the ministries should be responsible for timely implementation of programs and execution of decisions. But, unfortunately, inefficiency within institutions and individuals is often covered under the veil of political instability and transitional phase in our country.
Let’s take another example. The government had allocated Rs 6 million to build a herbs processing centre in Surkhet in fiscal year 2011-12. Unfortunately, the money was frozen after the construction of the centre couldn’t take place. The development of a processing centre would have been a major achievement since it can enable us to export processed herbs—which have higher value addition than the unprocessed ones we are currently exporting to countries such as the USA, France, Germany, Italy and South Korea.
In yet another instance, the government announced a program in 2008-09 to provide facilities to cement factories utilizing local raw materials. Under the program, the government had promised to construct roads, drinking water facilities and lay down power cables for factory sites. The government had claimed this would encourage investors to make use of the country’s huge limestone reserves, thereby saving billions of rupees on import of clinkers.
Unfortunately, almost four years since and not even 40 percent of the work has been completed. The budget that was allocated in every single fiscal year after 2008-09 has been unused. This shows gross inefficiency, irrespective of political uncertainties. No such political instability could have disturbed the work on factory sites.
These are just some examples which demonstrate how inefficiency in every institution and lack of a conducive working culture is pulling us backward. To be sure, the institutions have been rendered weaker and less functional due to the decade long insurgency and prolonged transition and instability. But we need to distinguish between what we can do and what cannot be done in the given political situation and then make sure we put in all efforts to accomplish the former.
The entire bureaucracy has a tendency of making easy excuses. Bureaucrats quickly resort to words like ‘conflict’, ‘instability’ and ‘political imbroglio’ if they need to hide their inefficiencies. We have to ask ourselves, are we doing what we could do despite the given situation? There should be some kind of effort to correct the system and improve it.
Here, let’s examine why foreign direct investment inflow is declining despite the government’s multiple initiatives to protect investors. Labor unrest and poor working culture in the country discourage potential investors from entering the country. The closure of one of the biggest tax-paying companies—Surya Nepal Garment, as a subsidiary of ITC of India, also has to do with unethical labor dispute. Lately, food joints like KFC, Pizza Hut and Cream Bell are on the verge of permanent closure because of the same reasons.
Political instability cannot be an excuse for everything that is wrong with the country, including economic sluggishness. Other factors like unresponsive bureaucracy are also to be blamed.
Bureaucratic hassles, unethical behavior of laborers and political intimidation are some of the major hurdles for foreign investment entering the country. But a smooth process in the bureaucracy, strong measures to handle labor unrest and an efficient work culture can be ensured even in a politically unstable country. We cannot make political instability an excuse for our inefficiencies.
Different countries have been ready to provide zero-tariff facilities to Nepali products in their markets. We, however, have failed to utilize these opportunities. Our supply side capacity is so weak that even the goods that have high comparative advantage are not adequately produced to meet the demand even when the ballooning trade deficit is putting increasing pressure on the economy.
Weak institutional capacity, defunct bureaucracy and low quality public services are the hallmarks of a least developed country. But we are afraid to do what is required to improve all this. It requires persistent effort from every single individual and institution to make the society better and allow the country to prosper. Blaming political instability for everything that is wrong in this country is a misguided conclusion.
The author is a business correspondent at Republica.