Frequent changes in government and policies will create an unpredictable situation

Not many business groups in Nepal have achieved success as IME Group in a short period of time. The group’s roots can be traced back to the early 1990s when Chandra Prasad Dhakal and his brother Hem Raj Dhakal started a freight service business. A big moment for the brothers came in 2001 after they established the International Money Express (IME) in Nepal and Malaysia that formally channelized the inflow of remittances into the country. Since then, IME Group has only grown bigger venturing into new areas of business from remit, banking, insurance, trading, automotive, and logistics to tourism, infotainment, energy, and information technology. 

Hem Raj Dhakal, Co-founder & Managing Director of IME Group, reflects on the group’s journey over the last two and half decades. In a conversation with the HRM, he talked about the group’s current focuses, the business environment in the country, and channelizing the money received in remittances for economic development, among other topics. Excerpts:

In its existence of nearly two and half decades, IME Group has transformed into one of the country’s leading business houses. As co-founder of the group, how this journey has been for you? What factors are behind the success of the group?
Reflecting on the past two and a half decades has been an incredibly fulfilling and transformative journey. Witnessing the growth and evolution of IME Group into one of the country’s leading business houses has been both challenging and rewarding.

Definitely, the beginning of our journey was not an easier one. We had to face a fair share of challenges as the country was in the phase of political and economic transformation. There was uncertainty and many regulatory frameworks were yet to be formalized. Amidst the situation, we founded a freight company in 2048 BS. Actually, our entrepreneurial journey got momentum when we started IME Remit, the first remittance company in Nepal which was established in 2057 BS. As a co-founder and the Managing Director of IME Group, it is my privilege to share that we are now one of the leading business conglomerates in the country with an investment plowed in diversified sectors such as finance, information and technology, infrastructure, and tourism that has created more than 20,000 direct and over 40,000 indirect jobs.

The opportunities, obstacles, and each experience we have had during the journey have been valuable lessons for the organization’s growth. I believe, the dedicated team of professionals who share the same vision and passion for excellence, our collective efforts, combined with a commitment to innovation and adaptability have been instrumental in driving the group’s success. IME Group’s journey is a testament to the power of perseverance, teamwork, and a relentless pursuit of excellence.

How have political uncertainty and policy instability affected the private sector and business houses like yours in particular when it comes to investments and expansion?
The instability has adversely affected the private sector leaving entrepreneurs and investors grappling with uncertainties. It has far-reaching impacts on both local and foreign investors. It creates uncertainty, reduces investor confidence, and ultimately hinders the country’s economic growth. We have plenty of examples of countries that started economic transformation later than us and achieved the next level of growth. It is all because of their stable politics and policies.

Frequent changes in government and policies will create an unpredictable situation, making it more difficult for businesses to plan and execute strategies effectively. As a result, they may hesitate to make long-term investment or expansion decisions.

Despite the challenges, we are trying to be more resilient by diversifying our business operations across sectors and regions. we are equally committed to making investments and maintaining long-term perspectives to triumph over adversities.

While many business houses in Nepal are still privately controlled, many companies under the IME Group are in the process of becoming public. What is the rationale behind going public? 
Going public is our strategic decision. The rationale behind this is to align with our long-term vision and growth objectives. We believe that by converting our entities into public limited companies, we can offer investment opportunities to thousands of people and instill an investment culture among Nepali youths.

Moreover, going public will provide us with the financial flexibility to accelerate our expansion plan, invest in cutting-edge technologies and pursue strategic opportunities which will drive our businesses to sustainable growth. Similarly, we believe that it will elevate our brand value and reputation in the market, making us more responsible, transparent, and compliant.

Additionally, our decision to go public also aligns with our employee incentives plan as it fosters a strong sense of ownership and motivation linking their success to the company’s performance.

IME Limited is said to be preparing to issue shares to the general public. When will the company start its IPO?
We have completed all the procedures for IPO issuance. We have already submitted the proposal to the Securities Board of Nepal (SEBON). Once we get the approval, we will issue shares to the public.

After consolidating in the financial sector, your group seems to be focusing on the information technology (IT), hospitality, and infrastructure sectors. Are these priority sectors for IME Group going forward? 
We are now more focused on these sectors because they hold comparatively higher importance for both business development and national priority. Actually, we believe that these sectors can directly benefit the general public, align with national priority and hold the potential for sustainable business growth. We firmly believe that investing in these sectors will not only generate revenue but also create employment opportunities for general people, which ultimately have significant positive impacts on the overall economy. Building both physical and digital infrastructure for sustainable development and economic growth is our primary focus.

Currently, IT is at the front of our investment focus as it continues to evolve rapidly and also holds a huge potential for the export of IT services from Nepal as well. A recent study by the Institute for Integrated Development Studies (IIDS) states that the total IT service export reached a growth of 64.2 percent in 2022 accounting for 1.4 percent of the country’s GDP and contributing to 5.5 to Nepal’s foreign exchange reserve.

Similarly, tourism is Nepal’s most comparative advantage sector that has the potential for gender empowerment as well. Also, Nepal has a significant infrastructure investment deficit. As a result, we have prioritized infrastructure in view that the private sector plays an important role in bridging the investment gap and contributing to the growth of the sector.

The investment landscape in the country is gradually changing with venture capital (VC) and private equity (PE) players coming into the scene. You and IME Group are also active in the alternative finance arena. How you are seeing PE/VC phenomenon? And, what importance it holds for economies like ours?
The emergence of PE/VC players has a positive impact on the country’s investment landscape. Alternative financing is the need of the hour and it can bring a transformative change in our economy. These phenomena actually act as a catalyst for new ventures and industries to thrive. It brings opportunities to young entrepreneurs and startups, increases their access to finance, and provides them with expertise and guidance to accelerate business growth. It also offers investors a chance to diversify their portfolios and grab the innovative and lucrative opportunities that traditional ways of investing may not offer. I think the PE/VA phenomenon can bring about positive impacts on our economy as it encourages entrepreneurship, promotes innovation, create jobs, and drive economic growth.

How do you evaluate the current economic scenario of the country? Do you think the new monetary policy unveiled by the central bank has addressed the demands of the private sector? 
There are some improvements in some indicators such as increased remittance inflow, narrowed trade deficit, and a surplus in the balance of payment supported by rising foreign exchange reserves. The external pressure on the country’s economy appears to have almost eased. The liquidity position of banks has improved and interest rates are on a downward trend. Nevertheless, challenges still persist. The internal fiscal pressure is a concern now, leading to decreased demand in the market, reduced confidence among entrepreneurs and investors, and their lower credit capacity, hindering further investment and business expansion plans.

Despite a few positive steps for the promotion of small and medium enterprises (SMEs), the new monetary policy has failed to address these issues and boost the morale of the business community. Credit expansion has been further reduced compared to the previous year. The leading private sector organizations like the Confederation of Nepalese Industries (CNI), Federation of Nepalese Chambers of Commerce and Industry (FNCCI), and Nepal Chamber of Commerce (NCC) have also raised their concern regarding the arrangements in the monetary policy. In times like these, policymakers should focus on growth-oriented policies and regulatory measures that increase market mobility through money supply and promotes further investment. Regulators should act as a facilitator to create an environment conducive to business.

How has IME Group faced the economic slowdown? How has the slowdown in economic activities affected the investment plans of the group?
Not only IME Group but most of the businesses, entrepreneurs, and investors have been adversely affected by the current economic slowdown. Many SMEs have been shut down. The non-performing assets (NPAs) of banks and financial institutions have increased significantly over the past year. In such a situation, it is difficult for small businesses to sustain and thrive. Investors are not ready to expand their investments at the moment. However, IME Group is strategically putting additional investment efforts in accordance with our long-term goals of adapting to the changing economic conditions.

The liquidity shortage of last year was the most severe in living memory. What are the lessons from this crisis for the government, banks, and the private sector? What needs to be done to avoid a situation like this in the future?
The Covid-19 pandemic and the subsequent financial crisis have created a difficult situation for the private sector. It has far-reaching implications for the economy, banks, and the private sector. To face this situation, the government should adopt flexible fiscal policy, and create an effective and stable policy framework that helps to build economic resilience through diversifying revenue resources, maintaining financial discipline, and increasing capital expenditure. Banks should also adopt prudential lending and investment practices and focus lending on productive sectors. Similarly, private sectors should focus on efficient resource management and adopt cost-cutting measures. Above all, the greatest lesson we need to learn is to work together instead of pointing fingers at each other.

The inflow of remittance has been seen as encouraging at a time when other economic indicators are not promising. As a major player in the remittance business, how do you observe the growth of remittance? 
According to the latest data published by the Nepal Rastra Bank, remittance inflows surged by 22.7 percent, reaching Rs 1,112.52 billion in the last 11 months of FY 2022/23. This increase surpassed the 4.1 percent growth observed in the same period the previous year. Our primary focus is to contribute to the development of Nepal’s formal economy by facilitating the legal channeling of remittances into the country. Through the legal channels, millions of workers are spared from unnecessary hassles and fraud associated with the transfer of money. Further, we advocate for promoting the utilization of remittance income in large-scale infrastructure projects and investment in new start-ups. IME Group is actively taking initiatives in this regard to support the country’s economic growth and development.

The government’s announcement for years that the money remitted by Nepali working abroad will be channelized to aid in the country’s economic development hasn’t been fruitful. What is needed to encourage people who remit money to Nepal to invest in such sectors?
A. Nepal receives a significant share of personal remittances to GDP every year. It has significantly contributed to the reduction of poverty, enhanced family health and education, and helped in maintaining foreign exchange reserves. However, a significant portion of remittance is spent on consumption. So, the first thing is to make people aware of investment opportunities. The government should formulate a supportive investment policy and regulatory framework so that potential investors can feel secure about their investments. Second, they should be clearly communicated how they can contribute to the economic growth of the country while getting benefited themselves. For example, establishing remittance-linked development or investment bond, as in Bangladesh, where remitters can invest and receive a certain percentage of interest and share on profit, can be a useful means. Similarly, the government should offer incentives such as tax exemption, subsidies, and low-interest loans to encourage those who want to invest their remittances in specific sectors.

With the government looking for new labor destinations to send more Nepalis, prospects are looking bright for remittance businesses. But industrialists and businesspersons say this will create an acute shortage of human resources in the country. What should be the balancing act in this regard? 
The number of migrant workers going abroad has surged in recent days which will increase the inflow of remittances. But, I think remittance alone can’t be a sustainable savior of our economy. It can be more promising for remittance businesses and short-term solutions to maintain foreign exchange reserves. But it is equally crucial to consider the long-term impacts on the domestic economy. The trend of more people going to other countries for work creates a shortage of human resources in the country. Unskilled workers are now migrating to new labor destinations, yet the unemployment rate is still very high in the country.

The government and private sector should work together to maintain a balance between the demand and supply of the workforce. Focusing on skill development programs to bridge skill gaps, promotion of domestic investment to create more employment and incentives to returnee migrant workers to stay and utilize their skills in the country can help to create balance and sustainable growth of our economy.

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