Opting for an import-based economy is a risky model, Nepal needs to prioritise production led growth

Unilever Nepal, a subsidiary of Hindustan Lever Ltd, marks a significant milestone – 30 years of operation in the country. As a pioneer in foreign direct investment (FDI) in Nepal, Unilever has not only established itself as a blue-chip company but also become a role model for other foreign investors. Beyond its commercial success, Unilever Nepal is committed to social responsibility. Through numerous CSR initiatives, they actively contribute to society and support government programmes like the recent third Nepal Investment Summit 2024. To gain insights into Nepal’s investment climate and future plans, HRM Nepal recently interviewed Amlan Mukherjee, Managing Director of Unilever Nepal. The discussion focused on attracting more private investment, including FDI and Unilever Nepal’s upcoming endeavours. Excerpts:

Q. How would you like to reflect on Unilever Nepal’s 30-year journey in Nepal?
A. A journey, by definition, does not guarantee uninterrupted smooth movement. Similarly, our journey in Nepal has been largely fulfilling. Beginning with a single product and a modest setup, today we produce nearly 150 world-class products in Nepal with modern production facilities. Our journey has been characterised by sustainability, growth orientation, profitability and responsibility. Therefore, it has been predominantly fulfilling, and we are looking forward optimistically. Undoubtedly, we have encountered obstacles such as periods of slow growth, coping with natural calamities, navigating regulatory challenges requiring attention, and occasional IR issues. However, in most cases, we have managed to address these challenges and forge ahead.

Q. As one of the first FDI companies in Nepal, Unilever has witnessed Nepal’s investment regime very closely. What are the major changes you have seen in the investment regime?
A. The investment environment of Nepal has undergone transformation, though there is potential for further acceleration. Nepal has kept pace with global trends in terms of digital awareness, exposure to tools and technologies, and identifying niches such as hydropower energy and tourism. Additionally, Nepal has recently recognised the significance of industrialisation, transparency and contemporary regulation. Moreover, the workforce demonstrates responsibility and openness to skill development. As early adopters, we have also adapted to these changes and anticipate a swifter progression towards a competitive investment climate based on local industries.

Q. What should the country do to further enhance the investment climate and pursue more foreign investment?
A. Foreign investment necessitates a market, long-term assurance of invested capital through legislation, protection of brands and a conducive environment for expatriates to transfer expertise. Nepal cannot transition overnight from an import-based economy to a manufacturing-based one. However, Nepal possesses a market with significant growth potential. The government may consider incentivising certain value additions on semi-finished products during the initial period and provide disproportionate support for end-to-end production with foreign investment. Additionally, Nepal requires tax reforms; taxes on raw materials should align with SAFTA standards and be significantly lower than those on finished goods. Moreover, copyrights for foreign brands must be robust to prevent infringement and imitation products, as multinational corporations will not coexist with infringed or similar products. We have observed recent steps and promises in the right direction, and the Investment Summit serves as an ideal platform to reassure and attract foreign investment.

Q. As India is the largest FDI source for Nepal, what strategies could Nepal adopt to lure more investments from India in different sectors?
A. India has embarked on a journey that Nepal is now poised to take. Nepal should aim to become an extension of Indian manufacturing juggernaut and strive for a level playing field for products made in Nepal. Steps such as leveraging the proximity to the vast Indian market, offering land at attractive prices, and extending benefits to Indian corporations to establish operations in Nepal should be considered. Nepal may explore opportunities beyond clean energy, such as the food processing and construction material industries, as well as the IT-based service industry, religious tourism and luxury tourism as initial sectors. Additionally, India can contribute to Nepal’s infrastructure development, which is crucial at this juncture. Joint ventures with local business houses adhering to established codes of conduct could also be a viable route forward.

Q. Unilever Nepal has been making a sound profit and providing lucrative returns to shareholders. In this context, do you have any plans to reinvest in Nepal?
A. In the past few years, Unilever Nepal has made significant investments to modernise its factory. Despite being 30 years old, we take pride in our end-to-end mechanised, no-touch production process for most of our product lines, featuring auto-fillers, bots and digital fault identification and servicing processes. From extensive solar panel installations to electrical boilers, our factory operates on 90% renewable energy. Moreover, we have made substantial investments in technology integration at the front end. Unilever will never shy away from investing in Nepal and we have approached the government with reform requests aimed at facilitating further investment. It is worth noting that Unilever Nepal currently allocates the highest corporate spending to local media, featuring locally developed creatives. As early adopters of digital communication, our marketers collaborate with local agencies to create activations and advertisements that have garnered acclaim on global platforms and are featured in international settings.

Q. Over the years, Nepal has been losing its manufacturing base. How important is it to have a strong manufacturing base for stable economic growth, jobs and inclusive development?
A. As I have mentioned before, Nepal needs to prioritise correctly. Opting for an import-based economy is a risky model, especially during times of global uncertainty marked by conflicts and economic slowdowns. In such situations, imports can become increasingly expensive. Nepal must establish an irreversible process of reform, potentially requiring changes in laws, to ensure that progress continues regardless of changes in government. Moreover, economic growth cannot rely solely on the industry. The significant increase in Nepal’s food-grain imports over the past 20 years indicates a decline in agricultural output. Nepal urgently requires a green revolution. The youth need opportunities closer to home, it is evident that merely increasing remittance is not sufficient to offset large-scale migration. Banks should finance local industries and startups under the assurance of the Government of Nepal. Lastly, we believe that there is not much difference in the intellectual capabilities of the workforce. They are proving themselves outside Nepal. By creating opportunities for them, they will remain in the country. Two smaller shares at home outweigh one large share abroad.

Q. There are various compliances to be abided by companies to mitigate climate risks. How does Unilever Nepal work on climate adaptation through technology, CSR and in backward and forward integration?
A. Climate risk is a stark reality, and being responsible is imperative in today’s world. This is especially true when our business generates both plastic and carbon footprints. We do not view CSR as a separate endeavour, as any action that lacks social responsibility is inherently unacceptable to us. Presently, we retrieve more than 100% of our plastic footprint from the environment in Nepal through our partner agencies and reprocess 60% of it. We are swiftly transitioning to reusable plastics for our packaging materials. As part of Unilever globally, we have delineated our focus on Climate, Nature, Plastics and Livelihood, and Nepal adheres to this commitment. Our endeavours in green energy and plans to support livelihood development through our brands are pivotal steps toward establishing the principle that ‘What is good for Nepal is good for Unilever Nepal’.

Q. Being an MNC, could you tell us about the best practices that you have transferred in Nepal?
A. Our operations are based on global best practices, developed from our extensive experience across 100+ operating countries, five business groups and numerous global brands, some of which individually surpass €1 billion in turnover. We have implemented formulations for our products that are at par with neighbouring countries, tailored to the consumer profile, and in line with global standards. We believe that Nepali consumers deserve nothing but the best. Our marketing practices are a source of pride for us; we deeply immerse ourselves in local culture and characteristics, crafting communication based on local insights. We integrate global best practices in digital advertising, exemplified by our Influencer-Based and Slice-of-Life campaigns. Our recent Dove campaign featuring the Nepal Women’s Football Team as an official sponsor has garnered global acclaim. Our front-end technology is unparalleled; we boast the only and largest B2B digital platform, catering to thousands of traders, with nearly 10% of our turnover generated digitally. We are committed to staying in Nepal without compromising on Global Unilever standards.

Q. Do you think Unilever’s Nepal operation can make a significant shift in the coming days in terms of introducing innovative technology and management practices?
A. I have already extensively discussed technology. Our management practice is founded on the principle that individuals should develop capabilities to a level where they can compete effectively within any Unilever business globally. We boast a diverse leadership team, primarily comprising individuals from Nepal, Sri Lanka, Bangladesh and India. We regularly send our team members on medium and short-term assignments to enhance their capabilities. For instance, we have placed an employee from Nepal in our London headquarters. While we value local talent, we also recognise that diversity fosters optimal performance within our system. One of our greatest achievements is maintaining an impeccable record since 2021: not a single working day has been lost in our factory. Our colleagues in the factory are a key strength, leading the charge in process transformation and facilitating the launch of numerous products in Nepal. We do not just manage our people; we walk alongside them, united.

Q. What are the upcoming plans of Unilever Nepal in terms of production capacity enhancement and diversification? Has the government been supportive in terms of resolving issues raised by MNCs?
A. In the last two years, we have doubled our product lines to nearly 150. We have made necessary investments not only in the factory but also in research and development. We had requested the government for alternative modes of production, and we are grateful that the Government of Nepal fulfilled our request. Furthermore, we have witnessed commitment from the highest authorities to support local manufacturing companies. However, the government needs to act swiftly on tax reforms, intellectual property rights (IPR) protection, and allowing local manufacturing MNCs to import products for future market development and testing purposes. We are eagerly awaiting the upcoming budget and expect the government to address these issues.

As a foreign investor, what message would you like to convey to other foreign investors who are thinking of investing in Nepal?

“If we can, you can too.” We have embarked on a 30-year journey, and we are poised for another 70. Challenges are an inevitable part of the journey, but opportunities far surpass them. Nepal stands at the brink of transformation. This magnificent corner of the world not only needs attention but also deserves it.

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