These are tough times for the Nepali private sector as several economic indicators of the country are not showing positive signs. The overall market demand for goods and services has plummeted, and the business community members say the investment environment has eroded significantly. However, the government ministers claim the economy is on the path to recovery, and it will take the private sector into confidence for the process.
Suraj Vaidya, thinks that the current recession is the result of years of mishandling of the country’s economic affairs. Vaidya, who is also the former President of the Federation of the Nepal Chamber of Commerce and Industries (FNCCI), stresses a need for meaningful collaboration between the government and the private sector to get the country’s derailed economic engine back on track. In a conversation with the HRM, he talked about current challenges, solutions to the problems, and the tourism sector recovery, among other topics. Excerpts:
Q. The government says that the economy is recovering with the central bank also expressing optimism citing the positive indicators in the external sector. However, business community members are pessimistic about the current state of the economy. What are your thoughts on the matter?
To start with, the economic situation, as claimed by the government as improving, is attributed to the growth of remittances, which constitute close to 30 percent of the country’s gross domestic product (GDP). This makes the economy appear good. However, it is not as such. For me, what matters is the number of jobs we’ve created in this country and how secure investors feel in Nepal. The crucial question is how Nepal can become an attractive destination for domestic as well as foreign investors. Sadly, we gauge our economic well-being solely on remittances. It is a significant part of the economy, but it shouldn’t be the sole indicator. I would say it’s shameful because our youths are leaving the country.
Today, agricultural productivity is on a decline progress because the number of people working in the agriculture sector has decreased sharply. VOITH also operates tea estates, and I’m well aware of the problems we face. Internationally, there’s a demand for about 1,000 tons of high-quality Nepali coffee, but we’ve been unable to meet the demand because only fewer people are willing to work in the coffee plantations. So, going abroad for employment and sending remittances back home doesn’t bode well for the country’s economy in the long run.
Currently, the confidence of entrepreneurs and businesspersons, across every industry, is weak. Even the bankers express their pessimism because people are not seeking loans. This reflects the lack of confidence in the market.
The government needs to understand that things are looking desperate for the private sector. Despite the immense potential we have, we are driven by policies that are not favorable to fostering an environment conducive to doing business in the country. It appears that the government is more focused on collecting taxes to meet immediate spending needs. The private sector has become directionless as the government does not have a focus on where it wants to see the country in the next five years or 10 years.
Q. How do you assess the prospects of economic recovery? What is the right approach in this respect?
A. I believe the government needs to have a more realistic approach. After the end of the armed conflict, we had expected that our focus would shift to economic development. However, after all these years of the peace process, it is sad to see that we are still struggling to define our national economic policy. There is a lack of clarity on where the government should direct investments for economic growth. Instead, what we observe is the politicization of every sector of Nepal, be it public service education, healthcare, or the industrial sector. Unfortunately, there is absence of discussions on strategies to stimulate the country’s economic growth.
Nepal’s youth represent our most significant asset, and it is crucial to recognize their potential. There is a pressing need for a serious dialogue between the stakeholders to find ways to resurrect the nation’s economy. It is important to focus on concrete actions that will revitalize the country and leverage the energy and potential of Nepal’s youth.
The government needs to reassess its priorities and focus on food and energy security. Hydropower development, for instance, should not be solely focused on exporting electricity to India. Instead, the focus should be on utilizing the produced energy to enhance industrial productivity.
In agriculture, there is a need for modernization to attract investments and engagement of youths in the sector. Also, efforts should be made to revive and expand agricultural exports, tapping into the potential we once had. The tourism sector is another area that requires attention. With two new airports in Pokhara and Bhairahawa that are currently unused, there is a need for strategic planning to harness the potential of such important air connectivity infrastructures. Rather than debating the necessity of new airports, we should focus on utilizing the existing infrastructure effectively and promoting tourism destinations.
Here, organizations like FNCCI should play their roles actively.
They need to help the government realize the direction of the economy the private sector believes should be. Acknowledging this collective responsibility is essential, and efforts should be made to bridge the gap between the private sector and the government for the country’s economic development.
Q. Recently, the Prime Minister discussed with representatives of the private sector to revive the economy. What is necessary in the present context to end the recession and stimulate the economy?
A. The government’s income and revenue collection are relatively low. This is because the government always fails to meet the capital expenditure target which directly affects the country’s economic growth. In today’s world, most countries run on debt. The governments of these countries understand that if they spend in the right place, it will have positive impacts on their economy.
Our government announces a huge budget and numerous policies every year. However, what starts in Nepal never gets moving due to several issues. The government should focus on basic matters first. There is a need to facilitate the establishment of industries. The biggest problem lies in the cost of land. Setting up a manufacturing plant, whether it is a local or foreign investment, is tough. After the country adopted the federal system of governance, the challenges we face have grown in number and the work procedures have become more time-consuming. There is no support as the people in the government think that the further they stay away from the issues, the easier it is for them, which makes the problem even worse.
At present, we need a sector-specific approach. For instance, if certain areas are deemed crucial for agriculture, let’s establish agro-industry parks. If tourism is a priority, we can establish a tourism industry park. Similarly, the proper utilization of infrastructure is also necessary. An IT Park was opened near Banepa two decades ago which is now used for different purposes than what it was intended for. There should be tangible results from such initiatives. Gorkhali Rubber Industry used to be a promising tire manufacturing company in Nepal which collapsed due to mismanagement and several other issues. Currently, the demand for tires in the domestic market is immense. The government needs to revive the company or consider handing it over to the private sector. In today’s world, geopolitics plays a crucial role in the economy of any country. As Nepal is positioned between the two giant neighbors, we need to have a clear economic policy that prioritizes our national interests.
When Indian Prime Minister Narendra Modi announced buying 10,000 MW of electricity from Nepal, there was a sense of satisfaction. However, the government should not just be content with such deals. Instead, it should envision utilizing the electricity, increasing production, and exporting finished products to other countries. Nepal needs to move beyond emotional responses.
As a scenic country, Nepal should actively market its beauty to attract investments and tourists. Politicians must critically assess whether they are governing the country in the right way. Bureaucrats should work towards making processes easier for the people, and the private sector needs to recognize the value of investing in Nepal rather than in foreign lands. We need to seriously look into cultivating partnerships.
Q. As the government is in the final stage of bringing the next five-year plan, what do you think should be the top priorities and focus areas to ensure effective governance and sustainable development?
I have given up on the periodic development plans. Numerous plans were announced in the past but the results have been disappointing. During my tenure as the president of FNCCI, we formulated plans for agriculture sector development, including a 10-year plan that we submitted to the government. Unfortunately, many of these plans gathered dust in the cabinets of the government ministries.
The effective execution of the periodic development plans is what matters the most. Among various reasons, political instability is another factor hindering the implementation of the development plans. For instance, the power-sharing agreement between the current ruling coalition to change the leadership of the government after a certain period is likely to obstruct the execution of the plans and programs of the current government. The lack of cohesion among leaders raises doubts about the effective execution of the proposed periodic plan.
Job creation is essential for Nepal to progress economically making the country an attractive and livable place for the youths. Today’s youth are tech-savvy, and the global economic and employment dynamics are changing fast. One no longer needs to be in the United States to start an IT company. We have to create opportunities in a way that Nepali youths need not go to Bangalore or Silicon Valley to seek employment. Many youths are finding the tech sector appealing, and the potential is vast. Recently, it was found that the IT sector contributes five percent to Nepal’s GDP. Therefore, let’s introduce opportunities and incentive programs to propel the IT sector. This will not only retain local talent but also position Nepal as a hub for technological innovation and job creation.
Similarly, Nepal is primarily an agricultural country. The continuous reliance on imports is draining our economy, and there is a need to refocus on farming at a commercial scale. Likewise, tourism is a significant potential source of employment. Nepal should position itself as a high-value destination. Also, water management is becoming increasingly critical with global climate change. Effective water management is essential for sustaining life and hydropower projects. With its abundant water resources, Nepal can play a crucial role as a source of water supply in the South Asia region. There is an opportunity for us to explore water trade, similar to Israel buying water from Turkey and Singapore purchasing water from Indonesia and Malaysia.
Focusing on these areas can provide us with a strategic advantage in terms of trade and commerce. Given that Nepal is positioned between two large economies and cannot compete directly with them in terms of mass production, creating a niche market is crucial for us.
Q. The government’s announcement of the Investment Summit in 2024 raises questions given the current state of the economy. What will it take to attract Foreign Direct Investment (FDI) to Nepal and enhance the appeal of the upcoming summit to potential investors?
A. While investment summits are positive initiatives, the real question is whether we are genuinely committed to attracting and retaining investments in Nepal. Unfortunately, recent events such as the announcement of the departure of a major FDI in telecommunications from Nepal, reflect the frustrations faced by foreign investors. When the Prime Minister visited China and engaged with top business leaders of the Chinese community, did the private sector leaders or the government invite joint ventures with Chinese companies in Nepal to understand and address their challenges? These joint ventures serve as economic ambassadors for Nepal for facilitating a more nuanced understanding of the investment climate and potentially attracting further investments to the country.
The way the FDI investors are treated is akin to being second-class citizens. They face difficulties in obtaining visas, and their challenges in running industries are compounded by extortion. When foreign investors who have invested in Nepal are refrained from speaking positively about the country, it discourages potential international investors. Before hosting the Investment Summit, the government needs to comprehend and address the prevailing issues. The impact of investors’ voices would be significantly enhanced if they were to proclaim Nepal as the best country for investment. Without favorable words from investors, the government’s efforts may be futile.
Similarly, the government should make Nepal ready for the summit. There are problems everywhere for foreign as well as domestic investors. Even the banks are facing difficulties now. When the government can’t boost the confidence of domestic investors, what is the point of organizing a summit to attract foreign investment?
The legal reform is necessary to instill confidence in foreign investors that Nepal is open for business and investment. Ironically, the bills that were pending in the parliament during my tenure as the FNCCI President 15 years ago are still awaiting approval.
The Indian Prime Minister actively talked to companies like Apple and Tesla to invest in his country. However, when our prime ministers visit abroad, they meet with their counterparts but neglect to engage with potential investors. It needs to be understood that engaging with the foreign business community is equally important as getting along politically.
Q. You were the National Coordinator for the Visit Nepal 2020 campaign which was cancelled due to the Covid-19 pandemic. Recent data indicate a promising revival of tourism in Nepal with a projected one million tourists entering the country in 2023. How can this number be increased and ensure the tourism recovery is sustainable?
Foreign visitors love Nepal. They feel Nepalis are wonderful people, and the hospitality here is fantastic. Many think they need to go to Nepal once in their lifetime. I think Nepal deserves much more than a million tourists a year. The Chinese autonomous region of Tibet receives 10 million a year, and the city of Mecca in Saudi Arabia welcomes 10-12 million tourists just from the Hajj pilgrimage.
In Nepal, we have Lumbini, the birthplace of Buddha, and we have Janakpur the birthplace of Sita. Some of the most sacred sites Hindus and Buddhists are situated here. While the number of international guests is growing, the number is still far from satisfying.
Besides building new infrastructures, there have to be changes and improvements in our existing systems and infrastructure to offer a pleasurable experience to the visitors. It takes a lot of time to get clearance from the Tribhuvan International Airport which discourages the tourists. If we can improve the processes, attracting two million tourists is not that far away, and if we work a little harder, five million will come.
Q. What are the current focuses of VOITH in terms of investment and business expansion?
Our belief in the immense potential of agriculture in Nepal has fueled our dedicated efforts in this sector. Simultaneously, we recognize the crucial role of mobility in the context of Nepal and are actively working on enhancing our automotive business. We also have a major focus on the hospitality sector. Our Chitwan resort project is scheduled to be operational by the third quarter of 2024. Situated in Meghauli, it is a 30-villa resort designed to operate with a spiritual ethos. Collaborating with a reputable company to manage this project, we aim to create a unique offering in the hospitality landscape.
In the next five years, we plan to establish 3-4 boutique hospitality properties. The resort project in Chitwan is strategically targeting a select number of Indian tourists, focusing more on attracting high-quality visitors from international markets.
Q. Is the government’s emphasis on electric vehicles (EVs) proving effective in Nepal? How do you view the transition to EVs?
Businesses have to shift when there is a shift in government plans. People often claim that Toyota vehicles are expensive. To assess this, I asked finance professionals working in our group. Over the last five years, including the two years of the Covid-19 pandemic, our company experienced its first-ever loss in its 57-year history. During this period, we contributed a significant amount of Rs 17.50 billion to the government coffers through customs, excise, and road taxes, excluding income taxes. Various companies in Nepal contribute substantial sums through taxes, and the revenue could be utilized for the development of mega projects. However, with the growing dominance of EVs in the market, the revenue from the import and sales of internal combustion engine (ICE) vehicles has declined. The cost of EVs is three times that of ICE vehicles which has led to a substantial outflow of money from the country.
Despite this, the reduction in revenue has not translated into a decrease in traffic, leaving fewer resources for road maintenance. Also, fuel imports remain unaffected. The shift to EVs raises concerns about the fate of the management of batteries powering the vehicles after 10 years. The expense of replacing EV batteries is high, and after a decade, there may be little to no resale value for EVs. Conversely, ICE vehicles retain their resale value, posing a dilemma for the future of EVs in Nepal.
The long queues at EV charging stations during the recent Dashain-Tihar festival indicate a lack of infrastructure, exacerbating traffic congestion in Kathmandu. While EV prices have dropped due to lower taxes, emotional decisions seem to be adversely impacting businesses. The increasing number of cars in the market, driven by lower EV taxes, contributes to the congestion. Moreover, importing vehicles from India and China is financially advantageous due to lower taxes indicating a government focus on promoting trade rather than domestic manufacturing.
