We need policies to increase profitability of the agribusinesses and export-oriented industries

Times are hard for doing business in Nepal. After two years of the havoc wreaked by the Covid-19 pandemic, the country’s economy, which was thought to recover in a satisfactory manner, is now surrounded by a number of internal and external problems. Pawan Kumar Golyan, Chairman of Golyan Group, has been observing the current situation with keen eyes and thinks that there are systematic and fundamental issues that need to be ironed out to get the economy back on track. In a conversation the HRM, the prominent industrialist, whose group has investments in different business verticals including manufacturing, banking and insurance, agriculture, hospitality and renewable energy, talks about the current macroeconomic scenario, the ongoing shortage of investible funds in the financial system and Golyan Group’s plans, among other topics. Excerpts: 

The country’s economy is grappling with a range of problems from a protracted liquidity crunch, depletion of forex reserve and widening balance of payment (BoP) deficit. How do you see the current state of the country’s economy? Are we facing the same fate as Sri Lanka?
Nepal cannot be compared to Sri Lanka, but we have our own problems. There is no doubt that these problems have grown significantly in the last one year. Imports have skyrocketed in the current fiscal year whereas remittance inflow has been on a steep decline. While our exports have also grown, this is still far too insufficient for the import substitution. The most alarming fact is that we are spending Rs 300-400 billion on the imports of agricultural commodities.
What I have been advocating for the last 5-7 years is that Nepal has no choice but to move ahead with an agricultural revolution. For this to happen, policies must be formulated to protect small farmers. While the government has provided 30-35 percent protection to the industrial sector, farmers have only 5 percent protection which I feel is not fair.

Remittance has been the main pillar of our economy and it will continue to be for a few more years. But, the slowdown in remittance inflow this year has been a major concern for us. As remittance has been the largest source of foreign currency for Nepal, we need to take 4-5 initiatives to bring more remittances through official channels.

First, the government should introduce a provision to provide certain quotas to remittance senders (the majority of them are migrant workers) in the initial public offering (IPO) of companies in the country. Second, migrant workers should be enrolled in the government’s social security schemes. Third, the government must add 1-2% interest on top of what banks are providing to remittance deposits. And, fourth, we must encourage migrant workers to open bank accounts mandatorily before they leave for abroad jobs. 

The government has barred imports of several items as an immediate measure to prevent further decline in foreign exchange reserve. Is this the right move?
This step cannot be a permanent solution to the depletion of forex reserve as it will bring more distortions to the country’s economy. 
Promoting industries that can contribute to the substitution of imports in a really meaningful way is the long-term solution to this problem. As long as we do not increase our exports, the government has to rely on imports for revenue.

With the increasing per capita income, the growing consumption has fueled the rise in imports. This has led to a fast increase in demand for items including mobile phones, vehicles, and television sets, among other goods. 

Specific measures can be taken to check the import of different types of goods. For instance, hiking number plate charges during the registration like in Singapore can reduce vehicle imports. Similarly, increasing customs duty on different types of ‘luxury’ items can check the imports.
Farmers are not able to get good returns on their investment in agriculture. A fair pricing policy for agricultural produce is needed to promote domestic production. There won’t be substitution of imports unless the imports are made dearer.

We need to see why domestic cement and steel industries have fostered in the past two decades. It is because such industries get the protection of 35% from the government. There are anomalies in this regard, however, as the high protection has led to the establishment of cement and steel companies in higher numbers than market necessity. 

More than 50 percent of our agricultural imports can be substituted. But, the problem is a lack of protection for the agricultural sector. Providing subsidies or grants is not going to help because it is not reaching the desired people. Hence, our approach should be to make the imports costlier and protect the farmers. 
Given the limited capital we have, we should look into how the money is invested. The Confederation of Commercial Banks and Financial Institutions Nepal (CBFIN) also has studied the items/sectors where investments of banks have gone. We’ve found that a significant proportion of investments have gone into unproductive sectors. I think banks also need to carry out such studies. 

While import substitution is a hot topic right now, the fact is, that establishing and running an industry in Nepal is still a cumbersome process. In such a scenario, what should be done to boost our exports?
We need policies to increase the profitability of agribusinesses and export-oriented industries. But it is an irony that the Finance Ministry is revenue-oriented and has larger say on issues related to business and the economy. Ideally, the issues related to industries and production should be looked at by the Industry Ministry. Sadly, neither Industry Ministry nor Agriculture Ministry are functioning as they are required to foster a good environment in the industrial and agriculture sectors. 

The fact that the cement and steel industries are thriving in Nepal by receiving a higher level of government protection is because their lobby is strong. On the contrary, ordinary farmers are unable to reach out to the government and say what they really want. At present, the needs of farmers are the availability of quality seeds, fertilizers and agro equipment on time so that they can timely harvest crops. They need at least a 20-30 percent margin on their products so that they can take care of their households. 

The current liquidity crisis has been dragged on for a long time. What is the impact of this crisis on the business and investment of the country?
Business community members are also to blame in some way or the other for the prolonged liquidity crisis because we have invested more in the unproductive sectors. Financial institutions have given more priority to the corporate sector when it comes to lending. Banks are seen engaged in the practice of name lending i.e., lending on the basis of personal relationships rather than the financial fundamentals of the borrowers. 

Talking about the BFIs’ lending in agriculture, Rs 150 billion in loans have gone to this sector. But there is a big question mark whether such loans have been properly utilized or not. CBFIN in its report has suggested that the central bank should carry out a study in this regard. 

The current liquidity crisis is a systematic one and this time it will not be resolved in two-three months like in the past. The current crisis is related to the source of bank deposits. The major sources of our banking system’s deposits are remittances, tourism earnings, and export income. What happened is, due to the rise in imports, a lot of money went to the import funding but there is a decline in remittance inflow as well as tourism earnings. Similarly, it is estimated that Rs 100 billion has flown out of the country’s financial system due to under-invoicing in imports. 

Golyan Group entered the hospitality sector, opening a five-star hotel in Kathmandu during the height of the Covid-19 pandemic. As the tourism sector comes out of the pandemic impacts of the pandemic, what do you think is necessary for the revival of this sector?
Nepal is a beloved destination in South Asia for many tourists worldwide. We are situated between the two largest countries in the world, which I believe is the biggest opportunity for us. If we can only bring in Chinese and Indian tourists now, the number of guests will be sufficient for our tourism sector.
But we need to resolve a few issues for this to happen. First, the hotel sector is yet to receive status as an industry from the government. At present, hotels are paying Rs 13-14 per unit for electricity which is quite unreasonable for foreign currency earning businesses. 

Second, the performance of tourism-related bodies including the Nepal Tourism Board (NTB) has not been very effective. The job of NTB is not only to conduct programs abroad but also to promote local tourism and identify new destinations across the country. They need to identify new opportunities through which Nepali tourism could be flourished. For example, a temple dedicated to Lord Ram is under development in Ayodhya, India. We have the Janaki Temple in Janakpur where tourism infrastructure is gradually getting better. If we can connect these two cities and highlight Janaki Temple as the birthplace of Sita, it will do wonders in tourism development in Janakpur and Madhes Province. 

Buddhist tourism is another area that if planned properly will attract hundreds of thousands of pilgrims and visitors every year. But we need to develop proper infrastructure in places like Lumbini where Lord Buddha was born. There are 69 monasteries in Lumbini, but all were built by other countries. There is no monastery made by Nepal there. Why we can’t build a large statue of Buddha? The electric buses that have been purchased for shuttle service in Lumbini are yet to come into use. The operation of the new international airport in Bhairahawa is a positive step in developing Buddhist tourism as it has opened new doors of opportunities. 
Similarly, thousands of Indian tourists visit the Muktinath temple every year but there is a problem with connectivity to reach the sacred place. It takes 10 hours by car to reach Jomsom from Pokhara as the road infrastructure has not been developed properly. If the road infrastructure is built, the time to reach Muktinath can be reduced automatically, thereby increasing the number of tourists.

Your group has recently announced the expansion of Reliance Spinning Mills. How is the group planning to expand investment in the coming years? 
It has been 40 years since I joined the industrial sector. Around 30 years ago, our group took the policy that we would enter into sectors that contribute to import substitutions and promote exports and the financial sector. Around eight years ago, we began investing in the energy sector as we believe this is one of the key areas which is necessary for the country’s economic development. Later on, we forayed into the tourism sector. About five years ago, we decided to get into agriculture and we have invested heavily in our agribusiness ventures over the last three years. Now, the Golyan Group’s priority sectors are agriculture, industry, energy, export-oriented industry and tourism. We are giving our full focus on these sectors at present and not venturing into other sectors. 

We have sizeable investment and presence in banking and insurance. As I see distortion appearing in these two sectors, I don’t want to involve in the rat race. That is why I haven’t invested in any insurance and reinsurance companies lately though there was a lot of pressure from friends to invest. 

As Golyan Group has investments in diverse sectors, it must need qualified human resources. How do you get the required competent human resources? What should be the role of big groups like yours in the human resource development in the country?
The lack of qualified human resources has been one of the biggest hurdles for us. As Golyan Group is currently in the growth mode, we often struggle to get the right kind of workforce required for our businesses. It is an irony that competent and qualified people often go for abroad jobs after working for a short time in Nepal. 

These obstacles have occurred because organizations in Nepal have not given due importance to HR management. The majority of the corporate houses still do not understand and realize the value of having a proper HR management system. Still today, HR departments in many organizations are confined to administrative roles and responsibilities. Even the banking sector has not fully internalized the importance of proper HR management. I think the HR department in any organization should be involved in the overall human resources development of the organization.  

As far as Golyan Group is concerned, this is the only group where one of its major industries – Reliance Spinning Mills which employs over 4,000 people, has had no strikes in the last 26 years. 

Even during the pandemic when many industries were closed for a long period, Reliance Spinning Mills’ operation was closed for only 17 days. In fact, Reliance Spinning has achieved the best results in the last two years. But the same thing cannot be said about the other entities under the Golyan Group. 
What we have to internalize is that the more we spend on HR development, the better the results will be. NRB has mandated banks to spend 3 percent of their total budget on HR and capacity building of staff. The objective of this arrangement is to increase productivity and instill a sense of ownership of the organization(s) among the employees.

Currently, CBFIN is working closely with universities and business schools for producing and training a competent workforce for industries. Let us not forget that human capital is the most important thing now.

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