New investments in hydropower, tourism raise hopes

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    KATHMANDU, Jan 1 : The year 2014 fared better in terms of economic activities compared to past year. However, nothing substantial happened in two core sectors of Nepali economy — agriculture and industry. Though the government, through the budget for fiscal year 2014/15, expressed commitment to bring about reforms in laws related to economic sector and unlock constraints to growth, no such thing happened in the first half of 2014/15.

    Private sector had laid high hopes in this government formed by political parties advocating liberal economy. But their hope is fading gradually. It seems that they are waiting for the new constitution. But the chances of the country getting a new constitution within the stipulated timeframe is low, as political parties are divided on key issues like the form of governance and federal structure, among others.

    Though the private sector urged political parties to include common economic agendas in their election manifestos ahead of the Constituent Assembly (CA) election, it didn´t happen. “Parties did not include such agendas in their manifestos. And they have not translated their commitment into action,” Hemant Dawadi, director general of Federation of Nepalese Chambers of Commerce and Industry (FNCCI) said.

    The coalition government led by Nepali Congress introduced pre-budget discussions in the parliament for the first time in the country´s history. But the discussions couldn´t go ahead as planned as opposition parties disrupted the proceedings, protesting budget transfer by Finance Minister Ram Sharan Mahat.

    Despite disruption in parliamentary proceedings, the government managed to table full budget in time. The government expressed commitment to introduce second-tier of reforms, giving continuity to the reforms initiated in the 1990s. Minister Mahat also expressed commitment to make necessary amendments to over half a dozen laws related to economy to spur economic growth.

    Our economy needs to grow by at least 8 percent if we are to graduate to the league of developing countries by 2022. But initial figures it would be difficult to achieve the targeted growth of 6 percent.

    The government has managed to spend only around 8 percent of Rs 116 billion allocated for capital expenditure over the first five months of 2014/15. Because of the low capital expenditure, spending by private sector has also not been encouraging. Banks and financial institutions (BFIs) have liquidity surplus of around Rs 70 billion and interest rates have fallen sharply.

    Perhaps signing of Project Development Agreement (PDA) with two Indian developers for the implementation of two mega projects — Upper Karnali and Arun III are the biggest achievements of this agreement. Investment commitments of US$ 2.46 billion have been made in these projects.

    Tourism and hospitality industry has received investment commitments worth around $400 million. The commitments have come with the expectations that number of tourists will increase following restoration of stable political situation. But the government has not put much efforts on increasing number of tourists and extending their length of stay.

    Investment commitments have come for around a dozen five-star hotels. Works on three such hotels have already begun. Existing five-star hotels, too, have unveiled upgradation plans. As per the Tourism Vision 2020, the government is targeting to increase number of tourists by 150,000 annually. The rise in the number of tourists in recent years encouraged tourism entrepreneurs. They are investing in new products and services to take optimum benefits from this new segment.

    Except hydropower and tourism, other core areas of Nepali economy — industry, manufacturing and agriculture– are more or less in the same state. The rise in the number of youth (by 24 percent in the first four months of 2014/15) leaving for foreign jobs shows that there is no improvement in employment growth.

    The government has not introduced any concrete programs to implement its plan of replacing import by increasing exports. Ballooning trade deficit is showing no indication of slowing. Trade deficit in the first four months of current fiscal year increased by 27 percent compared to figures of same period last year. Trade deficit had increase only by around 17.1 percent is in the first four months of 2012/13.

    Agriculture, which is the backbone of the country´s economy, is limping in the absence of new technology and modernization.

    One of the positive signs of 2014 is that industrial relation has improved a lot compared to past years. Industrialists say labor unions have shown maturity and that they have to agreed hold protest programs without hampering industrial production.

    Following the successful CA election and the formation of government under Nepali Congress (NC) and CPN-UML, Nepal came into the notice of international investors. Hordes of investors flew to the country to take stock of the investment opportunities here. Prime Minister Sushil Koirala, ministers and high-level officials assured them of creating investment-friendly environment. Unfortunately, the government couldn´t deliver. As a result, foreign investors returned to the country adopting ´wait and watch´ policy, according to local industrialists.

    “Things are improving, no doubt. But the government failed to translate its commitment into action. The obstruction in Bhote Koshi Power Company (BKPC) is a glaring example of it,” said Dawadi.

    The hydropower project with installed capacity of 45 MW couldn´t generate power for over three months due to obstruction in construction of pylons by the locals. The issue was settled after the company agreed to provide six percent shares in the company to the locals at the rate of Rs 100 per unit.

    Indian Prime Minsiter Narendra Modi announced credit line of $1 billion to Nepal during his first visit to Nepal in August. Four months later, Chinese Foreign Minister Wang Yi announced to increase support for infrastructure projects by five-fold to RMB 800 million.

    Meanwhile, Millennium Challenge Corporation, the foreign assistance agency of the United States, has selected Nepal for large scale funding, citing improvements in different indicators as well as Nepal´s progress in institutionalizing democratic progress. The funding may range from $100 to $600 for projects selected by the government.

    “We have received investment commitments from different countries as well as from bilateral and multilateral donors,” Chandra Mani Adhikari, member of National Planning Commission (NPC), said. “The main question is how we are going to implement them.”

    The government inaugurated Special Economic Zone (SEZ) on November 19 to facilitate export-based industries. The process to invite Expression of Interest (EoI) from interested industrialists is underway.

    Meanwhile, parliamentary committees, particularly development, finance, public accounts, and agriculture and water resources, played crucial role in economic development. They initiated rigorous discussions on key aspects of national economy. Their major concern is on keeping vigil on development projects as well as making capital expenditure accountable and efficient.

    The performance of secondary market during the can be termed satisfactory. The benchmark index, which opened at 770 points on January 1, 2014, hit six-year high of 1,083 points in July. The index, however, underwent minor corrections in the second half of the year.

    Source : Republica