Private Sector's key priorities for the Development of
Nepal
Role of private
sector for sustained economic development is always at the forefront. The
present global economic experiences reaffirmed the notion that the invisible
hand of the market would always contribute to accelerate growth process in a
sustained manner. Market oriented development strategies encourage increasing
private sector involvements in the development process, limiting the
government’s role as a facilitator & developer of the private sector
through the investments on building physical infrastructure and human resources
so as to create an environment conducive for private sector development.
Nepal, though
embarked to the periodic development planning exercise as early as 1956, the
majority of which was supported by the development partners, failed to realize
the importance of private sector and market oriented policy in the process of
overall development of the country till late eighties and this resulted to
several economic distortions. However, a distinct departure took place in the
overall development policy & strategies in the country, particularly after
the restoration of multiparty democracy in 1990 and consequently under the new
policy paradigm, a liberal policy anticipating greater role of private
initiatives in the economy has been in place replacing the controlled economic
policies practiced under the Mixed Economic Approach. Since then, democratic
governments initiated a series of market oriented policy reforms to integrate
the economy towards globalization and economic growth. A remarkable progress in
terms of growth, investment and employment has been achieved.
As the private
sector led growth was the main thrust of the policy reform during 1990’s, the
average growth rate of GDP increased from 4.8 percent in the pre reform period
to 5.2 percent in the post reform period. The real fixed private investment
increased from 4.7 percent in 1985-91 to 13.2 percent in post reform period.
Manufacturing value added increased from 5.3 % in pre reform period to 13% in
the post reform period and employment in manufacturing sector increased by 36%
in poet reform period.
After 1996 the
real average GDP has declined, manufacturing value added and employment has
fallen back and real private fixed investment has stagnated. The continuity in
the reform process was affected due to external and internal factors. In the
external front, unfavorable weather condition for Agriculture, the Asian and
global financial crisis and the changes in the policies of the key export
market are attributable to the poor performance of the economy. Moreover, in
the domestic front the poor implementation capabilities, the increasing
resource gap, absence in the commitment at the policy level for further reform,
lack of legislative frame work and the performance of the bureaucracy are the
important contributors.
In all the
development and reform efforts that had been undertaken by the government of
Nepal, the contribution of development partners has remained very pivotal. Around
two-third of the total development expenditure and one third of government
budget is contributed from development partners. However, the aid approval as
well as disbursement procedure of the development partners has been getting
improved year after another, the project financing practice and procedure of
the government of Nepal could not improve as per the requirement. As a result, the
debt absorption capacity (ratio) of Nepal has been decreasing gradually.
In such a
situation, Confederation of Nepalese Industries (CNI), as a private sector
organization and one of the associates of the country's prosperity, in deed,
would like to request the development partners as well as the government to
revisit the funding and financing policies and strategies. In this regards,
high priority should be placed in the following sectors from both the donors
and the government as an aid recipient to develop trade in making the recipient
countries independent in the long run.
·
Both donors and the government have been unable to
fully meet their commitments in both financing and governing the needed
development initiatives.
The donors have been focusing mainly to the course of development cooperation
in several socio-economic areas, but the legal and physical infrastructures are
not in the priority. If such infrastructure could be developed that can
contribute in strengthening trade and investment facilitation, reducing the
cost of doing business, and finally improving the investment climate, creating
more employment opportunities, which in turn exerts positive impact in the
country's socio economic condition and can lift up the well being of general
people. Thus, the infrastructure development should fall in the top priority of
both the donors as well as recipients.
·
As the dateline of Millennium Development Goals
(MDGs) is approaching, the policy oriented study is needed to bridge the gap
between research and policymaking related to development initiatives. Because the
deadline for 2015 is close and not all MDG targets will be met, hence, it is
good time for the donors to think about post 2015 framework for development
initiatives and support mobilization. The post 2015 development framework needs
to look at framing support of both traditional as well as new donors in
relation to the needs of recipient country. In this framework, private sector,
the engine of the growth also should be included especially in the
funding/financing of the infrastructure projects so as to use the private
sector's expertise of resource mobilization and management.
·
Nepal made various progresses since 1990s, though the
key drives as well as obstacles for it, the role of external actors and impact
on MDGs needs to be assessed. Apart from looking at the main constraints and
opportunities faced by the economy and the possibilities for external actors to
better support national development strategies to galvanize global support
stressing on the need to scale up absorptive capacity and need assessment are
the key issues to be considered for better utilization of aid and increase
ownership.
Moreover, the
donors should focus on the following policies reform issues, which are direct
association to the business confidence, investment climate as well as the cost
of doing business in the country.
1. Industrial Enterprises Act and
Foreign Direct Investment (FDI) policy
The
Industrial Policy, 2010 embarked upon encouraging industrial development
through the operation of market forces, substantive reduction in licensing,
other government interventions and administrative hurdles, granting liberal tax
incentives and strengthening support institutions. Opening up of different
economic sectors to private investments and establishment of one window system
for giving single point service to the investors are other major steps taken by
the government to encourage private investments. For this, Institutional,
Infrastructural and Policy support from the donor are necessary to develop
small and medium enterprises in countries like Nepal. These SMEs are the source of income and
employment opportunities, which directly support economic generation and are
effective tool towards poverty alleviation and social welfare.
Similarly
transparent FDI policy, supported by domestic Industrial Enterprises Act, providing
unabated repatriation and easy visa facilities to the foreign investment would contribute
to increase the numbers & amounts of FDI in the country. In this case also
donors can support in the non-nationalization of industries, inception of one
window system for providing one- point service to the investors, provision of
dispute settlement through mutual consultations and in accordance with
arbitration rules of the United Nations Commission on International Trade Law
(UNCITRAL), and permission for 100% equity participation are other policy
instruments aimed at inviting foreign investments in the country.
2. Trade Policies
As
the trade policies have a direct bearing in the national development process,
the forward-looking liberal policies of the nineties have definitely encouraged
promoting trade in Nepal. Adoption of realistic exchange rates, simplifying
procedures and instituting support mechanisms has contributed to the growth of
trade. However, to sustain the trade promotion in a meaningful manner, both the
tariff and trade policies would be reviewed in the context of the World Trade
Organization (WTO) and South Asian Free Trade Area (SAFTA) Agreement and her
preferential trade with her largest trading partner, India. Removal of the
structural rigidities in the international trade such as less diversified the
trading regime, in terms of destinations and products, has become the main
challenge for sustaining the gains so far in trade front on which donors can
support through the government as well as private sector institutions in the
following fronts:
ü
integrated trade and investment
policies with overall development
policy,
ü
consultative and participative
mechanism between main stakeholder i.e. private sector, government and civil
societies,
ü
Strengthened intra-governmental
policy coordination mechanism,
3. Other Sectoral Policies
In
addition, various sectoral development policies are yet to design to cater the
need for private sector development in consonance with macroeconomic policy.
Major policy initiatives to be taken are there like, to open the restricted
sectors to foreign investments with easy entry and exit provisions, with easy
access to finance, innovating new instruments, and improving quality services
through increased competition & professionalism. In this area also the
donors can support the government in cooperation with the private sector.
4. Tax Policy Reforms
Various
reforms have been initiated to improve the quality of services in tax
administration, make the administration taxpayer friendly and increase the
revenue yields required for meeting expenses of various development activities.
Sweeping changes have occurred in the tax policy in recent years, as it changed
from the regime of high tax incentives for directing private sector investment
in predefined priority areas to the regime of equal treatments to all
sectors. Despite significant reforms,
there still persists the problem of inefficiency, narrow base and procedural
rigidity and non-clarity in the tax system, which requires further reforms in policy,
legislation and procedures. In addition, creation of a taxpayer friendly
environment as well as competent and professional tax administration capable of
functioning efficiently in the changed context of global economic integration
has become the need of the time to be supported by the donors.
5.
Labor
Laws
In general for the efficient functioning of market
economies and private sector enterprises, the laws need to be simple,
unambiguous, consistent and transparent and framed with due consultation with
the stakeholders; and also should keep the element of flexibility and track of
development. However, the labor laws in the country, as perceived by the
investors or the industrialists, have been very rigid and more labor biased,
which prompted increasing uses of cheaper foreign labors and capital-intensive
technologies. A careful thought shall be given on giving greater flexibility in
labor laws so that a balance between labor interest and private sector
development would be stroke.
6. Infrastructure
Investments have been made to build new
infrastructures as well as improve the condition of already developed; as a
result significant improvement in the infrastructure development has taken
place viz. transport network, communications and other support services. The private sector is also encouraged to
invest on infrastructure project under B-O-T and B-O-O-T schemes. Despite these initiatives, requisite
infrastructure support service has not reached in many areas. The infrastructure, as one of the public
goods, shall be improved on a continuous basis to ensure high quality of
services to attract more private investments in the economy. Thus, donors
attention should be concentrated to the infrastructure financing in an
efficient manner.
7. Public-Private Partnership
Various
flora having representation from private sector have been instituted to promote
dialogues between government and the private sector while formulating the
macroeconomic and sectoral policies. The major consultative bodies to this end
are Board of Investment, Environment Council, Industrial Promotion Board,
Revenue Consultative Committee, and Export Promotion Board etc. Apart from
these, there are many other agencies in which private sector representation is
created to enable the private sector to play and contribute in policy dialogue
process in a meaningful way.
Apart
from these, public private partnership (PPP) approach has been recognized and
used as a beneficial approach to implement development activities and provide
services to people. Local agencies and in other sectors, PPP approach is
increasingly being adopted. This is a manifestation of not only recognition of
the role of the private sector in Nepalese economy but also a commitment on the
part of the government to push forward the process of development by putting
together all resources. This also should be one of the priority areas of
donors.
8. Institutional Support System
Various
institutional arrangements have been framed to facilitate and support the
private initiatives in the economy. The set up of One Window Committee, as
provisioned by the Industrial Policy to facilitate various services like
electricity, water, telecommunications and tax incentives under a single roof,
has been one of the several arrangements made to this end. But this is yet to
cater in a full-fledged, thus, the Investment board should fulfill this gap, on
which the donors can support.
In
addition, several governments, semi-government like Industrial Enterprises
Development Institute, Cottage and Small Industry Development Board and private
institutions are involved on developing entrepreneurial skill and providing
support to private sector through the productions of skilled and semiskilled
manpower as per the market requirements.
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