July 8, 2013 Sujeev Shakya

Where is the Queue

I was going through an article I wrote for this same paper 17 years ago about the need for change in the mindset insofar as foreign investment promotion is concerned, and if the article were to be reprinted today, it would still be valid. This demonstrates that the mindset of our government, bureaucracy and private sector has not changed over the past two decades. The proposed new Foreign Investment and Technology Transfer Act, demonstrates how society has yet to move towards globalisation from isolationism, from rhetoric to reform and from regression to progress.

Promotion or regulation?
The fundamental question that needs to be asked about any Act relating to businesses, be it foreign investment, hydropower or tourism, is, do we have lots of investors queuing up to invest in Nepal? The biggest fallacy in the thinking of self-declared intellectuals and experts is that there are lots of people dying to invest in Nepal, so laws have to regulate such investments. Laws have never taken the promotion perspective wherein you provide incentives for investors and make sure that they are welcome. All countries that attract investment make sure that laws are friendly and their implementation friendlier. In Nepal, the objective is to make draconian laws and ensure implementation with the eloquent greasing of palms, which is completely unfriendly to the investor.

Restriction! restriction! restriction!
It is interesting to note that from now on, since Nepal has a big indigenous horse breeding industry, foreign horses cannot be used in tourism. This is point 7 in Part A of the restrictions in Appendix 1 of the proposed Act. Such provisions show how the Act has been has been drafted with a view to protect local business groups and not promote foreign investors. It is interesting that tobacco and alcohol has been opened up. Foreign investors who could have invested 100 percent in many industries, now, will not be able to do so as they will have to take in local partners. Rent seeking is the hallmark of Nepali society so why not extract a pound of flesh as a local partner and earn a lot by doing nothing? The Nepali private sector that breeds the promotion of cartels will now love to create a cartel of people who can only partner with foreign investors, if not, they will shut down everything. Since the apex industry and business bodies stay mum when cartels unleash their protest programmes by shutting down water sales, it seems this is exactly what they like to promote.

Multiple boards, multiple problems
There is no rationale behind creating new Boards and Committees, other than to make some extra money through meeting fees and helping the local canteen of the office where the meeting is hosted. The current Investment Board should become the nodal agency to handle foreign investment. Efforts should be made to strengthen this Board and develop a working relationship with the Department of Industries that will allow more transparency in the process. There are more than twenty five processes that one has to go through when one wants to get foreign investment approved. Through the use of automation and web-based virtual processes, more than 80 percent of these processes can be eliminated. Rather than creating more boards, it is more important to ensure their smooth implementation.

Pennywise pound foolish
The process of law making in Nepal is supported by projects of bilateral and multilateral agencies, who outsource the work to large global companies whose primary objective is to make good money by ensuring that less is spent for local consulting work. Consulting work based on a per day system, that has not been reviewed for ages, caps consulting rates to be able to only hire retired bureaucrats. Reputed legal firms cannot work at those rates. I was joking with a friend from a bilateral agency that when they go for an open heart surgery, they would look for hourly rates of the surgeon, the nurses, the anesthetists etc. Changes in legislation can only be dealt with by a good legal team and there are enough of them in Nepal. The government just needs to hire them and send the bill to a donor of their choice rather than having three layers of overhead agents in between. The way the provisions relating to foreign investors for investment in the stock market has been laid out, no one can even comprehend what is being said. The drafted laws can be put up on a website, in the public domain for 30 days for comments, rather than putting people through boring workshops and conferences where the subject matter of the discussion is not related to the proposed legislation. A final draft with comments incorporated can be again left on the website for 30 days. Thereafter, the same can be sent to legislators to deliberate on and approve. A government that has the mandate to conduct elections on time should not be too bothered about changing things that have not been changed for the past 20 years as the old law is better than the new one.

Transforming private sector voices
Whenever it comes to the private sector, a few institutions behave as though they are the ultimate cartel of the private sector voice. The inter as well as intra group rivalry within private sector bodies has shown that they are more political than the political parties and this has impacted the private sector image amongst citizens. Change is needed as emerging new entrepreneurs would want to stay a barge pole away from those institutions. Rather than writing a new Act, the Board of Investment, the apex government body, should be entrusted with creating a working group that will not pledge sitting fees and go on junkets but will instead develop a modality to work on a new draft by using the web for suggestions and comments. Of course, a good local law firm can be hired for the work and one of the many agencies that has genuine interest in developing good laws should fund this. At least for this law, we can recruit many Nepali volunteers who have the capacity and capability to help amend the law.

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