November 17, 2014 Sujeev Shakya

Reforming the Reformers

When a draft of the proposed Foreign Investment Act was released, many wondered who was behind the new law, which was more restrictive than the existing one. While some speculated that it was certain retired bureaucrats who had been hired as consultants by an international consulting agency implementing the programme for a bilateral agency, others thought that it was certain protectionist business associations averse to foreign investment who were behind it all.

When a big row over the Nepal-India Power Trade Agreement arose, many people across different ministries expressed concern regarding how the agreement had been kept a secret and not shared with the concerned individuals. Similarly, many people were surprised when the central bank in its quest for increased regulation kept under wraps the draft of a new Banking and Financial Institution Act, popularly called Bafia. Yes, the word speculation is often used as we do not know the reality of the situation, nor do we have a plan or understanding of how policy reforms should be initiated and implemented.

Who is Responsible for Reforms?
In the name of transition, reforms, particularly policy reforms, have been kept at bay in Nepal, with the absence of the constitution being used as the biggest excuse for the delay. But if we could push the road-widening agenda and the implementation of the zero-tolerance policy against drinking alcohol and driving, why can’t we ensure the implementation of other legal provisions as well? While the reform agenda is generally seen as something the Finance Ministry should drive, in reality there are too many players. There are lessons that can be learned from what Indian Prime Minister Narendra Modi is trying to do in India by substituting an archaic National Planning Commission with a more US-style Economic Advisory Council, which is more action-oriented and forward-looking.

Empty Think Tanks
In Nepal, we have perhaps the highest number of think tanks per capita, and like our water tanks, they are generally empty. Each donor project often sees the emergence of various institutions that fade away as soon as donor support vanishes. We then have experts and self-declared intellectuals who navigate through a very “green” campaign. Green being dollar bills! The think tanks adapt by rapidly shifting from campaigns having to do with water-borne disease to gender empowerment to conflict resolution to ethnic rights to the environment to bilateral relationships to disaster management. Due to a paucity of funding, many experts have to rely on consulting assignments that ensure they prepare enough reports to fill the recycle bin. Since the recycle bins never fill up, the report-generation process is often perennial. The funding sources are mainly interested in seeing reports created—to be launched at glittering ceremonies— which are then only used as footnotes in similar other exercises.

Private Sector Politics
In many countries, the private sector drives the economic reform agenda as it is believed that an opening up to foreign investments and integrating with the global economy brings about newer opportunities. Nepal’s private sector, on the other hand, is largely inward-looking and does not want to compete with the globalised world. Private sector associations therefore spend more time nipping at bud the entry of international firms in sectors they operate in, rather than acting as a driving force for positive economic reform. They would like to trade in foreign manufactured goods, but when it goes beyond that, there can be a sense of discomfort. In India in the late 1990s, when political uncertainty led to prime ministers serving just 13 days in office, the Indian private sector rallied to push forward the reform agenda, and it advised the government on a host of legislative and policy changes to open up markets and integrate them with the global economy.

Getting to Reforms
In the updated 2014 edition of “Unleashing Nepal”, I talk about the six areas of reforms that the government, with the assistance of a strong private sector, needs to pursue: land reform, tax reform, capital market reform, financial sector reform, labour reform and fiscal reform. These reforms are essential to ensure that the Nepali economy integrates with the global economy.

The process of reform can be taken up by policy institutions that have a sustainable source for their existence. The Nepali private sector needs to learn to support policy institutions that are working towards building the right frameworks for policy, institutional structures and legislations. For these institutions to succeed, we need more people that can analyse global practices and Nepali pragmatism. Nepal has come a long way since 1990, when the first era of reforms was ushered in. We have more Nepalis now who have an Ivy League education and experience in global organisations. We should make building the future of Nepal an exciting agenda. We should be able to sustain more people like Swarnim Waglé, who has taken up a position at the National Planning Commission. We need more funding for private organisations and others—to allow them to offer fellowships and exchange programmes to these bright minds that will entice them to come home and contribute to the discourse on furthering reforms.

Reform in Mindset
Reform requires a change in mindset. The change has to be driven by global ambitions, a moving away from mediocrity and breaking away from a protectionist mindset and a willingness to compete with global firms. Rent-seeking on protected turf is not entrepreneurship, and while entrepreneurial pursuits are risky, they are definitely rewarding. Reforms should promote a culture of entrepreneurship, reward risk takers and discourage rent-seeking. For instance, in the petroleum sector, we have been talking about reforms for ages. The key impediment is not the government but the cartels that run the petrol pumps, many of whom live off adulteration, hoarding and weight-manipulation, rather than the normal commission on sales. If and when the sector is reformed, international players will make a customer experience for those buying petroleum products, with loyalty programmes and others, rather than making it seem like a chore.

The key question, however, is how many of the current domestic players can compete on a level playing field. Therefore, pushing the reform agenda through these associations will never be possible, as it will be like asking a bunch of alcoholics to draft a prohibition law. Such policy reform will have to be taken up by institutions that have credibility and the research potential to make comparative studies and to convert the global discourse into a vernacular one that suits Nepal.

The NEF Experience
In the past five years of the Nepal Economic Forum (NEF), we have experienced what is possible and what is not. We have seen the positive process of laws relating to mutual funds and portfolio management services being conducted, as well as the intricacies in dealings with transport syndicates. In many places, the same people who hold positions in the chambers and other bodies that are against these syndicates are also in control of transport entrepreneur syndicates. The situation is complicated. The 10-year insurgency and the utter lackadaisical attitude of the government has connected policy reforms to political game plans and reforms are, therefore, viewed as a revenue driver for people who perpetuate politics.

We have seen how little international agencies are interested in an agenda that does not concern them or which does not tick the boxes of their programmes, and the little interest there is in people willing to pay for research. We have also seen how there is tremendous interest among people to pursue the reform agenda, but they sacrifice the same in the name of coalition politics and political transition. We have been excited by the response we get for our programmes and publications from young Nepalis in different parts of the globe, and we are constantly contemplating over how we can make them a part of the reform discourse in Nepal.

While we have moved away from poverty, there are many who want to continue marketing Nepal as a poor country—to bring in programmes that benefit them. However, a bigger shift has taken place, and we now have to learn to manage prosperity rather than sell poverty. To manage prosperity, we need reforms; and for reforms to take place, we need a framework for policy discourse and changes. We need more institutions that will take on this agenda, institutions that are apolitical and knowledge-based and are looking to make impacts in the long run.

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