July 14, 2021 Sujeev Shakya

Flourishing ‘cartelpreneurship’

Political uncertainty is what most Nepali businesses love.

In the past couple of months, as political uncertainty moved from fights within parties to the courts, many decisions that government agencies have made have been exposed. These range from the procurement of vaccines to the building of infrastructure projects—to giving a free hand to the exploitation of natural resources. The latest one being the intent to force Nepalis to buy mobile phones in Nepal.

While cars have always been notoriously difficult to import individually, this is perhaps the first time something as ubiquitous as the cellphone has such entry barriers propped up. Many countries push for mobile phones to be manufactured or assembled within their boundaries as a step to make them cheaper to sell. But in Nepal, it is about protecting distributor cartels and giving them super-profits. This is not new in Nepal, as we have seen this sort of decision in the past; so, it is important to understand the linkages. Here are three things to ponder upon

Political uncertainty boosts business

There have been private studies that reveal the close nexus between politicians and business groups. Since the Rana regime, different business entities have benefited from aligning with political groups. These alignments also change. There are very few homegrown businesses that do not have their rise linked with politics, and at many times political uncertainty. In Unleashing Nepal, I dedicated a whole chapter to discussions of the business of ‘Conflictonomics’, where the perpetuation of the conflict benefited some interest groups. Similarly, the years between the 2006 and 2018 elections saw different business entities emerging riding on political uncertainty.

Since Parliament has been dissolved, there have been many interesting ordinances and regulations that have been brought in by the government be it relating to the Securities Board, Insurance Board or other business regulatory authorities. For a country that uses political uncertainty as an excuse to delay legitimate ventures, particularly relating to foreign direct investment, it is surprising to see how certain decisions are taken swiftly. Most bureaucrats will tell you that it came from the top. But why would they do something if there is no motivation of political appointment or financial incentives for them? Homegrown Nepali businesses do very well in working out solutions with bureaucrats during uncertain times.

Cartels thrive on connections

Many business associations are cartels under the veil of registration. Rajib Upadhyaya, a former World Bank official, in his book Cabals and Cartels, provides an account of how the cartels and the political cabals shaped Nepal’s current mess. The powerful cartels are now well represented in the government and the line between the political leader and the business leader are blurring. It is very rare, even in the case of folks leading super-cartels, that anyone is charged with allegations of graft—like in the recent vaccine purchase case or in different projects identified with political groups.

The fact is that the political parties have to depend on businesses to raise money to contest elections, which are getting more expensive to run. The easiest way to raise funds is to patronise groups in certain cartels that will raise money collectively in exchange for favours. It is no more surprising to hear of panels in different business and professional associations that are aligned to the political parties. Given that Nepali businesses mostly do not have to compete with international companies means they find this unique space very beneficial and would do little to change this arrangement.

Consumers bear the brunt

A study conducted by Nepal Economic Forum revealed that the cost of cartels to the GDP is 15 percent, which at current terms means around $4.5 billion a year! These range from people paying more for inefficient services to substandard goods. In Nepal, for instance, consumers are at mercy of suppliers of petroleum products and shortages are common. Transport cartels make transportation costs one of the highest in Asia. It is not only about high costs, but also about poor service. Even in banking, studies have shown collusion when it comes to fixing interest rates and service fees. Similar studies have shown collusive behaviour in private healthcare and education. However, with cartels being omnipresent, we talk about the vicious cycle where one member of another cartel does not mind the collusive behaviour as long as they also engaging in another similar scheme. I have continuously written about how apart from the production and sale of momos, it is hard not to find cartels.

The only hope that remains for Nepal is the young entrepreneurs who are competing globally with businesses find it worthwhile to fight this plague as the size of the Nepali economy increases. Further, when Nepali companies will be open to fighting competition outside their own country, perhaps they will be forced to fight the systemic challenges. Like in politics, we are waiting for the old men to leave the business stage. Perhaps it may be the same as the wait for the pall-bearers of cartels to step up.