|
Time to Make Radical Decisions
By Prasidha B Panday
When my friends of the business community are calling for an early solution to the security problem as it is hampering the business and for various sops to manufacturing and tourism, I beg to differ on at least a number of counts. And I would like to call for some radical shift in our policy focus.
One such radical shift is needed with regards to the question of whether we should go on concentrating on the development of manufacturing industry giving special duty incentives or other sops for this industry. I feel that while manufacturing has its own importance and we should try to develop it, we should revisit our priorities and analyse why manufacturing has not developed as desired and if there are other better options.
Though the history of modern industrial development in Nepal started in the early 1940s, we have yet to identify the exact areas of our comparative advantage. The 65-year history of industrialisation in Nepal is replete with examples of failure in manufacturing industries. One can see a pattern in this. Any manufacturing industry that is successful in Nepal lasts only about 10-12 years. The examples are matches, jute, katha, sugar, cement and recently readymade garments and vegetable ghee. Also the carpet industry faced a similar situation. Though it now looks to have stabilised somewhat, it is still vulnerable to the slightest of shocks.
Therefore, there is now an urgency to explore other areas, which may form the backbone of the economy. In my opinion, trade, tourism and banking should be such areas. If these areas are provided the leading role, they may automatically help in the development of not only the manufacturing but also the agriculture and hydropower or any other sector wherever Nepal may have comparative advantages.
I say this not only because I’m in tourism. The beauty about tourism is that it has been growing in each successive decade despite some intra-decade highs and lows. According to a finding, one tourist arrival means livelihood for nine Nepali people, directly or indirectly. And the strength of the country as a tourism destination is such that the number of arrival was 379,000 in 2004, the year when it should have been almost zero going by the conventional wisdom. It indicates that we can get one million tourists even with the ongoing security problems provided a number of other requirements are quickly fulfilled.
First, the RNAC or any private sector airline should be provided with eight or ten jets to increase connectivity and second, the Nepal Tourism Board should be made more effective. The question of financing the purchase of so many jets is a matter of planning. Once it is decided to have that fleet, ways can be explored to arrange the finance. If the government can stand sovereign guarantee for a hydropower project, it sure can do the same for RNAC. The private sector has to come up with workable details of the plan to keep RNAC running despite expected losses.
Another beauty about tourism is that it has various aspects such as education tourism, health tourism, sports tourism etc. So development of tourism has the potential for inducing development also in these sectors.
One fact to be regretted is that the alliance of Nepali tourism companies with international brands has not helped to bring tourists as expected. International brand hotels have rather gone in for reducing their tariffs than trying to bring in more tourists by using their international connection. Therefore, the strategy of depending on international affiliation not yielded so encouraging results. Similarly, though it is good that foreign airlines are bringing in a large number of tourists and providing the crucial connectivity, entirely depending on them is not going to be a long-term solution.
Hence, strengthening our own international airline is crucial.
Apart from tourism, Nepal should focus on banking and trade as these are linked closely to tourism and all three can grow together. What is important is increasing the people’s income. It does not make much difference whether we earn it by manufacturing, by trading, through other services or by sending our labourers abroad. There are examples of countries that developed simply by becoming trading centres. If the banking industry is developed and offshore banking is started, a lot of finance will be available for investment in other viable sectors such as hydropower, agriculture and even manufacturing. Therefore, these three sectors should be recognised as the backbone of the economy, and they should be developed in a way that they help in the development of the other sectors.
The government should review its investment and find out where the investment was wasted and where it has borne fruits. In my opinion, the investment in trade, banking and tourism has borne the fruits whereas in other areas it is either a failure or doubtful. The reasons for the same needs to be analysed very fast and an alternate approach should be developed.
Though I doubt this proposal will get any positive response as our mindset has been so attuned that anyone who talks against manufacturing is held as unpatriotic, I still like to make a humble request that it deserves a careful consideration. Let’s have broad outlook and clear our vision. If the objective is to create employment, let us not forget that even trade can create a lot of employment. In many cases (for example in television sales), we can see that trading has created more employment opportunities than mere assembling.
More importantly, employment creation is not an objective in itself. The underlying objective is to create income opportunities for the people. Now it has been proved that instead of creating employment within the country, it is better for the economy as well as the labourers and their families to get them jobs abroad. The old argument that Nepal has the advantage of cheap labour and therefore it is attractive for the foreign investors to locate manufacturing facilities here is no more valid these days. So new advantages have to be created to attract foreign investment. One possible way to create such advantage was, till recently, to reduce the duties on various headings such as the import of raw material. But this is now irrelevant, as we cannot compete with other countries in this era of WTO when the duties and taxes are being reduced in many countries of the world.
Another point to consider in this connection is that capital is practically difficult to confine within the national boundaries. Therefore, instead of trying to restrict its flow, let’s allow it to freely move in and out of the country. Though it was in the agenda under the programme of economic liberalisation, it was abandoned after the Asian financial crisis as the event left all the experts around the globe scratching their head failing to understand the underlying reasons for the phenomenon. Now it is clear that capital account convertibility is in fact not bad on its own, it is the failure by the authorities to handle the situation that invite the disasters. Therefore, it is now time for us to rush with capital account convertibility.
By allowing another factor of production – labour - to go abroad, we have already tested the benefit of easing factor mobility. The experience has yielded good results. It should be remembered that most of such labour is unskilled and low in education. If the labourers who want to go abroad are provided higher skills, they will surely get better benefits not only for themselves, but also for the economy. Since capital will be handled by professionals from organised sector companies, this will definitely bring in as much income to the country as what the labour is bringing. So, Nepali capital should be allowed to be invested abroad, even in the stock market. The returns are much higher there compared to that in Nepal. The government should make simple rules so that keeping records of such investment will be easy and it can earn taxes from such investments.
Regarding other non-manufacturing areas such as hydropower or agriculture, foreign investment is a must to exploit the opportunities in these areas. But tourism, banking and trading do not require foreign investment; we can do these ourselves as our own strengths have been proven already.
(Panday is the Managing Director of Shangri-La hotel, the latest five-star property in the capital)
|
