|
ICT Sector & its Present Needs
 |
N.R. Mokhariwale |
 |
Dinesh Mathur |
By N R Mokhariwale and Dinesh Mahur
The total telephone penetration in Nepal as of Chaitra 2061 is a little over 3 percent. While the tele-density in the urban areas is of the order of 12 percent, in rural areas it is about 0.2 percent. A large chunk of these lines are concentrated in the Kathmandu valley. How can this situation be improved quickly?
Telecommunication has been identified as one of the three basic infrastructures apart from power and roads, which is needed for the socio-economic development of a country. It is true that numerous factors influence the extent and speed of social and economic development of a country and there is no suggestion that ICT can fully substitute these or that they offer a panacea for all development problems. The detailed analysis of experience around the world, however, reveals ample evidence that if used in the right way and for the right purposes, ICT can have a dramatic impact on achieving specific social and economic development goals. The real benefits lie not in the provision of technology per se, but rather in its application to create powerful social and economic networks by dramatically improving communications and the exchange of information.
The Nepali government has also recognised that the provision of world class telecom infrastructure is the key to rapid economic and social development. It is vital not only for the development of the IT industry but has widespread ramifications on the country’s entire economy. A major part of the GDP would be contributed by this sector. Investment in the telecom sector has cumulative effects. It is well known that every rupee invested in telecom generates three-fold effects in the national GDP.
Keeping in view the need for appropriate and qualitative telecom services, the Nepali government implemented the National Communications Policy 2049 (1992). The Telecommunications Act 2053 (1997) was enforced to create a competitive atmosphere for the telecom service operators and service providers in order to speed up the process of development of telecom services in Nepal.
Accordingly, the Nepal Telecommunications Authority (NTA) was established as the telecom regulator of the country in February 1998. Its objective is to create a favourable and competitive environment for the development, expansion and operation of telecommunications services with private sector participation.
As the telecom market grew and the need for further thrust for Universal Access, Universal Service Obligation, development of telecom for corporate and for IT, tele-medicine, tele-education and e-governance was felt, multi-operator regime depending upon spectrum availability became inevitable. HMG/N therefore brought out the Telecommunications Policy 2060 (2004) to address these issues thereby paving the way for multiplicity and perhaps convergence.
The system based on monopoly for telecom services, which dominated the world’s telecom markets for over a hundred years, continues to decline in popularity. The reforms are encouraging competition which is moving towards becoming dominant mode of telecom service supply. There are many factors that affect competition. NTA, the regulator, needs to be vigilant in order to combat the effects of expected and unexpected roadblocks. As it is easy to stifle competition unilaterally, it is worthwhile looking at the experiences of other countries. This reveals that when it comes to regulating the telecom sector, great emphasis is placed by these countries on mechanisms that ensure cut-throat competition.
Needless to mention, Nepal is full of natural resources. Eight out of world’s ten highest mountain peaks, including the world’s highest peak Mt. Everest, are located in Nepal making Nepal an attractive destination for tourists and adventure tourism. Somebody has very rightly said that Mt. Everest alone can feed the entire country, if its potential is fully exploited. There is a need to market this asset in the world market. IT can do it very effectively with appropriate policies and their targeted implementation. Nepal is the second country richest in water resources and yet we see people queuing up at public taps for water in the capital city. Perhaps, IT can facilitate in combating water shortages as well.
But what is hindering the progress in ICT? After analysing the situation the following suggestions can be forwarded for a rapid growth of ICT sector in Nepal in order to create an equitable information society:
-
The regulator should exercise its authority and powers to promote and regulate the telecommunications sector for its overall growth with the aim of promoting the sector. The technological advancements should favour the consumers and policies should not be restrictive to the use of the features provided by technology. The restrictive use of technologies is costlier than its use in its original form. The government’s ultimate objective is to increase the overall tele-density in Nepal and provide service even in the remotest parts of the kingdom. This would be possible if the services are made available at affordable rates. Otherwise the universal access concept will continue to be a dream.
-
Generally, the incumbent government operators the world over are sceptical about competition. They need to play a leading role in the development of the telecom sector by using their dominant position to promote and not restrict a healthy competition in the overall interest of the consumers. The experience world-wide has been that incumbent operators retain their dominant positions on the strength of their nation-wide large infrastructure even under a competitive regime. Thus, the incumbent operators’ worry that private players would snatch their pie is unfounded. Rather, with the introduction of competition the growth of a incumbent operator is higher due to higher volumes of traffic and increased efficiencies. Healthy competition is a win-win situation for all.
-
The telecom sector is capital intensive and in our part of the world, we need foreign investment in the telecom sector as with our kind of economies, it is not possible to finance this sector with domestic resources. Perhaps keeping this in mind, NTA called global tenders for additional basic and cellular operators. It has been our experience that foreign investment has been a great success in the telecom sector. The government needs to give impartial treatment to foreign investors for the overall sustainable development of the telecom sector.
-
PCOs, Internet Kiosks and telecom centres have to be promoted. Typically, there has to be at least one PCO for every 500 inhabitants in the urban areas. In rural areas, nobody should have to walk for more than half a kilometre to access a PCO.
-
All schools, colleges and universities should have computers. Every student who has passed the 12th grade should at least have come knowledge of sending an email and downloading information from the internet.
-
Every community centre should have a PC and access to the internet.
-
There is a shortage of qualified and experienced teachers in the country. The available teachers are reluctant to work in remote locations. Distance learning using ICT can play a major role in organising classes at the VDC community centres and the teacher could deliver his lecture say from Kathmandu or Biratnagar through an audio-video media. The communication has to be two ways so that a student can ask the teacher questions, may be through a telephone line.
-
Tele-medicine is also one of the areas which can be effectively harnessed for better healthcare in the rural areas. The level of expert and competent medical facilities available in Kathmandu cannot be expected to be available in small cities or rural areas. But, there is no reason why a general medical practitioner working in rural areas cannot receive proper guidance and advice from a specialist located in the urban areas through ICT. In fact, in many countries, major operations are performed using ICT.
-
Nobody should have to run to CDO offices, Electricity Authority, Water Board and telephone companies for forms needed to be filled up to avail of the services from these organisations. They should be available on internet along with rules and regulations for availing these services.
-
It should be possible to buy cinema or airlines tickets on the internet.
For creating an equitable information society, substantial penetration of PCs, dramatic improvement in tele-density, world-class telecom infrastructure of adequate capacity all over the country and affordable and reasonable tariff are essential. To achieve this, large funds are necessary which cannot come from the government coffers alone. Supplementary efforts by private players, NGOs and a large dosage of FDI with appropriate regulatory mechanism are required.
(Based on a paper presented by the authors in a talk programme organised by the Nepal Telecom Authority (NTA) and the Ministry of Information and Communications (MoIC) on the occasion of World Telecommunications Day 2005 on May 17, 2005 in Kathmandu. Mokhariwale is the CEO and Mahur is the DGM of United Telecom Ltd.).
Japanese Corporate Governance:
What stumbled it ?
By Dilli Ram Pokhrel
The Japanese version of relationship banking or the so-called main bank system has become a major topic while discussing corporate governance system. The main bank is typically the firm’s bank of payment settlement, primary lender, shareholder, delegated monitor, and lender-of-the-last-resort in times of financial distress. As such, the main bank was playing a significant role in the corporate governance of the client firm. But questions began to be raised about this system after the emergence of the so-called speculative bubble in the late 1980s and its subsequent bursting in the early 1990s which led to the prolonged stagnation in the economy throughout the 1990s. The protracted and widespread nature of the crisis—more explicitly in the banking sector—has raised the question of whether this Japanese ‘convoy system’ failed to work effectively.
Many argue that this system has become outdated and cannot function in the modern competitive environment. However, there are no such evidences to claim the complete demise of the system, though this claim may be partially true. The major reason behind the weakening Japanese style of corporate governance system is not the failure of the convoy system. Rather it is because of the changing international as well as domestic pressures that opened the avenues for the full-fledged deregulation of the financial sector, which ultimately weakened the relational financing role of main banks in corporate monitoring and governance system. The gradual conversion into the Anglo-US version of corporate financing and governance models has further diluted the bank-firm nexus in Japan.
Until the 1980s, corporate governance was a less pronounced issue in Japan or elsewhere. This became a serious matter of interest especially after the financial crisis that hit the East Asian economies in 1997 and some western nations thereafter. Whatever might be the causes and consequences of these crises, the ‘failure of corporate governance mechanism’ has been the most cited phrase among scholars. The term ‘corporate governance’ became a hot cake after the failures of corporate giants, such as Enron, Parmalat, WorldCom, etc.
Japanese corporate governance mechanism centers on the financial keiretsu (enterprise groupings) system in which the main banks are the major players. Due to the close attachments (financial, managerial, and informational) between the lenders and borrowers, the Japanese financial system is quite distinct. The pre-World War II Japanese financial system was almost similar to the US system then and today under which the capital market was/is the major source of corporate financing. A close look at the history of Japanese financial system shows four major factors that led to the origin and development of relationship banking system. They are: the quantitative contraction of banking industry since the early 1930s; changes in the sources of corporate finance from capital market to bank loans during the interwar period; the wartime policy designated financial system in favor of bank debt financing; and change in the structure of corporate governance along with the dissolution of family oriented business groups (zaibatsu). But it was changed substantially after the emergence of the new economic, political and technological forces as well as the increasing domestic and international pressures which led to financial deregulation—softly in the late 1970s and more explicitly in the 1990s.
The deregulation allowed big Japanese borrowers to quickly switch from bank financing to the securities market thus reducing the banks’ power in corporate governance and enhancing the value of capital market players as in the United States. Moreover, the gradual dissolution of cross-shareholding between the firms and their main banks (an integral part of the Japanese keiretsu system) freed the companies from the managerial and informational linkages with their lenders. Thus, the financial deregulation has altered not only the structure and operation of the financial system but also substantially changed the corporate monitoring and governance system in Japan.
The key concern today is whether Japan can adapt and sustain the changing pattern. Even after many years of financial deregulation, it is still true that in many firms (especially, in medium and small sized ones) the insiders (managers) dominate the outsiders (shareholders) in the process of corporate decision making. The interests of the lenders, employees and other stakeholders have been placed higher in the list of priorities in the present corporate governance mechanism. In spite of the declining cross-shareholding among the large borrower firms and their creditors, many medium and small sized companies have maintained, and are likely to continue this relationship in the future. For such firms, the capital market financing may be less attractive as compared to main bank financing. This is so because by the latter they can secure their future with the assumption that the main banks will rescue their client firms in times of financial distress as they used to do in the past. Moreover, it is less easy to raise funds from the market for the troubled small firms. Similarly, it is not easy for them to borrow from normal lenders due to the credit risk that a normal lender faces in financing such a borrower. Therefore, the main banks will continue to play the vital role as the lender of the last resort for all such firms.
The emergence and bursting of the asset price bubble in the early 1990s triggered a severe banking sector problem since the banks lost their big corporate clients and increased their lending to the bubble related sectors. It substantially reduced the value of the banks’ assets and left huge amount of non-performing loans. As the financial deregulation encouraged big companies to go in for direct market financing, the banks had no option other than increase their lending to real estate related companies (such as, Jusen – housing loan companies) to reap higher profits from the so-called asset price bubble. Thus, the mounting non-performing loan problem (estimated to be around 7 percent of the GDP—the independent estimates are even far higher), rather than declining the strength of the main bank corporate governance and monitoring function, became the most serious problem in the Japanese banking sector. Therefore, it can be argued that the main bank system itself is not the cause of these problems. The truth is that the changing environment weakened the role and functioning of the main bank system. The acute problem of non-performing loans, the most serious flaw in the Japanese banking industry, has prevented Japan from restoring the sound growth of the economy. In spite of structural reforms—the Big Bang financial reform—and substantial fiscal policy efforts, and by impairing transmission channels of the monetary policy, it has also made ineffective the measures that were taken to stimulate the economy through quantitative easing of the monetary policy.
The speculative asset bubble and its subsequent bursting was the root of the crisis that contributed greatly to its exceptional length and depth. The early solution was ruled out, as there was misinterpretation in the policy level. The sequencing in the process of the financial liberalisation is the most important aspect while resolving the crisis. The heavy capital injection from the public fund and writing off the NPLs may be inadequate measures in resolving the crisis unless the problems arising from the state-owned financial institutions are solved and properly matched with the private sector.
To improve corporate governance in any country is not an easy task. It requires solutions that fit the particularities of the national context. Gradual transformation from the traditional convoy system to the Anglo-Saxon model is taking place in Japan. However, a radical change of the governance system against the institutional hierarchies of financial keiretsu and stable cross-shareholdings between the companies and their main banks may still take some time. The experience reinforces the fact that the corporate governance system is closely related to the historical, cultural, institutional, and legal settings; and radical transformations are almost unattainable in the short-run.
(Pokhrel is an employee in the Nepal Rastra Bank and he is currently pursuing Ph.D. in economics at Osaka Sangyo University, Japan)
|
