Political instability still key obstacle for investment

Though Nepal has started reaping some dividend from cessation of armed conflict in terms of employment generation, a daunting set of challenges still remain, according to Investment Climate Assessment 2010.
"The two main challenges being political instability and infrastructure -- especially for transport and electricity -- 90 per cent of the firms consider political instability to be a key and very severe obstacle, for electricity the propitiation is 57 per cent," said senior financial economist of World Bank Gabi G Afram, addressing a workshop on 'Business Licence Study and Investment Climate Assessment in Nepal,' organised by IFC, DFID and Norad here today.
Production costs are high, and business operations and trade often disrupted, he said, adding that civil unrest cost firms 44 production days a year on an average and power outage cost up to 27 per cent of total sales for firms of more than five employees.
Economy is stuck in a cycle where lack of investment opportunities and jobs drives people to migrate resulting in remittance flows that are mainly channeled to consumption and asset bubbles.
The assessment also hailed Nepal's considerable progress toward reducing poverty but cautious on wide discrepancies depending on geographic location, ethnicity, caste and gender; and constraints faced by productive sector, especially in terms of productivity, connectivity and sustainability that need to be overcome to accelerate domestic growth.
"It is critical to resolve the law and order situation, provide certainty and predictability in policy making and ease regional, ethnic and political tensions," advised Afram, who categorically pointed out political instability, electricity, access to finance and labour regulation as four main obstacles including transportation, corruption and informality in registering a firm with more than five employees.
"Nepal has one of the most rigid regulatory frameworks in South Asia and industrial relations in Nepal are deteriorating despite the established legislative and institutional arrangements, he added. "Corruption is reported to be more frequent in Nepal than in other South Asian countries apart from security," according to the assessment that revealed over 40 per cent of firms pay for security.
However, Nepal is doing better in South Asia in some of the indicators like labour skill, tax rates and tax administration, functioning of the courts and business licensing and permits.
Nepal -- ranked 116 out of 183 economies surveyed in the World Bank Group’s Doing Business 2011 report -- could improve the ease of business in several areas, including starting a business, dealing with construction permits, paying taxes, and trading across borders. Improving the business environment in Nepal could also help reduce costs and manage risks for local entrepreneurs.

e-Portal
KATHMANDU: International Finance Corporation -- a member of World Bank Group -- has helped develop an electronic portal that will help entrepreneurs apply online to start up an operate a business. It will help Nepal ease regulatory constraints for doing business, the IFC said, adding that the e-portal with a comprehensive inventory of business licence issued marks the first step in the government's commitment to streamline requirements for doing business. Through e-portal economic activities in Nepal will grow as new business will be created and many existing informal business can be formalised by obtaining necessary licenses with greater ease, it added.