Strikes pose the greatest obstacle to road transport hindering the trade, according to a report from the World Bank.
"Some 96.4 per cent of the firms identified strikes as the most important obstacle to transport by road," the multinational donor agency's report 'Nepal's Investment Climate: Leveraging the Private Sector for Job Creation and Growth' by Gabi G Afram and Angelica Salvi Del Pero said.
The country has been witnessing frequent strikes by one or the other political parties due to the political transition. And the strikes — mostly politically motivated — have been hurting the country's investment climate weakening its competitive edge over the period.
The Nepal Enterprise Survey 2009 of the report has also revealed that airfreight capacity and customs at the airport are other key obstacles that are hindering the enterprises from boosting trade and investments.
The report prescribes to expand private investment including foreign direct investment (FDI) and improve productivity and shift economic activities from less productive rural economy and low-cost manufacturing to more productive sectors like services, tourism, niche manufacturing. "The country not only needs political stability but also should address factor market issues like infrastructure deficiencies, access to finance and labour market issues to create jobs, reduce production costs and increase declining competitiveness."
Though, Nepal's private sector has started reaping some dividends from the cessation of armed conflict in terms of employment generation, a daunting set of challenges still remain, it said, adding that political instability and infrastructure especially for transport and electricity represent the two main challenges. "Political instability is the top obstacle across all the industries, while transport, electricity and corruption are problematic for many sectors."
The political instability costs add to the already daunting weak infrastructure costs, the report said, adding that electricity shortage alone costs the firms a staggering 27 per cent of their annual sales.
"Production costs are high and business operations and trade are often disrupted translating into the real cost to the private sector," said Federation of Nepalese Chambers of Commerce and Industry (FNCCI) president Suraj Vaidya.
The politicians need to turn the focus from politics to the economy and to development, he said, adding that the private sector is preparing a common minimum economic agenda, which needs all party support.
The report that is based on three surveys — Enterprises Survey, Employee Survey and Informal Survey — has helped assess Nepal's investment climate. The surveys have identified many constraints to the investment climate that are hindering the development and growth of private sector.