Monday, December 31, 2012

2012: Year of failed promises and disappointment

The year 2012 was a disappointing one for the business and economic sector, as the country could neither get a full-fledged budget nor any remarkable policy measure to encourage domestic investment, let alone foreign direct investment (FDI).
Dr Baburam Bhattarai, who is leading the caretaker government, after May 27 proved that his government is neither responsible nor honest in its attempts to propel economic growth, despite his tall talk of double digit growth.
“Rampant corruption, perennial power shortage, and political instability have been key in eroding investors’ confidence in the year 2012,” according to senior economist Prof Dr Bishwambher Pyakuryal.
Though the number of foreign direct investment has gone up, total capital investment has come down in the year, he said, adding that in a new trend India seconds China in foreign direct investment
Lack of investment has forced people — mostly the youth — to seek foreign employment. Though foreign employment has earned remittance for the country, it is pushing the country into the remittance trap in the long run, as remittance has only increased imports and only 2.4 per cent of the remittance has been used in productive sector for capital formation, according to Central Bureau of Statistics (CBS).
More than 554,441 Nepali youths migrated in 2012 in search of greener pastures due to the government’s failure in creating employment back home.
The World Bank has estimated that Nepal — as one of the largest remittance receivers among Least Developed Countries (LDCs) — could receive $5,115 million — compared to $4,217 million in 2011 — remittance in 2012. But the rising remittance has pushed imports up which has though helped the government meet its revenue mobilisation target but not propel the economy as the slowdown in remittance — as projected by the International Monetary Fund (IMF) — will put the economy in distress.
Likewise, the ‘death’ of the Constituent Assembly (CA) on May 27 has also hit the economy hard as the caretaker government of Dr Bhattarai failed to bring a full-fledged budget in the absence of a parliament. Instead of a full-fledged budget, the government brought an interim public expenditure arrangement twice —
on July 15 (Rs 1161.24 billion through ordinance) and on November 20 (Rs 351.93 billion) — this year, which will not only hit development activities but also hamper private sector investment due to the lack of new policy measures.
“The government’s failure in bringing the budget is the biggest disappointment of the year for the business fraternity that has been discouraged to pump in more investment due to the lack of investment-friendly policies,” according to president of Federation of Nepalese Chambers of Commerce and Industry (FNCCI) Suraj Vaidya.
“The government also failed to forge consensus on economic agendas,” he said, adding that it would have helped boost the morale of investors, despite political uncertainty.
The government’s inability to forge consensus on economic agendas with the opposition, failure to ‘walk the talk’, and over concentration in politics coupled with the delusion on economic policy helped the informal economy grow
and capital flight apart from hitting the monetary policy that has failed to crack a whip on rising inflation.
The price hike has been continuously looking up at over a double digit figure, also due to the continuous hike in prices of petroleum products.
The country witnessed the price of diesel go as high as Rs 99 per litre by the year end that will contribute to inflation floating over 10 per cent.
The state oil monopoly Nepal Oil Corporation (NOC) and Nepal Electricity Authority (NEA) incurred losses of Rs 13 billion (0.8 per cent of GDP) and Rs 6 billion (0.4 per cent of GDP) in fiscal year 2011-12, respectively, putting pressure on the economy.
The common people, for whom the UCPN-Maoist claim
s to have waged a decade-long war, have been cheated by Dr Bhattarai’s inability to tame inflation, and also the increasing load-shedding hours that has bled industries white.
By the year end, the country is reeling under 12-hour scheduled load-shedding, thus increasing the cost of production.
“Cost of production is increasing due to the rising cost of capital, labour and regular power outage,” according to president emeritus of Confederation of Nepalese Industries (CNI) Binod Chaudhary.
“Policy dilemma, increasing uncomfortable labour-management relations, and prolonged uncertainty due to the caretaker government’s ‘ego’ has forced industries to operate at half their capacities,” he said, adding that the
Nepal Investment Board which was formed after a decade of struggle has also been unable to prove its existence.
The industries have been operating at only 58 per cent of their total production capacity, according to the central bank’s latest report.
The result, the economy is projected to grow at 3.8 per cent — lowest in last four years — at th most optimistic note, according to IMF that has also blamed the government for the low economic growth due to its failure in providing fertilisers on time for good agriculture harvest — apart from erratic rain fall — that contributes one-third to the gross domestic product (GDP).
“Besides low agriculture production that will bring economic growth down, the total ratio of trade to GDP has also come down,” said Pyakuryal, adding that economic deterioration and political instability have a direct relation in Nepal’s case.

South Asian Transit Agreement to boost intra-regional trade

Nepal could boost its export, if the regional transit agreement, envisioned by the regional experts, comes into place.
Earlier, Dhaka had proposed facilities to the Nepali exports, if it utilises Mongla Port, according to the sources.
Currently Nepal's key export third country export point is Kolkata Port.
"If South Asian countries enter into regional transit agreement, Nepal could be connected to Bangladesh for the smooth exports without bureaucratic hassles," said trade expert Dr Ratnakar Adhikari.
The South Asian Transit Agreement could ensure no bureaucratic hassles with predictability and low cost of transportation with transparency, he said, adding that the agreement will not only help the landlocked developing countries like Nepal but also help coastal countries like India, Bangladesh and Pakistan, apart from more intra-regional trade that is less than five per cent, currently.
Despite Nepal having more competitive strength in some products in the region, it cannot boost its exports due to lack of connectivity. According to the Commerce Ministry also the regional transit framework could give Nepal more access to the regional market.
Though, all the 31 landlocked developing countries (LLDCs) of the world are facing the same problem of lack of direct access to the sea, isolation from major economic centres, inadequate transport infrastructure — both in LLDCs and transit countries — and cumbersome transit procedural as constrain for their growth prospects for international trade, the countries like Nepal is hit hard due to its lack of transit access in the region.
"It has resulted in high transport costs, inflating landed import prices and eroding international competitiveness of exports," he added.
A World Bank study revealed that the median landlocked countries experience 42 per cent higher transport costs than the median coastal economy.
Regional connectivity is key also for all the South Asian countries as they all have geographical constraints. "However, on an average, LLDCs experience one per cents lower growth than coastal economies and a landlocked country with transport costs 50 per cent higher than a similar coastal economy can expect slower growth of about 0.3 per cent annually.
The government has planned to boost exports to Rs 100 billion in the current fiscal year from last fiscal year's exports of Rs 74.26 billion. The country had imported merchandise worth Rs 461.67 billion in the last fiscal year making a huge gap of Rs 387.41 billion due to lack of transportation facility across the border and supply side constraints inside the country.
The three LLDCs of South Asia — Afghanistan, Bhutan and Nepal — are facing the same challenges as the bilateral transit arrangements have not been able to help expand and diversify exports.

Revenue mobilisation growth rate slows

Lack of budget has started taking its toll in revenue mobilisation as the fifth monthly target fall short by around five per cent.
“The revenue mobilisation could meet only 95.91 per cent of the monthly target for the fifth month’s (mid-November to mid-December) target, as the government has been able to mobilise Rs 97.33 billion till five months of the current fiscal year — that is 25.27 per cent more than the same period of the last fiscal year — due to low investment in productive sectors and lack of new employment," according to the Finance Ministry. “However, the revenue mobilisation has been 101.55 per cent for the period of five months of the current fiscal year.”
Though, overall revenue mobilisation trend is positive, ineffective revenue leakage control mechanism, low consumption of cigarette and tobacco due to anti-tobacco campaign coupled with contraction in economy has slowed down the revenue mobilisation, said caretaker finance minister Barsha Man Pun during the Revenue Review Meeting today.
Pun, on the occasion, directed tax administration to analyse contribution of revenue in the Gross Domestic Product (GDP) and identify gap to prepare effective plan to cover the gap.
In the fifth month of current fiscal year by mid-December, the government mobilised Rs 6.88 billion under Value Added Tax (VAT) against Rs 6.19 billion in the same month of last fiscal year, the ministry said, adding that it has been able to moboilise Rs 5.03 billion under customs duty against Rs 3.47 billion in the same month of last fiscal year.
Likewise, mobilisation of excise, income tax and registration fee stood at Rs 3.03 billion, Rs 2.39 billion and 755.2 million, respectively by mid-december, according to finance secretary Shanta Raj Subedi.
Similarly, Subedi asked the Inland Revenue Department to improve performance. He also directed the department to develop action plan to meet revenue target.
"The ministry should review customs valuation and tighten Post Clearance Audit (PCA) to control revenue leakages, Subedi said, directing the Department of Revenue Investigation to accelerate its patrolling in possible leakages points more effectively.
In the meeting, chief economic advisor to the ministry Shree Ram Paudel asked the ministry to identify informal sectors and bring them into tax net.
Similarly, the meeting also decided to review excise rate and control revenue leakages and smuggling from customs points to accelerate revenue mobilisation rate.
Sectorwise contribution
Value Added Tax – 34 per cent
Customs duty – 24 per cent
Excise – 15 per cent
Income – 14 per cent
Non tax sector – 9 per cent
Others – 4 per cent
(Source: Finance Ministry)

TeliaSonera completes acquisition of Kazakh WiMax network

TeliaSonera has completed the acquisition of the WiMax operations of Kazakh company Alem Communications from Midas Telecom. TeliaSonera has also made an indirect minority investment in KazTransCom, through the purchase of shares from Alatau.
With the acquisition of a WiMax network in six cities, TeliaSonera also secures frequencies in the 2.5/2.6 GHz band. The frequencies are compatible for use with mobile data transmission technologies such as 4G.
Following completion of the transactions, Kcell, TeliaSonera’s subsidiary in Kazakhstan, will have full access to these businesses on commercial terms. It already deploys the backbone capacity of KazTransCom's national fiber optic network, and has started to prepare for the deployment of the frequencies of Alem Communications. TeliaSonera intends to transfer to Kcell the WiMax operations, including frequencies, and its investment in KazTransCom.
The total value of the transactions is $205 million (subject to any post completion accounting adjustments), of which the Wimax acquisition from Midas Telecom represents $170 million, and the minority investment and option rights related to KazTransCom represents $35 million.

Sunday, December 30, 2012

CNI pledges to help government attract investment

Confederation of Nepalese Industries (CNI) has promised to help create an investment-friendly environment to attract investment in the country and to achieve double-digit growth.
"We will continue to promote investment, both foreign direct investment and domestic investment," said the newly elected president of CNI Narendra Basnyat, addressing a gathering here today.
The country has to set an investment target of Rs 700 billion per year as against the Rs 250 billion at present, he said, adding that CNI under his leadership will continue to help the government in synchronising economic policy with the socio-political changes of federalism. "Like earlier, we will promote and expand exports and help improve the overall investment and economic climate," Basnyat added.
With a focus on employment generation, as well as conducive labour relations that is key in improving investment climate, CNI, as it enters into the next phase of its decade-long journey, will work with the government to provide consistent value added inputs to help develop the national economy and promote industrialisation, said Basnyat.
CNI will work towards acting as a catalyst to build an environment which will stimulate industrial growth and to also ensure that the benefits of industrial growth percolate to all parts of the country, as well as to all tiers of the populace, the new president of CNI said.
The new leadership will encourage competitive industrial environment and continue to help the government as a policy think tank, he said, adding that the private sector — though an engine of growth — has been neglected and economic agendas have been put in the back burner. "Due to prolonged political transition, the economy has been suffering."
Thus the CNI prescribes some of the key policy changes — like immediate approval of Special Economic Zone (SEZ) Act, New Industrial Business Act, and Foreign Investment and Technology Transfer Act — to create an investment-friendly environment, he said.

Foreign cash loans, grants plunge

Foreign cash loan has declined by more than half, and grants are almost four times less in the first four months of the current fiscal year as compared to the same period last fiscal year.
During the four months of current fiscal year 2012-13, the government has received foreign cash loans of Rs 0.70 billion and foreign cash grants of Rs 4.59 billion, according to the central bank's data for mid-November.
The government had received foreign cash loans of Rs 1.55 billion and foreign cash grants of Rs 11.52 billion in the same period of the last fiscal year.
Uncertain budget and prolonged political transition has made development partners lose their confidence as there is no check and balance mechanism for government expenses due to the absence of a parliament giving enough room for financial indiscipline by the caretaker government and implementing agencies.