Privatisation key to economic growth

The private sector has to run industries and the government should only play the role of a regulator and monitor, and not compete with the private sector by running industries, according to the private sector.
The private sector's investment has to go up for the economic development of the country and privatisation is the way forward, said president of Federation of Nepalese Chambers of Commerce and Industry (FNCCI) Suraj Vaidya at an interaction on privatisation in Nepal and lessons here in the Finance Ministry today.
The current trend of 'lean government' has been floated globally to promote the private sector reducing the government's role and limiting it to monitoring and facilitation, opined finance secretary Krishna Hari Baskota.
"The government has no option other than to join hands with the private sector and boost its confidence," he added.
"But in Nepal's context, the government has followed different models of privatisation," said Baskota, adding that over time, some 30 industries have been privatised — some industries have been completely sold, some leased out and only the management of some others handed over — in the country.
The key concept of privatisation is to reduce government liability and increase revenue along with productivity, said joint secretary at the Privatisation Cell under the Finance Ministry Basu Sharma.
However, the weak relationship between the state and private sector has sent a negative message about privatisation in the past, he said, adding that policy inconsistency and low support from the government also failed the privatisation process. "It is high time to rethink privatisation with an amendment in the Privatisation Act," suggested Sharma.
"It's not that all the privatised entities have failed," participants from the privatised entities said, adding that some of them have been making profits and others are facing various problems, which if addressed by the government, will still be able to make profits.
However, they complained that the government had not ensured a level playing field and had not fulfilled its commitments according to the agreement.

Global FDI flow has not recovered: Report

Global foreign direct investment (FDI) has not yet bounced back to pre-crisis levels, though some regions show better recovery than others. The reason is not financing constraints, but perceived risks and regulatory uncertainty in a fragile world economy.
The World Investment Report 2011 revealed that, barring any economic shocks, FDI flows will recover to pre-crisis levels over the next two years. The challenge for the development community is to make this anticipated investment have greater impact on our efforts to achieve the Millennium Development Goals (MDGs).
In 2010 – for the first time – developing economies absorbed close to half of global FDI inflows. They also generated record levels of FDI outflows, much of it directed to other countries in the South. This further demonstrates the growing importance of developing economies to the world economy, and of South-South cooperation and investment for sustainable development.
Increasingly, transnational corporations are engaging with developing and transition economies through a broadening array of production and investment models, such as contract manufacturing and farming, service outsourcing, franchising and licensing. These relatively new phenomena present opportunities for developing and transition economies to deepen their integration into the rapidly evolving global economy, to strengthen the potential of their home-grown productive capacity, and to improve their international competitiveness.
Unlocking the full potential of these new developments will depend on wise policymaking and institution building by governments and international organisations. Entrepreneurs and businesses in developing and transition economies need frameworks in which they can benefit fully from integrated international production and trade. I commend this report, with its wealth of research and analysis, to policymakers and businesses pursuing development success in a fast-changing world.
Global foreign direct investment (FDI) inflows rose 5 per cent to $1.24 trillion in 2010, UNCTAD´s annual investment survey reports. The study says, however, that FDI flows at the end of the year were still some 15 per cent below their pre-crisis average and nearly 37 per cent below their peak in 2007. Overall, investment continues to lag behind recoveries in global industrial output and world trade, which are already back to their pre-crisis levels.
The World Investment Report 2011 (WIR11), subtitled "Non-equity modes of international production and development", was released today.
UNCTAD predicts in this report that the recovery of FDI flows will continue in 2011 and will reach a total of some $1.4 to $1.6 trillion, thus returning to the pre-crisis average. Thereafter, flows are forecast to rise to $1.7 trillion in 2012 and $1.9 trillion in 2013. The record level of cash holdings, low rates of debt financing and rising stock market valuations of transnational corporations (TNCs) should encourage them to expand overseas, the report says. On the recipients´ side, ongoing corporate and industrial restructuring, privatisations resulting from fiscal rebalancing efforts and unwinding of state support programmes, and the growth of emerging economies should create new investment opportunities.
However, the post-crisis business environment is still beset by uncertainties. Risk factors such as the unpredictability of global economic governance, a possible widespread sovereign debt crisis, and fiscal and financial sector imbalances in some developed countries, as well as rising inflation and signs of overheating in major emerging market economies, may yet derail the FDI recovery.
In 2010, the rise of emerging economies as new powerhouses of FDI became more apparent. Developing countries and transition economies absorbed more than half of global FDI inflows for the first time. As international production and, more recently, the weight of global consumption shift towards developing and transition economies, both efficiency-seeking and market-seeking projects in those economies are on the increase. Half of the top 20 host economies for FDI in 2010 were developing and transition economies. Their outward FDI also rose sharply in 2010, climbing by 21 per cent. These economies now account for 29 per cent of global FDI outflows. Six developing and transition economies were among the top 20 investors.
Despite the emergence of certain developing countries, FDI flows continued to decline in some of the poorest regions of the world. Flows to the Africa and South Asia, as well as to least developed countries, landlocked developing countries and small island developing States fell in 2010.
In terms of sectoral patterns, FDI in services continued its downward path in 2010. All the main service industries (business services, finance, utilities, and transport and communications) saw FDI flows fall, though at different speeds. FDI flows to the financial industry experienced one of the sharpest declines. The share of foreign investment channelled to manufacturing increased, meanwhile, and accounted for almost half of all FDI projects - cross-border mergers and acquisitions and greenfield projects, which are types of manufacturing new to a country or region. Within manufacturing, flows fell in business-cycle-sensitive industries such as metals and electronics. The chemical industry, including pharmaceuticals, remained resilient through the crisis, while industries such as food, beverages and tobacco, textile and garments, and automobiles, recovered in 2010. FDI channelled to extractive industries, a sector relatively unaffected by the crisis, declined, despite the growing demand for raw materials and energy resources.
The importance of TNCs to the global economy can be gauged from the indicators of international production, which showed gains in 2010. UNCTAD estimates that sales and value added of foreign affiliates around the world reached $33 trillion and $7 trillion, respectively, in 2010. Their exports amounted to more than $6 trillion, about one third of total global exports. Worldwide TNC operations, both at home and abroad, generated value added of approximately $16 trillion in 2010 - about a quarter of world gross domestic product.
Among the 100 largest non-financial TNCs, 19 are state-owned. Today, there are at least 650 state-owned TNCs with an estimated 8,500 foreign affiliates. While relatively small in number -less than 1 per cent of all TNCs - they undertook FDI estimated at $146 billion in 2010, accounting for about 11 per cent of the global flows. Developing and transition economies are home to the majority of these firms (56 per cent), although developed countries maintain a significant number of state-owned TNCs. In contrast to the widely held perception that state-owned TNCs are largely concentrated in the primary sector (8.6 per cent), they are present in diverse industries, particularly in the services sector.
From 2003 through 2010, FDI projects by state-owned TNCs made up an average of 32 per cent of total outflows from developing countries. The number of megadeals for which developing country state-owned TNCs have been responsible in the past five years is indicative of their importance. Four of six FDI projects with a value of more than $10 billion (one merger and acquisition and three greenfield investment projects) were undertaken by developing country state-owned TNCs. While there are no official statistics on the FDI stock controlled by state-owned TNCs, a rough estimate suggests that their share of global outward stock was no less than six per cent in 2010.
The fifty-eighth session of the Trade and Development Board is scheduled to be held on September 12-23, at the Palais des Nations in Geneva.

Sociology of Nepal explained

Essays on the Sociology of Nepal, a collection of 15 thought-provoking essays and four book reviews, has raised several questions on our feudal and centralised state system. The essays, though some of them written over a period of 25 years, have still not lost their relevance as the core issues of Nepali society, in the last three decades, have not changed radically.
The book, authored by eminent social scientist Dr Chaitanya Mishra and published by Fine Print, peeps into the social dynamics of development, foreign aid, growth, Maoist movement and last year's April movement. Nepal has, for long, resisted the inevitable socio-political change giving ground to an armed Maoist movement and the author has put in his hard labour to dig these very issues that led to the transition of power.
The book presents an array of analytical essays like Locating the Causes of the Maoists Struggle, Nepal: Five years following the Social Summit, The New Push for Privatisation that revolve around the social, political and economical changes of Nepali society.
Essays on the Sociology of Nepal start with an essay on political transition in Nepal. Over the period of the last decade, Nepal has witnessed the resistance to socio-economic injustice in many forms; from passive resistance to armed retaliation, fuelling the deep-rooted class-hatred in the rural Nepali psyche further. The essay, based on the April movement and the changes it brought and challenges it has to face, tries to analyse the contradictions of ideas among the key players, their faith and correlation.
Foreign Aid and Social Structure: Note on intrastate relationship, an essay co-written with Pitambar Sharma during the sixth Five-Year plan presents the deeply disturbing fact of the benefits of foreign aid and its impact in the widening the gap between the upper class and under class.
The author gently questions the benefits Nepal has been getting from foreign aid. The upper social classes of such countries derive the major benefits from foreign aided development, the essay sums up highlighting the relationship between foreign aid and class structure; production and distribution system, the power structure and the ideological framework.
It has helped towards the creation of a parasite primate city and centralisation of power, claims the essay.
The essay concludes that the national interest and priority could be overlooked. The author does not mention any special case but Melamchi could be a case study not only to scrutinise foreign aid politics but also to seriously review the government's policy.
The book also clarifies the misconception that resource and development are related. At least in the case of Nepal, resource could not help develop the country. On one hand the countries in the world have lagged because of the resource-crunch and on the other, Nepal could not manipulate its vast resources.
Though the essays are lengthy, readers can benefit form the insight of the author on socio-cultural-economical dynamics of Nepali society and the contemporary issues.
While urban Nepal is walking hand-in-hand with modern times, rural Nepal has been left far behind a century or more to be precise.
Development pundits may not agree with this fact, but once they go through the book, they will not have any choice but to accept it.

BOOK REVIEWBook: Essays on the Sociology of Nepal
Publisher: Fine Print
Price: Rs 450
Pages: 366