ENTHUSIASM OF FOREIGN INVESTMENT
August 2, 2015 Categories Editorial karobar
The earthquake on April 25 had direct and indirect impact on all the sectors of economy. Direct physical losses aside, the subsequent aftershocks and international coverage of Nepal as a country under seismic risks were expected to make investors, especially the foreign ones, hesitant to invest in Nepal. Preliminary data has even hinted toward that. But it is indeed fortunate that the earthquake has impacted less than what was initially feared. An earthquake is not a risk in itself. It is the weak man-made structures that make an earthquake dangerous. Nepal, lying in a seismic zone, did not suffer damages a Magnitude 8 earthquake was expected to wreck. No highway suffered major damages apart from that at Kaushaltar in the Koteshwore-Surya Vinayak section of Arniko Highway while no airport in the country became unusable due to the earthquake. No customs point apart from the one at Tatopani suffered major damage. It is not hard to see that negative coverage had a greater affect than the actual impact by the earthquake. Japan is one of the most earthquake-prone countries in the world but it became the second biggest economy in the world by establishing massive industries after the Second World War. The earthquake has neither scared the investors there nor have they been discouraged. Rather innovation has become an integral part in the earthquake-resistant construction there.
Investors look for environment, policy and legal facilitations, and market potential. Physical infrastructure, financial access and labor availability come after that. There are some investors who can get involved in infrastructure development on the basis of potential after investing on a certain sector. They can even arrange for finance through national and international market. The government must make some policy provisions for such investors, guarantee security of their investment and create an environment guaranteeing that they can take back return from Nepal. All the political parties, and not just the government, must be able to assure the investors about investment environment in the country by expressing commitment and displaying sincerity.
The draft of the new constitution has been made public now. Inclusion of the word ‘socialism’ and provisions giving rights to provincial governments to start a certain type of industries/businesses or ban them have made the general investors suspicious. Leaders of the major political parties are trying to convince private sector representatives that ‘socialism’ is not of the kind that the Communist talk about, but there is confusion in lack of clear explanation of that. Lack of clear mention about free market and liberal economy in the draft has also fueled their suspicions. A country cannot move forward with state-controlled or welfare economy in the current state, and no investor will take risk to invest in countries with such economic systems. The investors will step back now if they perceive that provincial governments in the coming days can formulate laws to put their investment at risk.
That investment commitment of Rs 69 billion was made for small and medium-sized projects last year, and big foreign investors like Dangote started initiative to invest in Nepal show good sign. Nepal can become a hub for foreign investment if the uncertainties about economic policy in the draft constitution are addressed in time, and solid legal provisions are made to guarantee rights to property and investment security.