Mr. Suraj Vaidya is the National Convenor appointed by the Government of Nepal for the Visit Nepal Year 2020 tourism campaign. Vaidya is also the chairman of Vaidya’s Organization of Industries and Trading Houses (VOITH). Mr. Vaidya is an advisor to the Prime Minister’s Economic Council, a high-level advisory body. A former president of the Federation of Nepalese Chambers of Commerce and Industry, Mr. Vaidya is also the immediate past president of SAARC Chambers of Commerce and Industry.
Talking to IBN Dispatch recently, Mr. Vaidya highlighted key challenges and opportunities for promoting Foreign Direct Investment (FDI) in Nepal. He is of the view that joint efforts between the government and private sector are necessary to reap the benefits of the country’s economic prospects.
As a business leader, how are you assessing the overall investment climate in Nepal?
We have been passing through a long vacuum of uncertainty and transition. The recent elections show that Nepal wants a peaceful transition. As far as people are concerned, expectations are very high. This government and even forth coming governments need to take strong action to invite foreign investment. Nepal is still in transition, therefore a lack of clarity exists on the roles and jurisdiction of local, provincial and federal governments. Investors are still in a wait and watch mood. We all know Nepal has immense potential for investment. However, we are lacking strong laws to translate that prospect into action. Though we are on the right track, we need to do more in term of attracting FDI into Nepal.
To achieve the Sustainable Development Goals (SDG) by 2030, Nepal needs a huge amount of investment with significant contribution from the private sector. How can we encourage private investment to achieve desired economic performance?
The private sector of Nepal also needs to have strong leadership to boost its role in economic development. Expecting everything from the government is a wrong notion. The private sector should come up with short term, medium term and long term policy recommendations that would support economic prosperity. But, we find weaknesses in leadership in our private sector. I am also responsible for that weakness. Our private sector has failed to convince the government on sectors that should be a priority and have potential in Nepal. There must be policy reform recommendations from the private sector to the government. It is a fact that we have never witnessed policy and economy going hand in hand. Politics is still driving the economy. In this backdrop, firstly, the private sector should be proactive in taking a lead to promote FDI in potential sectors with a focus on the two neighboring countries – India and China. The private sector should sit with all three levels of government. But, I have found such initiatives and capabilities lacking in our private sector. Secondly, our private sector does not have the capacity for capital investment required for development projects. Hence, it is high time for us to make our banking and financial sector stronger. The private sector should join hands with the banking and financial sector to boost capital formation for equity investment. Thirdly, we have very good unskilled workers but there is a sharp mismatch between the demand and supply of skilled and semi-skilled workers. The private sector has an important role to fulfill the demand for skilled and semi-skilled workers through necessary capacity enhancement trainings. But, our private sector expects the government to act on this, which is wrong. To develop necessary human resources, we can run the Council for Technical Education and Vocational Training (CTEVT) under Public Private Partnership (PPP) approach. The government should also come up with a concrete policy to develop skilled human resources.
How can we develop Nepal as an ideal investment destination? What are the challenges and opportunities to promote FDI in Nepal?
The government abruptly changed the policy to increase the limit to USD 500,000, which is significantly higher than the previous limit of USD 50,000. The number of projects exceeding that limit is very small in Nepal. We need startups, especially in Information Technology and the hospitality business which can be run with very limited investment. Startups are a huge potential sector. However, the newly introduced policy will affect this low-investment-high-potential sector. Arranging financing for large scale projects is challenging as the banking and financial sector lacks credit capacity. The government should know that small business can pave way for large investments also. Keeping in view the significance of small investments, the government should review the new policy. Even if we review the FDI minimum limit we should aim for a gradual increase. To lure more investment, the government should invest in industrial districts or tourism parks to provide land for private investors in a hassle-free manner. Our private sector should also play a leading role to promote the PPP model. At a time when cost of acquisition of land for infrastructure projects is very high, we can attract more investment by bringing down the cost for doing business if we develop such industrial infrastructure. Simultaneously, we have to improve our ranking in doing business and fight corruption to give a positive message to investors who are keenly watching the status of Nepal in terms of business climate. We need to establish strong coordination among government agencies for effectively implementing a one-window service for investors. Though the Investment Board Nepal is established to offer a one-stop service, it is not happening due to ineffective coordination among relevant agencies. The environment for doing business holds most significance for investors. Quick decision of the host country government is very important for any investors. Even the number of decisions made by Investment Board under the chairmanship of Right Honorable Prime Minister have not been implemented in time creating delay after delay in project implementation. The government has failed to live up to its commitment including developing necessary infrastructures for big industries. The government should be serious in fulfilling the commitments it made to investors.
What lessons we can learn from the countries that are becoming investors’ first-choice destinations?
Nepal is not only the country for investment. There are many countries which are offering better investment opportunities. We have to compete with them to lure more investment. We are competing with the Indian states of Bihar, Uttar Pradesh, and Uttarakhanda where investors are getting lucrative offers and facilities. We should provide full-fledged authority to the Investment Board for one-window service.
You are also the National convenor of the Visit Nepal Year (VNY) 2020. Could you tell us about the preparation, target and expectation from the VNY 2020? And, what can the government and business people do to make VNY a grand success for overall tourism development?
Over 30 percent of the total population is below the age of 26. This energetic chuck of the population is leaving the country and making significant contributions to building other countries. The VNY 2020 will pave the way for new investment, new jobs and identify new investment in the tourism sector. In coordination with Investment Board, which has successfully organized Nepal Investment Summit 2019 recently, we are planning is to organize a Tourism Investment Summit in January 2020. We have already started preparations and are working with all seven provinces to explore investment potential under the PPP approach. At least, we have to develop new international airports in the Far West and Far East that would open up their tremendous potential. In terms of infrastructure, the public and private sector should work together. We are working with Investment Board, government agencies, World Bank and other different institutions for tourism promotion. We are also planning for road shows with the involvement of the private sector and government. My hope is that by the first quarter of 2020, we will sign agreements between government and private agencies. We found tremendous amount of interest from private sector and all provincial as well as local governments to support tourism investment. Hopefully VNY 2020 would create new opportunities. Though hydropower has the most potential in Nepal, it creates fewer jobs as compared to the tourism sector. Agriculture is the sector where the younger generation seems not interested to work in. The majority of young people leaving the country for overseas jobs are working in the hospitality sector. If those young people come back to Nepal we will have skilled or semi-skilled workers. Investors in tourism sector can get the right kind of workers in Nepal.
You are also advisor to the PM’s Economic Council, given the sky rocketing trade imbalance, what is your opinion on encouraging domestic production and accelerating industrial activities in Nepal?
A trade deficit is not a bad thing for a country which is growing fast. Nepal is a small country between large economies where cost of production is low and the industrial base is much stronger. Nepal has been facing a trade deficit for several years. Last year alone, we imported agriculture produces worth NPR 200 billion. The government should be a strong partner in promoting farm production. I see high potential in food processing given the different climates in Nepal. The government policy should be on how to make people consume more energy in their day to day life so that economy will grow. We can promote electric equipment to discourage Liquefied Petroleum Gas (LPG) and support the manufacturing sector. We need to implement a long term strategy for narrowing down the trade deficit rather than focusing on short term plans. Short term benefits will harm the economy in the long run. Nepal’s strength is in energy. Domestic production of energy should also be used for the domestic economy so that economic activities will accelerate and imports of fossil fuel go down. We have a vast market in India and China. The government and private sector should work together to reap the benefits of their immense economic potential. The private sector should be proactive not reactive to any issue. Private sector should do serious homework and approach to the government to make plans for balanced trade, promote FDI, develop human resources, and not waiting for the government to do things for us.