Nepal is about to undergo a metamorphosis from a long political transition. This programme probably is the best way to share our experiences to create an opportunity for joint venture investment companies. Operating industries in Nepal is not easy and remains difficult as of now. But on the flip side, the profitability for some of the industries has really been good and the companies especially from India have been doing well here weathering the problems and challenges.  The very strong comparative advantage in terms of innovation, capability, expertise in management, unique products and moreover the good experiences in managing the products and services in the Nepali market have been the main reasons behind their success. 

It has been quite interesting to hear good things from the government officials. I am hopeful that the situation will be better in the upcoming days. We can hope that the investment climate has been improving in Nepal primarily in the manufacturing sector and also in the services sector. 

I would especially like to request both secretaries to take the initiative from both the ministries to improve the business environment so that investors can protect their business interests through legal means.  We would like to see the procedures established and proper regulations formed and implemented.

Lately, the government has become active in bringing in new legislations to foster a better climate for investment in the country. There are three fundamental economic laws which probably will come very soon in this regard. Among them is the Foreign Investment and Technology Transfer Act (FITTA) the draft of which is currently under revision with the parliamentary committee. CNI has twice been represented in the discussions about the draft of the FITTA Bill. 

In the meantime, we want the government to introduce the Anti-Dumping Act which is one of the very important laws for Nepal. Similarly, we also would like to see the government bring in the IPR law. Finally, improvement in the delivery of services from the government will also aid in the betterment of the country’s investment climate. 

(Adapted from the speech Sharma delivered at the Symposium) 

The people who were there at the Nepal Investment Summit 2017 were from the who’s who of Indian industrial groups including Tata, Birla and Reliance. The conglomerates have brought in well over USD 100 billion to India. Now, that investment is available and can come to Nepal if we can show them a comparative advantage. If we can, then we can assure foreign investors so that they can bring in hundreds and millions of dollars. 
In the case of hydropower projects, we should look at the return on investments (ROIs).  We need to ensure that the proposed investments in mega-projects such as Arun III, Upper Karnali and later on the Makahakali will come. Otherwise why would investors want to invest in hydropower in Nepal when projects which have been on for the last 10 years haven't materialised? And, why, when the rates in which India is willing to purchase the produced power is going down?  Are we going to be viable or not at the rates we are looking at? So, this is the area that we have to look at.

In the industrial sector, there are issues with the industrial property rights (IPR) that have been going on for a long time. The case of Kansai Nerolac is a clear example here. I found the Japanese Ambassador to Nepal to be highly upset on this particular issue as he told me that if the foreign companies don’t get their respective IPR rights in Nepal, we will have to face an extraordinary amount of difficulty in terms of receiving FDIs. A lot of Indian companies find that their brands are already registered by some other parties. They cannot bring the products due to the IPR problems. So, the government needs to take proper steps to resolve the IPR related issues. 

(Adapted from the speech Rana delivered at the Symposium)

FDI is linked to the country’s international trade. We are very worried that Nepal’s trade deficit has been growing by leaps and bounds. The government wants to bridge that gap to the maximum extent possible for which FDI is instrumental. FDI and international trade are the twin engines of economic prosperity for a country like ours. The constraints in the domestic supply capacity can be addressed by FDI. I don’t see any problem for the government to allow the import of raw materials against bank guarantee for customs duty if the finished product is to be exported. There is already the bonded warehouse facility provided to such importers. The general tariff slabs and the rates for the packaging and industrial inputs are very much convenient and comfortable for the exporters here. This is one of the reasons Nepal ranks 107 in terms of Doing Business out of 190 countries, second to Bhutan in the South Asia region. 

However, the concerns being raised by the JVs and other foreign investors are genuine and should be addressed in pragmatic and pertinent ways to further improve the investment climate in the country. The government has been active in this regard with the series of reforms in policy, regulations and institutional setup it has undertaken in the recent years. Some massive policy measures are being developed and implemented at present. For instance, the SEZ Act and the Industrial Enterprises Act have been enacted that have provided facilities to the exporters. Similarly, the draft of the FITTA Bill has included provisions for the smooth repatriation of profits which has long been a major demand of foreign investors. Likewise, the procedural hassles and excessive documentation requirements will largely be eased after the implementation of the one-window policy. 

We agree that the government needs to provide all types of facilities to the maximum extent possible to the export-oriented companies and to also remove the existing barriers. The Ministry of Commerce is clear on the issues of cash incentives. We really wanted to expand the manufacturing and export base of Nepal which is very limited at present. We have been practicing the cash incentives on exports and we look forward to extend it further in order to expand the manufacturing base. Granting such incentives is common practice worldwide to boost exports. However, though we have provided such facilities to the exporters in the past, we could not see the export base growing. The investors and companies demanding such incentives also need to come up with commitments to expand their export-oriented manufacturing base. The fiscal and financial nature of the incentives won’t be worthwhile if the export-oriented manufacturing base is not expanded.  The concerned ministries and the stakeholders need to discuss this agenda further.

In the meantime, the corporate tax slab in Nepal is not much high compared to other South Asian countries. It is 25 percent on average and a rebate and exemption of up to 40 percent in income tax is being provided to the companies.

The policy reform which started prior to the Nepal Investment Summit 2017 has gathered significant momentum after the event. Similarly, we have moved ahead with new initiatives to materialise the LOIs into actual investments. We have formed a high level committee under the chairmanship of the industry minister in order to realise the investment intents. Similarly, three sub-committees related to the project bank, policy reforms and industrial promotions have already started their work. 

The Intellectual Property Right Policy has been approved by the government. We have also started to prepare a draft of the comprehensive IPR Bill which will replace older laws related to trademark and copyright and establish new rules to protect the intellectual property. The new law will be in line with the policies of the World Trade Organisation (WTO) to effectively resolve the problems in these areas.

We want to make all processes easier for the investors. The recent parliamentary endorsement of the amended Companies Act is another example in this regard. It will make entry and exit of the companies in Nepal easier. The issues related to repatriation of profit and investment will be resolved after the enactment of the FITTA Bill which has recently been drafted. The development of SEZ areas across the country which has gathered momentum in recent months will also be largely helpful in attracting FDIs as such facilities will address the industrial infrastructure related problems.

We have started the online registration system at the Office of the Company Registrar. Likewise, we have moved ahead to implement the one-window mechanism which all investors have long been waiting for. Recently, we had a meeting to discuss various issues and to find the appropriate modality for the one-window system.  

We are committed to providing the industries with high level security. The Armed Police Force and the Nepal Police have been managing adequate security arrangements for industrial areas across the country. There were many outside security threats to the industries in the past. But now, the issues generally are internal, arising due to the conflicts between labourers and industry owners. If needed, the chief district officers can be engaged to resolve such problems. The home ministry has given clear and strict instructions to security agencies to provide better security services to the industrial establishments and to the people working there.

The Nepal Investment Summit 2017 has been among the most successful events organised in the country. Around 1,285 foreign delegates participated in the summit. The forum enabled us to communicate with the delegates on our initiatives to create a climate conducive for investment and the development approach we initiated since the liberalisation of the Nepali economy in the early 90s. The summit gave a clear overview to the delegates about the progress we have achieved in terms of policy reforms which are basically aimed to facilitate both domestic and foreign investors. 

Similarly, we were able to communicate to the potential investors the highly positive experiences of the existing investors who have been working here. Such an initiative led the potential foreign and domestic investors to sign LOIs totaling USD 13.52 billion during the summit which was beyond our expectations. 

It is a challenging job for all of us to realise the LOIs into actual investments. We have already initiated some programmes and moved ahead with strategic steps in order to materialise the investment intents. Under the leadership of the industry minister, the government has formed a main committee and three sub-committees for the follow-up of the event. A mechanism is already in place that will help us to move ahead removing the bottlenecks. We expect to realise up to 25 percent of the LOIs into actual investments over the next 4-5 years. 

The LOIs are basically for the infrastructure related projects including hydropower, international airports and metro rail. These are projects of high importance requiring large amount of investments. One such mega project may require an investment of up to USD 6 billion and may take many years to complete. So it is not an easy task to realise such huge investments. It may take us 10-15 years to materialize such LOIs. Nonetheless, we have started to package the projects. The process of formalisation has already begun. Documentation for the projects has started. 

We are well aware about the lower rates of ROI in infrastructure projects making such projects less attractive to the private sector investors. Nevertheless, I do not see 25 or 30 percent ROI expected by the investors.  The documents for such projects submitted by them does not show such high expectation. IBN has been working to increase ROI of hydropower and other infrastructure projects to 15-20 percent looking at similar practices in India and other countries. I don’t see any major problem with infrastructure particularly in the hydropower sector. Many entrepreneurs and private power producers have been expressing a keen interest to join the hydropower development work in the country in recent years. NEA has many PPA deals with private producers. The government has formed a committee to assess the storage, run-of-river (RoR) and peaking-run-of-river (PRoR) type hydel projects. The committee has already submitted a report on the PPA rates of the projects to the government that will be decided soon. Meanwhile, the issues related to the cost of the projects will also be resolved soon.

We are also looking into some infrastructure projects where the returns are considerably less. For instance, we are working to find a modality for the Viability Gap Funding (VGF) for projects with negative ROI like the proposed Kathmandu Valley Metro Railway.

The promulgation of the new constitution in 2015 has led Nepal to focus on economic prosperity improving the investment and business climate through policy reform measures. The government has been actively playing its role in this regard. The success of the recently held Nepal Investment Summit 2017 is clearly indicative of the improving scenario. While interacting with the existing and prospective investors during the summit, we found that they have aggressive plans for business expansion and new investment for Nepal. Many participants made it loud and clear that they will bring in new investments only if there is stability in policy and relevant laws, and that policies are implemented to ensure a sound business environment in the country.

We want the existing investors to become ‘investment ambassadors’. We are well aware that negative words will spread among the probable investors if the existing ones face difficulties in terms of delivery of service from the government and inability of the concerned authorities to address their pertinent issues and concerns. 

Investors looking to invest in any country primarily go to the government to understand rules and procedures for investing. But having participated in many forums we have found that they would informally want to check with the local companies to know about the business environment, what their issues would be and other things that facilitate business in the country. In this regard, we have been receiving informal queries from many Indian companies asking about our issues here and the things that facilitate business in Nepal. 

If I have to put the queries into two buckets, one would be from the new companies that are looking to start business in Nepal. Generally, they ask us about what would their issues be in terms of documentation and registration. It is very heartening to see that the government of Nepal has been seriously talking about implementing the one-window policy. It will definitely facilitate the foreign companies in their process to establish a business in Nepal. It is a good step forward in the right direction to attract investments. 

The companies in India also want to know about the operational side of business. One of the main objectives for anyone coming here with the FDI will be to maximise the profit and remit the money back home. The companies ask us how easy it is for them to remit the dividends from Nepal. Our experience in this regard has been mixed. There are companies here that have struggled to remit back their dividends and there are companies that have done it very easily. 

There are a lot of reasons also from the side of the companies. Unclear documentation and clarifications are such reasons. But we have one suggestion from the JV community in India in terms of remitting the dividends. They suggest that there should not be a requirement to repeat the documents on a yearly basis. For instance, JV investors who have been working here for many years need not be asked to mention their initial investments. The concerned authorities can ask them about their current profit and loss accounts and balance sheets. 

Likewise, the firms in India ask us how easy it is for foreign companies to make payments to the consultants.  A lot of people looking to start businesses here want to deploy consultants to conduct activities such as surveys of the market and research on the demand of new technologies. Initially, the companies get all approvals from the Department of Industry (DoI) but when it comes to final payments to the consultants, a set of queries come from the central bank and the whole process gets repeated. This delays the payments ultimately making the consultants dissatisfied. The words of discontent spread among other consultants ultimately reflecting the delays in the payments as the weakness of their clients. Once an approval is given, the concerned authorities should not seek clarification repeatedly from the companies. Here, this particular problem persists not only with the companies with JV investments but with all types of businesses. 

Similarly, there are issues regarding the IPR. It takes a considerable time for the companies to develop their brands. It becomes very pertinent for Indian JVs particularly as India and Nepal share many common things. The IPR law here needs to be set in tune with international practices which is very important to welcome the Indian brands. The government needs to work faster in this regard. Such a law will ensure the probable investors that their intellectual properties are well protected here. Equally important for IPR officials is to delist the so-called ‘properties’ that have already been registered. Doing this will give confidence to the investors that the government is not only serious about the future course of action but also will correct the past malpractices. 

Clear interpretation of laws is important to attract FDI. Expansion of business and getting into new areas is one of the avenues for the growth of any investor. Looking at the practices internationally and in the SAARC countries, the laws are such that, any losses which a company incurs during the initial stages from a new business is allowed to be set off from the profit of the existing business. Nevertheless, in Nepal due to certain interpretation of laws, this is not allowed. Based on the products and services, it takes a certain time for businesses to succeed. At the end of the day, if the businesses start to multiply and grow, it will eventually lead to a better situation of employment benefitting the economy. The clear and proper interpretation of existing laws, rules and regulations will definitely brighten the industrial horizon.  

The government also needs to encourage the foreign companies in terms of their ‘go green’ initiatives. A lot of institutions today are voluntarily engaged in activities such as using solar power to fulfill their energy needs, efficient handling of water etc. If the government provides them with certain incentives it can propagate the green ideas across the industries enabling them to move towards the greater good. 

Similarly, incentives to exporters will support Nepal’s export-oriented manufacturing base. The country definitely has the geographical advantage as it can tap the immense market possibilities in India and China through the exports. However, manufacturers and business people should understand that they can only grasp the available opportunities if they have clear competitive and comparative advantage. 

The incentives to the JV companies need not always be in cash. For instance, industrial JVs here have been manufacturing different types of products. But many of them cannot produce some niche products as it does not make any economic sense since the demand for such items in the domestic market is very small. So could the government of Nepal look at formulating policies so that JVs can import such niche products at 5-10 percent of their annual turnover from their parent companies? It will help to increase the government revenue. Despite the small demand, such products at present can easily enter the market here through grey channel which is ultimately a loss for the government in terms of the revenue. Such an initiative will also encourage the JVs here to get their full product portfolios. 

Nevertheless, with all the problems there are some very positive things Nepal has to offer to the foreign investors. People are very friendly here and you can meet easily anyone in the political and bureaucratic circles. They listen to complaints and suggestions carefully and try to get them addressed.

We are at an advanced stage in terms of starting the development of the project. The tender processes that we have already initiated are in the stage of being evaluated. We are likely to award the major package of the construction of the dam to the selected contractor by the end of April or the first week of May. And the construction of the project’s powerhouse is also at an advanced stage of tendering and we are likely to award it sometime in August. So, we are all set for the project’s financial closure by September and the construction of the powerhouse sometime in October. 

Nonetheless, we have been facing different types of obstacles in trying to move ahead with the development of the project. The main issue has been about forest clearance. As per the PDA, we were supposed to conclude the financial closure by November 2016 which was extended upto September due to the unavailability of forest land and the acquisition of private land also got delayed. We hope for support from the government in this regard. Otherwise, the entire project development will be delayed. The second major problem has been the availability of forest land for access roads and right-of-way. In fact, we received the right-of-way in February 2017 which had to be given to us within six months of signing the PDA. 

We have already signed an agreement with the Department of Roads for the construction of 50 kms of access roads with estimated costs of around Rs three billion. But that also got delayed. We have only been able to cut down the trees to construct the access road to the powerhouse site. There are important tasks yet to be done such as balance construction and construction of bridges. Even after we received the right-of-way in February, there are still some disputes over some land measuring about three kms because the old papers regarding the ownership of the land were not traceable. Due to this, the land owners of the areas have not permitted us to start the construction of the road. 

The third problem what we have been facing is the poor condition of the roads. The main access road is from Biratnagar via Hiley to Khandbari. From Khandbari, the road will lead to the dam site and powerhouse. We are constructing a 50 kms approach road to transport vehicles and machineries. But the condition of the road section from Hiley to Khandbari is very bad. It will considerably slow our vehicular movements in transporting machinery and other essential items required in the construction site. 

The fourth problem that we have been facing is in terms of receiving clearances and permission to import and use explosives. The main concern here is about the security of transportation and storage of such sensitive materials. We need to bring the entire blast materials to the project site from India mostly through the route via Biratnagar. Some 10-15 truckloads of explosives will be moved to the project site. The government of Nepal should provide us with adequate security to transport and store the explosives in order to avoid the delays in constructing the project. 

Fortunately, the IBN has been very cooperative easing the hurdles we have been facing. But we would like to see these types of hassles removed for our future projects in Nepal. 

At present, the energy market is becoming very competitive and the price of electricity is going down. After the construction of major projects, Nepal has to export the produced electricity as the in the country consumption will be less compared to the production. The benefits from the completed projects will be reduced unless they come in a timely manner without the escalation in the costs and add-ons. The government also needs to address the ROI related issues in the hydropower sector. The ROI of Arun III will be around 12 percent. So there is a need for procedures to ensure timely clearances and not to have many add-ons that are not included in the original plans of the projects.  In India, for instance, we have been supplying a total of 30 percent power for free to the government. There, one percent of the power produced by a hydropower plant is exclusively earmarked for local distribution. Here, the government also needs to look into adopting such a policy.

Similarly, the authorities should support us to improve the condition of existing infrastructures and construct new ones. While it is up to us to built most of the access roads to the project, the government agencies also need to come forward in this regard as it is the government which will ultimately benefit from the project.

Despite the difficulties, there are things here not generally found in other countries. The energy ministry has been cooperating with us in a good manner for the development of the project. We have found other concerned government authorities also to be helpful. It has been encouraging for us as they listen to our concerns and try to resolve the issues. The investment environment has been gradually improving and we haven’t faced major security issues except for an incident which took place two years ago in the powerhouse area. The market for electricity is also readily available here. Meanwhile, the availability of construction materials, other goods and contractors for constructing local infrastructures is also satisfactory.

While it is a welcome step form the government to prioritise the one-window policy, I request the Ministry of Industry to fast pace the process so as to facilitate the easy and quick entry of foreign companies. In November 2016, the SBI Life Insurance Company notified the authorities that it was interested in starting a JV undertaking in Nepal with a capital of Rs 5,200 crore. The JV is a partnership between some of the world’s largest names in banking and investment including the France-based BNP Paribas Cardiff, Singaporean sovereign fund Temasek Holdings and the American multinational private equity firm KKR and Company. They have said that if they do not get a reply from the authorities in Nepal in the next five months (there is two months left for their deadline to end), the project will shift to South Africa. 

Unless the government fast tracks the process, it will have to explain to many people why SBI Life Insurance did not invest. SBI, the parent organisation of SBI Life Insurance Company, has become the world’s 39th largest bank with a balance sheet size of Rs 41 lakh crore by April 1. While we talk about FDI, it is important for Nepal to prioritise investment from such a large banking entity. It is up to Nepal to secure the investment instead of making them wait as any investor in today’s world can invest anywhere. 

The JV companies that have been working in Nepal or are interested in coming here have vast experiences. They have employees with decades of relevant experience and considerable knowledge. If we need such people to work here we need to let go of the requirements of qualification. The NRB has been pragmatic in this regard but the Insurance Board is yet to adopt such a policy.

Nepal needs to have a reciprocal approach if it wants people from international organisations such as SBI and Standard Chartered Bank to work here and in turn Nepali citizens to go to work in places such as Singapore, USA, Canada and Japan to gain relevant experience. There are many employees in our organization who are citizens of Singapore working in Australia, trained in USA and UK. But when it comes to work in Nepal, most are reluctant to come here due to the lack of reciprocity. It is especially important for the large JVs that are supported by the governments to have such a facility. 

Labour registration is among the many problematic areas the government of Nepal needs to seriously look at. As per the existing arrangements, JVs are required to go to the Department of Labour where it takes at least six months to register their employees from other countries. 

Nepal is a country having the unique advantage of moving from a low-end mobile technology to 4G connectivity in a matter of months which became possible by trained people who have worked in such technologies. We need to find local talents as well. But we cannot wait for two to three years to develop the required large scale human resource. 

We at SBI Bank have been trying our level best to promote and market Nepal through various forums we participate in. There are basically two questions being asked about Nepal by the representatives of large Indian corporate institutions. In a recent meeting of the Confederation of Indian Industry (CII) in Delhi, we were asked if the government here has formulated and implemented relevant policies or not. We tried to assure them by replying that the situation is much improved now. 

Talking about SBI, we recently set up an investment desk in Mumbai for Japan to manage investments going to Japan from India and vice-versa in association with the Indian commerce ministry. Similarly, the investment desk for South Korea has also been established. Our chairman has publicly announced that the Nepal desk is coming up in a few months. We like to request the concerned government authorities here to cooperate in such an effort which will help bring FDI in the country. 

There are also various positive things to note here. People in the political and bureaucratic spheres are accessible and they pay attention to our problems and try to resolve the issues. If we convince the concerned officials well, the decisions come instantly which is not often seen elsewhere. The NRB has also been very supportive in bringing new technologies to the banking sector. We have received all types of clearances from the central bank to bring here a cutting-edge banking technology that we are planning to introduce within this month. Besides this, the ROI in Nepal is the highest in the world which is a trade secret.