Hari Bhakta Sharma
Board Member
Confederation of Nepalese Industries (CNI)

Hari Bhakta Sharma is an executive board member of the Confederation of Nepalese Industries (CNI), a ‘think tank’ of Nepal’s industrial sector. He is also the executive director of Deurali-Janta Pharmaceuticals Private Limited (DJPL), a leading pharmaceutical company that has been an inspiration to Nepal’s manufacturing sector. In an interview with New Business Age, Sharma emphasizes on the brighter sides of the Nepali economy, the economic environment in the country and the need for developing the private sector, among other issues. Excerpts:

How do you view the current economic situation of Nepal? Where is it heading?
There are two different ways to evaluate our economy. One is the evaluation of our overall economic growth. Nepal has achieved a growth rate of 3-5 per cent despite the ongoing political confusion. The Nepali economy is primarily driven by remittance. The disposable income of individual households increased with the increasing flow of remittance over the past 5-7 years. Remittance has raised the purchasing power of Nepalis and their consumption rate. The manufacturing sector, on the other hand, is becoming weaker every year and it is important how the increased consumption demand in Nepal is being fulfilled. The manufacturing sector’s contribution to the GDP has decreased gradually over the past decade. In 2012, for example, the manufacturing sector’s contribution to the GDP was around six per cent, a sharp decline from around 14 per cent a decade back.

The consumption demand in Nepal is being met through imports. We import goods worth billions of rupees every year. The dependence on imports has impacted our manufacturing sector causing a decline in the production trend. And now we don’t find our stand in the international trade and do not know where we can compete and what the core advantages we have.

Soaring imports have raised the government’s revenue. That’s why the government’s policies are facilitating import. If we do not redress these policies immediately, the power shortage, and other problems including the labour problem and political instability will take a heavy toll on the manufacturing sector, further deteriorating the employment situation in the country.

Power shortage has become a chronic problem. Around 11-12 hours of power-cut everyday has made the production cost high. Second, there is a vacuum at the policy level. Although it is said that we are going to adopt a federal structure of governance, it is not yet clear to many what a federal system is and how many federal states will be there.

Due to these reasons, there has been no significant investment during the past eight years. So, there has been no expansion of industrial investment in Nepal. Lastly, there is no clear economic policy. There is no common ground regarding the future economy of Nepal.

How serious are the labour problems for manufacturing sector?
Labour problems are manageable; the industries can tackle these problems. But there is seemingly no solution to the power problem and the political instability. Due to the lack of clarity on the federal system to be adopted, investors are apprehensive about future tax system. For example, they don’t know how the products produced in Biratnagar and sold in Chitwan will be taxed. When these things become clear, investors will come to Nepal.

We often talk about a private sector-led economy. But it is said that the private sector in Nepal lacks the vision of a broad-based economic growth and sustainable development. What are your views?
Since Nepal’s overall capacity to create enterprise is in the initial stage, it would not be fair to expect a high performance from the Nepali private sector. The private sector in Nepal is also a part of the Nepali society; it is as good or bad as the society is. Work culture and government policies directly affect enterprise.

If we compare our development with that of China, India, Pakistan or south East Asian countries like Malaysia, Indonesia or Thailand, we find that we have poor governance in both private and government sectors. Also, our innovative capacity is poorer than theirs.

The Nepali private sector is learning to be globally competitive. It is also learning to manage enterprises and managing companies properly.

There are many organizations like FNCCI, CNI and other NGOs and INGOs working for the private sector. How do you assess their roles and activities?
If we talk about CNI, the purpose of establishing this organization was to make a positive impact on the climate of investment in Nepal and help make policy changes to transform Nepal into an investment friendly country. We create awareness about the industrial environment in Nepal and develop linkages among entrepreneurs. We are here to help create the right business environment, conduct dialogue at the policy level and help formulate policies that would attract investment to the country. When CNI was established, the country’s situation was volatile, politically unstable and unpredictable. This could be why the initiatives and efforts made by CNI were not pursued by the implementing agencies of the government.

Could you please elaborate a bit on the initiatives made by CNI for the development of Nepal’s industry sector?
We basically focused on three fundamental issues. First, we prepared documents on the country’s Industrial Policy after a lot of homework. We then submitted these documents to the Ministry of Industry. We wanted a number of changes in the policy. Second, we have been saying that the Nepali Enterprise Act needs a lot of improvement as the law formulated in 2049 BS has become obsolete. This issue needs to be addressed urgently.

The previous industrial policy had incorporated many of our suggestions. However, the suggestions were not implemented because the Act was not amended.

At the policy level, we have been trying to make the politicians aware about investment and the development of enterprises. We have been trying to create an investment-enabling environment. We have been trying to find ways to increase the income of Nepalis. We have been organizing economic summits.

It is said that CNI was established because of the over politicization of the private sector. What do you say?
CNI was established because there was a need for an organization which could support the formulation of pro-private sector policies, help create an investment-friendly environment, and assure the investors about the long-term benefits of investing in Nepal. Such an institution was lacking in the country which led to the birth of CNI. Ever since its establishment, CNI has tried to do its bit for the industry sector as well as the entire economy. CNI has already passed through the test phase. If you compare the achievements we have made over the past one decade with that of any other similar organization, then you will know how hard we have been trying to improve things. Since we focus on the manufacturing sector, we raise issues and problems faced by this sector.

It is said that the main reason behind the lack of re-investment in Nepal’s manufacturing sector is its inability to compete with China and India. For this reason, many believe that manufacturing does not have prospects in Nepal and are therefore importing instead. What do you have to say?
I do not agree with this. Deurali Janata Pharmaceuticals (DJPL) is one example that will prove this hypothesis wrong. Though the state provides five per cent discount on the import of medicines, DJPL has been able to produce quality medicines at competitive prices. The company has grown over the years. There are many areas in manufacturing where we can be competitive. All we need to do is identify and develop products with comparative advantage.

So, what are the areas were you see comparative advantage?
Now is the time to go for hi-tech products. We should be able to identify the industries which can develop technologies and can also be competitive, for example bio-pharmaceuticals, IT sector and the health sector. Hydropower and tourism are two other sectors with lots of prospects; they are growing. If we improve the quality of service in tourism, we can get more benefits even from the current number of tourist arrivals. We are indeed sandwiched between India and China, but we have a great bio-diversity which makes us a country with high potentials in high-value crops. Likewise, there is a great scope for innovation and investment in the agriculture sector. We need to develop agricultural lands as enterprises but we have been developing them as properties. Agriculture is the base of a number of manufacturing industries.

The government has listed the three sectors you mentioned above as the priority sectors. Still, we are unable to exploit them. Why?
The political instability in the country has kept the investors at bay. It seems the investors are in the wait and watch mood now. They are waiting for our discourse on federalism, future economic policy etc to take a concrete shape. Politicians should understand that their speeches alone won’t bring investment to Nepal. It’s a country’s political and business environment and the right rules regulations and policies that draw investment. We lack all these things. How will investors come to Nepal?

What are the fundamental reforms needed to develop these sectors?
A common understanding among the politicians on the country’s economic agenda is a must. Parties in the government as well as in the opposition should understand that there should be a clear economic agenda which clearly depicts the dos and don’ts. No significant investment will come to Nepal unless the politicians have a common economic agenda prepared without any prejudice against anyone. We also need to depoliticize the economic issues so that industry, trade, and employment generation could grow smoothly. We have to keep in mind that we need domestic as well as foreign investors.

That means there is no hope for growth in investment?
If there were no hopes, we won’t be in this business anymore. What I want to say is we lost a very good time. After the popular uprising of April 2006, the international community has had positive expectations from Nepal; we have many helping hands around. But we have so far failed to understand this and cash in on the opportunity. We couldn’t learn to depoliticize economy and development.

Moreover, the politicians haven’t learnt from the mistakes they made in the past. They have spent 15 long years repeating the same mistakes. But still we hope that the time is not as bad as some people assume today.

But other countries which have gone through conflicts, for example Sri- Lanka, have made progress. Why couldn’t Nepal?
I want to say that the generation I belong to is worried about the young blood. This young generation which could create enterprise is fleeing the country; here, I am not talking about those who go abroad for employment. This has made a very serious impact on our economy. This is why our GDP hasn’t grown in a massive way. However, we should appreciate that we have a positive growth both in the GDP and state revenue. The number of people wishing to invest in Nepal is also growing slowly.

Other countries which have progressed despite undergoing a conflict in recent times attached high priority to their economies even during the time of conflict, not to mention after the conflict. Conflict-hit countries like Sri-Lanka and Bangladesh were able to maintain their growths as they had attached high priority to their economies. The Bangladeshi Cabinet has five ministers from the private sector. Those people who did not contest the parliamentary elections but were considered to be the best managers are appointed as ministers there. But in Nepal everybody seems to be thinking that only politicians can become ministers.

In Sri- Lanka, you find an amazing system of governance. Every Sri Lankan ministry has at least one advisor from the private sector; they had two advisors during the conflict period. The government in Nepal only seeks loyalty from the businessmen. The knowledge of the entrepreneurs, their professional abilities and skills are not given due respect. They are judged based on their political inclinations or affiliations. This is why the inputs from professionals and technical experts of the private sector have not reached the higher level.

Nepal has scored 50.2 on the economic freedom index 2012, becoming the 147th most-free economy in the world. How do you view this development in relation to the industrial environment in the country?
Regarding this issue, we have been focusing on a few things. One, we have been demanding that the Industrial Enterprises Act be amended according to the present needs. Two, the indicators of cost of doing business - for example corruption which is becoming socially acceptable - should be controlled. Three, as I mentioned already, the prime reason of the low ranking of our country on the economic freedom index is due to the unclear policies and the political instability. Things will improve once there is political stability.

How do you find the current business environment in Nepal in comparison with the time you joined in?
I came into business some 22 years ago. There are some sectors which have made progress over this period, for example, the pharmaceutical sector and the banking and finance sector. Today a good project in Nepal stands a better chance of getting financed because of the development in the banking sector. Another good development is the young generation grown up over the past 20 years is coming forward seeking opportunities in businesses. These young people want to create enterprise on their own and are ready to take risks.

There is some negativity, too. The level of corruption has risen. There are people who enjoy in others’ income rather than earning by themselves. The politicians have over-politicized almost every sector including the industrial sector. The result is less productivity in terms of individual capacity and high indulgence of the entrepreneurs in politics. In every sector, a person who is politically motivated and affiliated is selected regardless of their capability.

Why are the pharmaceutical companies not seen aggressive in efforts to export their products?
Registration of pharmaceutical products internationally is a very difficult process. For pharmaceutical products, like medicines, companies need to scientifically prove their products, assure the consumers that the products are safe, GMP certified and so on. Another reason that makes us apprehensive to accept orders is the fear of not being able to deliver the products on time. Because of problems like power shortage and unpredictable labour problems and strikes, we always question ourselves whether we would be able to deliver the orders on time.

We have just around 20 years of history in the development of pharmaceutical products. Based on my experience, I can say that there is a long way to go for Nepal’s pharmaceutical industry. It’s a highly regulated business. Unlike India, Brazil, the US and many other countries, Nepal is not considered as a country which can produce high-value medicinal products. India took 40 years to enter the export market while China took 35. We are just into 20 or 22 years of entering the pharmaceutical business. We hope to enter the export market faster than that.

Why is the problem of substandard drugs in Nepal unresolved?
The private sector alone cannot resolve this problem. We can just facilitate the government in this process. We have been organizing awareness programmes against substandard drugs. The government has the authority and the mechanism to control substandard medicines. The medicines that are available at the pharmacies need be monitored and controlled by the government. We are ready to help the government in this matter.

How is DJPL presenting itself in the global market? What are your upcoming plans?
Our primary objective during these 20 years was to learn, make our technologies world class, and establish our business globally. Now that our foundation is ready, our next step is to help reduce the import of medicines, at least those medicines which Nepal can manufacture itself. There are many products which Nepal needs to produce itself. But since we have been importing them from other countries for ages, we have not really thought along these lines. Now is the time to think about substituting the import by producing quality products. The most important thing we want to do now is promote healthier living. We want to produce health products other than medicines – health supplements. Taking medications after falling sick is normal. However, there are products for a healthier life, products that help prevent sickness. We too can produce such products.