Nepal: Draft FDI Act 2070 Professor Madhukar Rana Former Finance Minister of Nepal WHY WE NEED FDI? 1. GDS: GDP is 10-12% need 30% for 8-10% GDP growth and 4-5% employment growth per annum 2. To absorb the 25% Remit: GDP which is huge and swelling the BOT deficit year by year unsustainably. 3. We need FDI (especially from India) to undo the constraints to Export Promotion, Import Substitution and Freedom to set Interest Rates arising from the fixed exchange regime; and to get back to the One Basket FOREX regime 4. We need FDI to develop our townships and cities as local and regional centers of modernization and social change and to create a bigger middle class much faster. So that we can deepen and sustain our pluralistic democracy with much higher per capita income. 5. We need FDI to have a national defense machinery that is self reliant with our own arms and ammunitions produced locally; with ultra modern technology –and not be completely dependent, as we are now, on supplies of parts and equipment through uncertain foreign supplies subject to the state of bilateral relations. WHO IN NEPAL NEEDS FDI? 1. Every entrepreneur needs FDI in a globalized and regionalized economic world when Nepal will soon be moving from Current A/C convertibility to Capital A/C convertibility 2. Micro and SMEs need FDI even more than the big business houses since they need, more than foreign finance, Product Design, Modern Nano Technology, Export Market Access and Branding of our Culltural Crafts and Heritage Products to suit overseas tastes 3. I submit that Dalit entrepreneurs need FDI even more for the above said reasons-- plus more. This ‘more’ has to do with the great scope for Dalit capitalism to be a new force for social change. We can witness this happening in India ushered in by the Dalit Chamber of Commerce and Industry and its billionaires and millionaires. We should invite this Dalit Chamber with open arms into Nepal as well the rest of South Asia to ignite Dalit capitalism for inclusive growth and development. WHAT KIND OF FDI ACT IS NEEDED? The short answer is “One suited to the era of the 21st century, not the 20th century”. I had the privilege of formulating, with Ganpat Raj Bhandary and Sher Bahdur Pandey, the comprehensive Industrial Policy 1973 and also Industrial Enterprise Act 1973. That was 43 years ago! That was when we were in quest for National Self Reliance with Commanding Heights of the Economy for the State. We subscribed, ideologically, to State Capitalism but not a Liberal Economy whose bedrock is the Micro, Small and Medium Enterprises (MSMEs) often in the informal sector. We opted then to have the Market serve the State and not the Consumers. How times have changed? a) The US and China are the largest suppliers of FDI as well as the largest hosts to FDI. b) Soon India will join the ranks of the great economic power. We need to move toward rapidly integrating our economies with the neighbouring Indian states, which will be boosted by FDI and FII as well as the free flow of goods, services and labour – not relying on immigration laws. c) The nature of INGOs and NGOs are changing from a welfare mission to a mission of human capital and social enterprise development as core social development strategies for p overty eradication and sustainable development. d) As more and more women in the industrial countries command huge market power hold positions of business leadership, so one may expect greater gender solidarity in the sphere of global business. This will provide huge scope to our women producers and entrepreneurs to seek FDI and market access. Much emphasis is being given here by me to gender business and need for FDI since organic farming and fair trade practices are being led by women and so is most household agriculture in Nepal. e) Nepal’s competitive advantage is in Health and Education which needs to be incorporated as priority areas for FDI. Why has Banking and Insurance sectors been ignored too? Nowhere is better management and technology more needed. A thriving Insurance sector is a source of long term finance for the private sector. And there is a need to set up a national Reinsurance Corporation for which may invite South Asian investors. Similarly, we should allow FDI for asset securitization by banks and financial institutions rather than creating a monopoly Asset Management Company in the public sector. It is a sure recipe for graft and corruption as Banks sell junk assets at inflated prices to government and the AMC is compelled, in turn, to sell below junk prices to the private sector –possibly the very same banks! f) Tourism has been given pride of place and yet it is not clear if FDI is welcome in civil aviation that can extend from airlines to ground handling, aircraft maintenance engineering, pilot training and even duty free shopping. g) In an era of regional connectivity by road and rail multi modal transportation; the creation of dry ports, SEZs and articulated warehouses and cold chains, should we not welcome FDI in such capital intensive operations? And what about in Retail Chains to benefit farmers and consumers and creation of value chains of agro enterprises? This is one area where to use the wisdom of C K Prahalad there is “fortune at the bottom of the pyramid”. RECOMMENDATIONS 1. Opt for a new kind of legislation: have a limited negative list to restrict and regulate FDI. We should not insist in minority shares for them. Governments if they wish to control companies should do so using the laws of the land providing all a level playing field. Should government wish more control in the interest of ‘national secuirty’ then they can negotiate a veto clause provision called using its sovereign right. This right should, however, be subject to a final decision by the Supreme Court as to its legality. 2. Opt for a positive approach to welcome and facilitate FDI by doing away with the licence raj, providing for means for mediation and arbitration for settlement of commercial and labor disputes, stipulations for multiple entries, long term visas and banking access. 3. Incentives should be announced judiciously in a discretionary but rational manner, and on a Budget-by- Budget, basis given the economic and financial situation of the country annually. What amount of fiscal and monetary incentives are right for each sector, subsector or product or service—and for how long-- should be duly evaluated by the government using well known social cost benefit analysis and thus compared with the private cost benefit analysis by the private sector. We need to create a win-win scenario in a spirit of public-private-people partnerships where all share risks fairly and equitably. CONCLUSIONS /AFTER WORDS 1. The Act must be made timely and dynamic and not warped in a time capsule of the past; which is what it is, as drafted. Have the drafters considered, for example, the future of e-Commerce and its benefits to Micro and SMES to go global? 2. If NRNs (possibly already citizens of the host country) can be given full exception from the restrictions set by the draft Act, why should their host country citizens be disallowed? Are we to assume that NRNs living permanently abroad pose less of a national security risk than foreigners who may chose to live in Nepal as entrepreneurs or permanent ‘resident tourists’. 3. Finally, times have indeed changed. Past Acts were framed with an implicit bias and fear that Indians will swamp us with FDI, FII and their coming to live here. We must rid our minds of this complex of inferiority. Let us repose full faith in the capacity of our youth to compete with any around the world. The 5-8 million that are now exposed to the outside world do surely have this confidence and capacity to compete as equals, which we of the older generation suffer from. telegraphnepal/views/2013-06-24/nepal:-draft-fdi-act-2070
Posted on: Wed, 04 Sep 2013 12:38:25 +0000
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