Drop In Business Risk

It is a matter of delight for Nepalis that the country has achieved a rare feat of being the best improver in global risk rankings survey with 5.58 points to climb 14 places in the first half of 2019. According to the survey released by Euromoney, an English-language monthly magazine focussed on business and finance, Thursday, Nepal has been consistently doing better in the recent years in matter of improving investment climate in the country, leaving behind countries like the Maldives, Ethiopia, Gambia and several other nations. It has gained 24 places in the last five years.

The rankings are based on 15 different indicators, including political, economic and structural risks and Nepal has fared well in all of them. On the political front, the country has regained stability since the organisation of three-tire elections in 2017 and the formation of strong/stable governments in the centre as well as the states. Meanwhile, there is significant progress towards the institutionalisation of the federal system which empowers local governments and delivers services at people’s doorsteps. The federal government has focussed its attention on development and prosperity and made concerted efforts in this regard. Consequently, the country witnessed a growth rate of 7.9 per cent in 2016/17 and 6.3 per cent in 2017/18 thanks largely to the momentum in reconstruction drive. Asian Development Bank and the International Monetary Fund have predicted encouraging outcomes in the days ahead with good performance of manufacturing and services, mainly tourism.

The survey will surely be instrumental in increasing the flow of foreign investment into Nepal. That, however, doesn’t mean the government can bask in ‘phenomenal’ progress in risk rankings as the report states that the country still remains in the highest risk category – 135th - with a score of 32 out of 100. It still has a long way to go before it can emerge as an attractive investment destination. The risks include security disturbances by a fringe communist party – the Biplav-led Maoist outfit - that has attacked public assets and private businesses, corruption in course of implementing the projects, fiscal deficit weighed down by poorly managed social security schemes and liquidity crunch to cater to growing demand for credit.

There are news reports about government’s effort to address the security concerns through negotiations with Biplav. As regards corruption, Prime Minister KP Sharma Oli holds an uncompromising stance against irregularities, though improving governance still remains a major challenge for the country to graduate into a safe business destination. Lately the government has enacted Public Private Partnership and Investment Act, Foreign Investment and Technology Transfer Act, Industrial Enterprise Act, Special Economic Zone Act, Company Act and Labour Act though they are yet to come into full force. Meanwhile, the country held the second Investment Summit in March this year with the participation of over 700 delegates from nearly 40 countries across the world with encouraging investment commitments form investors.

It’s disappointing to note that Nepal’s export-import ratio stands at a 1:17. So the country needs to focus its attention on mobilising more resources in the manufacturing sector by identifying export items having comparative advantage. Simultaneously, there is a need to enhance connectivity with timely completion of ongoing national pride projects, including airports and Kathmandu-Terai Fast track. At the same time, it is necessary to expedite hydropower projects to meet the growing demand for energy to run businesses for further enhancement of the country’s risk rankings.

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