Employer-worker relations narrowing

PRABHAKAR GHIMIRE KATHMANDU, April 30: Labor relation is perhaps the first thing that comes in the mind of investors planning to put their money in Nepal. Frequent strikes and shutdowns of industrial enterprises by workers are among the key concerns of domestic as well as international investors. Social security for workers and flexibility in hiring and firing workers are central in employer-trade union disputes recent years. However, both the sides have acknowledged each other"s concern in recent years which has created an environment for frequent dialogues between labor unions and employers. “Though employers and employees have their own interests and concerns, we have been able to gradually create an environment for talks,” Bishnu Rimal, president of General Federation of Nepalese Trade Unions (GFONT), said. At a time when labor force is still not institutionalized and vulnerable to exploitations, labor unions are pressing for social security for workers in a unified manner. “Though we have political differences, we have initiated the process of raising trade union agenda effectively by forming Joint Trade Union Coordination Committee (JTUCC) as umbrella forum of major trade unions,” said Rimal. Even employers are showing interest to resolve the problems through dialogues rather than resorting to suppress the labor movement as practiced few years back. “It shows that industrial relation is improving. Workers and employers, however, need to get rid of their traditional ways of thinking,” added Rimal. Suraj Vaidya, president of Federation of Nepalese Chambers of Commerce and Industry (FNCCI) also said labor relations are improving. “Though some positive signals are seen in our context in the improvement of labor relation, we have to be serious about the complication cropping up in the path of establishing stable and reliable labor relation due to lack of amicable solutions of labor disputes, which are taking place time to time,” Vaidya said in a statement issued on the occasion of 124th May Day which is being celebrated on Wednesday. He also said employees" rights should be ensured keeping in view the country"s economic condition and industrial situation. “We are effortful to work with trade unions to resolve the existing problems and challenges facing the economy and industrial sector,” said Vaidya. Labor problems are more complicated in small enterprises rather than the big ones. “Talks between management and workers of small companies are very rare unlike the big companies. So, we are trying to establish good industrial relation in all kinds of enterprises,” Salikram Jammakatel, president of All Nepal Trade Union Federation, told Republica. Labor unions are concerned about the difficulties in forming trade unions in small enterprises though existing Labor Act allows workers to form union for collective bargaining. Jamkattel also said trade unions are for implementing trade union rights at any enterprises level, representation of trade unions in at least 10 percent of Constituent Assembly (CA) seats, and reasonable review of remuneration after two years. As tripartite talks between trade unions, employers and the government are in progress, trade union leaders are lobbying for monthly salary of at least Rs 12,400 and daily wage of Rs 650 keeping in view rising cost of living with double digit inflation. “Our notion is that workers" rise in remuneration should be in line with the inflation rate,” said Jammakattel. Jammakattel, however, refused outright the employer"s call for hire and fire policy. “Though we are always ready to demonstrate flexibility for better industrial relation, we will not accept hire and policy,” said Jammakattel. Rimal said workers" demands are divided into right-based demands, which are clearly envisaged by laws and interest-based demands, which are focused on securing more rights for workers. “We are for implementing right-based demands and securing interest based demands for workers to ensure their greater rights. However, some employers are not ready to fulfill even the right-based demands of workers let along the interest-based ones,” added Rimal. Dharmendra Kumar Singh, President Nepal Factory Labor Union of Nepal Trade Union Congress (Independent) is also of view that employers are not serious about fulfilling the genuine demands of workers. “Employers are not showing interest to address demand for social security of workers,” Singh added. However, rising frequency of talks between workers and employers in recent times is an indication that industrial relation will improve in the coming days. Singh, however, expressed objection over employers not living up to their commitments. “Employers have yet to deposit the amount that they promised in the welfare fund even though they are already deducting workers" salary,” he added. Going beyond the core labor issues, trade union leaders also stressed the need to generate more employment opportunities. “Our priorities are not only limited to rights of workers. We are also emphasizing employment-focused development policies,” added Rimal. Jamkattel said trade union rights should be expanded in overseas labor destinations where Nepali workers are suffering a lot.
Published on 2013-05-01 08:03:14

India reimposes countervailing tax on Nepali RMG

PRABHAKAR GHIMIRE KATHMANDU, April 30: India has reimposed countervailing tax on readymade garments (RMGs) from Nepal. The move goes against the understanding between two countries to impose countervailing tax only on products on which excise duty is imposed. India has been levying additional tax on Nepal´s RMG exports for the past two weeks. According to exporters, this will further reduce Nepal´s apparel export to Asia´s third largest economy. “As per the understanding between the two countries, India cannot levy countervailing tax on branded and made-off items which are exempted from excise duty. But India has been making Nepali exporters to cough up additional tax for the past couple of weeks,” Uday Raj Pandey, president of Garment Association Nepal (GAN), told Republica on Monday. According to Pandey, Indian customs office has levied 12 percent countervailing tax on maximum retail price (MRP), making Nepali exports expensive than other products in the Indian markets. India had stopped levying countervailing tax on Nepali products after the issue was raised by then Prime Minister Madhav Kumar Nepal during his India visit in 2010. “Our RMG exports will decline further as our products will now become expensive than our competitors,” said Pandey. Data compiled by Nepal Rastra Bank shows Nepal´s apparel exports dropped by 66 percent during the first eight months of the current fiscal year compared to figures of the same period last year. During the review period, Nepal exported RMGs worth Rs 124.5 million to India. Statistics of Trade and Export Promotion Center (TEPC) shows that overall exports of Nepali apparels tumbled by 22 percent to Rs 2.34 billion during the review period. Nepal´s apparel export has come down massively since 2005 when US ended duty-free access to Nepali RMG. Deepening financial crisis in European nations has also affected RMG exports from Nepal. During the review period, Nepal´s RMG export to overseas market plunged by 36.9 percent to Rs 1.93 billion. Meanwhile, RMG entrepreneurs have requested to the Nepali officials to exert diplomatic pressure on India to remove the unlawful levying of countervailing tax. “Finance Minister Shankar Koirala has assured us that he would take up the issue with Indian officials soon,” Pandey said. Nepali RMG products are already losing competitive edge in India with the flooding of Bangladeshi products. India doesn´t impose countervailing tax on products from Bangladesh. Also, the Bangladesh government has been providing different subsidies to RMG producers.
Published on 2013-04-30 02:30:06

Making proper use of remittance

PRABHAKAR GHIMIRE

At a time when trade deficit is widening with each passing year, double digit growth in remittance inflow has come as a great relief for the country. Though remittance and trade deficit are different from each other, they are inter-connected in context of Nepal. Nepal receives remittance of more than Rs 400 billion every year, which is as much as the country’s annual budget, thanks to growing exodus of youths to foreign job markets.

Nepali migrants workers sent home Rs 360 billion through formal banking channels in 2011. Similarly, remittance flow increased to Rs 430 billion in 2012 – on level with the country’s total trade volume during the first eight months of 2012/13. Remittance contributes 22 percent in country’s GDP.

According to the latest report of World Bank, Nepal is the sixth largest recipient of remittance in terms of percentage of GDP and fourth largest country in South Asia in term of volume of remittance inflow.

Nepal’s over dependence on remittance has spurred consumption, jacked up inflation, created shortage of industrial workforce and left farm sector in a lurch as youths are leaving for foreign job markets in large numbers. Rise in consumption level of Nepalis has led to increment in imports eventually leading to trade deficit given the country’s limited export volume. However, per capita income of Nepalis increased to Rs 105,400 in 2011, up from Rs 34,698 in 2003 due to rise in remittance flow.

Data compiled by Trade and Export Promotion Center (TEPC) shows Nepal’s trade deficit increased by 28 percent to touch Rs 340.65 billion during the first eight months of the current fiscal year compared to the figures of the same period in the last fiscal year. Contribution of exports in total trade also decreased to 11.4 percent during the review period from 13.4 percent recorded in the corresponding period of last year. “Amid healthy rise in remittance flow, it has become a challenge for the government to utilize the overseas earning of migrant workers in productive sector,” said Dr Ganesh Gurung, a remittance researcher. Latest Nepal Living Standard Survey conducted by Central Bureau of Statistics (CBS) shows that around 78.9 percent of remittance that the country receives is used for consumption purpose. One cannot expect remittance thus earned to invest in employment generating sector given the worsening investment climate in the country. And the growing exodus of productive youths (around 1,200 per day) to overseas labor markets has weakened country’s export capacity. Remittance-financed import is becoming a significant sector for revenue generation as more than 50 percent of total tax revenue comes from consumption tax. Growth of agriculture sector, which contributes one-third of GDP, is expected to hover around 1.3 percent this year, as per the estimation of the budget for the current fiscal year. Similarly, manufacturing sector is expected to grow by a meager 1.5 percent. Deepening shortage of workers in farm and manufacturing sectors has been slowly affecting Nepal’s performance in these key sectors. According to informal studies, entry of family members of overseas migrants in the labor market has dropped by 15 percent over the past decade. Growth of remittance flows has not only contributed to rise in inflation but also led to rise in imports of even farm products. Data of TEPC shows Nepal imports cereals worth Rs 13.38 billion over the first eight months of the current fiscal year – a rise of 87 percent compared to figures recorded in the same period of the last fiscal year. Similarly, imports of vegetables, fruits, meat and dairy products also increased during the period. Rise in income level of remittance recipient families has driven up imports of luxurious items such as gold, tobacco, alcohol, cosmetic products and energy drink, among others. “Large swathes of land have been left fallow because of shortage of workers. This is increasing our dependence on imports,” added Gurung, who is also the former member of National Planning Commission (NPC). Persisting industrial slowdown, absence of farm commercialization, tepid growth in tourism earning and growing exodus of productive youths to foreign markets is increasing Nepal’s dependence remittance earning. Despite this, remittance has played significant role in keeping economy at household as well as macro-economic level alive. Remarkable rise in migrant population, which has reached 7.5 percent of total population, has brought down poverty level, increased country’s foreign currency reserves and gross national savings and kept balance of payment in surplus. We also should not forget the fact that remittance has played a key role in bringing down the level of poverty from 41.8 percent to existing 25.2 percent in just over a decade. The World Bank’s study shows that rise in inflow of remittance by 10 percent in any particular country would bring down the poverty by 3.5 percent. Besides, overseas returnees are bringing with them knowledge, skills, modern technology and entrepreneurship. They are found involved in enterprising activities like running tea shops, fisheries, vegetables farming, poultry and livestock, among others. Such activities are also generating employment opportunities for many in Nepal itself. More than 55.88 percent of the households receive domestic or foreign remittance and one-third of them receive remittance from abroad. Nepal’s remittance receipts have crossed the amount received from Official Development Assistance (ODA). Amid double digit rise in the inflow of remittance, its contribution in terms of percentage of GDP has jumped significantly over few years. Contribution of remittance in terms of percentage of GDP stood at 21.5 percent in 2012 up from 13.8 percent reported five year earlier. However, source of remittances is limited in handful of countries mainly Qatar, Malaysia, Saudi Arabia, the UAE and India. If data compiled by CBS in 2009 is anything to go by, remittance inflow from India stands at 13.4 percent, Malaysia at 19.2 percent, Saudi Arabia at 14.5 percent and Qatar at 21.5 percent of total remittance receipts. The government should immediately do the needful to prevent scattering of remittance receipts and properly channelize the amount so that it could be utilized in productive sectors. “The government should formulate policies to attract remittance receipts into banking system by offering higher interest rates,” economist Dr Posh Raj Pandey said. Three years ago, the government had made an attempt to channelize remittance receipts by issuing Foreign Bond worth Rs 7 billion. But the move failed due to low interest rate, lack of proper publicity among migrants and absence of clear programs to properly utilize the amount raised. “There should be a clear policy to utilize remittance receipts in productive sector. Otherwise, remittance scattered at individual level cannot be utilized in productive sectors,” Pandey, who is also the former member of NPC, said. Besides, there should be a policy to enhance the skills of overseas returnees and create an environment to utilize their knowledge and expertise at home. Gurung opines that the government has to take policy of suggesting jobseekers the possible sector for investment before they leave for foreign job markets. “Migrant workers can make better use of their earnings if they make investment plan even before their departure to labor destinations,” said Gurung. However, no one disagrees that foreign employment is not a permanent solution to keep the economy afloat. The government should devise plans to increase export of skilled workers to increase per person remittance earning and use it for accelerating economic activities. It should come up with long term plan to gradually reduce the dependence on foreign employment by creating employment opportunities at home by increasing economic activities.
Published on 2013-04-24 08:00:13

Full budget faces host of challenges

-----------------News Analysis--------------

PRABHAKAR GHIMIRE

KATHMANDU, April 11: Almost nine months after the start of the current fiscal year, the government has come up with a full-fledged budget that attempts to soothe the private sector, according priority to agriculture, export promotion and infrastructure development amid concerns over slowing industrial growth, reduced farm output and low progress over development expenditure.

Totalling Rs 404.82 billion, the budget has given pride of place to conducting the Constituent Assembly (CA) election, allocating Rs 14 billion for the purpose. This includes security expenditures for the proposed poll.

However, the government has also attempted to restore the investment climate in the country, a step that has pleased the private sector.

“We welcome the budget for taking initiative to address the concerns of the private sector. We can´t expect more from this election government though the programs are not sufficient to bring back the confidence of the business community for investment,” said Pashupati Murarka, vice-president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI).

A heap of challenges greet the government that has announced it is to ensure ´macro-economic stability´ in the country. Slowing performance of the industrial sector, bleak progress in capital expenditure, double digit inflation, industrial insecurity, power scarcity, reduced farm output and ballooning trade deficit, among other things, are the key challenges.

“Though the Finance Minister has announced different measures to boost economic activity in the coming months, the growth target has been set on the basis of data for the last seven years. This shows that no progress is expected for the next three months with the additional Rs 52.89 billion allocated,” said economist Dr Posh Raj Pandey. Pandey, who is also a former member of the National Planning Commission (NPC), said the newly announced budget would not restore the confidence of the private sector as it was announced without forging a political consensus. The government faces a challenge to jack up the contribution of manufacturing in the economy, given the adverse industrial climate fueled by labor unrest, fuel crisis and declining private sector investment. Contribution of manufacturing to Gross Domestic Product (GDP) has dropped to 6.2 percent from 8.2 percent recorded a decade ago. Amid the declining confidence of investors, the contribution of private investment to GDP fell to 15.3 percent as of the end of last fiscal year from 18 percent reported five years ago. Inflation is another factor that has weakened the competitiveness of Nepali industries. Taming rising inflation that has now reached 10.1 percent, up from an earlier estimate of 7.5 percent, is challenging. “But this budget lacks visible measures for bringing down the double digit inflation,” added Pandey. Ballooning trade deficit, which posted a 28 percent rise to reach Rs 340.65 during eight months of the current fiscal year, and slowing farm sector growth are also worrying factors. This budget has expected the agriculture and non-agriculture sectors to grow at moderate 1.3 percent and 4.8 percent respectively. Service and industrial sectors are expected to expand only by 6 percent and 1.5 percent respectively this year. Given the situation, the central bank has already revised the economic growth rate target downward to 4.1 percent for the current fiscal year from 5.5 percent estimated earlier. The government has further revised downward the economic growth this year to 3.6 percent from an earlier estimate, coinciding with a 3.5 percent growth estimated by the Asian Development Bank´s Outlook released on Tuesday. The budget has announced a host of programs aimed at boosting farm output, thereby substituting imports and strengthening food security. “Areas of export promotion with comparative advantage and competitive edge will be identified and focus will be given to the development, expansion, diversification, marketing and branding of such goods,” the Finance Minister said in budget speech. Continuation of export subsidy, appropriation of funds for 50 percent subsidy under a newly introduced insurance scheme for fisheries, poultry and agriculture, additional funding for enhancing supplies of chemical fertilizers, interest subsidy for commercial livestock farming, opening five collection centers for farm products, ´One District One Product´ programs in Okhaldhunga, Argakhanchi, Rasuwa, Dhading, Sindhupalchowk, Pyuthan, Bara, Rautahat, Jajarkot and Manang, and additional budget allocations for optimal utilization of the multi-fuel plant in Biratnagar and the diesel plant in Hetauda are some of the steps taken in the budget to spur the development of the farm and agriculture sector. “However, lack of adequate investment and modern technology, scarcity of farm inputs and heavy dependence on the monsoon are major obstacles in farm commercialization,” added Pandey. In a bid to accelerate development activities, the government has assured a sufficient budget for national pride projects, foreign-aided projects and other multi-year contracted projects. “But, with lack of political stability, the implementation of such projects is also difficult,” he further added. The current full-sized adjusted budget has allocated Rs. 279.01 billion or 68.92 percent of its total for recurrent expenditure, Rs 66.13 billion or 16.34 percent for capital expenditure and Rs 59.67 billion or 14.74 percent for financing provisions. To meet all these expenses, the government has estimated a collection of Rs 289.60 billion through revenue, Rs 4.39 billion from receipts of principal repayment and Rs 46.98 billion from foreign grants. “To meet the revenue target, the government has to get tougher in the coming days, which means the private sector will be under greater government scrutiny,” he said.
Published on 2013-04-11 04:00:06

Economic performance remains unimpressive

-------------Economic Review- Year 2069-------------

PRABHAKAR GHIMIRE

KATHMANDU, April 14: Nepal´s flagging economy suffered another setback in the Nepali Year 2069 ended April 13 plagued by prolonging power deficit, frequent labor strikes, widening trade deficit, ebbing investors confidence and low capital spending in the absence of full budget.

The previous government led by Baburam Bhattarai could not announce full budget due to political wrangling although ordinances on budget were introduced twice to keep the economy moving.

The newly formed government led by Khilaraj Regmi last week announced a full budget worth Rs 404.82 billion making additional provisions of Rs 52.89 billion on previous allocation of around Rs 351 billion.

Due to lack of consensus for full budget among political parties, the Bhattarai-led government was compelled to set capital expenditure target based on actual spending of last fiscal year without allocating funds for new projects. Even ongoing projects did not receive adequate funds during the year, which affected their day-to-day works.

On the back of low capital spending, huge amount of money remained idle in state coffers affecting money supply. This was one of the major reasons that forced the government to revise down the economic growth to 3.6 percent for the current fiscal year from 4.1 percent projected in the mid-term review. During the year, farm sector also suffered a setback, with production of paddy, maize, and millet dropping by 11.3 percent, 8.3 percent and 3 percent, affecting the food security situation in the country. These reasons also compelled the government to come up with lower economic growth projection for this fiscal year. As an apparent effects of decline in cereal production, price of food commodities  went beyond the government estimation. Inflation rose to around 10.5 percent from the 7.5 percent originally estimated by the government. In a bid to ensure smooth supplies of petroleum products in the market, the government introduce the Petroleum and Gas Transaction Order 2013 which paved the way for private sector to import, process and distribute the petroleum products ending more than four decades long monopoly of state-owned Nepal Oil Corporation (NOC). However, the government backtracked from its plan to open up the petroleum sector to private sector after fierce protest from petroleum entrepreneurs who had been enjoying benefit from the mismanagement of NOC. Also, in terms of trade performance, Nepal suffered highest ever trade deficit of Rs 340.65 billion in the first eight months of the current fiscal year till mid-March. During the period, exports contributed to nominal 11.4 percent of the total trade volume of Rs 441.09 billion. Increasing imports of petroleum, iron and steel, machinery parts, transport vehicles, gold and silver, cereal and some luxurious products contributed to the ballooning trade deficit at a time when the country has been suffering from weakening supply capacity amid persisting power shortage, bandas, labor unrest and political instability. In a bid to boost trade between Nepal and China, construction works for establishment of a dry port in Larcha of Sindhupalchowk began this year, with the aim of completing the project within next two years. However, Nepal failed to renew transit treaty with India with additional provisions that were crucial to promote Nepal´s trade with the southern neighbor and overseas countries. Nepal and India renewed the treaty in existing form after Nepal´s foreign ministry expressed reservation over one-time additional lock system on Nepal bound cargos proposed by Indian officials. The additional lock provision was among the different provisions included in the proposal of the new transit treaty with the southern neighbor. Though Nepal has been celebrating the Investment Year 2013-14 to encourage foreign and domestic investors to put money in major potential sectors such as hydropower, infrastructure, tourism, agriculture and manufacturing, the investment environment in the country was not conducive during the year. Growing industrial insecurity, amid frequent attacks on businessmen and industrial establishments by trade union workers, has generated fear among potential and existing investors. However, the government secured investment commitments worth US$440 million for implementation of proposed 140-MW Tanahun hydropower project from Japan International Cooperation Agency, the Asian Development Bank, Abu Dhabi Fund and European Bank. Completion of track opening works by Nepal Army for 76-km Kathmandu-Tarai Fast Track, the government´s decision to raise licenses fees to a range of Rs 200,000 to Rs 6 million for hydropower generation, were some of the major steps taken by the government during the year. The performance of the stock market also remained satisfactory during the year with the Nepal Stock Exchange (Nepse) index surging 203.47 points over the year to end at 523.41 points on April 12, the last trading day of 2069, thanks to progress in peace process following integration of former Maoist combatants in the Nepal Army. In the foreign employment sector, the year was possibly one of the best for Nepali migrants abroad. The Nepal government decision to jack up minimum salary of Nepali workers in Saudi Arabia and the United Arab Emirates (UAE), to enhance their savings amid increasing cost of living in those key destinations that house around 700,000 Nepalis migrants, was well received. Malaysia, the most popular destination for Nepali job-seekers, also announced its decision to raise minimum salary to 900 ringgit from 546 ringgit providing relief to overseas migrants, including Nepalis. However, the salary hike in Malaysia will be implemented in 2014. Yet reports of strikes staged by Nepalis in different areas of Malaysia such as Maur, Johor Baru, Perak of Kelang Neru and Tebrau were also reported during the year. Increasing incidents of violent protests by Nepali workers in labor destinations have become a matter of concern for the government though such agitations are against employers, who exploit Nepali workers by infringing on terms and conditions of work contracts.
Published on 2013-04-14 03:00:04

Violence by Nepali workers hurting overseas job prospects

_                                 *******NEWS ANALYSIS******* PRABHAKAR GHIMIRE KATHMANDU, March 29: Talking to Nepali the media earlier this week, Choon-Bok Lee, the vice president of Human Resources Development Service (HRDS) of Korea expressed his concerns about the growing number of cases of Nepali workers employed under Employment Permit System (EPS) involved in unionization with political interests. Choon´s concerns came a day after the Nepali media was flooded with news about a clash between two groups of Nepalis involving local gangs in the southern Malaysian city Johor Bahru that left three Nepalis injured on Sunday.