Slowing industrial growth amid chronic hurdles

-----Analysis---- PRABHAKAR GHIMIRE KATHMANDU, Dec 26: Industrialist Binod Kumar Chaudhary had planned to establish production units for multinational companies when he bought over 50 hectares (80 bigaha) of land in Rajahar, Nawalparasi, the site of Ganga Devi Chaudhary Udyog Gram, two decades ago. Chaudhary, president of Chaudhary Group, succeeded in opening and operating 17 industries in the industrial village couldn’t bring in multinational firms as he had envisioned. “I was able to cover only one-third of the total land acquired for Ganga Devi Chaudhary Udyog Gram over the last two decades [with industries]. My dream of accommodating multinational companies inside my industrial cluster couldn’t be materialized,” he told a group of media persons recently. Chaudhary, who is also the first and only Nepali “dollar” billionaire in Forbes Magazine’s global list, blames the country’s adverse industrial climate for throwing cold water on this dream. Let alone extra incentives from the government, he has had to struggle to get the necessary land to establish industries in Bardia and Sunsari in the last two years. Surya Nepal – the Nepal subsidiary of Indian conglomerate ITC Limited -- also could not find land to establish its cigarette factory in Tanahu district after two years of trying. The cases of Chaudhary and Surya Nepal are just a tip of the iceberg that has been hindering industrial growth here. Among the piles of obstacles -- both chronic and emerging -- in the course of operating industries, shortage of land tops the investors’ list. Over a few years, Nepal’s industrial slowdown has deepened leading to continued decline in contribution of industries to the national economy. Lingering political transition, deepening shortage of energy, frequent labor unrest, and crunch of skilled manpower are among the elements that most of the business people have attributed the slowing industrial growth to. “We had been able to carry out significant expansion in our industries with firm determination even during the decade-long Maoist insurgency. What we want from the government is a favorable investment climate to win the trust of domestic and foreign investors,” said Chaudhary. Even after the peace accord was signed with the then Maoist rebels in 2005, the industrial environment has yet to be restored enough to revive the ailing industrial sector. Data compiled by the Central Bureau of Statistics (CBS) shows growth of the manufacturing sector limited to 3 percent in 2010, 4.1 percent in 2011, 3.6 percent in 2012 and projected at 1.8 percent for 2013. With the manufacturing sector slowing consistently, its contribution to the Nepal’s gross domestic product (GDP) has been hovering between 6.7 percent and 6.9 percent over the last five years. The overall industrial sector, which has been contributing around 15 percent to GDP for the last few years, has witnessed a declining contribution to the economy. The industrial sector’s growth has been reported at 4.3 percent, 3 percent and 1.6 percent in 2011, 2012 and 2013 respectively. “How can we expect industrial growth in our country where investors can’t get even the required land?” Chaudhary said. Entrepreneurs have been facing similar fate while acquiring land for industries. Difficulty in land acquisition has become a major obstacle for the development of even public infrastructure such as hydropower and highway. Rabi KC, a senior vice-president at Surya Nepal, said scarcity of large plots of land due to increasing cases of land fragmentation, demand for excessive price for land and need for related infrastructure such as water supply, electricity and roads to run the industries, have been discouraging the entrepreneurs from investing in the manufacturing sector. “We have to suffer huge cost for establishing industries as we have to spend large sums of money for land and the necessary infrastructures for industries,” KC said. Development of major infrastructures such as highways, hydropower and transmission lines also have become difficult nuts to crack for the government. Dispute with owners in the process of fixing compensation for land to be acquired has meant that the progress in construction of transmission lines and development of even national priority road and hydropower projects has been negligible. Even local leaders of political parties are found to be instigating the land owner to demand ‘unnatural prices’ for their land. “We can’t guarantee that any industry or hydropower project will run in the area where dispute on compensation is not settled. Insecurity of investment is the major factor that has put a dent on industrial growth over the last few years,” said Pashupati Murarka, a vice-president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI). The government has been facing a crunch for land to establishing Special Economic Zones (SEZs) -- a key facility for industrial promotion -- in different parts of the country. When the government plans to develop such structures, owners continue to bargain demanding exorbitant prices for their land, making the compensation cost excessively high beyond the affordability. “The trend of demanding unreasonably high prices for land has hampered the development of infrastructures and industries. The problems in land acquisition have stalled implementation of development projects even though we announced the budget in time this year,” Ram Saran Pudasaini, joint-secretary at the Ministry of Finance (MoF), said. The government formulated the Industrial Policy 2010 with a host of measures to promote industries including establishment of SEZs which will be equipped with the necessary industrial infrastructures and amenities. In a bid to avoid land acquisition problems, infrastructure deficit and labor unrest, the government announced it would bring an SEZ being constructed in Bhairawa into operation this year. However, the policy could not be implemented in line with its spirit due to delay in formulating necessary laws. The Industrial Enterprises Act and SEZ Act, which is crucial for the development of the industrial sector, is gathering dust in the absence of parliament. The current budget has also pledged to start developing the necessary infrastructure once the land acquisition for the proposed SEZs in Panchkhal and Biratnagar were completed. The government is also developing infrastructure for the proposed Simara SEZ. Though the SEZ in Bhairawa is almost complete, it could not be brought into operation amid delay in getting the necessary act. In the budget, the government announced it would formulate a new Industrial Enterprises Act and make the necessary amendments in the existing Company Act and Foreign Investment and Technology Transfer Act. The Approach Paper of 13th Plan released by the government for the next three years also pledged to support entrepreneurs in increasing their access to resources and arrange energy as well as other necessary infrastructure. Dr Charanjibi Nepal, the Chief Economic Advisor at the MoF, holds a different view on the slowing industrial growth. Nepal identified that lack of policy consistency and political instability in the country led to the sluggish growth of the industrial sector. “Unless political stability and policy consistency are established, we cannot get a favorable investment climate for better industrial performance even if we provide other facilities for industries,” Nepal said. He said a simplification in the process of acquiring land, flexible labor laws, access to energy and industrial infrastructures are factors that need to be addressed for industrial promotion. “We have low productivity and comparatively higher industrial wages in South Asia and the labor laws are also rigid. And, infrastructure deficit and energy crisis are also worsening the situation leading to a higher cost for doing business in the country,” added Nepal. A new Labor Act expected to resolve various problems in labor relations is yet to be finalized even though the process has been going on for the last few years with a host of tripartite meetings between the government, employers and trade union leaders.
Published on 2013-12-27 05:56:13