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Nepal’s business environment: Stained by political uncertainties

Bhuwan Thapaliya - 7/16/2008

In the past couple of years, whole world has hailed an improvement in Nepal ’s political performance. But sustained political development is impossible without greater economic stability. Is that in prospect?



Nepal’s economy looks remarkably shaky given the storm clouds gathering all over the global economy, and the various economic indicators does not expect the country to accelerate its economic pace in the near future, though the political situation in Nepal is slowly but surely improving.



Agflation is a major setback and Nepal ’s position is made trickier by continued domestic inflationary concerns. Double digit inflation has completely devastated the life of the ordinary Nepalese, who are fighting hard for their survival and there are no signs of recovery for them as the global recession lurks in.



Political environment has a direct impact on any county’s business environment and when it comes to underdeveloped nations such as Nepal , whose economy has been seriously affected by the political conflict in recent years; its impact on business has been very lethal.



Nepal’s business environment has been seriously affected by the series of political conflicts following one after another in the last ten years or so.



Overall GDP growth has dropped sharply from 5 percent in the 1990s to just over 2 percent in the past three years. This means that Nepal is only creeping in per capita terms, which further reckons that Nepalese business environment is not fertile and there are enough indicators indicating some serious macroeconomic vulnerability.



The adverse impact of the political conflict on business has annihilated the business environment of Nepal . And unfortunately, it could take decades to recover from such a grave mayhem even after the restoration of peace. The loss of business opportunities, due to personal security and grave human rights violation—are the desolate affects of a decade long conflict no one seems to fancy anymore- especially Nepalese business personals.



To make the matter worse, even after the end of the Constituent Assembly Election, the downside risks of Nepal ’s business sectors are rising and hence the short-term economic outlook looks blurred. As far as I am aware, Nepal ’s business partners, all over the world share similar views, when it comes about investing in Nepal . Hence, the political and security situation in Nepal has huge implications for further business assistance and its effectiveness in the long run.



Furthermore, most entrepreneurs have been evaluating the ongoing politics and its direct/indirect impact on the Nepal ’s business. Will it improve for the better or remain stagnant is yet to be seen by us all.



Rationally speaking, for the business to flourish in Nepal the political change needs to be institutionalized at the earliest possible but looking at the current political chaos in Nepal, it seems we will remain in doldrums till the next election of the parliament under the new constitution. Nonetheless, time has come for the political parties to unite for a common minimum economic program but that looks just a forlorn reverie judging by the ongoing political battle amongst the Nepalese political parties.



To make the business environment further unstable, after the emergence of the Maoists as the political power house in Nepal , there are speculations that Nepal ’s Capital is being transferred abroad leading to acute capital and liquidity shortages in Nepal . Analysts reckon that this is not good for Nepal because business people have lost their faith due to hyper insecurity, trade unionism and the political abnormalities.



To minimize the risk of capital flight, we need peace, security & political stability as these three factors are the prerequisite for the business development of Nepal . And having said so, I think the future of business environment will be congenial because it is possible to transform Nepal into a prosperous peaceful Nepal in the next few decades. For that to happen, all we need is a business and economic policy beyond politics as there are various business opportunities in Nepal though as of now many international and domestic investors are still speculative about business investment and promotions in Nepal .



Hence, the first challenge for Nepal is to pave a fertile field to attract both – domestic and foreign investment in the country to boost the fragile business sector. Second, in business, new products and services have to be introduced. The business industry cannot sustain itself by indulging in traditional business only – new frontiers will have to be explored. While focusing more on some core sectors such as hydropower, real estate, tourism, herbs and adventure sports.



Finally, if peace and political stability is established in Nepal , then its business sector too would blossom. There is light at the other end of the tunnel for both domestic and international business personals in Nepal – Business environment is slowly but surely regaining its lost glory and there are every chances of it gaining the momentum in the next few months.



But for this to happen, considering the political gravity and the geo –political liquidity, our political parties have to realize that the main objective for Nepal in the next few weeks is establishing a credible Nepali government that could protect the secular fabric of the nation and bring together the different ethnic and religious groups under the broader umbrella of New Nepal.



The sooner they realize this – the better it would be for the business environment in Nepal .



Nepalese are looking towards a new future, full of hope. They believe that the political change has brought fresh hope among Nepalese about their future. Nepali people are very happy. They look forward to a future of national reconciliation between Nepalese in order to build the new and free Nepal , a Nepal of equality.



But plenty of new worries have already begun to sprout out. The anger and frustration over the lack of civic amenities is bubbling over and poses as much threat as the continuing political uncertainty. To make the matter worse, there is a strike going on almost daily in every sector.



Considering so, Nepalese leaders must unite and end this status quo if Nepal is to grow economically.



On the other hand, the Nepali public should realize that they have lived together for generations, for hundreds of years and they will continue to live together for hundreds of years. So what this political mess is all about? Let them realize that only political interests are tearing them apart.



In short, Maoists shock win in the election has created its own set of problems for the Bush administration and in the long term interests of India . However, the Indian government should participate in Nepal ’s reconstruction- political and economic – only when they are called upon and not under the evergreen hegemony of Indian government, who seems set to once more overplay its hand in Nepal in the wake of the King’s downfall.



Regardless of the why’s, the facts are clear – outsiders are trying to fish in the muddy waters of Nepali politics. So let this be understood by out leaders – the sooner the better.