News Roundup: The NRB versus the bankers and the gold dealers

Roundup of Nepali Economic and Business News for Aug 1-Aug 31
By NepaliEconomy.com
News Archive

The Nepal Rastra Bank (NRB) is mired in two controversies. First is its dealings with bank executives. Bankers are lobbying the NRB against micro-managing senior bankers' salaries. The second is its new policy on gold sale. The NRB ended the monopoly of the Nepal Gold and Silver Dealers Association (NEGOSIDA) by letting the Gems and Jewelers Association and Gold and the Silver Artists Association into the business, and by allowing retailers to buy directly from banks. This has led to the NEGOSIDA boycotting the market and casuing an artificial shortage and higher prices.

Macro: Forex reserve has grown to Rs 266 billion from Rs 236 billion in mid-April. Government revenue is up 12% in the first month of 2067/68 - VAT, custom duty and the excise duty are the three top categories - despite worries earlier in the month. Still foreign donors (Rs 39 billion) and casinos (Rs 300 million) owe money to the government. The top three corporate taxpayers in 2009/10 were Nepal Telcom (Rs 9.66B), Surya Nepal (Rs 5.93B) and Gorkha Brewery (Rs 3.09B).

Government Policy: The government is trying to amend the Bonus Act which allows PEs to distribute bonus for the year they make profit even if the PEs have accumulated losses. This is the core of the dispute with the NOC employees. Another Commission is studying ways to improve the PEs' performance.

Finance: In light of the end of so-called liquidity crisis and an inflow of Rs. 25 billion deposit into the banking system (1) banks are lowering deposit rates from as high as 11% (2) the NRB is instructing banks to end inter-bank deposits that's tying Rs. 6 billion. In response to the collapse of Nepal Development Bank, and Credit Guarantee Corporation (DCGC) has started to guarantee deposits up to Rs. 200K at Cat-D financial institutions. Banks continue to churn record profits - EBL (Rs. 832 million), RBB (Rs. 2 billion), NMB (Rs. 221 million), BoK (Rs. 509 million) and ADBL (Rs. 1.6 billion). Now you can get derivative trading tips through the Nepal Commodity Call. Nepal stock exchange is finally entering the 20th century with the Central Depository Scheme (CDS) system.

Hydro: Upper Tamakoshi has given a major construction contract to Sinohydro but the project is mired in controversy on the appointment of its head. Another hydro-project bites the dust - the 750MW, Rs. 120 billion West Seti office closed after the SMEC stopped financing it because its partners did not want to fund the project. In order to avoid NOC's bankruptcy the ETF Commission has proposed 25% hike in tariff (from Rs. 7/unit to Rs. 9/unit); among many reasons for the NOC's financial woes is Rs. 2.52 billion annual loss from Khimti and Bhotekoshi Hydro Projects because their PPAs were set in the US$. The Norway-financed 880MW Tamakoshi-3 will be completed by 2017 on the heels of 456MW Upper Tamakshin in 2015.

Tourism: Tourism industry seems to be on a rebound despite an average of 15 strikes a month. In July, tourists arrival through TIA jumped 26% to 29,338 but tourists through land rose only 6.2% to 60,877. Airlines are doing a brisk business - 15K flights from 25 international airlines in 2009 - with the top three being Qatar (12.39%), Gulf Air (11.76%) and NA (11.72%). As such, foreign airlines are increasing services to Nepal including Dragon Air. The growth in airline business is however not helping employment prospects for pilots. Tourist arrival to Pokhara jumped 9% to 203K in 2009. Hoteliers are investing Rs. 1 billion on upgrades to accommodate increasing number of tourists. Within tourism, the adventure segment, which make up a third, is growing and offsetting declines in other areas - leisure, and meetings and conferences. There is a call to make Nepal a LGBTI-friendly destination. The row over the spoils of tourism revenue is leading locals in the Upper Mustang to threaten barring tourists there.

Remittance: The NEFEA is lobbying the government to restrict individual contracts for Gulf countries apparently for safety reasons. Kuwait has increased salary of Nepalese workers to 60 Dinar (Rs 13,200) from 40 Dinar per month. The FEPB fund financed by Rs 1,000 from each foreign job seeker is in the midst of a corruption scandal as officials use it as a personal piggy bank. The government has banned workers from going to Libya but wants Korea to increase the quote under EPS. Malaysia will stop hiring Nepalese workers because they want to give priority to their own; also there was a 3-day protest over a death of Nepalese worker there. For the same reason, the Macau casinos fired 153 Nepalese workers. There might be a cut in a British Gurkha regiment because Nepalese ain't cheap anymore.

Food and Agriculture: A WFP survey said around 3.6 million Nepalese faced severe food insecurity during 2009-10, and in Humla, 75% of of the population is at risks from high level of food insecurity. To compound the problem the NFC is having problems collecting grains. There are better news elsewhere. The western development region has become the epicenter of coffee production in Nepal. Apple production in Bajura is expected to double and in Mustang is up 50%. Despite these improvements, fruits worth Rs 230 million were imported through Birjung last year. And the government is importing 45,0000 tons sugar before the Dasain festival. Farmers are doing a brisk business in milk in Sunsari district.

Infrastructure: The 1,348km Mechi-Mahakali and Kathmandu-Pokhara Electric Railway project is to be completed with the next 10 years is expected to cost Rs. 800 billion according a government plan. The Biratnagar airport is getting an upgrade. The 30km Kathamandu-Bhaktapur 6-lane highway has completed 70% of work.

Trade: While handicraft exports continue to dwindle, the floral sector is experiencing a 10%-15% growth in exports; the size of the business around half a billion rupees.

Labor: Looks like entrepreneurs in Birgunj are moving away from strife-ridden manufacturing into services. Labor strife around the country this month include workers in petrol pumps in Kathmandu (over benefits), tea factories in Jhapa (over price of leaves) and hospitals in Kathmandu (over benefits). Lack of opportunities is driving Nepalese software developers abroad. The much heralded YESP has gone nowhere now their chief advocate (the Maoists) are out of power. Not a surprise that Nepal's labor is the least productive in S Asia.

Manufacturing: Registration of small businesses is down 50% and there are many reasons why. Lack of power is causing wheat flour mills to run at 50% capacity and new companies in Morang-Sunsari will face additional load shedding.

Real Estate: Transactions in Pokhara slowed. Kathmandu saw a cooling of the real estate market although 6 new projects indicate signs of hope; Chitwan saw an increase in transactions during 2009/10. The government is reviewing its ban of 6 cement brands over quality concerns. Given the financial stakes, there are huge frauds in the sector including one in Kathmandu (trying to take control of 23 housing plots worth Rs 13 billion) and one in Pokhara (mid-night transaction worth Rs 230 million).

Telecom: Telecom is probably the most developed sector in Nepal. There is price war going on between Ncell and Nepal Telecom given that NT wants to add 2.21 million new customers. NT is planning to build an additional 5 million GSM mobile lines within the current fiscal year but the government has to deal with national security issues when giving contracts to foreigners. Ncell is introducing Blackberry service to Nepal. The biggest VoIP racket was busted in the capital.

Kathmandu Economics: A government task force recommends a Rs. 68 million project to improve infrastructure at six junctures to ease traffic. Goat supply to the capital is down 20% to 5,000 heads per week, so mutton will be expensive this holiday season. The daily consumption of poultry in the capital stands around 150K kg per day and the amount of potato is 250 tonnes. Dating in Kathmandu will costlier as restaurants increase surcharge by another 7-8 percent on the top of 24.3% surcharge currently.

Interesting Tidbits: 23% or 6.1 million Nepalese are middle-class ($2-$20 daily purchasing power) according to the ADB. Nepalese notes with former king's pictures will be phased out by mid-April 2011 as per the NRB directive.