Roundup of Nepali Economic and Business News for Sep 1-Oct 31By NepaliEconomy.com
Archive: Roundup of Economic and Business News
The country is waiting for two major decisions, one political, the other economic. The political decision is the formation of a permanent government. The economic decision is the passing of full-year budget. Unfortunately, the likelihood of anything happening on those two critical fronts in the near future is very low. On the political side, the NC's Mr. Ram C Poudel is holding fast on to his candidacy for the PM despite the withdrawal of Mr. Puspa K Dahal following the Maoist-UML pact. After 15th rounds of inconclusive voting, his candidacy looks pretty ridiculous, but there is a reason for his obstinacy. This OpEd does a good job explaining it. On the economic side, a lack of budget is having some ramification but the country can survive and even flourish without it. For better or for worse, Nepal's economy is doing well without must doing by the country's political, policy-making and bureaucratic elites.
Macro: The IMF and the ADB expect Nepal's economy to grow 4% in 2011. Such growth rate is not quite good enough. Economic and regulatory reforms are needed to help push the growth trajectory higher. As such Nepal is joining the IMF's Extended Credit Facility (ECF) to facilitate the reform process. One way to promote growth is to take advantage of zero-tariffs on certain items exported to China but Nepal is yet to take advantage of it. 60% of Nepal's trade is with the SAAR countries and it is time to diversify the country's export markets.
Monetary Policy: The NRB was surprised by a shortage of currency this time last year, and this year it made sure it didn't face the same problem. Unfortunately, signs of liquidity shortage are emerging. A part of the reason for the crisis last year was the BofP deficit. As such, this year the NRB imposed ban on gold imports (in 2009/in 2009/10, Nepal imported Rs. 42 billion worth of gold). In order to meet a huge demand for gold during Dasain, the NRB had to auctioned off 100k gold - the NRB owns 6 tons of gold in its reserves and another 1.2 tons in Luxemburg.
Fiscal Policy: The top 3 garners of government budget last year were irrigation, police and education. Foreign junkets for ministers and their cohorts absorbed another Rs. 107 million. Given a public outcry, the government has banned this outlandish privilege ($300/day allowance). One spending government cannot avoid is on the Maoists combatants - almost Rs. 2 billion was spent in the last fiscal year. On the revenue side, Rs. 3 billion went missing from local government bodies and another Rs. 3 billion from state coffers.
Agribusiness: Mustang farmers earned Rs. 180 million selling 3,500 tons of apples this year. Jumla, who declared itself as the "organic district" produces 5,000 tons of apples and is trying to export to Thailand and Malaysia. This is quite an ambition given that only 20% of Karnali's 18,000 tons apple have found any market. Remote Rukum is also facing the same problem. At least, Jumla can claim that it produces award-winning honey. Nepal is the 4th largest producer of ginger in the world after India, China and Indonesia, and exports 99 percent to India earning Rs. 1.37 billion. Nepal is also exporting green tea from Illam to India (Darjeeling) after 3 years ban. On the flip side, milk has to be imported from India because domestic farmers cannot meet the demand. The DDC is proposing a plan to increase dairy production. Meanwhile, Kailali dairymen are making a killing milking cows. Poultry farmers are also doing a brisk business. In this festival season, while Kathmandu and Pokhara are feasting on an ample supply of goats, chicken and fruits other parts of the country including Humla, Baitadi and Bajura are not so lucky. There is shortage of grains there as paddy production has declined by a whopping 153K tons. The FAO's seeds could be the cause for this catastrophe as the production of pulses have gone up at the same time. Low grains supply has forced the NFC to issue a global tender for 20,000 tons of rice. The government is set to import 42K of fertilizer and is hiking fertilizer prices by 30% given higher prices globally. A piece of favorable news, Nepal at 56th position is ahead of India and Bangladesh in the Global Hunger Index.
Energy: It appears that companies in the LPG industry are nickling and diming the NOC into a Rs. 1.7 billion loss. The NOC succumbed to tanker operators' demand and resumed imports from leakage-prone Barauni.
Financials: Banks in Nepal continue to do brisk business - EBL, NNF, BoK, NMB. Not surprisingly existing banks are opening new branches (219 added last year) and new banks are joining the frey - Commerz and Trust Bank, Civil Bank, Century Bank and Mega Bank. According to the World Bank Nepal has 4.19 branches for every 100,000 adults. Shangrila Development Bank and Bageshowri Development Bank are merging, the first development banks to do so. This merger comes on the heels of failed NIBl-EBL merger. Another merger, NBB-NSMBL is awaiting regulatory approval. The Rs. 16 billion Nepal Army Fund lacks skilled investment professionals but it has found ways to invest in a Medical School. The SEBON has given green-light to the Indian-financed CDS, a clearing and settlement system following an approval by the MoF. The MoF has also decided to approve mutual fund regulation to facilitate the development of the industry. The NRB is joining a global trend by attempting to cap bankers' salaries. The government is getting serious about money laundering as pressures continue to build. They are clamping down on informal channels and imposing new rules on remittance companies. The government is getting pushbacks on its attempts. The NCC is complaining that restrictions are hurting foreign investment. On a side note, the 45 year old RBB held its first ever AGM.
Hydropower: The NEA is planning to increase electricity tariff by 30% to close its deficit. But importing Rs. 24 million of electricity from India for Nepalgung alone during 2009/10 is not consistent with that goal. Small hydro developers are lamenting about the low PPA rate structure which they argue is discouraging investment. But new small-sized projects are being developed in spite of such protests. The 2.17MW Mahesh Khola is the case in point. Despite Maoist threat to obstruct 14 Indian-owned hydro projects, 7 mega project including 5 with Indian participation is signing the PDA with the government. Another mega project, the 880MW Tamkoshi III is starting construction in 2012.
Infrastructure: The first 6-lane road in Nepal has opened for service and 5 more are planned. Meanwhile, works on the Outer Ring Road Project has stalled owing to opposition by the locals. The 1,764km Mid-Hill Highway is set to finish this year. The ADB is giving a grant of USS$49 million for the Sub-regional Transport Enhancement Project. The government is considering PPP to encourage investment in roads. TIA is over-load, handling 41 aircrafts/hour instead of its optimal capacity of 30 per/hour. To compound its problem, there was a conveyor belt incident. The legendary Mugling Bridge is in dis-repair. The goverment is taking over the Kakarvitta dry-port after failing to lure private management companies.
Labor: Remittance growth slowed to 10.5% in 2009/10 despite a 35% increase in labor outflow. Sending Nepalese to Japan under JITCO has hit a snag due to lack of skills. Nepalese going to Korea under EPS can only work in manufacturing sector for the same reason. Afghanistan is trying to curtail the role of Nepalese working in private security companies. Malaysia has stopped taking in Nepalese maids. The government is looking into regulate labor going to the Gulf more tightly given a raft of abuse cases especially domestic workers - one way is to stop people from going there on visitor visas. The government also wants to regulate how much manpower agencies charge for their services. SOS Manpower is the top dog in the manpower industry. On the domestic front, labor-management conflict has erupted at the Fulbari Resort and Spa in Pokhara.
Manufacturing: The Birgung-Pathlaiya has been running smoothly for the last nine months but not Nepalgunj. The largest clinker factory in the country has opened in Rupandehi district. Looks like the domestic shoe industry is doing brisk business. Debt-laden Janakpur cigarette factory is back on service. China has surpassed India with the largest numbers of JVs in Nepal in 2o09/10. Garment industry is not quite dead yet. It exported Rs. 4.5 billion in 2009/10. India' Liverpool retail is taking 33% stake in Momento Apparel, Nepal's largest ready-made garment manufacturer for IRs 200 million.
Media/Entertainment: Unregistered foreign channels with "indecent" content is flourishing in Nepal and authorities are trying to crack it down. Kollywood grossed Rs. 350 million last year from 59 films. On the branding side, the comedian duos Ma-Ha are the new faces of Western Union in Nepal.
Real Estate: The NRB's new directive appears to have given a renewed boost to the housing market although that's not so clear - realty transaction in Kathmandu is down 49%, and in Pokhara it is down 60%. Platinum Developers' 500 apartment Soaltee City project is in offing. Land owned by Guthis of former royals will be annulled and properties of the late King Birendra are going to go into a Trust.
SOEs: The government is ready to off-load NAC to the private sector. A divestment of the government's 30% stake in ADBL is also in the pipeline. More than a dozen years and Rs. 100 million later the Rastriya Beema Sansthan has stopped "incentive allowance" .
Telecom: The NTA wants to connect all 75 district with fiber optics within 3 years. GSM users in Nepal are up a whopping 92% to 6.9 million; 3.96 million use NT and 2.94 million use Spice Nepal. Ncell, which is owned by TeliaSonera along with Spice Nepal plans to invest US$100 million in 2011. NT's bid to award contracts to ZTE and Huawei has drawn attention of the CIAA. Internet users are up 160% to 1.35 million. The NTA has made ID mandatory in internet cafes to curb online crimes. Take this Google, Nepal has its own search engine, ebuzz asia.
Tourism: Tourism in September was up 20% year/year. Pokhara also saw an increase of 20% in tourist visits. Oman's air became the 27th international airline to service Kathmandu. India's low-fare SpiceJet has also commenced Kathmandu-New Delhi service. Two Malaysian airlines are set to start flying to Nepal. Nepalese government is encouraging Chinese airlines to join the frey. State-owned NAC plans to add to its fleet despite recurring controversies. Recently one of its two Boeing aircrafts used for international flights was grounded causing cancellation of half of the schedule flights. Ghorepani is getting a tourism boom and "homestay" is becoming popular in Panchase region in the mid-west. Locals in Upper Mustang have lifted restrictions on tourists from visiting their areas. The tourism conglomerate Yeti Group has taken 49% stake in Gokarna Forest Resort for Rs. 760 million. Oriental Hotels, the owner of Radisson Hotel, earned Rs. 51.4 million last year.
Personalities: Dinesh K Chuke, a Chitwan-based entrepreneur is making a big splash in his hometown.
Interesting Tidbits: An interesting story on the legendary Ranjana Film Hall.
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