NepaliEconomy.com

BBC Interview with Minister of Supplies on Oil Price Hikes

2012-01-30T19:39:00.005-05:00

BBC's Ms. Rama Parajuli interviews Minister of Commerce and Supplies Mr. Lekh Raj Bhatta on the impact of recent hikes in prices of petroleum products on 25-Jan-2012.

Global Prospective: Energy in India

2012-01-26T03:43:00.005-05:00

Energy in India
The Economist, 21-Jan-2012
[Full Link]

[Coal is to India what hydro is to Nepal - lot of potential but not much to show for it. Nepal can learn a thing or two from India's experience]

Power is essential for India’s long-term growth. But electricity is unlikely to flow fast enough

STAB a finger at the middle of a map of India and you will hit Nagpur. Some 20 miles (32 kilometres) north-west of the city is a sloping tunnel bored into the rock. Ride two miles down into the gloom, hanging from a wire, and after a torch-lit hike past underground streams and conveyor belts you arrive at a black wall. Sweating men are rigging it with tubes of explosives and wire detonators. Soon they will blast it apart, and down should tumble tonnes of India’s most important commodity: coal.

In coal India has something as abundant as people. As more Indians enjoy the trappings of middle-class life and the country industrialises, demand for coal-fired electricity will continue to rise smartly, roughly in line with economic growth. India may not have much oil or gas to call its own but it has the world’s fifth-largest coal reserves. And it has successfully raised a mountain of the other raw material needed to turn carbon into sparks: capital. Some $130 billion has been ploughed into the power industry in the past five years. Of that, $60 billion or so has come from the private sector—probably the largest-ever private-sector investment India has seen.

Possessing coal and capital is no guarantee that India’s energy boiler will work properly, however. It also involves multiple states, government ministries, regulators, mandarins, politicians, tycoons, environmentalists, villagers, activists, crooks and bandits. There are the usual gripes of an emerging economy: blackouts (during peak hours the system delivers 10% less electricity than customers want) and an inadequate grid that does not reach some 300m people (although it has improved a lot in recent years).

There is also a risk that India cannot deliver the long-term increase in electricity generation that its economy needs to fulfil its potential. On January 18th a group of influential businessmen gathered in Delhi to bend the prime minister’s ear on this very matter.

The problem is partly one of design. Coal is dug up by a state-monopolist that has failed to boost output significantly in recent years, unlike China (see chart 1), and so cannot keep up with demand. Power is distributed to homes and firms by publicly owned grid companies that are often bankrupt, their tariffs kept too low by local politicians. Trapped in the middle are the firms that run power stations. In desperation they are importing pricier foreign coal, but the grid companies cannot afford the power it produces. With too little coal and wobbly customers, the private firms that have built new power stations are in financial trouble. Another wave of private investment looks unlikely.

In India, though, no one expects perfect design. The economy sits somewhere between the old command-and-control approach and the new ways of markets and private capital. What is worrying is that India’s talent for improvisation—a collective ability to muddle through—has deserted it when it comes to providing electricity.

The problem has been clear for ages. A circuitous blame game is taking place. Ministries squabble but no one knocks heads together. If you trawl round the offices of industry bosses the livid letters they brandish trace their incandescent correspondence with each other. Power, so vital for growth, is India’s biggest bottleneck. The danger is that it becomes a metaphor for the whole economy: many fear that the muddle-through approach of the past two decades of boom has diminishing returns.

One dam thing after another

It wasn’t always all about coal. Jawaharlal Nehru, the country’s first prime minister after independence, was obsessed with hydroelectric dams, calling them the “temples of modern India”. It would have been good for India’s environment, and the world’s, had many more temples been raised. The fad for hydro trickled away and it now provides only 14% of India’s power compared with up to a half in the 1960s.

That seems unlikely to change—India is too chaotic and free a place to manage the feats of national machismo that allowed China to build the Three Gorges dam. Although new projects are planned in places such as Kashmir and neighbouring Bhutan, harnessing Himalayan rivers to power all of India is for now a dream, not a policy.

The subcontinent has plenty of sun and wind, and states including Gujarat and Tamil Nadu are keen to encourage investments in renewable energy. These are likely to be niche sources of power, thanks to problems getting land and their high cost.

As for nuclear power, India’s attitude has long been hyperbolic on paper and ambivalent in practice, despite striking a civilian nuclear deal with America in 2005. Foreign companies are put off by the prospect of unlimited liability in the event of an accident. Nuclear plants face opposition from hostile state governments and protesters. Events in Japan have not helped. “By the time people forgot Chernobyl, along came Fukushima,” says one industry bigwig.

The result is that, as in China, fossil fuels will dominate the energy mix (see chart 2). Carbon emissions will rise in tandem, by about two-and-a-half times between 2010 and 2030 according to McKinsey, a consultancy. The growth of India’s power industry—assuming it is built and largely fired by fossil fuels—would contribute about a tenth of the total global rise in emissions over the period. Most Indians do not feel too guilty, arguing that dirtier rich countries, not poor ones, should show restraint. India’s emissions will remain far below those from America and China both in absolute terms and per head.

Fossil hunting

India has some oil and gas, mainly offshore and in Rajasthan, although production has been faltering. It lags China in developing pipelines from energy-rich Central Asia. Coal, then, is key. India’s is not of a high quality—it contains too much ash—but there is lots of it. The British started swinging picks in earnest in the mid-19th century, to meet the demand of a burgeoning railway system, and undertook geological surveys in Bengal. Today east India remains coal’s heartland and control of the sooty stuff lies with one of the most important companies that most people have never heard of: Coal India.

It is a mighty odd beast. Its blood is of the public sector, with modest buildings, 375,000 staff, an empire of largely opencast mines and company towns, and even its own song. Its managers are proud scientists and engineers. And prices are fixed by the state, at far below international levels. Yet its brain has some capitalist cells.

After privatisation in 2010, a tenth of its shares are listed (the rest are owned by the state) making it India’s third-most-valuable firm, worth $44 billion. It makes a huge return on equity of over 35%, has $11 billion of unused net cash and reinvests only a fifth of its gross cashflow. It even has a financial gnat on its hide in the form of TCI, a London-based activist hedge fund famed for its stagy belligerence.

What is beyond doubt, though, is that Coal India is not digging fast enough (see chart 3). Output has been flat for the past two years—a dire result. India’s ratio of production to reserves is middling by global standards and is well below China’s. Assuming production picks up and grows in line with the long-term average, a vast shortfall in production will still stunt growth in power generation.

From his office in Kolkata, outside which street vendors boil vats of soup on coal stoves, the firm’s outgoing chairman, N.C. Jha, says that Coal India is being made a scapegoat. The lag in production partly reflects one-off factors, such as bad weather, but is mainly the result of a deliberate clampdown by the central government on new permits for buying and clearing land, and an explosion of red tape. “Give me land, and I will give you coal,” says Mr Jha.

This complaint is reasonable. At Gondegaon, a vast opencast mine in the Nagpur field, engineers need more space to dump the earth and rock that is dug up with coal. A map shows the pit hemmed in by villages and scrub land. Acquiring the land, compensating the villagers and making sure they shift poses a challenge harder than geology, says the company. “We do not have a magic wand in our hand to increase production,” says D.C. Garg, boss of the Coal India unit responsible for the area. In east India the firm faces another problem: most reserves are in remote areas where Maoist guerrillas operate.

Yet for all the hurdles it faces, many say Coal India is part of the problem. A senior government official says it is riddled with trade unionism and gangs who steal coal—something the private sector would resolve by sending in “the toughest son of a bitch” they could find. The boss of one smallish state-owned electricity generator details how local Coal India employees collude with middlemen to steal his fuel. He says that its local chief is “hugely compromised” by corruption.

And no one really knows what Coal India’s mission is, thanks to its hybrid status. Should it maximise profits and the dividend it pays to a cash-strapped government, despite the fact it is a near-monopoly and unregulated? Or is its job to deliver cheap fuel for the nation and accept lower returns by investing more on new mines?

Let’s burn Australia instead

Private generating firms are not waiting to find out the answer to this identity crisis. Instead they have assumed that the state will not deliver enough and are prepared to import vast amounts of coal to fire their plants, either by acquiring it from wholesalers or by buying foreign coal mines. Some $7 billion has been spent in the past six years on pits in Australia, Indonesia and Africa. Gautam Adani, a Gujarat-based tycoon, is building a private network of mines abroad that feeds ports and power stations in India.

Amish Shah of Credit Suisse reckons that by the year to March 2017 domestic coal production will meet only 73% of demand, leaving a gap of some 230m tonnes, almost five times the level of 2012. Include other industries that use coal, such as steel, and some analysts calculate that India’s total imports by 2017 could reach some 300m tonnes. That is on a par with the current exports of Australia, or those of Indonesia, South Africa and Canada combined.

Even if India could improve its ports and already stretched railways, and adapt its power plants to burn alien coal, can it afford to import so much? Coal prices have soared in recent years (the benchmark price is some 50% above its average in 2009), partly due to Chinese demand. Indonesia has imposed new rules that hamper foreign mine owners from exporting coal at below market rates. So, adjusted for quality, foreign coal is perhaps four times pricier than the local stuff. The cost of shopping abroad could be as much as $20 billion by 2017—or 1% of today’s GDP.

That would swell India’s overall annual energy-import bill. Include coal used for purposes other than power, liquefied natural gas and oil and it could rise by $65 billion or so by 2017, compared with the year to March 2011, according to Sanjeev Prasad of Kotak, a broker. That would put a huge strain on the balance of payments. Even if India can afford to import all this coal, the next question is whether it can persuade its population to fork out for the electricity it produces.

Torture boards

Electricity meters are installed in unexpected places. Power in Dharavi, a giant Mumbai slum, is now largely tolled, with meters nestling next to curing factories piled with goat skins and people melting down used plastic cutlery. But the city, where power is distributed mainly by two private firms, is an exception: almost everywhere else state electricity boards operate the grid, usually badly. They typically lose about a third of the power they buy through theft or inefficient kit, and one executive reckons that up to another third is delivered legally to rural customers who pay subsidised prices or get it free. The result is that a small proportion of customers foot the bills.

Although tariffs are notionally set by regulators, local politicians often hold sway and keep them low to win votes. The legislation that governs power is reasonable but unenforced. The electricity boards haemorrhage cash as a result. They lost $11 billion, excluding any subsidies, in the 12 months to March 2010—the last year for which reliable figures are available.

The consequences are twofold. First, there is not enough money to upgrade the network: up to $200 billion of capital investment is required. And second, if the cost of the power rises because of the expense of imported coal, these outfits are neither strong enough to absorb the financial hit themselves nor capable of easily passing it through by raising prices to customers. That means it is their suppliers, the generating companies, that get squashed.

“I can see if someone is sleeping on the job,” boasts Arup Roy Choudhury, the chairman of NTPC, the country’s biggest electricity generator. In the floor above his office in Delhi a CCTV studio allows him to spy on his empire. He can zoom in on a giant construction site in Mouda, near those mines in Nagpur, where in March a new plant will fire up, fuelled by coal produced by Coal India. NTPC is likely to get the coal it needs partly because it is state-owned and big.

Another power firm in the same state with a new plant coming on line in March expects to get only half the fuel originally promised by Coal India. Private-sector firms with plants coming on line often assume they will be last in the queue for domestic fuel. If they substitute imported coal for domestic coal they worry that they may not be allowed to pass on the costs and that if they are, the electricity boards won’t be able to pay.

Generation should be a success story. After a false start in the 1990s, during which even Enron was briefly and disastrously tempted in, mainly local firms, including Tata Sons and Reliance Group, have piled in once more. Special rules were created to fast-track “ultra-mega power plants”, among the largest in the world, with their own captive coal supply and exemptions from some red tape. Total capital investment (including NTPC) has been perhaps $60 billion in the past five years. Yet now share prices have slumped and the central bank has been forced to reassure financial markets that a wave of defaults in the sector will not hurt the banks, which have about 7% of their loans to the power industry, mainly to generation firms.

The true cost to the country is not a few bad debts but a reduction in long-term investment plans as confidence wanes. Across the industry “projects are taking a hit, due to a lack of fuel among other things,” says J.P. Chalasani, the chief executive of Reliance Power, a generation firm. For the economy to expand at 8-9% it will need to add large amounts of generation, consistently. “We are nowhere near that unless immediate action is taken. At some point all this will hit our GDP growth.”

In theory there are two solutions to the looming power problem. One is to privatise the electricity boards, end Coal India’s de facto monopoly or break it up, create new regulators and give teeth to existing ones, and then hope that market forces raise standards, tariffs and production. The other is to resort to command-and-control, with a single authority breaking heads.

Either of these approaches might be better than today’s squabbling and passivity. Unfortunately, neither is likely. Privatisation is too politically sensitive, as is allowing private firms, let alone foreigners, to run riot over India’s coal beds. And the mesh of states, law courts, ministries and coalition politics means iron fists come out only in a crisis.

Watch while we juggle

That leaves an alternative approach of administrative fiat and improvisation. It hasn’t worked so far but there are some grounds for hope. A recent court ruling has prodded many electricity boards to raise tariffs. Crafty ways are being cooked up to allow private miners to do the digging while Coal India retains its notional title to the coal, and to grant permission for more “captive” mines where a private generator digs up its own fuel.

Banks seem to have been given the nod by the central bank to ease the terms of their loans to power firms without booking losses. Government officials talk of spreading the cost of imported coal across all firms, so it is not borne by a few, and dream of open access where a power station could bypass the state grid operators and plug into customers directly.

It is a safe bet that India’s skills of improvisation will recover—helped by stern words from the prime minister. The lights will not go out anywhere for long enough to annoy voters unduly, and by historical standards there will be decent improvements in the reach and availability of electricity. Companies which need reliable power supplies, including India’s technology giants, will carry on building their own generators just to be sure. Those states that can guarantee power supply, such as Gujarat, will attract the majority of energy-intensive investment, such as car factories.

If the test is avoiding a national catastrophe, India’s power sector will pass it. But if it is delivering the infrastructure that can allow the economy to grow at close to a double-digit pace and industrialise rapidly, India is failing.

UCPN (Maoist) is the Richest Political Party with Rs 90 Million Income

2012-01-14T08:19:00.003-05:00

Maoist is the Richest Political Party with Rs 90 Million Income
TKP, 13-Jan-2012
By BHADRA SHARMA,KAMAL DEV BHATTARAI

UCPN (Maoist), which emerged as the largest political party in the 2008 Constituent Assembly elections, is also the most resourceful of all, with its annual income and expenditure reaching as high as Rs 90 million.

The income and expenditure details submitted by political parties to the Election Commission (EC) as of Friday reveal that the Maoist party ran the largest financial portfolio followed by the Nepali Congress (Rs 49 million) and the CPN-UML (Rs 30 million) in the fiscal year 2010/11.

As the parties failed to voluntarily submit income/expenditure details every year as per legal requirements, the EC had given all the registered parties till Friday to submit their latest and pending financial reports since the 2008 elections.

The parties are required to make public their sources of income and expenditure within six months after the end of a fiscal year.

Of the 80 parties registered with the EC, only two—Rastriya Jana Morcha and Hindu Prajatantrik Party—had submitted their property details of the last four years.

The UCPN (Maoist), NC and UML submitted audited financial reports of the last four years only this week.

A number of global anti-corruption watchdogs, including Transparency International, have named political parties as the “most corrupt” institutions in Nepal. The 2011 TI report said the parties in Nepal were the most corruption-prone area as they remained largely unregulated.

The financial reports submitted by the parties show that they have identified donations and membership fees as the major sources of income and rallies, organisation building and other official work as areas of expenditure.

The Maoist party’s financial report, for instance, stated that the party spent all the Rs 90 million in the fiscal year 2010/2011 that was collected through party membership, regular levy received from lawmakers and other party members, donations from well-wishers and ministers and other occasional support from donors. The Maoist party collects Rs 10,000 from each of its total 238 lawmakers.

NC’s financial reports show that it generated Rs 49 million and spent Rs 9.8 million in the year 2010/11. Likewise, in the fiscal year 209/2010, it earned Rs 3.8 million, but spent Rs 4 million. NC Chief Secretary Basanta Gautam said levy collected from lawmakers, active and general members and support from various donors were major sources of income.

Similarly, the UML spent Rs 80 million, an all-time high for the party in 2008/09, the year it organised its General Convention. The party’s expenditure in 2009/2010 stood at Rs 50 million. UML’s report submitted to the EC stated that the party was running at a loss. Acting Chief Election Commissioner Neel Kantha Uprety said the parties were asked to submit the details to make them more transparent. Though the EC’s deadline expired on Friday, it is mulling extending the same.

Government Loses Rs. 10 billion on 3G Frequency Auction

2012-01-09T18:10:00.004-05:00

Government Loses Rs. 10 billion on 3G Frequency Auction
KTM, 8-Jan-12
By Ramesh Shrestha

The government’s decision to provide 3G frequencies to leading GSM mobile operators without going through the auction process has caused a revenue loss of Rs 7-10 billion. This is what the parliament’s Public Accounts Committee (PAC)’s Frequency Allocation Investigation Sub-committee’s report has suggested.

The report prepared after a year of investigation categorically states that government agencies, especially the Ministry of Information and Communications (MoIC) and Nepal Telecommunications Authority (NTA), were responsible for the ‘illegal’ allocation of 3G frequencies.

According to the report, 3G frequency allotted to Nepal Telecom and Ncell and 2G frequency awarded to non-GSM mobile service operators were provided directly at different times either by an adhoc decision of the ministers for information and communications or the NTA chairmen.

The then NTA chairmen assigned 3G frequency to Nepal Telecom and Ncell without holding consultations with the Radio Frequency Policy Determination Committee, according to the report. This caused a revenue loss worth billions of rupees to the country, the report said.

The report has recommended that 3G and Wimax frequencies be allocated through auction process henceforth and a fee be set for 3G spectrum based on the auction price. “The government should then charge the fee for the allocated 3G spectrum from Nepal Telecom and Ncell,” recommends the report. “Auctioning frequency is a must as it can generate huge revenue to the government.” The then NTA Chairman Dinesh Kumar Sharma assigned 10 MHZ frequency each to Nepal Telecom and Ncell temporarily for one year on May 29, 2006, and July 29, 2007, respectively.

Pasi Koistinen, chief executive officer of Ncell, said the company received the frequency for both 2G and 3G services as per the NTA guideline and regulations. “There is no licence provision for 3G here. 3G is the evolution of 2G technology and we have already obtained its licence,” he said.

The report also said MoIC and NTA have time and again flouted the rules while issuing licence for limited mobility service. NTA, according to the report, provided GSM spectrum to small telecom operators—Smart Telecom and STM Telecom—although the provision of limited mobility and mobile frequencies were not included in their licence conditions. The definition of basic telephone service was amended while awarding licence to Nepal Satellite Telecom. “The regulator allocated frequency to Nepal Satellite Telecom with a capacity of 2.8 million subscribers. What is the rationale behind providing GSM 900 and GSM 1800 frequency bandwidths to the company that has only acquired licence for Mid-Western Nepal?” report questions.

The sub-committee that submitted its report to PAC Chairman on Sunday has come with 22-point conclusions and suggestions, including further investigation by the Commission for Investigation of Abuse of Authority (CIAA) and stern action against MoIC and NTA officials involved in telecom frequency allocation. The report has recommended that all NTA decisions made after January 14, 2011 (when the sub-committee was formed) be scrapped. NTA, during this period, allocated GSM frequencies to Smart Telecom, made permanent the 4 MHz spectrum allocated to Ncell temporarily, and provided International Long Distance (ILD) Gateway to Nepal Satellite Telecom and Smart Telecom.

Prakash Chandra Lohani, coordinator of the sub-committee, said radio frequencies were allocated in the past without keeping in mind that they could generate huge revenue. “This report will work as a guideline to curb irregularities and help provide quality service to consumers by creating competition among service providers. The report will be discussed in the full committee and ratified accordingly before issuing directives to the government.

What the report says
• Government lost revenue worth Rs 7-10 billion revenue in 3G spectrum allocation
• NTA’s move to renew Nepal Telecom mobile licence flawed
• GSM spectrum allocation to Smart Telecom and STM Telecom violates licence conditions
• Telecommunications Radio Frequency Distribution and Price Policy 2011 be scrapped
• MoIC take steps for telecom infrastructure sharing provision
• Royalty, licence renewal fee and committed royalty fee cannot be waived
• A policy be devised to allocate spectrum in a scientific manner

Footage from 1950-58 by Toni Hagen During His Geographical Fieldwork in Nepal

2012-01-08T05:53:00.001-05:00

BBC Discussion on Opaqueness of Finances of Nepal's Political Parties

2012-01-04T21:23:00.003-05:00

BBC's Mr. Narayan Shrestha moderates a public discussion on opaqueness of finances of Nepal's political parties with Mr. Agni Sapkota (Maoist), Mr. Nara Hari Acharya (NC) and Ghan Shyam Bhusal (UML) in Uppwalachowr in Baglung district.

News Roundup: Highlights from H2 2011

2012-01-02T10:32:00.007-05:00

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

The JNK government unveiled 2011/12 budget amounting to Rs. 385 billion in early July. One of the provisions was the increase in salaries of public servants by a whopping 30%-43%. On August 29, 2011, Dr. Baburam Bhattarai became the PM of Nepal, the 36th in Nepal's short history.

Nepal's economy continues to chug along with a small segment of the society enjoying opulence while the significant majority struggling with the daily living. The case in point is the wedding costs in the capital. If you want to host one at a fancy location, prepare to pony up at least Rs. 1,100 plus tax per person. If you want to welcome the new Gregorian year, be ready to fork out at least Rs. 1,700 per person. Given the increased demand from high-end consumers, the retail giant Bhat-Bhateni Group is increasing its footprint in Kathmandu and expanding into Pokhara - you can even order online at bhatbhatenionline.com.

The average folks have to deal with rising food inflation, which is likely to persist for a foreseeable future if the famed investor Jim Rogers is right. He is super-bullish on agricultural commodities. In Nepal, the number of food deficit districts in Terai, the bread-basket of the country, has increased to 10. Food price are up across the board - chicken (Rs. 160 per kg), mutton (Rs 600 per kg), fruits (Rs. 130 kg for apple, Rs. 60 per kg for orange), sugar (Rs 75 per kg), imported coffee, noodles and mustard oil (Rs 135 per liter). The good news is that ag production is rising - Nepal is self-sufficient in paddy for the first time since 1990 - and poultry output is also on the rise.

Energy policy in Nepal is a mess. The NOC continues to incur massive losses. It has implemented price hikes, diesel and kerosene recently but not enough of offset rise in global prices and had to get government loans to pay off its debt. That's resulting in shortage of diesel. Government is trying to attract private investment in the fuel sector but the investment necessary is huge (Rs. 20 billion for crude oil & refinery, Rs 10 billion for refined products and Rs. 3 billion for LPG). Shortage of electricity continues with load-shedding increased to 69 hours per week. The government is trying to alleviate the problem by increasing import of electricity from India to 245MW by 2013 from 100MW currently.

On the macroeconomic front, the BoP surplus swelled to Rs. 34 billion in Q1 2011/12 on the back of Rs. 76 billion in remittances. The NLSS 2010 is set to declare 13 percent poverty rate in Nepal. Poverty is defined as less than 2,200 calorie consumption per day.

Tourism is a relatively bright spot with introduction of skydiving and expansion of paragliding in Pokhara, and enlargement of Nagarkot resort. Annapurna area saw 100K visitors during 2009/10. On the flip-side, Oberoi Group has sold Rs. 123 million stake in the Soaltee Hotel to NE Group.

Telecom is another hot area. MoF's Economic Survey confirms the strength of the sector. Around 42% of the population has access to telecom service (90% of that is mobile). Not surprisingly, NT's daily revenue has reached Rs. 90 million.

Investment climate in Nepal is not conducive and that's a well known fact. Bhrikuti Paper and Pulp Limited closed after 25+ years in service. Also more than 32 factories have closed in the Sunsari-Morang Industrial Corridor. One of the problems is militant labor but an agreement between FNCCI and big trade unions on no-work-no-pay could help towards solving that issue. Government is also trying too enable investment by establishing SEZ in different parts of the country - Panchkhal (Kavre) and 12 other locations.

Interesting tidbits - Nepal TV is going digital by 2017. Khetan Group sold 22% stake in Bottlers Nepal to Gorkha Brewery for Rs 725 million. Now you can order your daura Suruwal online from a variety of vendors. Biratnagar has the first apartment complex but ready to pay Rs 2.2 milion for 470 sq ft "hole in the wall".

US firms bullish on Nepali IT sector but wary of attrition

2012-01-01T17:54:00.003-05:00

US firms bullish on Nepali IT sector but wary of attrition
Republica, 5-Nov-11
By SAMIKSHA KOIRALA

The number of IT companies in the country working for American companies has significantly gone up. In recent months, some of the local companies have been acquired by the US-based companies and also the number of new companies with tie-ups with American companies is on the rise.

Chief Executive Officer of Software Paradigms International Group (SPI), Nepal, Yajurendra Shrestha said the growth can be attributed to lower cost compared to neighboring countries and a growing pool of software engineers in Nepal.

SPI, Nepal, which was operating under the brand name of WorldLink Technologies was acquired by Atlanta-based software solution provider SPI about six months ago.

Sudesh G C, Chief Executive of Traffic Geyser, Nepal, with its headquarters in San Diego, opined the growth in the IT sector is thanks to availability of IT experts with necessary skills. " The number of skilled IT professionals has gone up," G C further echoed Shrestha, adding that Nepal is more cost-effective compared to other countries specially in human resources.

Although there is no definite figure about the number of America-based IT companies in Nepal, professionals say there are over a dozen of such companies and they came into operation in the last two years. Some of these companies are active in BPO sector while others are making products for their parent company.

The BPO sector companies are not limited to call centres. Rather, they work on making out application for renowned companies like Apple, Google, Hollywood and also for social networking sites like Twitter and Youtube.

Overwhelmed by the response, most companies claimed to have doubled their staff strength in recent years and are positive about hiring deserving IT professionals.

President of Verisk Information Technologies Amrit R Pant said his company is employing over 300 engineers, which is one of the largest recruitments for a software company in Nepal. The company which claims to be the only CMMI Level 3 certified is an offshore company of America-based Verisk Analytics Inc.

Incessant Rain Animation Studios (IRAS), which started in 2008 with 15 animation and graphics artists, has now 135 employees. The company produces a range of computer generated animation projects for television, home and theatrical production including several Hollywood projects. "With our new division of visual effects, we have been able to bag several Hollywood projects including features and TV series," Robina Maharjan, head of production at IRAS, told Republica.

Verisk Information Technologies is mainly working on projects of 15 companies listed under its parent organization. The works include software development, software quality and performance, production, data analysis and others. "We are also working with newer technologies such as System Virtualization, Development in the Cloud, Large Data Systems and mobile application," Pant said.

SPI, Nepal, had decided to add 250 more professionals after being acquired.

The biggest challenge for these companies is to retain highly-skilled employees. In order to overcome this, companies claim to be offering lucrative incentives and international level benefits to their employees.

Pant at Verisk said, "We invest heavily in building expertise and keep our team members up-to-date with required programs. Medical benefits include regular visits of doctors to our offices in the US as well as extra-curricular activities like sponsored weekend trips."

G C at Traffic Geyser said the major challenge is to retain employees. "We are offering good salary and benefits but the immense opportunity outside this country puts us in a spot," he said adding.

Nepali Economic Forum Quarterly (Dec 2011)

2012-01-01T14:56:00.005-05:00

Nepali Economic Forum Quarterly
December 2011, Issue 7
Nepali Economic Forum
Editor: Pranab Man Singh
Archive

Open publication - Free publishing

Africa’s Hopeful Economies

2011-12-26T11:41:00.005-05:00

Africa’s Hopeful Economies
The Economist, 3-Dec-2011

The continent’s impressive growth looks likely to continue

HER $3 billion fortune makes Oprah Winfrey the wealthiest black person in America, a position she has held for years. But she is no longer the richest black person in the world. That honour now goes to Aliko Dangote, the Nigerian cement king. Critics grumble that he is too close to the country’s soiled political class. Nonetheless his $10 billion fortune is money earned, not expropriated. The Dangote Group started as a small trading outfit in 1977. It has become a pan-African conglomerate with interests in sugar and logistics, as well as construction, and it is a real business, not a kleptocratic sham.

Legitimately self-made African billionaires are harbingers of hope. Though few in number, they are growing more common. They exemplify how far Africa has come and give reason to believe that its recent high growth rates may continue. The politics of the continent’s Mediterranean shore may have dominated headlines this year, but the new boom south of the Sahara will affect more lives.

From Ghana in the west to Mozambique in the south, Africa’s economies are consistently growing faster than those of almost any other region of the world. At least a dozen have expanded by more than 6% a year for six or more years. Ethiopia will grow by 7.5% this year, without a drop of oil to export. Once a byword for famine, it is now the world’s tenth-largest producer of livestock. Nor is its wealth monopolised by a well-connected clique. Embezzlement is still common but income distribution has improved in the past decade.

Severe income disparities persist through much of the continent; but a genuine middle class is emerging. According to Standard Bank, which operates throughout Africa, 60m African households have annual incomes greater than $3,000 at market exchange rates. By 2015, that number is expected to reach 100m—almost the same as in India now. These households belong to what might be called the consumer class. In total, 300m Africans earn more than $700 a year. That’s not much, and many of those people could be pushed back into penury by a small change in circumstance. But it can cover a phone and even some school fees. “They are not all middle class by Western standards, but nonetheless represent a vast market,” says Edward George, an economist at Ecobank, another African banking group.

As for Africans below the poverty line—the majority of the continent’s billion people—disease and hunger are still a big problem. Out of 1,000 children 118 will die before their fifth birthday. Two decades ago the figure was 165. Such progress towards the Millennium Development Goals, a series of poverty-reduction milestones set by the UN, is slow and uneven. But it is not negligible. And the mood among have-nots is better than at any time since the independence era two generations ago. True, Africans have a remarkable capacity for being upbeat. But it is seems that this time they really do have something to smile about.

Lions and tigers (and bears)

Since The Economist regrettably labelled Africa “the hopeless continent” a decade ago, a profound change has taken hold. Labour productivity has been rising. It is now growing by, on average, 2.7% a year. Trade between Africa and the rest of the world has increased by 200% since 2000. Inflation dropped from 22% in the 1990s to 8% in the past decade. Foreign debts declined by a quarter, budget deficits by two-thirds. In eight of the past ten years, according to the World Bank, sub-Saharan growth has been faster than East Asia’s (though that does include Japan).

Even after revising downward its 2012 forecast because of a slowdown in the northern hemisphere, the IMF still expects sub-Saharan Africa’s economies to expand by 5.75% next year. Several big countries are likely to hit growth rates of 10%. The World Bank—not known for boosterism—said in a report this year that “Africa could be on the brink of an economic take-off, much like China was 30 years ago and India 20 years ago,” though its officials think major poverty reduction will require higher growth than today’s—a long-term average of 7% or more.

There is another point of comparison with Asia: demography. Africa’s population is set to double, from 1 billion to 2 billion, over the next 40 years. As Africa’s population grows in size, it will also alter in shape. The median age is now 20, compared with 30 in Asia and 40 in Europe. With fertility rates dropping, that median will rise as today’s mass of young people moves into its most productive years. The ratio of people of working age to those younger and older—the dependency ratio—will improve. This “demographic dividend” was crucial to the growth of East Asian economies a generation ago. It offers a huge opportunity to Africa today.

Seen through a bullish eye, this reinforces exuberant talk of “lion economies” analogous to the Asian tigers. But there are caveats. For one thing, in Africa, perhaps even more so than in Asia, wildly different realities can exist side by side. Averaging out failed states and phenomenal success stories is of limited value. The experience of the leaders is an unreliable guide to what will become of the laggards. For another, these are early days, and there have been false dawns before. Those of bearish mind will ask whether the lions can match the tigers for stamina. Will Africa continue to rise? Or is this merely a strong upswing in a boom-bust cycle that will inevitably come tumbling back down?

More than diamond geezers

Previous African growth spurts undoubtedly owed a lot to commodity prices (see chart 1). After all, Africa has about half the world’s gold reserves and a third of its diamonds, not to mention copper, coltan and all sorts of other minerals and metals. In the 1960s revenues from mining paid for roads, palaces and skyscrapers. When markets slumped in the 1980s the money dried up. The skylines of Johannesburg, Nairobi and Lagos are still littered with high-rise flotsam from the high-water marks of previous booms.

Recently revenues from selling oil and metals have helped to fill treasuries, create jobs and feed an appetite for luxury. In gem-rich Angola, high-grade diamonds are reimported after being cut in Europe to adorn the fingers of local minerals magnates and their molls.

Overall, though, only about a third of Africa’s recent growth is due to commodities. West and southern Africa are the chief beneficiaries. Equatorial Guinea gets most of its revenues from oil; Zambia gets half its GDP from copper. When commodity prices soften or tumble such countries will undoubtedly suffer. But it is east Africa, with little oil and only a sprinkling of minerals, that boasts the fastest-expanding regional economy on the continent, and there are outposts of similar non-resource-based growth elsewhere, such as Burkina Faso. “Everything is growing, not just commodities,” says Mo Ibrahim, a Sudanese mobile-phone mogul who is arguably Africa’s most successful entrepreneur.

When the world economy—and with it commodity prices—tanked in 2008, African growth rates barely budged. “Africa has great resilience,” says Mthuli Ncube, chief economist of the African Development Bank. “A structural change has taken place.”

A long-term decline in commodity prices would undoubtedly hurt. But commodity-led growth on the continent is not as reversible as it used to be. For one thing, African governments have invested more wisely this time round, notably in infrastructure. In much of the continent roads are still dire. But there are more decent ones than there used to be, and each new length of tarmac will boost the productivity of the people it serves long after the cashflow that paid for it dries up. For another, Africa’s commodities now have a wider range of buyers. A generation ago Brazil, Russia, India and China accounted for just 1% of African trade. Today they make up 20%, and by 2030 the rate is expected to be 50%. If China and India continue to grow Africa probably will too.

More jaw-jaw, less war-war

What’s more, many foreign participants in the African commodity trade have become less short-termist. They are likely to stick around after they finish mining; Chinese workers, of whom there are tens of thousands in Africa, have shown a propensity to morph into local entrepreneurs. A Cantonese construction company in Angola recently set up its own manufacturing arm to produce equipment that is difficult to import. Few Western competitors would do the same (though many of their colonial forebears did).

Commodity growth may be more assured than it used to be. But two big drivers of Africa’s growth would still be there even if the continent held not a barrel of oil nor an ounce of gold. One is the application of technology. Mobile phones have penetrated deep into the bush. More than 600m Africans have one; perhaps 10% of those have access to mobile-internet services. The phones make boons like savings accounts and information on crop prices ever more available.

Technology is also aiding health care. The World Bank says malaria takes $12 billion out of Africa’s GDP every year. But thanks to more and better bed nets, death rates have fallen by 20%. Foreign investors in countries with high HIV-infection rates complain about expensively trained workers dying in their 30s and 40s, but the incidence of new infection is dropping in much of the continent, and many more people are receiving effective treatment.

The second big non-commodity driver is political stability. The Africa of a generation ago was a sad place. The blight of apartheid isolated its largest economy, South Africa. Only seven out of more than 50 countries held frequent elections. America and the Soviet Union conducted proxy wars. Capital was scarce and macroeconomic management erratic. Lives were cut short by bullets and machetes.

Africa is still not entirely peaceful and democratic. But it has made huge strides. The dead hand of the Soviet Union is gone; countries such as Mozambique and Ethiopia have given up on Marxism. The dictators, such as Congo’s leopard-skin-fez-wearing Mobutu Sese Seko, that superpowers once propped up have fallen. Civil wars like the one which crippled Angola have mostly ended. Two out of three African countries now hold elections, though they are not always free and fair. Congo held one on November 28th.

Friends and neighbours

Even if many of the world’s most inept states can still be found between the Sahara and Kalahari deserts, governance has improved markedly in many places. Regulatory reforms have partially unshackled markets. A string of privatisations (more than 100 in Nigeria alone) has reduced the role of the state in many countries. In Nigeria, Africa’s biggest resource economy, the much-expanded service sector, if taken together with agriculture, now almost matches oil output.

Trade barriers have been reduced, at least a bit, and despite the dearth of good roads, regional trade—long an African weakness—is picking up. By some measures, intra-African trade has gone from 6% to 13% of the total volume. Some economists think the post-apartheid reintegration of South Africa on its own has provided an extra 1% in annual GDP growth for the continent, and will continue to do so for some time. It is now the biggest source of foreign investment for other countries south of the Sahara.

Somewhat belatedly, Africans are taking an interest in each other. Flight connections are improving, even if an Arab city, Dubai, is still the best hub for African travellers. Blocks of African economies have taken steps towards integration. The East African Community, which launched a common market in 2010, is doing well; the Economic Community of West African States less so. The Southern African Development Community has made the movement of goods and people across borders much easier. That said, barriers remain, and the economy suffers as a result. Africans pay twice as much for washing powder as consumers in Asia, where trade and transport are easier and cheaper.

As in Asia a generation ago, relatively small increases in capital can produce large productivity gains. When, after decades of capital starvation, outside investors started to take that disproportionate return seriously, they helped Asia blossom. Now some of those investors are eyeing Africa. In financial centres such as London barely a week goes by without an Africa investor conference. Private-equity firms that a decade ago barely knew sub-Saharan Africa existed raised $1.5 billion for projects on the continent last year. In 2010 total foreign direct investment was more than $55 billion—five times what it was a decade earlier, and much more than Africa receives in aid (see chart 2).

Foreign investors are no longer just interested in oil wells and mines. They are moving on to medium-sized bets on consumer goods. The number of projects—for example by retail chains such as Britain’s Marks & Spencer—has doubled in the past three years. Despite the boom in mining, the share of total investment going into extractive activities has shrunk by 13%. That said, the riches are far from evenly spread: three-quarters of all investments are in just ten big countries.

The increased interest from outsiders that has been triggered by Africa’s political and technological changes is not, though, the heart of the story. Economic change has made life more rewarding for Africans themselves. They have more opportunities to start businesses and get ahead than they have enjoyed in living memory, and governments are showing some willingness to get out of their way. According to the World Bank’s annual ranking of commercial practices, 36 out of 46 African governments made things easier for business in the past year.

No end to worries

That said, most African countries are still clustered near the bottom of the table. In all sorts of ways African governments need to run their countries more efficiently, more accountably and less intrusively. They also need to offer much better schooling, an area in which Africa woefully lags behind Asia. African businessmen constantly complain about the shortage of skills. Hiring qualified staff can be prohibitively expensive. The return of skilled exiles has helped in some newly peaceful countries, but often foreigners are needed, usually other Africans. Without better education, Africa cannot hope to emulate the Asian miracle.

Africa’s demographic dividend, too, is far from guaranteed. A growing population and a bulge of working-age citizens proved a blessing in Asia. But population growth always has its costs. All those extra people must be fed, educated and given opportunities. If illiberal policies obstruct growth and discourage firms from hiring, Africa’s extra millions may soon be jobless and disgruntled. Some may even take up arms—a sure recipe for disaster, both human and economic.

An abundance of young people is like gearing on a balance sheet: it makes good situations better and bad ones worse. It is worrying that some of Africa’s fastest-growing populations are in economies not performing well at the moment; and fertility rates are not declining as uniformly, or as swiftly, as they did in Asia.

Africa’s extra people are flocking to cities. Some 40% of Africans are city dwellers now, up from 30% a generation ago. By 2025 the number is likely to be 50%. In Asia the rate is currently 52%. This is usually a good thing. Productivity is higher in cities. Transport costs are lower and markets are busier when people live close to each other. In bad times, the tight ethnic jumble of the city can be a powder keg. That said, Africa’s worst wars, such as those in Congo, Rwanda, Sudan and Somalia, have been fought in countries where most people are peasants or livestock herders.

Extra mouths will need to be fed. There is scope for this. Though Africa is now a net food importer, it has 60% of the world’s uncultivated arable land. It produces less per person now than in 1960. Africa’s land is often hard to farm, with large year on year variations in climate (a problem likely to get worse as the Earth heats up). Farmers lack access to capital for fertiliser and irrigation. More roads and storage depots are also needed; much of the harvest rots before it gets to market. And land ownership often raises thorny issues about who belongs to a place and who does not.

Agriculture is a long-term worry. A shorter term concern is how to deal with a coming slowdown and recession in the north. Investors fleeing risky assets in Europe are unlikely to put their cash into Africa. More likely they will pull back some of the money they have already invested there. The signs are that this is already happening. Bankers say the deal flow is slowing. But many remain generally bullish on Africa, convinced that its growth potential will reward patient investors and eventually lure back fickle ones.

Africa’s growth is now underpinned by a permanent shift in expectations. In many African countries people have at last started to see themselves as citizens, with the rights that citizenship brings. Greater political awareness makes it harder for incompetent despots to hold on to power, as north Africa has discovered. Bastions of the continent’s past—destitute, violent and isolated—are becoming exceptions.

Africa is not the next China. It provides only a tiny fraction of world output—2.5% at purchasing-power parity. It is as yet not even a good bet for retail investors, given the dearth of stockmarkets. Mr Dangote’s $10 billion undeniably makes him a big fish, but the Dangote Group accounts for a quarter of Nigeria’s stockmarket by value: it is a small and rather illiquid pond. Nonetheless, Africa’s boom will continue to benefit Africans, serving the billion as well as the billionaires. That is no small feat.

Learning Lessons from Bihar

2011-12-23T08:51:00.002-05:00

Building on Bihar
Himal South Asian, December 2011
By Blair Glencorse

As a new government is formed in Kathmandu, how can Nepal not only learn from the changes underway in Bihar, but capitalise on them?

Poor infrastructure, weak human capacity, politicised local bureaucracies, difficult caste relations, debilitating power shortages and deeply entrenched poverty – driving around Bihar recently, it was clear that the state has yet to transform into the orderly, prosperous society that recent press coverage has suggested. That said, there is no doubt that a nascent but carefully structured institutional reform process is allowing for the slow emergence of a ‘naya’ Bihar. Since 2005, the government of Nitish Kumar has consolidated rule of law, built critical infrastructure, begun to deliver services, increased revenues and expenditures, improved bureaucratic functionality, and generated an important sense of citizenship among many of the state’s communities. The economy has grown at over 10 percent per year for the past six years, despite the separation of resource-rich Jharkhand in 2000, periodic floods and droughts, and the recent global financial crisis.

Fifteen years ago, Nepalis would look to Bihar and bemoan their luck for being located next door to one of the most corrupt, crime-prone and povertystricken states in India, from which migrants would flood northwards in search of livelihoods. Now it is the Biharis that look across the border, wondering when criminal gangs will be brought under control and seeking to draw on Nepali labourers to support the state’s construction boom. In many ways, Nepal is far wealthier than Bihar in terms of relative capacities, structures and assets. The difference is that the current administration in Patna is moving to consolidate positive changes and create a virtuous circle of growth and development – albeit starting from a low base – while Nepal continues to struggle with difficult issues of stateand market-building. While the ongoing changes in Bihar must be considered in the context of their own unique history, the current situation nonetheless poses two, inter-related questions: What broad trends can be identified from the recent history of Bihar that might be relevant for Nepal? And how can Nepal benefit from the positive changes happening to its south?

Most writings on the recent history of Bihar look toward plans put in place by Nitish Kumar’s governments across a broad spectrum of issues. These have included the rule of law (drafting 11,000 policemen), infrastructure (building nearly 25,000 km of roads), governance (signing the Bihar Special Court Bill and the Anti-Corruption Act), and service delivery (the appointment of 300,000 teachers and the dramatic improvement in public-health facilities). These are all important changes, but such explanations are often more descriptive than analytical, and provide a simplistic, linear conception of transformation.

At its core, Bihar’s transition has been based on a combination of several closely linked factors. The first is strong leadership by Nitish Kumar and his team. The key decision-makers in Bihar have spent periods of service in the national government, which has provided important experience in the management of complex organisations and has expanded conceptions of what is possible in governance terms. Traditionally, Biharis have respected power, but now power is being combined with legitimate authority, which is allowing for progress.

Second, the government has recognised the feasibility of change and the inter-dependence between state functions. Through a carefully sequenced and prioritised approach to state-building – beginning with rule of law – the Nitish Kumar administration has worked to enable change where possible, and to generate a self-reinforcing sense of progress that in turn has allowed for further reform. Third, the state has moved from dysfunctionality, during which there was deliberate abuse of public financial-management systems, into a ‘control’ phase, with supervision established over public finance and adherence to external oversight mechanisms.

Fourth, the government has generated constituencies for change by building political support through the moulding of disparate groups into coherent stakeholders in the state. Bringing in citizens from both ends of the caste hierarchy and indicating that development is a positive-sum rather than a zero-sum set of processes has allowed the government to push through wide-ranging reforms. Fifth, the current administration in Patna has used existing structures, rules and tools to work on behalf of governance rather than against it. This has allowed for ‘quick win’ initiatives and a benchmarking process against previous standards and outcomes.

Despite all of this, the changes in Bihar are as much perception as they are reality. Change can be as much about signalling intent as it is about implementation, and the current administration has put in place a carefully calibrated communications strategy to sell its successes. This is important internally – particularly in a society where a significant minority is illiterate – and externally, from where change can be catalysed and supported. To a certain degree, the story of Bihar indicates not what good governance can do, but what it cannot do. That is to say, a miracle has not occurred in Bihar, but tangible changes have taken place through implementation of efforts to build accountability. This has created a sense of hope that is, in turn, bolstering further change.

Momentum for change
Bihar’s changes are idiosyncratic, of course, and cannot be replicated exactly in Nepal. It is worth considering, however, how Nepal might learn from the nascent transition to its south. In governance terms, Nepal has a set of institutions and legislation that could generate transparent and accountable government – the authority of the Commission for the Investigation of Abuse of Authority (CIAA), for example, is as robust as that provided by the Anti-Corruption Act in Bihar. A problem arises in terms of implementation of rules, however, and in ensuring that bodies responsible for transparent use of resources are themselves adequately staffed, monitored and overseen. At the same time, the Patna government has proven the malleability of a stratified society and has brought people together behind a common developmental agenda. It has proven that the political system can help all of society, and does not have to be about caste, ethnicity or geography. If the political will could be mobilised behind small but catalytic governance changes in Nepal in a similar manner, the multiplier effect on development could be significant.

In Bihar, the current government has understood that devolution of power to legitimate local bodies can allow for more nuanced and effective development based on inputs from citizens. But it has also understood that decentralisation requires a strong centre. Moreover, the government has begun to face the reality that effective and sustainable wealth creation comes from a balance between market-based growth and the reinvestment of some of these revenues in equitable social programming at the local level. If the discussion on the future shape of Nepal could be shifted to revolve not around considerations of federal boundaries but rather about citizen-centred development, similar changes are entirely feasible. In Nepal, the debate over federalism indicates that the form and function of government sometimes seem to have become confused. Federal systems can be highly effective, as in Canada, for example, or highly ineffective, as in Nigeria; the same can be said for unitary systems. The key is understanding the functions and levels of governance within a given system, and what government responsibilities need to be carried out at which levels and with which tools.

With regard to service delivery, a central developmental constraint in Nepal is the inability of the government to spend domestic or international resources. The government continues to commit to a variety of social programmes (often politically rather than functionally motivated) that may not prove affordable or sustainable in the long-term. At the same time, a significant constraint exists in terms of capital expenditure; in fiscal year 2010-11, for instance, the government spent just 39 percent of allocated capital funding. The juxtaposition of unspent government funds with lack of infrastructure and employment continues to fuel the sense that Nepal’s political discourse is increasingly divergent from the realities of implementation.

Meanwhile, the reverse is true in Bihar. This is because the government has explicitly prioritised efforts to draw funds from the New Delhi government and to seal revenue leakages to fund catalytic infrastructure that benefits the population. Capacity has been built within the construction industry, and security has improved as public-private partnerships have been developed around roads and bridges. This has facilitated market-based activities, generated linkages among and between disparate communities, and generated a feeling of hope that creates additional momentum for change.

Development in Nepal remains a disparate and uncoordinated process in which separate projects are pursued simultaneously, implementation is often poor, and outcomes are less than optimal. Corruption and cronyism across a wide breadth of sectors are facilitated by a culture of impunity that pervades governance and the market alike, undermining the trust of the people both in political actors and in the market-based economy more broadly. The system continues because the legitimacy of political actors is derived not from delivery of services, or citizen-focused reforms, but rather from participation in these deeply entrenched patronage networks.

Bihar has slowly begun to overcome similar issues and to move beyond identity and group politics in a way that is illustrative for Nepal, particularly through developing specific programmes to build functionality and deliver citizen-centred reforms. It has started to shift away from a patronage system (in which leaders dispense favours in return for political support) to programmatic politics, where policymakers deliver benefits to all citizens. The programmes developed are far from perfect in terms of implementation, but they have initiated a process whereby rules have been set and parameters for action defined. This has helped to mobilise government, the private sector and citizens. In Nepal, a programmatic approach in just one or two sectors – rural irrigation, for example – could provide a means by which to improve coordination, increase expenditures and begin a similar transition.

Over the past five years or so, an emphasis on cooperatives as a central part of Nepal’s future seems to have taken root, with the idea of these groups as a third and equal pillar of the economy (alongside the state and the private sector) articulated in the most recent government budget. The initial plans for their development, however, does not outline exactly how cooperatives will function in this way, how connections to larger-scale development plans will be made concrete, or how cooperative-led growth will be sustainable.

In Bihar, a dairy-cooperative model might serve as an example of how Nepal’s cooperatives could be leveraged and expanded as part of a larger growth strategy. The Bihar State Cooperative Milk Producers Federation (Sudha) has built revenues from USD 73.5 million in 2001 to USD 136 million today, by bringing together some 8600 dairy outlets (with more than 450,000 members) covering 84 towns to export milk to West Bengal, Uttar Pradesh, Jharkhand and (more recently) Delhi. Twice daily, milk is collected from village dairy cooperatives and brought to district milk unions, which have plants to process the milk for urban consumers. Products are then packaged and marketed under the Sudha brand. The federation is now working to route the entire milk production in Bihar through the federation. Understanding how to build on local capacities within a broader framework of this sort might be instructive within the Nepali context.

Patna focus
This is all very well, one might argue, but what can Nepal do now to build on Bihar’s progress and growth as it is happening? Where could real, politically feasible change be initiated? Here are an initial set of ideas across four key areas. First, Nepal can build on the gains in rule of law to the south. To some degree, security improvements in Bihar have had a knock-on effect into Nepal in a negative way, with various criminal elements having been forced across the open border to the north and inevitably effecting security in the Tarai plains. But there is also an opportunity for Nepal in this situation, by working with Bihari counterparts on collective, crossborder approaches to law and order. Efforts by Nepali customs and law-enforcement officials to raise standards, share information and build a network for knowledge-sharing would be useful. Currently, security issues in Nepal more broadly seem to be improving somewhat; if the rule of law can now be consolidated for the average citizen, the effect could prove catalytic for crossborder economic growth.

Second, Nepal must capitalise on the potential for economic symbiosis with Bihar. There are around 250 million Indians living within a few hundred miles of the Nepali border, and more than a 100 million in Bihar alone. The purchasing power of these consumers is significant and is increasing rapidly as a result of economic growth. The roads on the Indian side of the border still need significant work, but have improved over the past six years – clearly a potent trade opportunity for Nepal, if the right connections can be made. Arguably, a decent road connection from Kathmandu to Patna (and indeed to Lucknow) could transform the Nepali economy more than almost any other single action. At the border, India is streamlining customs processes and creating ‘single window’ registration points. Such straightforward services are noticeably absent in Nepal, though efforts in this regard would do much to facilitate trade, create jobs and improve revenue collection.

Third, the new government in Kathmandu must seek to better understand and capitalise upon watermanagement linkages. All 38 districts in Bihar in recent years have seen flooding, partially as a result of the absence of water-management processes – such as small and mid-size dams – in Nepal. Most of the rivers in northern Bihar have their headwaters or catchment basins to the north, but despite discussions between the Nepali and Indian governments to control flooding, no agreement has yet been reached. In part, this is due to the massive maintenance obligation that large-scale dams would involve. Yet water provides a key opportunity for crossborder – and indeed regional – growth, and the basis for broader cooperation between Nepal and its neighbours. In the absence of larger agreements with India on flood control, Nepal can begin to put in place the necessary economic and legal conditions for upstream water-harnessing processes and work further in support of hydropower generation. In the shorter term, microhydro development through a coherent government-led programme still presents the most feasible, and least politically divisive, means of harnessing Nepal’s water resources.

Finally, Bihar and Nepal are closely connected geographically, making up part of the only open border in the Southasia region. Over time, this will lead to greater political linkages on an individual and collective basis. The effect that this might have on political issues and relationships within the Tarai remains to be seen, but the Indian sphere of influence will only grow in southern Nepal. Where possible, the government, business associations and civil-society groups in Nepal could consider laying the framework for regular dialogue with counterparts in Bihar to ensure understanding of these key issues, to put in place the mechanisms ahead of time to deal with potential problems, and to facilitate collaboration where feasible.

There remains a lack of trust between India and Nepal at the governmental level, which impedes progress on a host of issues. But India is not homogenous, and individual states have their own incentives and interests. As such, efforts are also required in Patna to build on areas of relative autonomy from the Union government, while Nepali politicians will need to understand that productive meetings in Patna are more worthwhile that mediafriendly trips to New Delhi. In moving forward, creating ways to generate trust at a personal level with Bihar needs to be a central component of the relationship between Nepal and its neighbour.

These are not easy principles to integrate into policymaking, or straightforward changes to make in the ways in which Nepal thinks about its linkages to Bihar. As pointed out, the government of Nitish Kumar also faces a plethora of difficult problems of its own. The central issue, however, is that Nepal and Bihar are bound by geographical ties that cannot be broken. For a collectively prosperous future, economic, cultural and political ties between Nepalis and Biharis must prove equally robust.

Blair Glencorse is an expert on issues of development and governance. Follow him on Twitter @blairglencorse.

South Asia’s Water: South Asia’s Water

2011-11-19T16:02:00.003-05:00

South Asia’s Water: South Asia’s Water
Economist, 19-Nov-11

A growing rivalry between India, Pakistan and China over the region’s great rivers may be threatening South Asia’s peace

SONAULLAH PHAPHO has spent half a century picking a living from Wular lake high in Indian-controlled Kashmir. Today he is lucky if he scoops a fish or two out of the soupy mess. Push a boat into the knee-deep lake and the mud raises a stink of sewage. A century ago Wular and its surrounding marshes covered more than 217 square kilometres (84 square miles), making it one of Asia’s larger freshwater lakes. Now, thanks to silt and encroachment, the extraction of water by nearby towns and tree planting on the shore, it measures only 87 sq km and is shrinking.

Compared with much of South Asia, Kashmir, a disputed territory in northern India, has many rivers and relatively few people. But even here fresh water is running short. To see how contentious this can be, drive half a day south to where the Baglihar dam (shown above) is rising up. An enormous wall bisects the valley, dressing it in white spray, and three huge jets of water blast from its sluices.

Half complete, the dam is already a local wonder that tourists gape at. It generates 450MW for the starved energy grid of Jammu and Kashmir. Once the scheme fully tames the water, by steering it through a tunnel blasted into the mountain, the grid will gain another 450MW.

The river swirls away, white-crested and silt-laden, racing to the nearby border with Pakistan. But there Baglihar is a source of bitterness. Pakistanis cite it as typical of an intensifying Indian threat to their existence, a conspiracy to divert, withhold or misuse precious water that is rightfully theirs. Officials in Islamabad and diplomats abroad are primed to grumble about it. Pakistan’s most powerful man, the head of the armed forces, General Ashfaq Kayani, cites water to justify his “India-centric” military stance.

Others take it further. “Water is the latest battle cry for jihadis,” says B.G. Verghese, an Indian writer. “They shout that water must flow, or blood must flow.” Lashkar-e-Taiba, a Pakistani terror group, likes to threaten to blow up India’s dams. Last year a Pakistani extremist, Abdur Rehman Makki, told a rally that if India were to “block Pakistan’s waters, we will let loose a river of blood.”

Assorted hardliners cheer them on. A blood-curdling editorial in Nawa-i-Waqt, a Pakistani newspaper, warned in April that “Pakistan should convey to India that a war is possible on the issue of water and this time war will be a nuclear one.”

Upstream such outbursts are usually dismissed as proof that troubled Pakistan is, as ever, spoiling for a fight. Water is merely the latest excuse. India is not misbehaving, says Mr Verghese placidly. It fails to take all it is entitled to from cross-border rivers in Kashmir. Run-of-the-river dams like Baglihar consume nothing, since water must flow to run turbines. Such a dam, he says, merely briefly delays a river.

Indians point out, too, that Pakistan enjoys a rare guarantee: the Indus Water Treaty, struck in 1960 by far-sighted engineers and diplomats who saw that after the partition of land, water had to be shared out too. The treaty, which has survived three wars, details exactly how each side must use cross-border rivers. Mostly this applies to the tributaries that flow from Kashmir to form the massive Indus river, Pakistan’s lifeblood.

If Indians abide by the treaty, then in theory at least they cannot be misbehaving. They see Baglihar as proof of co-operation, not a threat. When Pakistan objected to the dam’s design, India accepted international arbitration, the first case in the treaty’s history. Outside experts studied the dam and ordered small changes. But in effect they said it posed no threat to Pakistan. And last year the dispute was officially ended by the two governments.

Downstream, however, few sound satisfied. “The Baglihar decision…allowed a reservoir on a river coming into Pakistan, and now a precedent is set,” laments John Briscoe, a water expert formerly of the World Bank who advises Pakistan. The Pakistanis fear Indian control over the headwaters of the Indus. And Indian bureaucrats fuel these fears with obsessive secrecy about all water data.

Bashir Ahmad, a geologist in Srinagar, Kashmir who studied the Baglihar dam, gives grim warning about the Indians’ future intentions: “They will switch the Indus off to make Pakistan solely dependent on India. It’s going to be a water bomb.” A less excitable report in February by America’s Senate offered a similar assessment: “The cumulative effect of [many dam] projects could give India the ability to store enough water to limit the supply to Pakistan at crucial moments in the growing season.” Dams are a source of “significant bilateral tension”, the report concludes.

More dams are to come, as India’s need to power its economy means it is quietly spending billions on hydropower in Kashmir. The Senate report totted up 33 hydro projects in the border area. The state’s chief minister, Omar Abdullah, says dams will add an extra 3,000MW to the grid in the next eight years alone. Some analysts in Srinagar talk of over 60 dam projects, large and small, now on the books.

Any of these could spark a new confrontation. The latest row is over the Kishanganga river (called the Neelum in Pakistan) as each country races to build a hydropower dam either side of Kashmir’s line of control. India’s dam will divert some of the river down a 22km (14-mile) mountain tunnel to turbines. To Pakistani fury, that will lessen the water flow to the downstream dam, so its capacity will fall short of a planned 960MW.

Pakistan also claims (though the evidence is shaky) that 600,000 people will suffer by getting less water for irrigation. Again it insisted on international arbitration at The Hague. In September, to Pakistani delight, India was ordered to suspend some of its building for further assessments to be made. But India still looks likelier to come away happy in the end, as the treaty foresaw and permitted the Indian design, and India is likely to finish its dam ahead of Pakistan in any case, by 2016 rather than 2018.

When China’s upstream

Countries downstream have genuine reasons to fret. Pakistan is exposed. Like Egypt it exists around a single great river, though the Indus is nearly twice the Nile’s size when it reaches the sea. It waters over 80% of Pakistan’s 22m hectares (54m acres) of irrigated land, using canals built by the British. In turn that farming provides 21% of the country’s GDP, as well as livelihoods for a big proportion of its 180m people. Many of them are already thirsty.

On average each Indian gets just 1,730 cubic metres of fresh water a year, less than a quarter of the global average of 8,209 cubic metres. Yet that looks bountiful compared with each Pakistani’s share: a mere 1,000 cubic metres. Worse yet, South Asia’s fresh water mostly falls in a few monsoon months. The dreadful floods this year and last showed that untamed and unpredictable rivers can be both resource and threat.

More rows between India and Pakistan are certain. India may keep on dismissing them as Pakistani bluster, an easy thing to do if you are upstream. But India is downstream in another highly tricky area: its border with China.

Tension already exists over the status of India’s Arunachal Pradesh state, which China refuses to recognise. A quarrel over rivers in the region could serve as a focus for wider disputes about territory. A measure of the recent slump in relations came when, to the fury of India’s authorities, China blocked an attempt by the Asian Development Bank to prepare for a dam project in Arunachal Pradesh. And one of India’s largest rivers, the Brahmaputra (Tsangpo in China), flows south from the Tibetan plateau and into Assam not far from the disputed land.

Angry Indian politicians, activists, bloggers and journalists claim that water-starved China (with 8% of the world’s fresh water but 20% of its population) has plans to divert the Tsangpo/Brahmaputra to farmers in its central and eastern regions. Feelings are running so high that India’s prime minister, Manmohan Singh, felt obliged to issue a statement on August 4th saying that China’s leaders had assured him there were no such plans afoot. And though a few run-of-the-river hydroelectric schemes are being built upstream on the Tsangpo, none of these could change the river’s course. Cool heads point out that speculation about China channelling the torrent from near the border, at a spot known as the Great Bend, looks fantastical, at least at present.

Chinese engineers would need to use nuclear explosions to have a chance of making tunnels through a series of ridged mountains to get water east from the Great Bend. Although plans have existed since the fourth century to take water from China’s west to the east, and the scheme was pushed by Mao Zedong, the engineering, at least for now, appears to be technically impossible. Yet broader Indian strategic fears—the fact that the Chinese control the Tibetan plateau, which is the source of water for parts of densely populated northern India—will evaporate no more easily than Pakistani fears of India.

An ever-thirstier region

The scarcity of water in South Asia will become harder to manage as demand rises. South Asia’s population of 1.5 billion is growing by 1.7% a year, says the World Bank, which means an extra 25m or so mouths to water and feed: imagine dropping North Korea’s entire population on the region each year. Greater wealth in South Asia brings with it a soaring demand for food, especially for water-intensive meat and other protein. Industry and energy-producers also use water, though unlike farms they return it, eventually, to the rivers.

Worse, overall supply will not only fail to keep up with rising demand but is likely to fall (unless a cheap way is found to turn sea water fresh). The Himalayan glaciers are melting. A Dutch study last year of the western Himalayas reckoned that shrunken glaciers will cut the flow of the Indus by some 8% by mid-century. Flows may also get less regular, especially if glacial dams form, withholding water, and then collapse, causing floods.

Others give even scarier predictions. Sundeep Waslekar, who heads a Mumbai think-tank, the Strategic Foresight Group, which has picked water as a long-term threat to Asian stability, sees a “mega-arc of hydro insecurity” emerging from western China along the Himalayas to the Middle East and farther west. The strain of bigger populations, diminishing water tables and a changing climate could all conspire to produce a storm of troubles. South Asia is especially vulnerable: Mr Waslekar sees a cut of 20% in total available fresh water over the next two decades.

The greatest threat of all would be from any change to the monsoon, which delivers most of the region’s fresh water each summer. Here, again, worries arise. Indian meteorologists who have studied rainfall data from 1901 to 2004 have noted signs in recent decades of more dry spells within the peak monsoon months. If these lead to weaker, or less predictable, monsoons in future (though this year’s was about normal) the consequences for farmers could be dire.

In any case, the cost of running short of water is already becoming clearer. The Lancet, a British medical journal, reported last year that up to 77m Bangladeshis had been poisoned by arsenic—the largest mass-poisoning in history. It was the result of villagers pumping up groundwater from ever deeper aquifers. The same poison is now entering crops and more of the food chain.

Filthy water and bad sanitation spread diseases, such as diarrhoea and cholera, which kill hundreds of thousands of Indian children every year, says Unicef, the UN’s children’s agency. Several South Asian rivers, suffering from weaker flows, have become a sludge of human and animal waste, dangerous to drink and wash in and unsafe even for watering crops.

All over the region water tables are dropping as bore holes drive deeper. In the dry season even some of the larger rivers slow to a trickle. Knut Oberhagemann, a water expert in Dhaka, Bangladesh, says that the flow of the mighty Ganges where it enters Bangladesh is at times a pitiful few hundred cubic metres a second, so low that “you can walk across the river”. When the same river, at this point called the Padma, reaches the coast, it is often so feeble that the sea intrudes, poisoning the land with salt.

The same problem curses the delta of the Indus in Pakistan. There a semi-desert was turned into some of the most fertile land on earth by British-built irrigation canals. But as the sea encroaches on low, flat land, rivers at times are flowing backwards, laments a local environmental activist. Take away the fresh water—around 60% of which is now lost to seepage and evaporation because of the bad management of those canals—and the desert will eventually come back.

Save or snatch

Governments in South Asia can respond to growing scarcity in one of two ways. The first is to improve the way they use the water they have, both by managing it better and by co-operating with one another. The second is to try to grab as much water as they can from their neighbours.

Better management of irrigation canals and better farming techniques would help hugely to cut waste. In Pakistan bitter rows between provinces have long scotched coherent planning. Wealthy Punjab, a big farming province, is routinely accused by downstream Sindh (and by others too) of taking an unfair share of the water.

And Pakistan badly needs more dams to control floods, store monsoon water and make electricity (China is said to have offered to help Pakistan build a series of big dams, and has already sent engineers to help speed along the new one on the Neelum/Kishanganga). Only about 10% of the potential hydropower of the Indus has been tapped so far, and only 30 days’ average river flow can be stored (by contrast, the Colorado in America has dams to store 1,000 days’-worth).

Many governments are at least thinking in terms of dams and co-operation. Mr Waslekar reckons that 60-80 big dams (mostly for energy) will be built in South Asia in the next two or three decades, at a cost of hundreds of billions of dollars. In many cases—as for example in mountainous Bhutan, where the economy gets a huge boost from selling hydropower to India—this can foster economic and diplomatic co-operation. India has visions of one day persuading unstable but immensely water-rich Nepal to follow suit. The country is the source of more than 40% of the Ganges’s water, and Indian analysts talk dreamily of 40GW of hydropower potential waiting to be used.

Other cross-border water deals are pending. Cosy ties with Bangladesh’s government mean that India can more easily build dams on some of the several dozen rivers that cross their shared frontier. In September Mr Singh visited Dhaka to sign a deal with Bangladesh to allow the latest hydro dam to go up on the Teesta river. Though the deal was postponed at the last minute by a row with a regional Indian leader, it now looks set to go ahead. However there are bitter memories in Bangladesh of an earlier deal, on the Ganges, which allowed India to put up a barrage to block the river’s flow in the dry season.

Tentative signs of wider co-operation exist. China issues twice-daily reports on the Tsangpo river flow in the flood season, separately to India and to Bangladesh. This could be seen as encouraging, if the two giants of the region wished to consider getting together over water. Indeed if full-scale friendliness were ever sought, an immense opportunity awaits.

Mr Verghese points out that the Tsangpo/Brahmaputra falls 2,450 metres (8,000 feet) over a few kilometres in China just before it reaches the Indian border. Send it through a 100km tunnel from the Tibetan plateau down to Assam and an enormous 54,000MW could be generated. One day its power could light not only much of north-east India and Bangladesh, but nearby Myanmar and beyond. Such a mega-structure would become a keystone for regional co-operation.

It will almost certainly never be built. Analysts have suggested that, given the generally dire relations between South Asian countries, water will provoke clashes rather than co-operation. A 2009 report for the CIA concluded that “the likelihood of conflict between India and Pakistan over shared river resources is expected to increase”, though it added that elsewhere in the region “the risk of armed interstate conflict is minor”. And a Bangladeshi security expert, Major-General Muniruzzaman, predicts that India’s “coercive diplomacy”, its refusal to negotiate multilaterally on such issues as river-sharing, means that “if ever there were a localised conflict in South Asia, it will be over water.”

Book Review: “Oil’s Endless Bid: Taming the Unreliable Price of Oil to Secure Our Economy"

2011-05-27T12:51:00.005-05:00

Book Review: “Oil’s Endless Bid: Taming the Unreliable Price of Oil to Secure Our Economy"
Bloomberg, 24-May-2010
Review by James Pressley

With the NOC constantly in financial crisis because of elevated oil prices, it might be worthwhile to understand how the oil price is set in the global markets. This book argues that the price is a function of fund flows/asset allocation/trading rather than supply-demand imbalance.

Dan Dicker could be forgiven if he hooted in vindication as crude plunged 15 percent in the first week of May. He concluded long ago that petroleum prices have become “just nuts,” as he says in “Oil’s Endless Bid.”

Oil markets are defying the normal laws of supply and demand, he argues in this timely book, and a large share of the blame belongs to Goldman Sachs Group Inc., Morgan Stanley and other banks. A longtime floor trader, he brings valuable insights to bear on a contentious subject that affects us all.

Dicker spent 25 years trading crude, natural gas, unleaded gasoline and heating fuel at the New York Mercantile Exchange. Bit by bit, he saw Goldman -- “the devil to be feared,” he says -- and its Wall Street brethren muscle into a sleepy market that was once dominated by oil companies seeking to hedge the risks of physical assets.

Soon a flood of “dumb money” from investors was gushing into funds pegged to the Goldman Sachs Commodity Index, he says. This high tide of cash, totaling billions of dollars, exerted an upward price pressure on oil that burdens American business and threatens to derail a U.S. economic recovery.

“We are all invested in oil, whether we like it or not,” he writes.

‘Peak Oil’

Dicker understands the prevailing wisdom about high oil prices yet remains unimpressed. Has he noticed how the rise of China and other emerging nations has driven up demand? Yes, he has. Is he ignoring evidence that the planet will one day run out of cheap, easily tapped black gunk? No, he’s not.

He says he believes in “peak oil,” the theory that petroleum production will inevitably peak, plateau and decline. Yet when he examines this and other explanations for recent energy-price spikes -- a falling dollar, for example -- he concludes that they amount to “a bad alibi.”

His argument, brutally compacted, goes like this: Oil today is overpriced, driven ever higher by the new flow of money funneled through investment banks, energy hedge funds and exchange-traded and index funds. Feeding the frenzy are bets from the same kind of American investors who moan about paying almost $4 a gallon to fill up their SUVs.

This new dynamic has led to wild fluctuations, Dicker says. Remember how oil surged in 2008 to more than $145 a barrel in July, only to plunge to less than $34 by late December?

“Nothing proved a speculative bubble more convincingly than the rapid price collapse we saw then,” he writes.

‘Assetization’

In swaggering prose, Dicker marches us through momentous changes that began rocking oil markets a decade ago. Chief among them is “the assetization of oil,” his infelicitous term for new instruments -- think commodity index funds --that make investing in petro prices as easy as buying stocks.

Dicker frowns on this. Just because everyone can now trade oil -- Mom, Pop and Aunt Erma, too -- doesn’t mean they should, he argues, determined to dissuade the very people who are most likely to buy his book. The notion that we can invest in oil as if it were a stock or bond is “the single most diabolical source of our pricing problem,” he writes.

Oil isn’t a stock or a bond. You don’t get dividends, interest or a way to reinvest profits and compound returns, he explains. All you get is a wager on oil prices -- a futures contract with a short shelf life. Your bet “self-destructs every 30 days,” as Dicker says.

Barrels on Doorsteps

Many people, heeding the growth of emerging nations, peak- oil arguments and the upheaval in Libya, are betting oil will go up. Being accustomed to stocks, they want to buy and hold. The only way to do that, unless you want a contract for 1,000 barrels of oil delivered to your doorstep, is to roll your position over by retiring an old contract and initiating a new one with a later expiration date.

This may expose you to a tax liability, not to mention commissions and fees on two trades (for getting out and getting back in). Imagine, too, what happens when commodity index funds roll their positions all at once, as they do on certain days each month. This mechanical reset is called the Goldman Roll, after the Goldman Sachs Commodity Index. It winds up amplifying any fundamental arguments for higher prices, Dicker says.

Can this be fixed? Yes, says Dicker, though his solution would mean forbidding most individuals from trading oil (and handing some clout back to pros such as himself). If he had his way, commodity index investing would be banned, along with exchange-traded funds that engage in futures.

Nostalgia for “the good old days of oil trading” tinge this book, which is enlivened with memories of “standing shoulder to shoulder with another 120 sweaty, smelly traders.” Yet it’s the future, by this account, that may really stink.

Profile: Ram Sharan Mahat

2011-05-23T11:02:00.000-05:00

Profile: Ram Sharan Mahat
TKP, 13-May-10
By John Narayan Parajuli

In a country dominated by left-of-the-centre parties, it is hardly surprising that leaders from the left are some of the most outspoken ones. But there are a few members in non-left parties too who make many left leaders feel inadequate.

Among them is the Nepali Congress (NC) leader Ram Sharan Mahat, regarded by many as one of the best orators in parliament. On April 1, he mounted an eloquent attack on the government over the supplementary budget and resignation of the Finance Secretary. The strong opposition from the NC and Madhesi parties eventually forced the government to abandon its plan.

Mahat, who has been elected for the third consecutive time to the parliament—including his current tenure as a Constituent Assembly member—recalls vividly, with a sense of gratification, his stint in the opposition when the United Marxist-Leninist party (UML) had a minority government. “I gave them a hard time,” says Mahat. He would deliver long and loud speeches, offering substantial data to back his claims and the House would listen to him, enthralled. Journalists would rush back in from the parliament canteen the moment the Speaker announced the name of the new speaker at the Zero Hour: “Hon. Ram Sharan Mahat.”

“But I don’t enjoy it anymore. The assembly is big, chaotic and there is no quality in its deliberations,” he says.

Though his role in the government started at the National Planning Commission (NPC) and later, the Finance Ministry, he has become actively involved in a host of foreign policy and national security issues over the years. As one of the two Congress members in the Army Integration Special Committee, he remains thoroughly grounded on a crucial aspect of the peace process—the integration of former PLA combatants. But his foremost field of expertise is the economy.

As a five-time Finance Minister and one-time Foreign Minister, Mahat has helped shape and influence Nepal’s economic policies like no other. Although he is often credited for Nepal’s wave of liberalisation in the 90s, he has also been criticised—within his party and outside—for indulging in “excessive liberalisation.” Many inside NC hold him responsible for giving up on the socialist plank of the party. During the party’s General Convention last year, he was at the receiving end of introspection on the party’s economic policies.

In fact, the party’s programme and policies passed by the 12th Convention seeks to reclaim their founding ideals of democratic socialism, which demanded pro-poor and social welfare-oriented policies in the context of globalisation. Some within the party still remain critical of Mahat. According to NC leader and former Foreign Minister Chakra Prasad Bastola, Mahat’s capitalistic policies can be considered partly responsible for the Maoists problem.

Mahat, however, is dismissive of these attempts to paint the post-1990 dispensation as out and out problematic, although he admits that the NC government in the 90s failed to put significant emphasis on governance.

“In development, you need pragmatism more than anything. Pure capitalism hasn’t worked anywhere. There has to be convergence of different things,” he says.

Without a strong authority, market economy doesn’t work, and neither can social justice programmes be implemented, says Mahat. He believes that Nepal’s economy would certainly have flourished under a strong government coupled with the 90s liberalisation.

In his book In Defence of Democracy, published in 2005, he writes: “Regular attempts are being made to paint the period dark as if everything went wrong under democratic dispensation. Real and concrete socio-economic achievements are easily glossed over or taken for granted as natural developments.”

In fact, Mahat credits the period for creating an environment where people were free to express their preferences for different kinds of rule and rulers. In many ways, he seems to imply that the Maoists movement was an inherent outcome of the open political environment.

Mahat’s tryst with politics began when he was barely into his teens. At the age of 14, he threw himself into a student movement—without fully being aware of the consequences of his actions—and was soon at the receiving end of police brutality. He and his associates belonging to the Nepal Student Union, a student wing of the NC, were sent to Bhadragoal jail. One of the people he met there was Ramesh Nath Pandey, former Foreign Minister during the king’s direct rule.

After graduating in 1968, he went to teach in a school in Lamjung district along with Surya Nath Upadhyay, who later went on to become the Chief Commissioner of the CIAA. The two would apparently have fist-fights over their political ideologies.

In 1971, Mahat became the General Secretary of Nepal Students Union, the largest student body at the time.

Unlike many of his predecessors and contemporaries, he continued to pursue his studies with an undeterred passion alongside his involvement in politics. He was a gold medallist in both his Bachelor’s and Master’s levels and had several opportunities to study in the US and the UK, but then the regime prevented him. He later went to India to do his PhD in Economics on an Indian government scholarship and after the failed referendum in 1980, he joined UNDP Nepal as a programme officer.

In 1989, Mahat was appointed coordinator for UNDP’s Afghanistan cross-border programme based in Islamabad. The following year ushered in political change. Mahat had thus far maintained his contacts with party leaders and he was asked to return. He resigned from the UNDP in 1991 and was given a party ticket to compete in the Nuwakot parliamentary constituency No.1. Though Mahat lost the election, his party swept into power.

International exposure contributed to his decisions at the helm of Nepal’s economy. “Working at UNDP gave me a broad perspective. There I saw what works and what doesn’t,” he says.

Nearly 20 years later, he came close to competing for a coveted international job. In 2010, Foreign Minister Sujata Koirala and subsequently Prime Minister Madhav Kumar Nepal encouraged him to compete for the Presidency of the UN General Assembly. “I never sought the job but Foreign Ministry officials were insisting that I stood a real chance of winning,” he says. He reluctantly agreed, on the condition that it would be beneficial for the country and wouldn’t hamper his political career. He had even consulted party President Sushil Koirala on the matter. Unfortunately, Mahat’s name never saw the light of day. Kul Chandra Gautam, former Executive Director of UNICEF, was chosen instead.

“Kul Chandra is a good friend and a highly qualified individual. I had no complaints,” says Mahat. “But this shows the quality of decision-making in Nepal.”

Mahat’s political career is on the ascendancy and he believes that destiny will one day land him the top job of the country. Though many of his contemporaries have been marginalised by the party leadership, he has continued to make himself relevant. But in a political environment where merit and contribution aren’t necessarily qualifiers for important government and party jobs, it remains to be seen if Mahat will prove to be an exception.

BBC Interview: "2067 was not a good year for Nepali movie business" Rajesh Hamal

2011-05-22T06:20:00.002-05:00

Kallywood actor Rajesh Hamal laments that 2067 was not a great for Nepali Movie business in a BBC Interview on April 21, 2011.

News Roundup: The NOC & the NEA

2011-05-03T20:36:00.035-05:00

Roundup of Nepali Economic and Business News for Jan 1-May 3
By: NepaliEconomy.com
Archive: Roundup of Economic and Business News

In politics, the landmark event of the first 4 months of 2011 was the election of Jhala Nath Khanal as the 34th PM of Nepal on February 3, 2011. His election in the 2nd round of voting with the Maoist's support ended a 7 month long political stalemate that followed the resignation of MK Nepal on June 30, 2010. The JNK government is yet to take full shape but there has already been a change of guards at the National Planning Commission, the nation’s highest economic policymaking body.

In economics, the two state-owned enterprises (SOEs), the NEA and the NOC continue to wreck havoc in the country. They have accumulated Rs 19 billion and Rs 15 billion losses respectively.

Due to losses, the NOC has to be continually bailed out by the government. On March 1, it received Rs 1 billion and that followed Rs 1.3 billion on January 19. Now the government is arranging another Rs 2 billion loan to help pay the IOC in order to get normal supply of petroleum products and to alleviate the ongoing shortage. In fact, the NOC has been demanding Rs 1.3 billion monthly loan from the government.

Shortage of petroleum products started on April 13 when the NOC cut supplies to Kathmandu by a third to just 277KL because the IOC cut its own supplies to the NOC by that amount. Within a week the shortage had spread to the rest of the country including Pokhara (supply cut to 36KLD from 50KLD). The IOC’s decision was prompted by the NOC’s failure to pay its dues after the IOC raised prices for second time. When the IOC raised prices earlier, the NOC was able to offset the increase. It raised prices twice, on March 14 (petrol went up by Rs 9 to Rs 97) and on December 6, 2010. The government also raised transport fares by 9% and domestic airfare by 13%-49% in early February although it withdrew a 30% airfare hike to remote areas later. Even with those increases, the NOC still loses Rs 6.30/L (petrol), Rs 11.25/L (kerosene), Rs 23.25/L (diesel) and Rs. 288.86/C (LPG). In fact, government-installed commissions have repeatedly recommended the NOC raise prices automatically but no government had the political will to do so.

Load-shedding is another fact of life in Nepal. Currently it runs 14 hours a day and it is expected to get worse over the next few years. The reason is simple, supply-demand imbalance, 900MW demand but only 390MW supply. The government has recognized the problem, and as such has declared "Energy Crisis" for the second time in 3 years. This emergency measure will last 4-1/2 years, and will include creation of a super-bureaucracy to expedite the development of 2,500MW of electricity in the next 5 years. The government has received political support from the Maoists. In the short run, the NEA is trying to alleviate the problem by trying to stop massive leakage (it has put 7 districts with leakage in excess of 50% on notice) and by trying to encourage private investment with a proposal to increase tariffs by 30%, the first in 10 years.

Despite anemic economic growth, projected to be mere 3.8% in 2011 and 500K Nepalese being pushed into poverty due to high food prices, the World Bank and the IMF say Nepal is going to meet the MDGs set for 2015. Still puzzling is that Nepal’s per capita GDP is expected to increase 15% in 2011 to $642.

Governance: The abrupt resignation of the Finance Ministry Secretary on March 30th became the talk of the town. In a BBC interview, he accused the UML-affiliated finance minister Bharat M Adhikari of trying to change laws to allow blacklisted defaulters, who number 156 and owe at least Rs 2.5 million each to go free. At least the SC is taking strong actions against corrupt officials, past and present. Those caught in the SC’s dragnet include a UML lawmaker, Chiranjibi Wagle, Khum Bahadur Khadka, Govind R Joshi and Depak Bohara.

Fiscal Policy: YTD revenue collection has been dismal, just Rs 107 billion versus the target of Rs 217 billion. The main reason is sluggish imports but others also share blame including a weak stock market, which has led to a 78% drop in capital gains taxes to just Rs 42 million. Another is VAT avoidance. In order to prevent VAT leakage, estimated to be Rs 4 billion, the government is planning to make e-billing mandatory. E-billing has proven to be effective at curtailing leakage of vehicle tax. But the government can only do so much. The case in point is retailers, who avoid 13% VAT by either under-reporting costs or providing fake VAT receipts, even if that means breaking laws that disallow more than 20% profits. Still the revenue department is making an effort. It imposed Rs 1.35 billion fine on 20 companies, including top business houses in the country for faking bills to avoid VAT. Also under investigation are Business Ad and Laxmi Steel. While some cheat on VAT, others simply don’t pay taxes such as casinos (Rs 300 million), VoIP rackets and medical colleges.

With the fiscal year coming to an end in two months, the government has spent only 25% of its development budget (Rs. 33 billion versus Rs. 129 billion total). It is trying to change policies that prevent it from spending more than 40% of development budget in Q4 and 20% in the last month of the fiscal year but that met with opposition.

BoP: The country's BoP deficit reached Rs 11 billion in the first 8 months of 2010/11 and this despite the NRB’s prediction that it will turn positive for the year. This deficit could have been worse if not for a reduction in outstanding reimbursement from foreign donors (a bizarre oversight) from Rs. 32 billion to $10 billion.

Agribusiness: Nepal is importing 100K of fertilizers from India to avoid a shortage like last year. On the crop side, Nepal produces 2.5 million tons of pulses, and exports of pulses rose 23% in H1 of 200/11 to Rs 2.75 billion. The country also produces 1,000 tons of honey. Although honey is a targeted exports item, Nepal has not been able to export them in a significant amount due to trade restrictions including in Europe, which banned in 2002 citing quality control. Quality control is a big factor hindering growth of Nepal's exports. Nepal produces 2.82 million tons of vegetables worth Rs 45 billion. Poultry is also a big industry with turnover of over Rs 41 billion in 2010/11, up 24% from the previous year. Another growing sector is the dairy. The NDDB is trying to encourage milk production by implementing a cattle insurance pilot project in 13 districts whereby farmers pay 25% of premium and the NDDB pays the rest. In Kathmandu, the DDC plans to double its production capacity at Balaju to 200K liters at the cost of Rs 80 million and is raising milk price by 10% to Rs 44 per liter. Nepal’s dairy industry was affected after India banned exports of powdered milk. It is interesting to note that demand for Lokta, indigenous paper is growing briskly.

FDI: In the first 8 months of 2010/11, total FDI increased 21% to Rs 3 billion. That is still a low figure. Lack of intellectual property right in Nepal is among factors hindering FDI in Nepal. Another factor is physical safety of investment. In fact, the visiting Foreign Minister of India SM Krishna demanded Nepal protect India’s investment in Nepal. He has reasons to be concerned given that India is the biggest foreign investor in Nepal. NRN are also keen to invest in Nepal. They organized another talk-shop to discuss their proposed US$100 million investment fund.

Financials: Reports of credit crunch are again resurfacing despite the NRB pumping liquidity through repo operations. This has forced the NRB to commit to become the lender of the last resort. Credit crunch has caused interest rates to soar and has prompted bankers to demand that the NRB let them raise money internationally. To assuage anxious depositors and as per the NRB's directive, 68 Class B and C FIs have insured Rs 22 billion of deposits with DCGC. Despite weak regulations and embezzled of Rs 140 million by more than 50 cooperatives in the past 8 years, 20,000+ cooperative that hold 17% of deposits (Rs 100 billion) don’t have to insure deposits.

Much hyped Mega Bank has made headlines opening 12 branches at once. Janakpur has become a new hub for banks. Given mushrooming of FIs, the NRB is trying to curtail their growth two ways. First, it is encouraging consolidation by making it difficult for banks to move from lower grade to higher grade. Earlier it tried but had to back-off from a proposal that gave it powers to enforce a merger. Banks have reasons to merge also given meager profit growth in Q2, just 1.9% to Rs 7.33 billion. Second, it has stopped issuing licenses to FIs to operate in urban areas and that has already affected a few. On the SOE side, ADBL has restored 35 branches closed during the Maoist insurgency, and now has a total of 243 branches.

Insurance sector is ripe for M&A given higher capital ratios requirement in the new Insurance Act but consolidation has yet to happen. The NRB has promulgated regulations allowing BFs with Rs 1 billion in equity to open mutual funds. To comply with that rule, Rs 22 billion CIT received Rs 12.5 million from the government to increase its paid-up capital to Rs 250 million. Separately, CIT said it plans to diversify investment into infrastructure projects. The government owns 10% of CIT, and the rest is owned by RBB (26%), NRB (13%), NEPSE (10%) and public (20%).

Illegal/informal trade with India is causing shortage of IC. Not surprisingly, fake ICs are rampant in bordering towns.

Hydro: The ADB wants to invest US$300 million in 127MW Upper Seti Hydro Project in Damauli. Chilime Hydropower Company, which constructed the first indigenous 22MW power project, plans to develop a total of 500MW by 2020. China is providing soft loan totaling US$100 million for the construction of $109 million 60MW Upper Trishuli 3 "A". The promoters of 750KW West Seti, which got license in 1997 under BOOT want to revive the project under PPP model after it was cancelled last year. Domestic IPPs also want to speed up hydro investment and want government to speed up PDA for 7 projects. With respect to licenses, in H1 of 2010/11, the NEA issued 11 survey licenses, 8 generation licenses with total capacity of 512MW and 4 construction licenses with capacity of 25MW. Talks on much-hyped 140km 400kV cross-border transmission line with carrying capacity of 1,000MW to facilitate cross-border trade in electricity continues despite the fact that it was supposed to have been completed in 2009.

Mr. Khadga Bahadur Bista has authored a book, "Hydropower Nepal", a hundred year history of hydropower development in Nepal.

Industrial: The Manufacturing Production Index (MPI) rose 1.23% in Q1 of 2010/11 and the culprit was a 52% decline in biscuit production. Be as it may, it shows the dismal state of industrial sector in Nepal. When factories in Sunsari-Morang cut production by 60-90 percent due to power cut by India (from 70MW to 3MW) it shows the vulnerability of the sector. On the flip side, Pokhara is seeing a revival in its industrial landscape. Nepalese drug makers produce Rs 6 billion output and can replace 70-80% of imports worth around Rs 8 billion. Despite such statistics, 10 foreign pharma companies got permission to enter Nepal including 2 from India. CG bought a majority take in Raybot Springs Minerals Water for undisclosed sum to export and to meet Rs 500 million domestic demand. The domestic bottled water industry is large with 85 registered companies but a third have quality control issues.

Infrastructure: The most ambitious road project in the country is the 1,776km Mid-Hill Highway estimated to cost Rs 44 billion according to a detailed feasibility study (DPS). Construction of Ghurmi-Chatara section will commence this year. Another priority project is the 76km US$800 million Kathmandu-Terai fast track. Although the government has earmarked Rs 680 million in the current budget, the PAC has directed the government to cancel the bidding process for EoI and invite new bidders. Meanwhile the NA has already started works on the project and completed 27km but has experienced delays due to lack of direction from the PAC and delay in acquisition of land. Also in the government's priority list is upgrading of 62km Beshisahar-Manang road. Then there is 1,540km Terai Road Project, and there India is helping to conduct the DPRs for 27 roads spanning 885km to be built at the cost of Rs 9 billion.

A DFS for 2nd international airport at Nijgadh in Bara district has been completed. The airport could come into operation by 2015 at the cost of US$ 650 million. The proposed Department of Railways (DoR) has sought a budget of Rs 7.30 billion to conduct detailed survey of 8 railway projects, including the much-touted East-West Electric Railway. Given the number and size of infrastructure projects, Nepal is getting help from China as well as the WB and the ADB. The latters are providing US$125 million, half loan, half grants.

NEPSE: The NRB plans to divest 35% stake in NEPSE. In violation of the NEPSE bylaws, 42 listed companies have failed to provide Q2 2010/11 financial statement by the deadline, which is within a month of the completion of the quarter. At least it is better than a month ago when only 69 of 195 listed companies complied with the regulation. The SEBON is giving out 27 new brokerage licenses after much delay but 2 candidates have withdrawn their applications and 3 have been granted Letter of Intent (LoL). In the H1 of 2010/11 9 companies raised Rs 580 million through IPOs.

Real Estate: The NRB has relaxed rules on real estate loans (less than Rs 6 million won't be considered as one) to support the sector. Supposedly, real estate price in Kathmandu has plummeted 30% in January because developers wanted to attract buyers given that banks are pressuring them to repay loans to comply with 10% loan exposure to realty and 25% to housing. Such headwinds have not stopped construction of Class A office complex like Rs 500 million Trade Tower Nepal in Thapathali or Rs 1 billion investment by CG in residential sector or planning of Rs 20 billion World Trade Center.

Remittances:/Labor Out migration of workers jumped 20% in the first 9 months of the fiscal year to a whopping 240K including 6K women despite the turmoil in the Middle East. The government plans to do a full headcount of citizen working in the Middle East. Korea plans to hire 7,100 Nepalese next fiscal year under EPS. Thus far 6,500 have already left for Korea. Outflow of workers abroad has hurt carpet industry that needs 30K workers (NepaliEconomy.com finds it hard to believe there is labor shortage in Nepal). The British government will reduce the size of the Gorkha Brigade by 8% by 2015 i.e. from 3,600 to 2,900 because of the UK government’s austerity programs. Also affected is the BBC Nepal Service. This austerity will not affect Gurkha pension because it is set to increase 10%.

The Maoist affiliated ANTUF has been dissolved because of intense fighting amongst 3 factions supporting the 3 top leaders. Before their dissolution, ANTUF along with trade unions affiliated with NC and UML signed 11-point agreement with the FNCCI and the CNI and pledged not to strike for the next 4 years. That’s hard to believe given that labor strife continues in all segments of the economy: BP Koirala Memorial Hospital, NAC, NEPSE, NRB, tea estates and tourism industry.

Services: Goma Air with just 2 Cessna is a new player in the domestic charter/cargo flight industry. 5 established domestic airlines have formed a JV to start a new international carrier by May 2011. By the way, Buddha Air has already started flying Kathmandu-Lucknow route. Not to be outdone, NAC has slashed the Kathmandu-Delhi roundtrip fare 50% to Rs 3,000. The number of flights to Pokhara increased 20% to 25,658 in 2010 while the number of passengers touched 360K. Recall, the all time high was 22,775 flights in 2000. Overall domestic air passenger has also increased, up 13% in 2010. To deal with increased traffic the TIA is planning to operate 24 (from current 18 hours) starting October. The row over transport syndicates continues with transporters arguing that they need to get returns on Rs 45 billion investment, and the FNCCI and the SC saying otherwise. Interestingly, the SMTOA has volunteered to end its syndicate system. The government has also tried to go around the syndicates by implementing fixed prices on 43 additional truck routes, now it has oversight over 429 routes nationwide. Sajha Yatayat is ending 50-years of government control by becoming a cooperative. The company has only 8 buses running, down from 182 at the peak. Lastly, Biratnagar is seeing a boom in healthcare sector, with Rs 3 billion investment in recent years.

Telecom: The PMO's is going hi-tech with intra-net service. Ncell subscribers doubled over the year to 5 million in April and the company plans to introduce 4G in 2012. NT has added 0.93 million new subscribers in H1 of 2010/11 to 6.4 million and is competing aggressively on price. Lately, Ncell has been catching up with NT in the subscriber “rat-race”. Apparently 40% of Nepalese have access to telecom services (35% mobile, 3% fixed lines and 2% others). As of last year, there were 8.9 million telecom service users using NT (5.46 million), Ncell (2.94 million), UTL (461K), Nepal Satellite (55K) and STM (5K). With respect to the internet, 8% of Nepalese subscribe to ISPs up from around 3% last year.

NT has awarded China's ZTE a US$ 4.9 million contract to build the next generation network. It also plans to increase Base Transcriber Station (BTS) by 500 within the next 3 months, and then increase it to 4,000 (from 1,800) by the end of next fiscal year.

The NTA is in a row with telecom providers for unpaid fees. UTL owes over Rs 1 billion while NT and Ncell owe Rs 206 million and Rs 957 million respectively.

Trade: Nepal-US signed the lapsed TIFA agreement on April 15. This agreement could facilitate export of Nepalese goods especially readymade garments (RMG), whose value has declined to Rs 1 billion in 2009/10 from Rs 12 billion in 2001/02. This treaty will offset a 10% countervailing duty (CVD) on RMG imposed by India to all countries including Nepal. Notably, India continues to levy CVD on Nepalese pashmina despite promising not to do so. Given such facts, the SAFTA's goal of bringing import duties to zero amongst the SAARC members by 2016 sounds like a fantasy. It is a well-known fact that India uses trades to influence Nepal, and its attitudes have hardened since the formation of UML-Maoist government. Despite misgivings, Nepal continues to make requests during trade talks, and in early March India agreed to let Nepal import LGP from third countries. Nepal is also lobbying India to allow Indian importers to pay Nepali exporters in US dollar instead of IC because Nepalese exporters get 2% rebate for earning foreign currencies but that’s unlikely to happen.

Carpet exports saw a surprising rebound, up 16.5% in the H1 of 2010/11 to Rs 2.37 billion. Business associations like the FNCCI and the NCC are opposed to new government proposal on Certificate of Origin (CoO) which makes it voluntary for monetary reasons.

Tourism: Visit Nepal Year 2011 was formally launched by President Yadav on January 14. The goal is to bring in 1 million visitors including 700K by air and 200K LGBTIs. To prepare for VNY, 25 new hotels opened in Pokhara in H2 2010 making the total 444. Pokhara had reason to be optimistic because it had 230K visitors in 2010, up 13% from 2009, and it aims to bring in 500K in 2011. Also, its neighbor Annapurna saw record 88K trekkers in 2010, 10K more than 2009. With respect to mountaineering, in the Spring of 2011, 26 expedition with 251 climbers are attempting to ascend Mount Everest, thus far 3,128 people have made it to the top.

Despite extensive promotions for VNY, tourists are not coming in droves. From January through March, 118K tourists came in. That’s up 12% but still 50% off the target number. Ironically, increase in number of tourists has not led to increase in tourism revenues. The government is trying to encourage Chinese tourists by making a commitment to waive their visa fee. Tourism entrepreneurs want to develop Bhotekoshi River as an adventure tourist destination.

Kathmandu: Kathmandu has been living without an elected Mayor since 2002 and that's caused the deterioration of city's quality of living. One measure of quality of living is water supply. On that measure, Kathmandu will have to wait until at least September 2013 for completion of Melamchi project expected to bring in 170ML of water a day to meet the 190ML gap, 320ML demand versus 130ML supply. Currently 50% of supply is met by groundwater.

Big Mart is expanding its operations in Kathmandu by taking over Bluebird's storefront in Lazimpath and wants to go national eventually. Bluebird's Thapathali location is being taken over by KFC and Pizza Hut. Star Mall with Rs 750 million investment has opened in Putalisadak. Despite the glitz, people appear to be spending less on nightlife causing a 50% drop in revenues for 200 dance bars, 20 discos, 30 lounge bars, 45 pubs, 40 live bands, 20 gazhal restaurants and around 100 dohori restaurants in the capital. The erstwhile Royal Palace occupies 753 ropanies and has 52 rooms and has earned Rs 47 million as a museum in 2 years since it opened.

Lastly, congrats to Mr. Ashutosh Tiwari for being selected as the Young Global Leader of 2011 by the WEF.

Global Perspective: The Hindu rate of self-deprecation

2011-04-22T07:13:00.003-05:00

The Hindu rate of self-deprecation
Economist, 20-Apr-11

Listen to the critics and India’s economic miracle seems, well, miraculous

FOR all its success in recent years, India’s economy has disappointed its boosters in at least one way: growth has remained slower than China’s. In terms of national income per head, China overtook India only two decades ago. The gap has widened relentlessly since. Yet last year, according to the IMF’s World Economic Outlook, India’s economy grew by 10.4%, outpacing China’s, albeit by six-hundredths of a percentage point (see article). That number may not be wholly reliable. India’s government, which measures GDP in a different way, puts growth at 8.6%. But even that is spectacular compared with the lumbering “Hindu rate of growth” of not long ago, and most economists now accept the possibility that in a few years’ time India might supplant China as the world’s fastest-growing big economy.

So foreign and local businesses alike should be oozing confidence. Yet last year foreign direct investment into India fell by almost a third. This January, the year-on-year decline was 48%. And, to judge from two recent conferences, when Indian businessmen or experts get together, they do so not to praise the country’s business environment but to bury it in withering criticism.

Their observation is borne out by surveys. In the World Bank’s “Ease of Doing Business” index, India ranks 134th out of 183 countries, scoring particularly badly on ease of starting a business (165th) and, above all, enforcing contracts (182nd, behind Angola but pipped by Timor-Leste for the bottom slot). Another index, on “Entrepreneurship and Opportunity”, produced by the Legatum Institute, a think-tank, puts India 93rd out of 110 countries.

That low rank is in large measure a consequence of the expense of starting a business. And there are plenty of other obstacles in the way of both local and foreign entrepreneurs. India is still tangled up in red tape. It takes time and trouble merely to discover what permits a business needs. Rules differ across the country. In Mumbai there are, according to the World Bank, 37 procedural hoops to jump through to gain approval to build a warehouse. It takes 200 days to secure them and costs 2,718% of national income per head. In Kolkata a mere 2,549% of income and 27 permits are needed, but they take 258 days to procure.

Then there are India’s infrastructural shortcomings. For all the improvements of recent years, the road network remains dreadful, the railways overloaded, seaports clogged, airports struggling to cope with the huge increase in flights and electricity and water supplies in many places shockingly unreliable. Faced with unflattering comparisons with China, Indians used to cheer themselves up by boasting of their superior “soft infrastructure”, of accountable institutions and the rule of law. But the backlog of cases in the legal system is estimated at more than 30m.

Business as a whole is disappointed by the timidity of the government of Manmohan Singh. A Legatum Institute survey of entrepreneurs in India and China found that only 11% of Indians thought their government was doing “a very good job”, compared with 30% in China. The grand liberalisation of the Indian economy Mr Singh ushered in 20 years ago as finance minister has been replaced by creeping, incremental reform. Nobody now expects his government to tackle one big, unreformed obstacle to business: employment-destroying labour laws.

None of this, however, entirely accounts for the strange disconnect between high growth and low index rankings. After all, that Legatum Institute survey found that 83% of Indian business owners also thought the country “a good place for entrepreneurs to succeed”. Nearly half expected India to be the world’s biggest economic power in 20 years’ time, which would be a real miracle. All the gripes about the business climate seem like muttering about the weather. Everyone complains about it but no one does anything about it. And it does not seem enough to detract from India’s underlying strengths—the long-lasting benefits of the liberalisation of the 1990s; its favourable demographic profile; its successful diaspora now returning home in large numbers to invest; and its thriving businesses in those areas such as information technology where the government has got out of the way.

Two grouses, however, do seem fundamental. Businesses of all kinds complain about the difficulty of finding and retaining qualified staff. Garment-makers cannot find enough workers with even the basic literacy they need. Hotels and shops see English-speaking staff lured away by call centres. The big IT and outsourcing firms have to invest more and more in teaching graduates what they should have learnt in college. Over the next decade the Indian workforce will increase by at least 80m. That is the “demographic dividend” underpinning much economic optimism. But agriculture is fully staffed. Poor basic education and restrictive labour laws will make it hard for many to find jobs in manufacturing, and there is a limit to how many can work in services. The dividend may prove hard to cash.

Angry at last

The second grumble is corruption. Endemic for decades, it has at last become the subject of genuine rage throughout society and business (even though business, is, of course, complicit). “It’s like living in a pile of vomit,” snarls one Mumbai entrepreneur. This, however, is a little odd. Information technology may actually be reducing some forms of corruption. There are fewer meetings across tables under which envelopes can be passed. Moreover, bribes in India used to be of dubious value, since the recipient would often prove unable or unwilling to fulfil his side of the bargain. Now, the evidence of the growth figures is that corruption has become less inefficient. The mobile-telephone network, for example, despite huge scandals, has expanded tremendously. It is tempting to ask whether India has tired of corruption just as it was beginning to show some results.

Energy Minister Attacked

2011-04-18T13:29:00.002-05:00

Mystery shrouds attack on minister
TKP, 12-Apr-11

Mystery surrounds the attempt on the life of newly named Energy Minister Gokarna Bista, who was attacked with a khukuri outside his Samakhusi-based residence late Monday evening. Bista warded off the blow but the assailant inflicted a deep gash on his left hand as well as his head.

Police said no threats against the young political leader had been reported and they were still investigating the motive while trying to identify the assailants. Bista was attacked just hours after being declared the energy minister by his party, CPN-UML. Police are looking into a range of possibilities including intra-party feuds and personal rivalries. At this stage, they have yet ruled out the involvement of armed looters.

Speculations about the involvement of UML men unhappy with his elevation as a minister are rife. Police also suspect that criminals groups carried out the attack to spread terror among the people.

No real culprit was apprehended in connection with the attack as of Tuesday evening, though Superintendent of Police Pushkar Karki claimed to have rounded up 187 suspects and riders of 10 Pulsar motorcycles from various parts of the Capital.

According to Gagan Bista, the younger brother of the injured leader, the assailants equipped with a khukuri waylaid Bista outside his residence and attacked him as he was walking home while talking on a mobile phone. It was the pillion rider who lunged at Bista with the khukuri and fled the scene. Bista’s family rushed him to the Samakhusi-based Manamohan Memorial Hospital.

The incident once again highlights the laxity in security arrangements. The audacious attempt has also come a day after two more motorcycle-borne assailants shot dead Indian trader Anjani Kumar Chachan at his apparel shop in Ganabahal in the capital. No one has been held in connection as yet with Chachan’s murder.

Meanwhile, prominent people including PM Khanal, ministers of the coalition government, Chief of Nepal Police Ramesh Chand Thakuri and Chief of Armed Police Force Sanat Kumar Basnet, among others called on Bista at the hospital.

Doctors attending him said that he is in stable condition. He is housed in the Intensive Care Unit (ICU) because of his high blood pressure.

Meanwhile, it has emerged that the Prime Minister’s office (PMO) had not communicated with security agencies about the appointment of Bista as minister. No security detail was provided to Bista even after three hours of his appointment as minister.

UML leader Yogesh Bhattarai asked why the PMO failed to instruct the police on security arrangements for the new minister. “This is a weakness on part of the government and PM Khanal, who is also Minister for Home Affairs. Why was there no security for Bista even after three hours of declaring him a minister,” asked Bhattarai, who is a Central Member of CPN-UML.

Global Prospective: Onion Prices Propelling India's Swap Gap to Two-Year High

2011-01-03T20:16:00.005-05:00

Onion Prices Propelling India's Swap Gap to Two-Year High
Bloomberg, 3-Jan-11
By Anurag Joshi

Food inflation in India will certainly spill into Nepal as Nepal imports large quantity of food and food products from India. India's ban on onion exports to Nepal (Nepal depends on India to meet 95% of demand) has caused wholesale price to jump 50% in a week. Moreover, tightening monetary policy in India will likely cause Nepal's interest rates to remain at elevated levels. It will be interesting to see how it all plays out.

India’s one-year interest-rate swap climbed to the highest relative to the benchmark lending rate since July 2008, as rising prices of onions and lentils increased concern policy makers may lose control over inflation.

The spread between the swap rate, the fixed cost to receive floating payments, and the Reserve Bank of India’s repurchase rate widened to 90 basis points from 57 on Nov. 30. The spread was at 73 basis points, or 0.73 percentage point, on Nov. 1, the day before the central bank last raised borrowing costs.

“The central bank will have another round of rate hikes in January to send a signal to the market that inflation is not yet under control and that the RBI means business,” Madan Sabnavis, chief economist at Care Ratings in Mumbai, said on Dec. 30. “They are clearly behind the curve.”

The price of onions, a key ingredient in the country’s curries and snack foods, soared 40 percent in the week ended Dec. 18 from a year ago and the finance ministry said the jump drove food inflation to a 10-week high. India’s one-year swaps climbed 208 basis points in 2010 to 7.14 percent, compared with a 113 basis point increase in China, a 161 basis point advance in Brazil and a drop of 205 in Russia.

India’s central bank lifted the repurchase rate by 150 basis points last year, the most of any monetary authority in Asia. The repurchase rate, at which lenders borrow from the central bank, may be raised 25 basis points to 6.5 percent at the next review Jan. 25, the highest level since December 2008, according to 11 of 16 economists in a Bloomberg survey on Dec. 15. The rest expect no change.

Milk, Fruit

An index measuring wholesale prices of agriculture products including lentils, rice and vegetables jumped 14.44 percent in the week ended Dec. 18, a two-month high, government figures showed on Dec. 30. Food makes up about 14 percent of the wholesale price index that India uses as its inflation barometer.

India placed an indefinite ban on exports of onions last month. The country eliminated import duties for the vegetable and ordered state-owned trading companies to ship supplies from overseas, Trade Secretary Rahul Khullar told reporters in New Delhi Dec. 22.

“The fluctuation in milk, fruit, vegetables and certain commodities have contributed to inflation,” Finance Minister Pranab Mukherjee said in New Delhi Dec. 30, when he raised his target for wholesale-price inflation to about 6.5 percent by March 31, from 6 percent. India’s central bank said in a Dec. 30 report that inflation is at “elevated levels.”

“Comments from RBI are clearly pointing to an upside risk to both growth and inflation,” said Sonal Varma, a Mumbai-based economist at Nomura Holdings Inc. “Rate increases will help.”

‘Deeply Conscious’

India’s central bank needs to keep a balance between curbing price increases and making sure the economy has enough money to grow. The Reserve Bank pumped almost 414 billion rupees ($9.3 billion) into the financial system in December by buying sovereign bonds to help ease the worst cash crunch in 10 years.

Reserve Bank of India Governor Duvvuri Subbarao said Dec. 9 he’s “deeply conscious” of the cash shortfall, which was aggravated as companies raised a record 1.16 trillion rupees last year by selling shares.

The Reserve Bank of India bought back 115.02 billion rupees of government notes Dec. 29. Banks borrowed an average 918 billion rupees last quarter using the repurchase auction window, compared with 239 billion rupees in the previous three months, according to data compiled by Bloomberg.

Debt Repurchase

The nation’s 10-year bonds rose last week after the central bank repurchased debt to ease the cash crunch in the banking system. The yield on the 7.8 percent bond due in May 2020 fell four basis points to 7.91 percent, according to the central bank’s trading system. It climbed four basis points to 7.95 percent today. The 10-year bond yield rose 32 basis points in 2010 as the central bank boosted interest rates six times to damp inflation. Indian sovereign bonds returned investors 5.2 percent in 2010, compared with 21 percent in Indonesia, HSBC Holdings Plc indexes show.

The cost of protecting debt of State Bank of India from default for five years rose 42 basis points to 160 in 2010, and is down from a high of 239 basis points in May after the credit outlook improved in the second half. Some investors use State Bank as a proxy for sovereign credit-default swaps.

India’s rupee rose 4.1 percent in 2010 after gaining 4.9 percent in 2009, and slumping 19 percent in 2008. The currency, which appreciated 0.6 percent Dec. 31, was little changed at 44.70 per dollar today.

Money Flows

Global money managers poured a record $29.3 billion into Indian equities last year, according to data from the Securities & Exchange Board of India. They invested $22 billion in Japan and $20 billion in South Korea. Fund inflows are poised to increase as economic growth and slowing inflation boost returns from local assets, according to Mumbai-based Yes Bank Ltd.

The central bank’s Deputy Governor Subir Gokarn said Dec. 22 that inflation risks remain and food costs aren’t dropping enough. Finance Minister Mukherjee told reporters Dec. 30 that the government is taking measures to curb prices.

“We haven’t seen food prices coming down this winter, unlike earlier years,” said Pradeep Madhav, managing director at Mumbai-based Securities Trading Corp. of India. “Rains have taken a toll on not only onions, but all other food articles.”

Inflation risks have “come to the fore,” the central bank said in a report on its website Dec. 30. The bank blamed higher food prices on rising wages and changing consumption patterns.

“The one-year swap may rise to 7.2 percent ahead of the next RBI review,” said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank Ltd. “We may see a moderation in prices of food products by mid January.”

News Roundup: Finally a Budget and then a Casino War

2011-01-02T20:19:00.009-05:00

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

After much delay, MoF announced Rs. 338 billion budget on November 19, 2010. 38% (127B) goes to capital expenditure, 57% (192B) to recurring expenditure and 6% (19B) to interest payments. On the revenue side, 64% (215B) is from tax collection, 26% (88B) is from foreign aid and 10% (35B) is from domestic borrowing. The NPC is on a hot-seat over allocation of district budgets - 46% of development budget is given to districts and 54% is allocated at the national level. Excise duties on luxury products and all vehicles except buses and trucks have gone up, and as a result purchases of motorcycles have plunged. On hydro, Budhi Gandaki (600 MW), Naushyalgad (400 MW), Tamor (300 MW), Upper Seti (127 MW) and Aandhikhola (175 MW would be brought into operation under appropriate partnership this year.

The ongoing tussle between casino owners and the government has escalated to the PAC and the cabinet. The government is threatening to revoke casinos' operating licenses. Recall that the DRI claims that Casino Nepal owes Rs. 100 million and Casino Anna Rs. 63 million. Looks like the rise and the fall of casino honcho Rakesh Wadha follows the ebbs and flows of Nepali politics.

Fiscal Policy: The MoF wants to raise Rs. 6.30 billion from the realty sector this year but YTD (5 months) revenue collection in Kathmandu LRO office is down more 50% owing to (1) more stringent NRB policy for real estate and (2) income source disclosure requirements. The MoF has collected Rs. 65 billion in the first 5 months of this fiscal year, up 11% year/year. They want to collect Rs. 25 billion in Poush alone, and have created flying squad to help. The squad recently raided facilities of Varun Beverages, the bottler of Pepsi. To aid compliance on import duties, importers will now have to declare their goods in detail. A lack of disclosure is hurting DRI's efforts to collect capital gains taxes (CGT) on stock transactions. The Khetan Group paid Rs. 265 million CGT from its sale Gorkha Brewery to Carlsberg for US$ 40 million. Traders say 13% VAT on IT products is encouraging illegal imports from India. New Baneshwor Department Store is fined Rs. 93 million for evading VAT for the last 7 years.

Monetary Policy: The NRB is purchasing 1 ton of gold from the IMF for Rs. 3.2 billion to bolster its gold reserves. It is also allowing the resumption of gold imports after 4 months hiatus but with limits - 15kg/day for gold and 200kg/day for silver. The central bank appointed Mr. Gopal P Kafle and Maha P Adhikari, both insiders, as deputy Governors.

Local Government: NVC has found misuse of development budget in Rauthat district.

Agribusiness: Chicken in Pokhara costs Rs. 230/kg, 15% higher than other places owing to a ban on chicken imports. According to the MoAC, Nepal produced 3 million tons of vegetables in 2009/10 and per capital consumption has gone up to 105kg from 60kg in 1991/92. The ministry also reports a 11% rise in paddy production in 2010/11. In 2009/10, the NFC supplied 45K tons of food to 30 remote districts although building of a road to Jumla has made the NFC depot unnecessary. The NFC is accused of not obeying the NVC directive on staff recrutiment. There is a tug-of-war over sugarcane prices between farmers and mill-owners. India supplies 95% of onion consumption in Nepal, and onion prices have jumped in Kathmandu because India stopped exporting them. On the flip side, India has banned export of Nepalese ginger. The government has provided funding for import of 200K-300K tons of fertilizers and has set aside Rs. 3 billion for fertilizer subsidy. The FAO continues to distribute paddy seeds despite them being inert. In a food deficit country Nepal, 1 in 5 urban dwellers suffer from diabetic.

Energy: The NOC has raised prices of petrol, diesel and Kerosene for 5th time this year by Rs. 3/liter to Rs. 88, Rs. 68.50 and Rs. 68.50 respectively. LPG is up Rs. 75 to Rs. 1,325/cylinder. This follows doubling of roads maintenance fee on petrol and diesel import by the government. Following the NOC price hike on the ATF, fuel surcharges on domestic flights have gone up and transport owners are demanding 15%-17% hike in fares but the government has so far refused to grant the permission - fare for diesel-run vehicles was raised by 10% on March 26. To ease pressures on consumers, the government is planning to give consumers subsidy of Rs. 300/cylinder of LPG and Rs. 10/liter of petrol per month at the cost of Rs 3.5 billion per year. It is reported that every 6 in 10 household in the capital are installing solar energy system, and in Mustang district, 50% of households are using solar power. The ETC is recommending a hike on electricity rates to offset Rs. 4 billion annual loss at the NEA. The NEA has a cumulative loss of Rs. 12 billion.

FDI: A Rs. 50 million healthcare diagnostic JV between India's Super Religare Laboratories (SRL) and Nepal's NE Group has started its operation.

Financials: The NRB is drawing attention to high interest rates charged by banks on loans (18% pa) as customers are complaining about random interest rate hikes. The NRB supports banks' paying high rate (+10%) on deposits saying it as necessary to compete against Indian banks. It also makes sense given that inter-bank rate is a whopping 9.25% but the NRB wants banks to fair to all depositors by setting a guideline to cap the difference in interest rates amongst various savings accounts to 2% and being transparent on service charges. The NRB is under political pressure to ease margin lending rates. The NRB is trying to encourage banks to open branches in 22 under-served districts by providing interest-free loan of Rs. 5- Rs. 10 million to open a branch. The regulator is also planning to revamp rules on governing expansion of development banks (1, 3, 10 and 75 districts) but Rs. 640 million paid-up for national development bank is likely to remain intact. The required equity capital are as follows, commercial banks (2B), national finance company (200M), development banks (regional:300M, 4-10:200M, 1-3:100M, Merchant banks: 300M). The NRB is again planning to issue Rs. 5 billion of foreign employment bond despite a dismal failure last year. With the entry of Laxmi Capital and Akash Investment Bankers Ltd, there are now 14 merchant bankers in the country including 7 that are subsidiaries of BFIs - this is required by a SEBON directive. The NRB found outright fraud in Samjhana Finance following its audits. Locals in Rasuwa districts are selling hard assets aka livestock to buy financials assets, namely stocks of Chilime but NepaliEconomy.com thinks it is a bad idea. Machhapuchhre Bank accuses Avco International for defaulting on LC for Hyundai vehicles. Nepal Clearning House Ltd has been established to clear checks starting October 2011. The earlier announcement on CDS shareholders looks premature and the implementation of the stock transaction clearing system will likely miss its January deadline owing to disagreement among stakeholders. The 25-company insurance industry (8 life, 16 non-life) could consolidate if a proposed Insurance Act is passed. It raises paid-up capital to Rs. 1 billion for non-life and Rs. 2 billion for life from Rs. 100 million and Rs. 250 million respectively. The SEBON has unveiled Portfolio Management Directives 2010, which allows discretionary portfolio management service on listed securities. The NRB is capping bankers' salary and benefits but some find the NRB's intentions puzzling.

Hydro: Nepal is conducting a Detailed Engineering Study of 127MW Upper Seti Hydro project with a US$2.5 million assistance from the ADB. The study is expected to be completed in 2012 and full project completed by 2016/17. The last major hydro project completed in Nepal was the 70MW Mid-Marshyangdi in 2008. Lack of funding to expand the 1,980km transmission lines was affecting PPAs with IPPs. After the MoF pledged to increase funding from Rs. 400 million to Rs. 1.6 billion, the government has re-started PDA talks with investors on 7 projects producing 3,200MW. On December 29, it signed a PDA agreement for 50MW Upper Marshyandi at 6.95 cents per unit when it goes into operation in 2016/17. CIT and RBS are lending Rs. 2 billion each for 456MW Upper Tamakoshi slated to completed in 2015 at the cost of Rs. 35 billion. Rs. 2.7 billion 15.5WM Sanima Mai Hydro project has received funding from domestic investors.

Infrastructure: The government is requesting bids for the construction of Rs. 70 billion, 75km Fast Track Kathmandu-Nijgadh road to completed in 5-years under a BOOT model. The earlier bids were nullified on order of the PAC. Some work on the project has started but Maoists are obstructing the construction. The MoPPW wants to build 2.4km Kathmandu-Naubise and 8km Kathmandu-Nuwakot tunnels at the cost of Rs. 600-700 million pending funding. India is fully financing construction of Rs. 11 billion, 1,450km road in Terai. The first of the 3 phase project starts in December. The 3,000 mobile towers in the country are not earthquake proof according to a report. Some progress has been made on Rs. 17 billion Melachi project that will bring 170M liters/day of water by September 2013. In Kathmandu, there are around 500 tube wells but only 21 are registered that pay Rs. 1oK or Rs. 20K annually based on the depth, and provide 30% of water demand. Experts estimate groundwater extraction is 6x the recharge rate. The planning for a ambitious railway project has hit a snag owing to personnel changes at the MoPPW.

Manufacturing: Orders for garment from India is up likely because it is cheaper to produce in Nepal as Nepalese businesses pay less import duties than their Indian counterparts, who pay 22%. On the flip side, $40 million garment exports to Europe could get hurt after the EU scaps special provision for Nepal starting January 2011. Notwithstanding their condition, garment industry suffers from manpower shortage. Registration of new cottage & small industries was down 26% in the last fiscal year. 13 factories are under construction in Hetauda Industrial Estate and 12 more have signed lease agreement - out of 97 factories, 56 are in operation. Durbar Nepal, whose MD is Mr. Rukma Shumsher Rana, Nepal's ambasador to India is accused of mis-labeling dates on its products. The MoFA denies the duel roles of Mr. Rana and promises to investigate.

Real Estate: Signs of rejuvunation of housing are there - in the past 5 years, 83 apartments and 33 housing projects were constructed in the capital - and could be due to slashing of prices as much as 30%.

Remittances & Labor: Government set minimum wage for workers at Rs. 190 per day (Rs. 4,600 a month) in September 2009 but unions say that's not enough and want Rs. 400 a day. The elephant manhouts in Chitwan National park have stopped working demading higher than minimum wage. Given such menial wage, people are leaving the country in droves. In the first 5 months of this fiscal year, 127K left for various destinations. According to a report 80% Nepalese working in Kuwait are illegal. Japan requested 408 trainees under a JITCo program but only 10 were sent. There are 200K child workers in Kathmandu.

SOE: The NAC Chairman and 5 senior officers are accused of corruption by the CIAA. The NOC is giving 1K liters of free fuel a month to influential people including MoCS Rajendra Mahato. The National Trading Ltd plans to sell 51 ropanies of land for Rs. 750 million to repay loans and diversify into other businessess.

Telecom: NT has to re-do the bidding process for its Next Generation Network project after the CIAA rejected the earlier winners for a US$19 million project. The government is contemplating selling some stakes in NT. Nepal has 10 million telecom subscribers. Spice Nepal has changed its corporate name to Ncell Private Ltd.

Trade/BoP: BoP deficit reached 6.88 billion in Q1 of this fiscal year but has improved in the first 4 month. To enourage exports, Nepal has budgeted Rs. 240 million cash incentives for exporters of value-added goods but those earning IRs are not eligible. 5 years on, SAFTA has been a failure. Insecurity is hindering Nepal-Khasa trade and as a result costs for per container has gone up from Rs. 50K to Rs. 90K making Calcutta-Kathmandu route cheaper. Nepal imports 5,000 tons of cotton yarn annually but a recent decision by India to ban exports to Nepal has hurt Nepal's textile industries.

Travel & Tourism: Under pressures from the NAC unions, the MoTCA revoked Air Arabia's license to operate the lucractive Kathmandu-Kuala Lumur flights. Increased tourism and higher per capita spending is leading to higher investment in resorts. The MoTCA has issued 36 permits for homestay. The 8 domestic carriers saw a 13% increase in passengers in first 10 months of 2010. Travel agents are fuming over airlines' plans to cut commissions on tickets, from 65%/15%-20% (US$/local currency) to 12%/9%. From Jan-Nov, 102,243 international tourists visited Pokhara, up 13% versus last year and that's creating shortage of manpower. Sticking with Pokhara, Buddha Air is starting Pokhara-Lucknow flight on January 7. TIA saw 21% increase in international passengers to 1.71 million from Jan-Sep and 23% increase in flights to around 14,000. Nepal wants India's aid in renovating immigration system at the TIA but help has not been forthcoming.

Tidbits: 40% of Nepalese school students lack textbooks when they start their school year. The CIAA's directive to TIA personnels to wear pockletless trousers has been called "impactical". Nepal's own indigeneously designed bicycle is in the market. Condom is a big business in Nepal, grossing Rs. 1 billion annually. The 25-year old Blue Bird Department store has closed its operations. The Maoist's spent Rs. 30 million on the Pulungtar plenum. There were 125 bands in Nepal in 2010 and the count was led by the Maoists (20).

Bank CEO Salaries

2010-12-28T10:06:00.002-05:00

Bank CEO Salaries
29-Nov-10, TKP

Following Nepal Rastra Bank’s much publicised move to cap the salaries and benefits of chief executive officers of banks and financial institutions, interest in how much they actually earn has grown.

According to details obtained by the Post, the top dogs pocket Rs 585,000 to Rs 25.24 million a year. Among the 27 commercial banks in operation as of the last fiscal year, Standard Chartered Bank Nepal’s CEO Sujit Mundul earns the most while the management chief of Nepal Bank Limited who was appointed by the central bank has the smallest salary.

It means that 27 CEOs have salaries ranging of Rs 45,000 to Rs 19,42,000 a month. Their monthly average salary stands at Rs 600,000 a month. These banks spent a total of Rs 210.55 million on their CEO’s salary in fiscal 2009-10. This amount does not include performance based pay and other perquisites such as expenses for vehicles and newspapers.

Among fully Nepali-owned banks, Radhes Pant, CEO of Kumari Bank, has the highest fixed salary. He gets Rs 1.04 million per month.

Although Standard Chartered Bank has the highest salary for CEOs, it is exempt from the central bank’s recently introduced guidelines as the chief is serving here under a technical service agreement (TSA) made with its parent bank.

As per the guidelines, the fixed annual compensation should be up to 5 percent of the total average expense for all employees over the last three years or 0.025 percent of the total assets the BFIs have maintained in the previous year, whichever is lower.

Bankers who have been opposing the central bank’s attempt to cap their salaries since the issue was floated are still crying foul. Kumari CEO Pant said such a rule could lead banks to hire more people and ramp up deposit collection and lending in order to increase staff expenses and assets so that CEOs could draw higher salaries.

“This will also discourage talent from entering the banking industry as top managers,” he said. When asked if his pay was higher than permitted by the guidelines, Pant said he would have to think about it.

Except for Standard Chartered Bank, other joint venture banks, Everest and Nepal SBI, pay their CEOs less than what most CEOs of private sector banks are getting.

Everest’s CEO P.K. Mohapatra gets Rs 106,000 a month. Likewise, the monthly salary of the CEO of Nepal SBI is Rs 117,000.

“Even if all other facilities such as accommodations are included, my salary does not come close to what some CEOs of Nepali private sector banks are getting,” said Mohapatra.

According to him, he does not get extra compensation from the parent bank Punjab National Bank in India except what has been written in the TSA. He, however, maintained that CEO salaries should be market driven and that the bank’s board should have the absolute right to fix them.

Government-owned banks and banks in which the government holds a stake pay less than private sector banks. They have been excluded from the central bank’s guidelines on salaries.

BBC Discussion on Revenue Collection & Tax Avoidance

2010-12-26T11:18:00.003-05:00

BBC Nepali Service's Mr. Sanjay Dhakal moderates a discussion on revenue collection and tax avoidance in Nepal with Mr. Krishna Hari Baskota (Ministry of Finance), Mr. Pradip Man Vaidya (FNCCI) and Mr. Komal Prokash Ghimire (Tax Specialist) on December 11, 2010.

Central Bank Introduces New CPI Basket

2010-12-12T09:46:00.002-05:00

Central Bank Introduces New CPI Basket
The Himalayan, 20-Oct-2010

The central bank has introduced a new Consumer Price Index (CPI), increasing the earlier basket of goods and services and market pointers to update the measurement system and make more realistic according to the international standards.

The new basket has been developed on the basis of Classification of Individual Consumption According to Purpose (COICOP). The United Nations has included this system in 1993 under System of National Accounts (SNA).

“The new series of Consumer Price Index (CPI) has been started from this fiscal year’s first month,” said the central bank here today.

The central bank has upgraded the CPI series to the new one according to its findings of Family Survey five years ago.

“Nepal Rastra Bank (NRB) has also shifted the base year from 1995-96 to 2005-06,” it said, adding that under the new series, the weight assigned to the food and beverage and services groups have also been changed.

According to the new CPI series, the weight assigned to the food and beverage group is 46.82 per cent in the new series compared to 53.20 per cent in the 1995-96 survey.

Likewise, the weight assigned to the non-food and services group has been changed to 53.18 per cent from 46.80 per cent.

Similarly, the central bank has increased the urban and rural market centres — from where they collect datas — by 12 to 33 from the old 21 urban market centres in the old series. “The old basket of 301 goods and services has also been increased in the new series to 410 goods and services,” it added.

Under the 401 goods and services, 223 are domestic, 133 imported and 54 goods and services are both domestic and imported.

“The change in the CPI will help make the price hike measurement more simple, authentic and scientic,” according to the central bank.

Had the central bank used the old series, inflation rate in the first month of the current fiscal year would have been at 10.4 per cent. “But inflation stands at 9.5 per cent due to new measurement system,” the central bank said, adding that despite a 12.5 per cent rise in the index of the food and beverage group, inflation moderated to a single digit at 9.5 per cent due to low increment in the index of the non-food and services group.

Meanwhile, the International Monetary Fund (IMF) has forecast that the Consumer Price inflation will come down to 6.8 per cent in 2011. “For the year 2010, CPI will stand at 10.5 per cent,” the IMF has predicted.

Profile: Tsedo Sherpa

2010-12-05T17:54:00.005-05:00

Woman on top
Ms. Tsedo Sherpa
Wave Magazine, November 2010, Issue #179

“We are a family business, which means we are small. We don’t have hundreds of mouths to feed. We can offer same quality goods but with a more favourable price tag. “

Tsedo Sherpa says she always knew what she would be doing when she grew up. Visiting her father's office as a young girl, she once went ballistic when she found her older brother sitting in their father's chair. "Get off!" she recalls saying, "This is my chair!"

Despite early ambitions, with her charming personality and down-to-earth attitude, Tsedo, short for Tsering Dolma, doesn't immediately seem a natural fit for the cut-throat world of business. However, appearances can be deceiving. Tsedo is in fact firm, tough and determined, and at only 25, she helps run a multi-million dollar business empire as the Vice President of International Sales and Marketing for Sherpa Adventure Gear, the outdoor clothing company that is rapidly expanding its market from Johannesburg to Shanghai, Kathmandu to Seattle.

Tsedo's father Tashi started the company after moving to the United States from Nepal in 1989. He found himself a niche in the adventure gear market and decided to take on the big boys, providing high quality goods for the international market.

To begin, he worked out of a garage, outsourcing his manufacturing to Nepal, Bangladesh and Pakistan, before deciding to scale up. Noted American adventure clothing designers helped him, and he launched the Sherpa brand and its distinctive 'endless knot' logo.

Then he decided to set up shop in Nepal, moving the entire production function here while design and other marketing aspects continued to be dealt with from the United States. His daughter Tsedo joined him in 2005 after obtaining a degree from Washington University.

Getting into the family business might have been an easy decision, but managing the marketing of a multi-million dollar company whose products are sold all over the world is by no means an easy feat. It is especially challenging given that the down jackets, sleeping bags and thermal vests produced in Sherpa factories are in direct competition with big brands like North Face and Columbia.

"We are a family business, which means we are small," Tsedo says. "This is the advantage we have against big companies like North Face. We don't have hundreds of mouths to feed. Because of this, we can offer products of the same quality to consumers, but with a more favourable price tag."

Tsedo was also part of the small team responsible for the launch of the Sherpa Adventure Gear flagship store in Kathmandu, a strategic move to emphasise the 'Nepali-ness' of the brand.

"Well, we had people coming into our factory in Lazimpat asking if they could buy something because they had seen someone wear a t-shirt with the Sherpa logo," Tsedo says. "In the end, we are a Nepali brand, we have this strong connection with Nepal, and it just makes sense to have a flagship store here."

Every season, Tsedo spends half her time here overseeing the design and production of the new collection. But as Tsedo points out, doing business in Nepal isn't always smooth sailing. , "Sometimes I have to explain to my sales team that production has been halted for two weeks because nothing is running in the country," she says. "We allocate an extra month as leeway in each production cycle, just in case there is a strike or something goes wrong."

Despite the hiccups, Tsedo says they took a calculated risk and that the returns have been worth it. Last month, Sherpa Adventure Gear celebrated the first anniversary of its flagship store, and there is rising demand for their merchandise, especially in Europe. "That 'Made in Nepal' tag is our identity," Tsedo says. "Being here in Nepal means everything to us."

BBC Discussion on Nepal's Budget

2010-11-28T10:25:00.007-05:00

BBC Nepali Service's Mr. Sanjay Dhakal moderates a discussion with Mr. Keshav Dhakal, senior economic advisor to the Ministry of Finance, and economist Dr. Chiranjibi Nepal on Nepal's new budget and its implications on economic development on November 27, 2010.

This discussion highlights the arbitrariness of of budget making in Nepal.

Global Perspective: India Revives 45-Year-Old Strategy China Adopted to Lift Exports

2010-11-28T10:15:00.005-05:00

India Revives 45-Year-Old Strategy China Adopted to Lift Exports
Bloomberg, 17-Nov-10
By Tushar Dhara

It takes more than an hour to drive the 25 miles of clogged highway linking New Delhi to Noida Special Economic Zone. Inside the gate, a smooth four-lane road leads to electronics, engineering and textile plants that are at the heart of India’s plan to imitate China’s export success.

“It’s the kind of place where one can think of doing business,” said Vishnu Pal Singh, 51, whose Noida-based Optic Electronic India Pvt. sells night-vision devices for rifles and tanks to Germany and Poland. “The zone offers top class infrastructure and tax benefits.”

India is counting on entrepreneurs such as Singh to revive a system it pioneered 45 years ago: using enclaves that provide lower taxes, faster permits and even their own power source to boost exports. While India switched focus in the 1970s to industry tax breaks, China adopted the zone idea a decade later.

The system turned the former fishing village of Shenzhen into an export hub of 8.5 million people in 30 years and made China, with overseas sales of $1.2 trillion last year, the world’s largest exporter.

Now India, which shipped $165 billion worth of goods and services in the same period, is reviving zones as Prime Minister Manmohan Singh tries to raise manufacturing to 22 percent of the economy from 17 percent and double exports to 4 percent of global trade by 2020.

‘Islands of Excellence’

Investment in the special economic zones may double to about 3 trillion rupees ($66.2 billion) by 2012, India’s Commerce Ministry said. Exports from the SEZs more than doubled in the 2009-2010 fiscal year over the previous year, to 2.2 trillion rupees, a quarter of India’s total.

“Improving infrastructure in the entire country will take a long time, so if you want to promote industry, you need to create more islands of excellence, which these SEZs are,” said Dharmakirti Joshi, chief economist at Crisil Ltd., the Mumbai- based Indian unit of Standard and Poor’s. “India needs manufacturing to grow rapidly now to absorb the growing workforce.”

India set up its first zone in 1965 in Kandla in the western state of Gujarat and had established another by 1975, said Lalit Behari Singhal, former director general of the Export Promotion Council of Export Oriented Units and Special Economic Zones in Delhi. In the next 25 years, six more were set up.

Poor land selection, insufficient fiscal incentives and inadequate transport ensured that the zones didn’t prosper, said Rajesh Sonthalia, a founding member of the export promotion council.

Zones and Jobs

Only since 2005, when the government enacted laws favoring the zones, have they taken off. About 100 zones have opened since 2006, attracting 1.6 trillion rupees in investment, 60 times the level four years earlier. That helped create more than half a million jobs, the Commerce Ministry said. About 478 more SEZs have been approved.

“China spent a lot of money creating infrastructure, which India did not do,” said Priyankar Bhikshu, head of India research at DTZ Holdings Plc in Gurgaon, near Delhi, and author of a report called “Special Economic Zones in India: Expanding Contours.” “As the true spirit of SEZs now emerges, export competitiveness will unfold in the next couple of years.”

“SEZs have the potential to propel India as a major exporting nation,” said Aradhana Aggarwal, who teaches economics at the University of Delhi and is writing a book called “SEZs in India: Past Experience, Present Status and Future Prospects.”

One Office

The government-sponsored and private enclaves reduce red tape by offering a single office for environmental, tax and other government clearances. They also offer a way around power and water shortages in a nation that produces 10 percent less electricity than it needs. Companies operating in the zones get tax breaks for 15 years and don’t have to pay local excise or customs duties.

“Units can profit from tax and infrastructure benefits,” said Kishor Ostwal, managing director of Mumbai-based CNI Research (India) Ltd. He recommends investors hold stocks of Adani Power Ltd., which co-developed Mundra Port & Special Economic Zone Ltd., one of India’s largest by area at 16,000 acres, and Torrent Pharmaceuticals Ltd., which is building a plant in Dahej SEZ, both in Gujarat state.

Adani Power shares have risen 38 percent this year, while Torrent is up 40 percent. The benchmark Mumbai Stock Exchange Sensitive Index of 30 companies is up almost 14 percent.

Power Plant

Spread over 310 acres, the Noida zone’s rows of white, two- story buildings bustle with workers loading and unloading trucks with steel pipes, cement, electrical equipment and other materials. The zone has its own power plant, bus network, mail center, banks and automatic teller machines. Proposed additions include a second generator and a six-lane highway to Delhi.

“The biggest benefit is that this is designated as foreign territory,” said Optic Electronic’s Singh, who invested 100 million rupees to start his factory in unit 4C and is planning to expand. “I can do business better in here since it is exempt from local laws.”

Companies, including Gitanjali Gems Ltd., India’s biggest jewelry retailer, have benefitted.

“Our exports have risen after we moved some of our production to a special economic zone,” said Chairman Mehul Choksi. Overseas sales have grown between 40 percent and 50 percent, he said, without citing a time period. Gitanjali Gems shares have almost tripled in the past 6 months.

Export Battle

India’s push to build up exports may exacerbate a battle between nations from Brazil to South Korea that are trying to raise their own exports to lift economies after the global slump. Brazilian Finance Minister Guido Mantega said in September that a “currency war” had begun as nations tried to cheapen exchange rates to boost exports.

Brazil, South Korea, Turkey, South Africa and Russia are among nations that have their own economic zones, according to the World Bank.

“As these zones take off and Indian exports become more competitive, countries which rely on exports to drive economic growth will have a tough time,” said Anubhuti Sahay, an economist at Standard Chartered Plc in Mumbai.

India’s biggest zone by exports, the Santa Cruz Electronics Export Processing Zone, covers 100 acres and produced shipments worth $4 billion in the fiscal year to March 31, 2009. China’s largest SEZ by area is the southern island of Hainan, spread over 13,100 square miles.

Chinese Scale

“The difference between Indian and Chinese SEZs is one of scale,” said Rajesh Mohan Joshi, who teaches economics at the New Delhi-based Indian Institute of Foreign Trade.

China now has seven economic zones and another 100 smaller state and high-tech industrial parks. Shenzhen boasts some of China’s largest companies, including Huawei Technologies Co., the nation’s biggest maker of telephone-network equipment.

India’s zones are hindered by difficulty in buying land, said N. R. Bhanumurthy, an economist at the Institute of Public Finance and Policy in New Delhi.

“Unless the government resolves the issue of acquiring land, India will struggle to match the manufacturing prowess of China,” he said.

Singh’s government is backing a land acquisition bill that may be debated in parliament in the session scheduled to end Dec. 13. By guaranteeing market prices for seized land and helping resettle displaced residents, the government is trying to reduce disputes that have blocked companies from expanding.

Fatal Clashes

India suspended its SEZ program in December 2006 after farmers protested what they said were cheap prices paid for their land. Clashes in March 2007 left 14 dead in West Bengal state. The government restarted the system in April 2007 after prescribing a ceiling on size -- 12,355 acres -- and forbidding state administrations to take land by force.

More export zones are springing up in India.

Indiabulls Industrial Infrastructure Ltd., a unit of India’s sixth-biggest developer by market value, plans to complete a 2,500-acre zone in Nasik, western India, by March 2011. Sri City Special Economic Zone, 34 miles outside the southern Indian city of Chennai, held road shows in Malaysia, Australia, Japan and Taiwan to attract investors. Ravindra Sannareddy, managing director of Sri City, said he expects to attract 80 billion rupees in the next three to five years.

“Special economic zones offer unexplored opportunities,” said Vinay Sharma, who quit his job in 2008 as vice president of Mumbai-based Reliance Industries Ltd., owner of the world’s largest oil refinery, to set up a warehouse for oil and gas companies in Visakhapatnam SEZ on India’s east coast. “It is the unique set of services they offer that make them attractive.”

Global Prospective: US Fed's Quantitative Easing Explained........ By a Cartoon

2010-11-17T18:21:00.003-05:00

BBC Discussion on the State of Nepali Movie Industry

2010-11-12T16:48:00.005-05:00

BBC Nepali Service's Mr. Narayan Shrestha moderates a discussion with Mr. Nir Shah (actor), Mr. Amar Gurung (Chairman of Nepal Film Development Board) and Ms. Rekha Thapa (Actress-Producer) on October 24, 2010.

This is very interesting, informative and entertaining discussion.

The most interesting quote is Mr. Nir Shah's comment that he cannot watch his own movies because they are "not watchable" i.e. they are bad. When asked why he still acts, he says that's because its his profession (comments @ 20 minutes).

Kollywood turnover crosses Rs 350m
myrepublica, 5-Sep-10
ASHOK THAPA

With the restoration of peace and efforts of new production houses to cater to the taste of a new segment of viewers, the Nepali film industry witnessed a robust expansion in its market, generating handsome returns in Fiscal Year 2009/10.

According to Rajkumar Rai, the chairman of Nepal Motion Picture Producers´ Association (NMPPA), the industry drew investments of Rs 295 million during the year. Rai also estimated that the Nepali film industry made a profit of Rs 59 million during the year.

The year was also marked by Nepali filmmakers unveiling projects with aggressive budgets that aimed at entertaining viewers with ´new´ technologies going digital in filming and sound.

Movies like “Mero Euta Saathi Chha”, “Kahan Bhetiela”, “Hifajat” and “Chhodi Gaye Paap Lagla” were produced with investments of around Rs 8 million each, whereas a big budget film in the past meant investment of only around Rs 6 million.

Thanks to it, popular actors and actresses witnessed unexpected rise in their remunerations as well.

Actors like Biraj Bhatta and Aryan Sigdel, Jharana Thapa, Rekha Thapa and Sanchita Luitel, among others, enjoyed even up to 200 percent rises in their signing amount, a film industry insider who requested anonymity told myrepublica.com. In previous years, they used to get between Rs 150,000 and Rs 200,000 per film.

This is an encouraging turnaround and reflects a revival of confidence in the industry, something which was lost during the later years of conflict, commented industry analysts.

Records of NMPPA show that 59 motion pictures passed the censor test during the year. Of them, 20 films enjoyed business throughout the country, while another 23 were released only within the Kathmandu Valley.

That is not all. The Film Development Board registered 229 films, including 84 celluloid, 80 digital, and 65 short movies. A majority of them are yet to make their way to theaters.

“Compare this eagerness to produce movies with the previous year, and you will know how the situation has turned in the industry,” said NMPPA Vice President and Spokesperson Pradeep Uday.

In Fiscal Year 2008/09, producers registered just 187 movies, including 102 celluloid and digital and 85 short movies.

Uday credits this robust rise in investment to the entry of ´new, energetic and professional´ filmmakers, expansion of the market and economic returns making promises to deliver.

Producers told myrepublica.com that films with high budget not only took the standard of Nepali movie to a new level, but also enjoyed good returns. It was not just the big productions that made money this time, small-budget movies like “Kahan Chhau Kahah” and “Batuli” also reaped in high profits. Their producers declined to disclose returns though.

Rai said that most of the films with innovative concepts pertaining to youths and social issues made exceptional turnover. “Issues like love and friendship portrayed in films like ´Mero Euta Sathi Chha´ even added new segment of viewers to the industry,” he said.

Although filmmakers did not cite any figures, they were unanimous that the volume of viewers of Nepali movies itself had grown magically with the production of youth-appealing movies like ´Mero Euta Sathi Chha´.

Otherwise, total viewers of Nepali movies were estimated to stand just at around 2 percent of the country´s population, and a large segment of elites, particularly in Kathmandu, were never attracted to it.

As usual, the social love story of “Kahan Bhetiela” and the action and thrills of “Hifajat” too appealed to audiences in every nook and corner of the country.

Remittances to Developing Countries Resilient in the Recent Crisis

2010-11-10T12:22:00.005-05:00

Remittances to Developing Countries Resilient in the Recent Crisis
World Bank, 8-Nov-2010

Full Report
Nepal Specific Data

Remittances to developing countries were a resilient source of external financing during the recent global financial crisis, with recorded flows expected to reach $325 billion by the end of this year, up from $307 billion in 2009, according to the World Bank’s latest Migration and Remittances Factbook 2011. Worldwide, remittance flows are expected to reach $440 billion by the end of this year.

The World Bank estimates that, after recovering by the end of this year, recorded remittances to developing countries will rise further in 2011 and 2012, possibly exceeding $370 billion in two years’ time.

“Remittances are a vital source of financial support that directly increases the income of migrants’ families,” said Hans Timmer, director of development prospects at the World Bank. “Remittances lead to more investments in health, education, and small business. With better tracking of migration and remittance trends, policy makers can make informed decisions to protect and leverage this massive capital inflow which is triple the size of official aid flows,” Timmer said.

The top remittance sending countries in 2009 were the United States, Saudi Arabia, Switzerland, Russia, and Germany. Worldwide, the top recipient countries in 2010 are India, China, Mexico, the Philippines, and France. As a share of GDP, however, remittances are more significant for smaller countries—more than 25 percent in some countries.

While high-income countries remain the main source of remittances, migration between developing countries is larger than that from developing countries to high-income countries belonging to the Organisation for Economic Cooperation and Development (OECD).

Regionally, there is significant variation across developing regions, with larger-than-expected falls in remittances to Europe and Central Asia[1], Latin America and the Caribbean, the Middle East and North Africa, and Sub-Saharan Africa regions in 2009. Flows to South Asia in 2009 grew more than expected, and those to East Asia and Pacific rose modestly.

“Remittances in 2008 and 2009 became even more of a lifeline to poor countries, given the massive decline in private capital flows sparked by the crisis,” said Dilip Ratha, manager of the migration and remittance unit at the World Bank. “However, high unemployment is prompting many migrant-receiving countries to tighten immigration quotas, which would probably slow the growth of remittance flows. Also uncertain currency movements can have unpredictable effects on remittance flows,” Ratha added.

In addition to crisis-related risks, there are major structural and regulatory changes in the global remittance market. Regulations to combat financial crime have become a roadblock to the adoption of new mobile money transfer technologies for cross-border remittances. “There is urgent need to reassess regulations for remittances through mobile phones and mitigate the operational risks,” Ratha said.

According to the Factbook 2011, the top migrant destination country is the United States, followed by Russia, Germany, Saudi Arabia, and Canada. The top immigration countries relative to population are Qatar (87 percent), Monaco (72 percent), the United Arab Emirates (70 percent), Kuwait (69 percent), and Andorra (64 percent). Mexico–United States is expected to be the largest migration corridor in the world this year, followed by Russia–Ukraine, Ukraine–Russia, and Bangladesh–India.

Rs. 800 million, 17-Story Tower will be the tallest building in Nepal

2010-11-09T05:22:00.000-05:00

The JSB Financial Tower to be tallest building in Capital
TKP, 3-Nov-10

The JSB Financial Tower in Kamaladi will be the tallest building in Kathmandu when completed. Developed by Krishi Premura Properties, the 17-storey commercial complex will have a total area of 170,000 sq ft.

The building is situated at Kamaladi, one of the capital’s prime commercial locations, and is divided into three blocks—retail outlets, commercial spaces and penthouses.

The first three floors of the tower will house retail outlets, nine floors will be set aside for offices of banks, financial institutions and multi-nationals. The top five floors will contain penthouse apartments.

“The retail outlets will feature high-end brands,” said Pravin Naulakha, manager of the JSB Financial Tower.

The JSB Financial Tower stands apart for two reasons—location and design. It is coming up in a leading commercial location containing banks and financial institutions. With the Kamaladi-Durbar Marg area turning into a financial hub of the capital, the tower has targeted banks and financial institutions as its prospective tenants.

Designed by architect Debesh Raj Bhattarai, the tower will provide the entire range of financial services under one roof. “It will be an eye-opener for Nepal,” said Bhattarai. “It’s a contemporary design which we see abroad.” Emphasis has been given to green energy in the building, he added.

All the five penthouses have been designed with spacious living and dining rooms, common bathrooms, spacious bedrooms with attached changing rooms, attached bathrooms in each bedroom and a Jacuzzi in the master bedroom.

The tower, according to architect Bhattarai, will have three-layer basement parking space which can accommodate more than 200 vehicles. The tower is equipped with high-speed wireless and optical fibre connection ideal for video conferencing and high data transmission. There will be four passenger elevators in the tower.

Formal bookings for the tower will start within a month, said Naulakha. The tower is expected to be completed within two years from the start of construction. According to Naulakha, Rasuwa Construction Co. is the main contractor of the Rs 800 million project.

To put things in perspective, here is the "History of the Tallest Buildings" in the world.

The world’s tallest building opens in Dubai

Economist, 4-Jan-2010

AT 828 metres (2,717 feet), the Burj Khalifa, which opened on Monday January 4th, dwarfs Taipei 101, which was previously the tallest tower anywhere, by 320 metres. The tower has more than 160 floors and cost some $1.5 billion. It is in danger, however, of being seen as the height of folly. Construction began in 2004, when the economy of the United Arab Emirates was growing at 9.7%. It is forecast to grow by just 2.4% this year and probably shrank by 0.2% in 2009. This is not the first tower to be planned in the good times and then opened in a slump. Countries home to many of the world's highest buildings (when they opened) saw their economies slump in the years between the start of construction and the official opening. Our chart compares economic growth of the relevant country when a tower was opened, with the respective annual growth rate enjoyed half a decade earlier.

BBC Discussion with the current & former Vice-Chairs of the National Planning Commission

2010-11-07T19:38:00.017-05:00

BBC Nepali Service's Mr. Narayan Shrestha moderates a discussion with Mr. Jagadish Chandra Pokharel, current Vice-Chairman of the National Planning Commission (NPC) and Pitamber Sharma, a former Vice-Chair of the NPC on November 7, 2010.

This discussion sheds lights on the inner workings of economic planning and implementation at the highest level of Nepal's government. The bottom line is that domestic politics and donors agenda over-rides the technocratic views of the NPC or the real economic needs of the people. Mr. Sharma even quotes the Godfather ("make an offer they can't refuse") to illustrate the position of the NPC within the economic planning hierarchy of the country.

News Roundup: Waiting for Two Key Decisions

2010-11-01T14:14:00.024-05:00

Roundup of Nepali Economic and Business News for Sep 1-Oct 31
By 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.

Fine-tuning our finances

2010-10-31T14:59:00.001-05:00

Fine-tuning our finances
The KTP, 27-Oct-10
Rewat Bahadur Karki

Since the middle of 1980’s, Nepal, as a part of its partial liberalisation policy, started opening up its banking/financial sector (FS). Following the restoration of democratic system in 1990, a more reform-oriented policy of financial liberalisation was adopted. Since then the Nepali financial sector has witnessed rapid development. Up until 1985, there were only eight banks and financial institutions (BFIs), comprising two commercial banks, two development banks and four other financial institutions. This number went up to 15 in 1990 and after that it has steadily increased, reaching 292 by mid-July in 2010. Of the total, 263 BFIs including 27 commercial banks, 79 development banks, 79 finance companies and 18 microfinance banks are regulated by Nepal Rastra Bank (NRB), while 29 financial institutions including 25 insurance companies are regulated by the Insurance Committee, the Securities Board and the government. In recent years, ratio of total BFI assets to gross domestic product (GDP) has exceeded more than 120 percent while total deposits and credit to GDP ratio too has increased accordingly.

Nevertheless, such a high concentration of BFIs in a small economy with a GDP of Rs. 1,200 billion poses a major threat to financial stability. This is so because most of the money is now in non-productive sectors including real estate, accounting and auditing systems are weak and unreliable, the supervisory capacity of NRB has been undermined and the much-vaunted financial sector reform (FSR) has been clouded in uncertainties. Thus, crafting a stable, modern and reliable financial sector is a major challenge. But there are steps that can be taken to strengthen the sector. The first of the four steps I propose is merger and acquisition, or, in other words, unification of most BFIs, so that the number of BFIs is manageable and the financial sector is strong. Although NRB has for the

last couple of years talked up this option frequently while announcing its monetary policy, virtually no progress has been done on this front. A separate merger and acquisition act providing special tax breaks and other benefits has to be brought into effect, as in Malaysia and the Philippines in the 1990’s, where merger and acquisition policies were quite effective in bringing down and consolidating the number of commercial banks.

The process of financial sector reform in two major public banks—the Nepal Bank Limited and the Rastriya Banijya Bank—including restructuring of NRB and capacity enhancement of financial sector started in 2002. But the process has been halted as NRB cancelled the appointment process of CEOs of these two banks. Due to this cancellation, DFID and the World Bank, which were providing technical and financial support from the very beginning of FSR, have withdrawn their support from this process. These two banks are now being run on an ad hoc basis. In order to restructure or privatise the banks, the appointment of bank restructuring advisor is crucial, but the process has already been delayed. The reform process of these banks which have an important role in the Nepali economy has to be expedited without delay. In order to consolidate the progress made by these banks so far and further the reform process, it is important that they be studied and evaluated by international audit firms. Similarly, undue political interference and appointment of non-professionals in the BFIs has to stop for smooth functioning of the financial sector. This is my second suggestion.

My third suggestion is strengthening the accounting and auditing standards of BFIs. Although attempts have been made to improve BFI accounting and auditing standards, these have not met international standards and reliability mainly due to weak supervisory capacity of NRB and ineffectiveness of the government accounting and auditing boards. Questions are frequently raised about the reliability of financial and disclosure statements of BFIs. Strengthening these standards is a must to restore the credibility of the banks and financial institutions. The current system which deputes the same auditors to the BFIs for three consecutive years has rendered this system weak and unreliable. Discontinuity of year-on-year auditing by the same auditor will help issuance of real and reliable auditing reports. In order to enact this reform, the auditing and accounting boards have to be strengthened and their supervisory capacity enhanced.

My fourth suggestion concerns the supervisory capacity of NRB. The number of BFIs has increased tremendously but as the supervisory capacity of the central bank has not been enhanced accordingly. Along with the other major functions of central bank such as regulating the BFIs, managing foreign exchange and domestic currency, and advising the government, NRB’s supervisory role has also been given special importance but this role has been rather politicised too. The two supervisory departments of NRB have been rendered virtually ineffective because of frequently transfers of officials and excessive politicisation. Hence, it would be wise to set up a financial supervisory authority (FSA) including these two supervisory departments, following in the footsteps of countries like South Korea, UK, Sweden and other Scandinavian countries. As this body would specialise on supervision, there would be proper check and balance as regulatory and supervisory institutions will be separate and independent .The poorly supervised large government institutions like Employee Provident Fund and Citizen Investment Trust then can be surpervised by the FSA.

Urgent attention is needed be strengthen the financial sector through merger and acquisition, speeding up the financial sector reform, standardisation of auditing, and establishment of an independent supervisory authority. This approach will ultimately strengthen and stabilise the financial sector in particular and the economy in general.

Karki is former economic advisor to IMF and NRB as well as ex-CEO of Nepal Stock Exchange

The Neocolonial Path to Power

2010-10-25T17:40:00.003-05:00

The Neocolonial Path to Power
Himal Southsian, August 2010
By: Dipak Gyawali

Nepal’s strategy of developing its power sector based on capacity-building to meet the needs of its own commerce and industry is far from perfect, but it is a better long-term bet than Bhutan’s much-touted model.

Many Nepalis would be shocked to hear that Bhutan will face load-shedding from the coming winter. The citizens of Nepal have, after all, been told for decades that Bhutan has done a great job of developing hydroelectricity, that it has earned significant money by exporting electricity to India, and thus it has been able to achieve the highest per capita income in Southasia. Conversely, Nepal has been ridiculed for wallowing in ‘empty nationalism’ and stirring ‘needless’ controversies over the Mahakali Treaty of 1996 (for water sharing on the Mahakali River) as well as hydropower projects such as the West Seti, both of which involve export of electricity to India.

The socialist and communist leaders of Nepal, seemingly suffering from a sense of moral and intellectual inferiority, have been unable to give a fitting reply from the standpoint of their ideologies. Such a reply would need to point out that it is questionable whether a development path that requires relinquishing defence and foreign policy to a foreign power is beneficial for the country in the long term. Party intellectuals advising politicians and political parties who only see revenue inflow and ignore vital diplomatic and strategic issues are in truth unwittingly pleading to be colonised. Nepal’s chronic load-shedding problem should then come as no surprise when these ‘Brahmins behind the throne’ fail to see the political economy hidden behind the load-shedding that is imminent in Bhutan.

At first glance, Bhutan certainly appears to have achieved better hydropower development than its Himalayan neighbour. Three times smaller in landmass and with a population one-fiftieth of Nepal’s, the current generating capacity of Bhutan (at 1488 megawatts) is twice that of Nepal. The Punatsangchhu-I hydro plant, under construction with a 60 percent grant and 40 percent soft loan from India, will add another 1020 MW by 2016. Such cheap development capital means that Bhutanese consumers pay a mere INR 1.30 per unit of electricity, allowing them to cook food and heat homes with electricity. Currently, about 70 percent of the 123,000 households in Bhutan have access to electricity, and by 2013 the entire country is expected to be electrified.

In comparison to Nepal, these would be considered significant achievements. And so, one may well ask, if these are the facts, why is the Bhutanese model wrong? And, incidentally, how is it that the country is on the threshold of load-shedding? Though Bhutan has twice the electricity-generation capacity of Nepal, around 80 percent of its electricity is exported to India, leaving only about 300 MW for consumption in Bhutan. Of this, only 80 MW is for domestic use, while the rest goes to southern Bhutan to be consumed by various Indian-owned industries, such as cement factories, lured here by the availability of cheap electricity. Subsidised electricity has led to booming demand, which grew by 19 percent from 2007 to 2008, increasing a further 27 percent in 2009 and 54 percent in 2010. As a result, Bhutan will be compelled to reduce its consumption by around 25 MW via load-shedding this coming dry season, worsening as demand continues to escalate till 2016, when Punatsangchhu-I comes online.

Innovative hydrocrats
This five-year load-shedding scenario is a planning failure born of a faulty political economy. But Bhutan’s supply problems are mild, unlike Nepal’s chronic power crisis precipitated by its unstable politics. While no magic wand can make electricity shortages disappear, Bhutan has already begun to take appropriate corrective measures. Importing electricity from India remains an option, but it is an expensive one, as Thimphu will have to import power at almost twice the rate at which it exports. India, despite its close friendship with Bhutan, cannot provide cheap power to its smaller neighbour due to its own 10,000 MW electricity shortage in the grid of North India, a fact not understood by today’s Nepali politicians.

The search for demand-side management options has led to other alternatives to Bhutan’s load-shedding problem: biogas for cooking and solar panels to heat water to reduce power consumption during peak hours every day. Economic incentives are being looked at to encourage industries to develop their own captive hydropower. Another option would be to build ‘pump storage’ schemes below existing power plants, which would pump water up to reservoirs during the night for use during next day’s peak time. Bhutan has also put forth the idea of an ‘energy bank’, whereby it would store surplus power generated during the rainy season in India, dipping into this ‘account’ in the dry months. Such a system of ‘energy barter’ would be far cheaper for Bhutan than direct purchase, and Thimphu is already in negotiations on this issue with New Delhi. Nepal’s Water and Energy Commission likewise initiated a policy of energy barter in 1992, but the mirage of the Mahakali and political infighting has left such innovative thinking in limbo.

Exploring new power policies beyond the straitjacket imposed by hegemonic Indian plans, Bhutan’s hydrocrats have initiated medium-sized plants more suited to Bhutan’s economy. The 126 MW Dagachu and the 208 MW Nikhachu schemes are being developed using a public-private partnership model supported by the Kyoto Protocol’s Clean Development Mechanism, which has come about in the wake of international concerns over global climate change. Recent changes in water policy require all power exporters to give 15 percent of their energy free to the Bhutanese grid as royalty. Such changes demonstrate the evolving Bhutanese understanding that an export-oriented policy alone does not strengthen a country’s energy security. Yet while there is immense potential to develop small- and medium-sized hydropower schemes, agreements with India preclude this option on cost grounds. Consequently, rather than ending load-shedding in two years, Bhutan has been compelled to wait until 2016 to achieve this goal.

As in Nepal, vagaries of the weather possibly related to climate change have led to severe winter droughts in recent years, and Bhutan’s rivers have been drying out significantly from January to May. Since the country only has ‘run-of-the-river’ hydropower plants, without monsoon water stored in reservoirs, they do not produce more than a third of their installed capacity in the dry season. If reservoirs are built that store the monsoon flow, more power can be generated in the dry season when the capacity of run-of-river plants has drastically reduced production. But, as is also the case in Nepal, Bhutan has limited locations on which small- and medium-storage hydropower plants can be built, and the locations that do exist might not be economically viable due to rapid reservoir sedimentation. Also, large reservoirs permanently flood fertile and populated valleys, and Thimphu seems reluctant to go this route. The feasibility study of the 4000 MW Sunkhosh is now complete, but Bhutanese officials do not seem interested to push it. During a recent four-day stay in Thimphu, this writer heard a uniform refrain from many officials: We cannot be confrontationists like you Nepalis – but inundation projects are our last priority, to be done only if the pressure from India becomes too strong to resist.

Slow, small but sure
A multipurpose hydroelectric storage project is similar to a factory that produces multiple goods. If the costs incurred in the construction of the factory, including the loan and interest repayment, are included in the price of just a single item, it will yield little profit, and could even fail to sell in a competitive market. Furthermore, if other goods produced are then distributed free of cost, there is likely to be disagreement and infighting between the various consumers. Besides electricity, storage dams provide flood control, irrigation, fisheries, navigation and tourism, from which different economic actors benefit in varying degrees. As Nepal (and India) has not built any significant multipurpose project, its policymakers have no idea how these benefits can be allocated in an equitable manner, nor how the political, economic, social and environmental issues need sorting out.

Thimphu, on the other hand, seems more aware of these concerns. It has taken a position in its talks with New Delhi that at least 50 percent of the benefits of a storage dam are in areas outside the electricity sector, which must be accounted for.

For example, the regulated water released in the dry season would lead to massive agricultural expansion in the plains, and flood-control benefits would result when the summer peak flood is lopped off to be stored in the reservoirs. As Bhutan does not have any Tarai plains, it is the downstream riparian areas that will reap the non-power benefits from reservoir projects in upstream Bhutan. New Delhi hopes to capture these valuable benefits from regulated water released from storage reservoirs in the dry season and, through its river-linking plan, to transport such waters to the dry western part of the country. This would also ensure that Bangladesh does not become a ‘free rider’ beneficiary, benefiting from the regulated dry season flow coming from Bhutanese dams. While the Bhutanese model of developing its hydropower for export in return for royalties might have been profitable in earlier years, it is today creating more problems than benefits.

The export-oriented path that Bhutan has taken cannot be an option for Nepal, unless it forsakes its independent foreign and defence policies. From a political-economic perspective, the Bhutanese model is one of neocolonial resource extraction. If the much ballyhooed ‘new Nepal’ were to adopt a similar policy, it would be tantamount to its political masters admitting their incapacity to develop Nepal as a self-reliant and independent economy. Growth in hydroelectricity production cannot be the sole standard by which to measure success. After all, a plantation economy using slave labour can produce more efficiently than an independent economy crawling along the path of capacity development. A rent-seeking, royalty-earning model might enrich governments, politicians and senior bureaucrats for some time, much like the Arab sheikhdoms, but it does nothing to develop national capacity – which is what development is, in the true sense.

Even though Nepal’s demand for electricity currently far outstrips supply, the development of small and medium hydropower plants over the last three decades has led to significant ‘upstream-downstream’ sector capacity built in the economy. Despite state indifference due to the Nepali hydrocracy’s infatuation with foreign aid, the survey, design, geo-technical engineering, contracting, construction and some equipment manufacture and maintenance are now done by Nepalis in small factories and consultancy services, for projects from a few hundred kilowatts to some 20 MW. The importance of such capacity is evident from the fact that Bhutanese power managers, during visits to the Bhutanese gomba (monastery) located in the Boudha area of Kathmandu, also take the opportunity to visit nearby factories to procure services for plant maintenance in Bhutan. The biggest complaint of Bhutanese officials, on the other hand, is that their contractors, rather than working to build national capabilities in these areas, only serve as rent-seeking middlemen for Indian contractors, thus defeating the commendable government policy of ‘Bhutanisation’.

In Nepal, the hydropower sector is soon to test its political leadership, with a new electricity bill pending in Parliament. If passed as drafted, the Electricity Act would reward exporters of electricity with tax breaks but would penalise those developing hydropower for Nepali consumption. This would push Nepal inexorably towards a neocolonial political economy similar to that of Bhutan’s, and away from the slow but self-reliant development path pursued so far. Fortunately, thanks to the activism shown by members of the National Association of Community Electricity Users Nepal (NACEUN), members of Parliament from across the political spectrum have tabled 142 fundamental amendments that would re-define the Act towards a self-reliant, ‘national capacity enhancement’ model. We may not have to wait too long to see which historic path the country will take, the Bhutanese or the Nepali.

Mr. Gyawali was Nepal’s Minister for Water Resources during 2002-03.

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

2010-09-01T06:28:00.017-05:00

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.

Power to India

2010-08-30T03:40:00.001-05:00

Power to India
NepaliTimes, Issue #517 (27-Aug-10 to 02-Sep-10)
RATNA SANSAR SHRESTHA

It's folly to think Nepal can replicate Bhutan's model of hydropower development

People in Bhutan must have felt magnanimous after reading the Times of India (ToI) article on June 20, 2009 that read: 'Bhutan PM pledges power aid for India'. For a tiny country like Bhutan to be able to 'aid' its giant neighbour India must be a thrill. Advocates of the Bhutan model in Nepal are also salivating at the possibility of wielding immense power (not electricity!) over India by exporting hydropower, in the hope that control will be in Nepali hands.

Of course, they will have forgotten that India will circumvent the possibility of Nepal controlling the flow of power by demanding that they get to ensure the 'security' of such projects, with Indian security personnel. The Karnali Chisapani project, meant to generate 10,800MW, was shelved in the mid-70s by the then Nepali government for this very reason.

These people have their collective heads in the sand for a couple of other reasons. Bhutan's example illustrates a few ground realities. Kuensel online, Bhutan's national English-language news portal, reported that "contrary to existing notions, a new study says it is economically more beneficial for Bhutan to supply power to its industries than export to India." The report details findings from the Bhutani Ministry of Economic Affairs and the royal audit authority, which note that the government makes a profit of Nu 64 million if it exports electricity to India, compared to a profit of Nu 152.8 million from tax receipts if it supplies 15 major national industries. Economic Affairs Minister Lyonpo Khandu Wangchuk was reported to have said, "Electricity is the only plentiful raw material that can be used by our industries to compete with external competitors by value adding on reasonably priced power." Ministry Secretary Dasho Sonam Tshering reportedly alluded to Norway, which "also used its hydropower to initially bankroll its industrial development through power intensive metallurgy and fertilizers".

The export-oriented model of hydropower development in Bhutan has threatened its own industrial development. As early as 2008, Zeenews.com reported that "a severe power shortage may hit Bhutan in view of new industries readying up to kick start operations even as India is banking on borrowing electricity from the Himalayan country by 2020." Bhutan Power Corporation Limited is reported to have confirmed this. Kuensel online echoed this anxiety in February 2010, suggesting setting up captive thermal power plants and in May 2010, even calling for the import of electricity from India.

Due to the unique geopolitical relationship between India and Bhutan, the three hydropower projects built so far, with a total capacity of 1,416MW, are owned by Bhutan but funded by India as a 60 per cent grant and a 40 per cent soft loan. But this 'inter-government model' has been found wanting by the Indian Government of late. The ToI last year noted that "The power ministry is getting the jitters over venture models for setting up hydel projects committed to Bhutan, with a view emerging that the amount of investments India will have to make at one go till 2020 under the present inter-government arrangement may adversely affect our budgetary provisions."

According to records of a recent meeting called by Indian power sector officials, India is committed to projects in Bhutan of 10,000MW by 2020. This will require fast-track investment of Rs 500 billion at
Rs 45 billion per year till 2020. The Indian Government, therefore, is endeavouring to drastically reconfigure the model so future projects are built with 70 per cent loan and 30 per cent grant. According to Kuensel online, the Bhutanese government has not yet agreed to this.

Under the current model, Bhutan seems to be profiting even by exporting power at a dirt cheap rate. But once the financing modality is turned on its head, the benefits to the Bhutanese economy will shrink by a magnitude. By exporting power, furthermore, it is condemned to remain underdeveloped.

For Nepal, with a population of 28 million, to reach the same level of 'gross national happiness' achieved under the current India-Bhutan inter-government model would require India to finance 52,864MW of electricity. Unfortunately, India is already experiencing financing fatigue after its relatively small investments in Bhutan. It's time for the hydrocracy in Nepal – the politicians, policymakers, planners, bureaucrats, and intelligentsia who deal in hydropower – to acknowledge the ground realities and grow out of their short-sighted, juvenile vision for Nepal's hydropower future.

Ratna Sansar Shrestha is a water resource analyst

Ragpickers picking Rs 21,000 a month

2010-08-05T18:40:00.004-05:00

Ragpickers picking Rs 21,000 a month
TKP, 3-Jul-10

It sounds unbelievable that the rag pickers, who go around the city scavenging for rags, scrap and plastic wares in piles of waste, earn more than a gazetted first class officer of the country.

Presenting a study report about the scavengers conducted in 20 places of Kathmandu Metropolitan and Lalitpur Sub-Metropolitan City, Centre for Integral Urban Development (CIUD) said the professional pickers make more than Rs. 21,000 per month.

According to the report, one picker collects more than a hundred kg of trash including rags, plastic wares and scrap per day. These items are sold for Rs. 7 per kg in an average, which makes more than seven hundred per day, amounting to Rs. 21,000 monthly.

“Their earning is enough to manage the quality life but they don’t use it for their good and neither have the saving habit,” said Brinda Shrestha, one of the researchers. “They spend most of the income on alcohol and entertainment.”

According to Shrestha, more than 70 percent of the pickers are from indigenous communities out of which Tamang comprises over 20 percent. Around 12 percent pickers are Indian nationals.

The report has stated that 60 percent of the rag pickers are from economically active group—16 to 35 years. Seventy-seven percent of them are fully illiterate and the remaining can write their names.

Global Prospective: Drought in E Europe Sparks Fear of Global Wheat Shortgage

2010-08-03T19:33:00.005-05:00

Nepal is a food deficit country so it is vulnerable to fluctuations in global supply-demand of food. The case in point was the sugar shortage last year. This year it my be food grains if the drought in Eastern Europe causes a sharp fall in global supply of wheat.

Weather woes spark fears for wheat
FT, 2-Aug-10
By Javier Blas in London

For veteran wheat traders, the current rally has a strong feeling of déjà vu.

Back in 1972, the then Soviet Union suffered a catastrophic drought that left the country badly short of wheat. Moscow plunged into the world market to cover the shortfall, buying almost all the available surpluses in the US.

The purchases, which later became known as the “Great Grain Robbery” as Washington was unaware for weeks of its Cold War rival’s buying spree, triggered food price hikes worldwide.

In the ensuing four decades the landscape seems all too familiar.

The worst drought since records began more than a century ago is torching the wheat fields of Russia, Ukraine and Kazakhstan, cutting the production outlook for the three countries.

In contrast to the “Great Grain Robbery”, the countries are today large exporters, but the shortfall is hitting global wheat supplies, which is having exactly the same impact as the buying of years ago: pushing up prices.

European wheat prices jumped on Monday to a two-year high above €200 a tonne, after a 50 per cent rally since the end of June, fuelled by the drought. In Paris, Liffe November milling wheat hit an intraday high of €211 a tonne, up 8.0 per cent on the day.

“There are no sellers on the market, everyone is buying today,” says Fabien Fouillard, a derivatives broker at Plantureux in Paris.

European wheat prices have only traded higher during the 2007-08 food crisis, when the benchmark briefly hit an all-time high of €300 a tonne.

In Chicago, CBOT September wheat prices rose to a 22-month high of $7.11 a bushel, up nearly 7.5 per cent on the day. In July, CBOT wheat prices surged by 42 per cent, the biggest monthly increase for the Chicago benchmark since 1959.

Traders, analysts and food industry executives fear prices could rise further as they continue to downgrade the size of Russia’s wheat crop due to persistent bad weather. The latest tentative estimates put the country crop at 45-50m tonnes, the lowest in five years, and potentially below annual consumption of 47m tonnes.

Alexander Bos, agricultural commodities analyst at Macquarie in London, says the market perception of Russia’s grain situation has gone “from bad to worse” over the past few weeks.

“We are losing a significant amount of production in the Black Sea region and there is potential for even higher prices over the next few weeks.”

Russia has been gripped by a heatwave in the past five weeks and the fields have not enjoyed rainfall for even longer. Meteorologists say there is little hope of respite with temperatures forecast to remain abnormally high until the middle of August.

Analysts also expect lower output in Ukraine and Kazakhstan. The former Soviet Union countries last year produced 20.9m and 17m tonnes of wheat, respectively.

In addition, wheat production in Canada, one of the world’s largest exporters, is set to fall sharply because heavy rains during the planting season forced farmers to leave a significant number of acres unplanted.

The Canadian Wheat Board, the marketing agent for Western Canada’s farmers, last week cut its forecast for the 2010-11 crop to 18.5m tonnes, down 36 per cent from last season’s 28.8m tonnes.

Allen Oberg, CWB chairman, says the rains have created a dire situation. “Farmers are resilient, but when you cannot even get seed into the ground, it’s devastating.”

The global shortfall in wheat production is reviving memories of the 2007-08 global food crisis, which saw the price of agricultural commodities from corn to rice surge to record highs and food riots in countries from Haiti to Bangladesh. The crisis also pushed the number of chronically hungry people globally above the 1bn mark for the first time.

There are notable differences with the current situation, however.

On the demand side, consumption growth is weaker due to the general macroeconomic situation, which is damping demand from the animal feeding industry. On the supply side, wheat inventories are much ampler after very good crops over the past two years.

This combination means prices are unlikely to surge to the all-time highs of 2007-08 or trigger the panic of the “Great Grain Robbery” of 1972-73.

Even so, the current rally is more than enough to revive old memories.

News Roundup: Economy Chugs Along Despite Political Stalemate

2010-08-01T16:22:00.018-05:00

Roundup of Nepali Economic and Business News for June 13-July 31
By NepaliEconomy.com
News Archive

MK Nepal resigned as the PM of Nepal: On June 30th, MK Nepal resigned as the PM after 13 months in office and as per the Big Three Agreement just prior to the May 28th deadline to finish writing the Constitution. It has been more than a month since but forming a permanent government whether based on consensus or based on majority has been a moving target. This deadlock has forced MKN's caretaker government, as per the Interim Constitution to pass an an interim Rs 110 billion budget. The lack of full-fledged budget is already impacting the economy. At least the Maoists are not suffering, according to a report the government has so far paid Rs. 4.7 billion to Maoist combatants since the CPA in 2006.

The NRB unveils its monetary policy & Shortage of IC continues: On July 28, the NRB unveiled its 2010/11 monetary policy. The bank raised the benchmark rate by 50bp to 10 percent and kept the inflation target at 7 percent - the latest figure for mid-June is 9.6%. It relaxed its policy for real estate investment but tightened licensing policy for new banks. Separately, the NRB said that the liquidity crisis is over now that deposits are soaring at the banks on the back of improving BoP. For whatever reason (possible depreciation?) there is shortage of IC in the country; traders' are venturing as far as Baglung (your truely's home district) in search of IC notes. To alleviate the shortage,the NRB is planning to open accounts in Indian banks in the bordering region, has put limits on the withdrawals of IC from Nepali-bank issued ATMs in India and requested the RBI the permission to use IC 500 and 1,000 notes in Nepal.

The NOC keeps grabbing headlines for the wrong reasons: The state-owned NOC decided to give a huge bonus to its employees claiming Rs 3.31 billion profit during the year but the CIAA and its own Board blocked the bonus. NOC employees are now threatening a strike if not given the bonus. The NOC had earlier raised prices on petrol by Rs. 3/liter and kerosene by Rs. 2.50/liter. And before jacking up the prices, the NOC played a chicken-game with the State by drastically reducing the imports of oil and creating an artificial shortage. All this is happening while the NOC's Amlekhgunj depot is posting a record loss of 0.91%. The NOC is not the only PE suffering; Janakpur Cigarette Factory is on a verge of closure.

Nepal continues to exports labor and import goods: With Birgunj alone losing 20,000 jobs due to deteriorating security situation, the surplus labor of Nepal is going anywhere it can to find a decent job, at the rate of 800/day- Khasa, Singapore/Brunei, Malaysia, Japan, Libya, Poland, Israel and even Iraq. On June 18th, 42,000 Nepalese lined up for 4,000 jobs in Korea under EPS. According to the Foreign Employment Promotion Board, more than 3 million Nepali youths are currently toiling in foreign lands; ironically, this is causing a shortage of skilled labor in Nepal's construction sector. Given the importance of migrant workers, the Nepalese government has yet to establish a comprehensive policy or implement the policies it has effectively. Remittances, 66% of which comes from official channels helped offset a surging trade deficit - in the first 11 months of 2009/10 imports rose 35% but exports declined 9.8% causing a whopping Rs. 287 billion in trade deficit. As a sign of the country's deteriorating competitiveness, Nepalese garment industry received zero orders from the US in June and FDI in the first 8 months of 2009/10 plunged 27% to a mere Rs. 3.45 billion. On the bright side, the NRB is trying to channel remittance to productive sectors by issuing 5-Year Foreign Employment Bond with an interest of 9.5%.

Nepal continues to dream about Hydropower: A government sponsored task force has produced a report that targets 36,628MW of hydropower within the next 20 years, and 2,057MW over the next 5 years including 170MW for exports. This comes on the heels of another government report that said only 2 hydro projects totaling 2MW were completed in the last fiscal year and that another 21MW will be completed in the next fiscal year. The 456MW, Rs. 35.29 billion Upper Tamakoshi finally got funding to go ahead - it is scheduled to open in 2015, already two years behind schedule. The government is trying to rein in the freewheeling nature of hydropower licensing; it recently issued 3 licenses worth Rs. 130 million. Hydropower development could face some setback given that the PAC has found irregularities in PPA agreements on 36MW Upper Bhotekoshi and 60MW Khimti; according to the PAC, they have caused Rs. 19.8 billion and Rs. 9.5 billion deficit to the NEC in the past decade. There is some good news, load-shedding has come down to 2 hours a day with the onset of the Monsoon.

Banking continues to be a lucrative business in Nepal: Nepal's 27 commercial banks are expected to rake in more than Rs. 15 billion in profits despite so-called liquidity crunch. Part of the reason is that banks are aggressively lending i.e. leveraging their balance sheets. Nepal's banking are apparently not issuing debentures as much as they are making loans. Not surprisingly bank branches are proliferating like rats to harvest deposits. Mega Bank led by Anil Shah became the 28th Commercial Bank on July 23. Amidst the sea of bank profits, Nepal relies on foreign aid to implement financial reforms. In non-banking news, a new derivative broker opened for business but in stock market, the process of selecting 27 new brokers from current 23 continues to be mired in controversy. Amidst these bureaucratic snafu, SEBON lobbies the government to bring in NRN into the stock market. Another interesting tidbit, Nepal pays almost a billion rupees in premium to foreign reinsurers.

On the infrastructure sector, the ADB has raised the cost estimates for 4-lane Kathmandu-Terai Fast Track Road to $1 billion and few global contractors are interested to invest in it under BOOT model. Nepalese investors however lament a lack of PPP guidelines. The government plans to build a second international airport at Nijgadh in Bara district this fiscal year. In another milestone, the construction of 100km Rs. 2.17 billion Darchula-Tinkar road has commenced.

Agriculture sector continues languish although 77% of the paddy fields have been planted thus far owing to a good Monsoon. But Monsoon is not the only factor; the other is fertilizer and Nepal is experiencing fertilizer shortage cause by government mismanagement. The NPC says, even with a normal harvest, Nepal will be a food deficit country over the next 3-5 years. Food deficit in Nepal has increased to 316K tons in 2009/10 from 133K in 2008/09, and 24,000 people in 14 VDCs in remote Mugu may go hungry. In the midst of this situation, production of cash crop is up 13% during the year.

Tourism sector is improving and the government is implementing policies to meet the NTY 2011 target. Tourist arrivals jumped 16.3% in June. Now tourists can now stay with Nepali families in rural areas as per new home stay policy. More than 80,000 trekkers trekked through the Annapurna Conservation Area in 2009/10. Hotel sectors' revenue rose 15% last year; Soaltee posted Rs. 108 million in profit. Not surprisingly, 2 new 3-star and 64 non-star hotels were started last year. In order to promote domestic tourism, the government wants to give allowances to bureaucrats to be domestic tourist, uh!

Telecom is probably the most developed sector in the country. NT has reached all 3,915 VDCs and wants to add 5 million new subscribers in the coming 3 years to make the total 13 million.

In an interesting piece of news, apparently, the city scavengers are not the pitiful bunch after all - according to a non-profit, they earn a whopping Rs. 21,000 a month, go figure!

Nepal seeks to regulate money withdrawals in India

2010-06-25T03:51:00.003-05:00

Nepal seeks to regulate money withdrawals in India
Sify.com, 22-Jun-02

Faced with a growing shortage of Indian currency, Nepal's apex bank has introduced a new regulation to govern the withdrawal of money from Indian banks.

From this week, Nepalis or people living in Nepal who have accounts with Nepali banks can withdraw up to Rs.200,000 per month in India using automated teller machines (ATM).

Earlier, they could withdraw only Rs.25,000 per visit to India.

'We introduced the regulation from June 18 to ease the shortage of Indian currency in Nepal and to facilitate things,' said Gopal Prasad Kafle, spokesman at Nepal Rastra Bank, the regulating authority.

As per the new regulation, an ATM user can withdraw a maximum of Rs.25,000 at a time or Rs.200,000 within a month.

'However, if the user submits documents with his bank in Nepal to show a valid reason as to why he needs the money - for medical treatment, education or business - then he can withdraw as much as he wants, depending on the discretion of his bank,' Kafle told IANS.

Two Nepal banks are joint ventures with Indian banks. Nepal SBI, which is a joint venture of the State Bank of India, and Everest Bank Ltd, a JV of Punjab National Bank, enable their account holders to use their ATM cards and withdraw money from the partner banks in India.

Standard Chartered Bank account holders can use their ATM cards directly while many other Nepali banks have relations, direct or indirect, with other Indian banks for the benefit of their ATM card holders.

A ballooning trade deficit with India, Nepal's biggest trading partner, has caused a dearth of Indian currency in Nepal.

On the eve of trips to India, bona fide travellers find it difficult to acquire Indian currency from their banks and there are growing allegations that unauthorised money changers have been charging exorbitant commission.

Money changers at Indian airports, who used to accept Nepali currency, have stopped doing so nearly five years ago.

The NRB regulation is also intended to stop the flight of capital from Nepal.

As per Nepal's laws, Nepalis can't invest outside Nepal. However, the law is flouted with impunity by thousands who have investments in India, often under the names of relatives or friends.

Revenue target likely

2010-06-20T20:14:00.003-05:00

Revenue target likely
TKP, 19-Jun-10

The government is most likely to meet the revenue collection target this year. However, it may face tough challenges ahead in meeting the revised target of an additional Rs. 13 billion in the mid-term review of the budget.

The target set by the budget is Rs. 176.50 billion and the revised target is Rs.189.60 billion. The government aims to pay re-adjusted salary to government employees with the surplus revenue collection.

The revenue collection over the first 11 months of the current fiscal year was Rs. 153.59 billion, which is a surplus of Rs. 2.76 billion against the target of Rs. 150.83 billion until mid-June. The same has grown by 27 percent against the revenue collection during the same period last year. The government had collected Rs. 121.23 billion in the first 11 months last year. “We will definitely exceed the target set by the budget,” said Krishna Hari Baskota, revenue secretary at the Ministry of Finance (MoF).

He, however, added that he was not sure whether the revised target would be met, but he said the collection would reach somewhere near the revised target.

The government’s biggest success has been mobilsing the excise duty. The annual target of Rs. 19.64 billion has already exceeded in 11 months with a collection of Rs. 20.85 billion. Value added Tax was collected at Rs. 47.84 billion against the annual target of Rs. 51.56 billion. The revenue from customs duty was Rs. 31.26 billion in the 11 months against the annual target of Rs. 33.13 billion. “We will exceed the target in all these three areas,” said Baskota.

However, the collection of income tax has been relatively low with just Rs. 26.24 billion until mid-June against the annual target of Rs. 36.42 billion. “The income tax target will be met easily as 40 percent of this tax is collected in July,” said Baskota. The government will struggle to meet the target in the non-tax sector. It has collected Rs. 20.54 billion in 11 months against the annual target of Rs. 26.26 billion.

According to Baskota, the failure of public enterprises to pay revenue to the government as a result of their “precarious situation” resulted in the low collection of revenue through non-tax measures. Non-tax sectors include royalties, sales of government properties and dividends.

The government has collected Rs. 4.73 billion until mid-June as registration fees against the annual target of Rs.6 billion. It means the government will have to struggle to collect the targeted amount, according to the revenue secretary.

Meeting the vehicle tax target will also be tough as the government has failed to distribute smart licence cards and introduce computerised vehicle registration system. The government has collected Rs. 2.13 billion until mid-June against the annual target of Rs.3.50 billion in vehicle tax.

BBC Nepali Service Discussion Politics in Hydropower Development

2010-06-19T10:55:00.002-05:00

BBC Nepali Service's Mr. Surendra Phuyal moderates discussion between Kantipur's Bikas Thapa and Maoist CA member Mr. Hari Rokka as to why there is so much politicization in hydropower develoment in Nepal on June 12, 2010.

Travel Warning from US Department of State

2010-06-18T03:43:00.003-05:00

Travel Warning
U.S. DEPARTMENT OF STATE
Bureau of Consular Affairs

Nepal
June 15, 2010

The Department of State warns U.S. citizens of the potential risks of traveling to Nepal and urges caution when traveling in that country. The Department of State remains concerned about the security situation in Nepal. U.S. citizens are urged to obtain updated security information before traveling and they should be prepared to change their plans on short notice. This replaces the Travel Warning for Nepal dated November 19, 2009, to update information on the security and political situation, and to advise travelers about the continuing possibility of political demonstrations and unrest.

Political violence has occurred sporadically throughout Nepal in the past and may escalate due to recent political tensions. Protests, demonstrations, and disruptions continue to occur, often without advance notice. In a recent indefinite strike imposed by the Unified CPN-Maoist Party on May 3-7, 2010, business and transportation were brought to a standstill. During this strike, large demonstrations were held and incidents of localized violence occurred. During past demonstrations, some protestors forcibly closed businesses, damaged vehicles, threw rocks, and burned tires to block traffic. Given the nature, intensity and unpredictability of past disturbances, you are urged to exercise special caution during announced demonstrations, avoid areas where demonstrations are occurring or crowds are forming, avoid road travel, and maintain a low profile. Curfews can be announced with little or no advance notice. U.S. citizens are urged to consult media sources and register with the Embassy (see instructions below) for current security information. The U.S. Embassy in Kathmandu continues to monitor the political situation in Nepal closely, and advises U.S. citizens that the potential remains for spontaneous demonstrations and political unrest, which could escalate into violence. You should stay current on media coverage of local events and be aware of your surroundings at all times.

Crime in the Kathmandu Valley and in the major cities of Nepal continues and includes violent crimes, robberies by armed gangs, and harassment of female travelers. Police resources to combat such crimes are limited. Theft and muggings occasionally occur in popular tourist and trekking areas such as Chitwan, Pokhara, the Annapurna region and the Thamel area of Kathmandu. Trekkers have been robbed by small groups of young men, even on popular trails.

Visitors to Nepal should practice good personal security when moving about and avoid walking alone after dark, carrying large sums of cash, or wearing expensive jewelry. Women are advised to pay attention to local customs and dress appropriately in public. In several reported incidents, tourists have had their belongings stolen from their rooms while they slept. There has been an increase in the number of fraudulent schemes perpetrated against tourists. These schemes involve requesting the traveler's assistance, particularly financial assistance, in establishing shipping routes, or business contacts with the United States or other countries, involving jewelry, antiquities, or carpets, promising huge returns.

The U.S. Embassy in Kathmandu strongly recommends that you do not hike alone or become separated from larger traveling parties while on a trail. Solo trekking is dangerous, has contributed to injuries and deaths, and makes an individual more vulnerable to criminals. Foreign trekkers have gone missing while trekking alone. The safest option for trekkers is to join an organized group and/or use a reputable trekking company that provides an experienced guide and porters who communicate in both Nepali and English. Destruction of telephone services in many trekking areas has complicated efforts to locate U.S. citizens and make arrangements for medical evacuations when needed. U.S. citizens are strongly encouraged to contact the U.S. Embassy in Kathmandu for the latest security information and to register their itinerary before undertaking treks outside the Kathmandu Valley (see Registration/Embassy Location section below). Trekkers also are advised to leave their itinerary with family or friends in the United States and to check in at police checkpoints where trekking permits are logged.

Travel via road in areas outside the Kathmandu Valley is hazardous due to erratic drivers, poor road conditions, and frequent road accidents. Public transportation, such as microbuses and tuk tuks, should be avoided because they are often overfilled, driven unsafely, and mechanically unsound. You should use taxis with meters or negotiate a price with the taxi driver before starting a trip. However, there have also been instances of taxi drivers tampering with the meters in order to charge higher fares.

Most U.S. official travel outside the Kathmandu Valley, including by air, requires specific clearance by the U.S. Embassy's Regional Security Officer. Active duty U.S. military and Department of Defense contractors must obtain U.S. Embassy clearance in advance for official and personal travel to Nepal.

The U.S. Government's designation of the Communist Party of Nepal (Maoist) as a "Specially Designated Global Terrorist" organization under Executive Order 13224, and its inclusion on the "Terrorist Exclusion List" pursuant to the Immigration and Nationality Act, remain in effect. These two designations make Maoists excludable from entry into the United States without a waiver and bar U.S. citizens from contributing funds, goods, or services to, or for the benefit of, the Maoists.

U.S. citizens who choose to visit or remain in Nepal despite this Travel Warning are encouraged to register with the U.S. Embassy through the State Department's travel registration website, and to obtain updated information on travel and security within Nepal. U.S. citizens without Internet access may register directly with the U.S. Embassy during the hours of 1:30 p.m. and 4:30 p.m., Monday to Friday, when the American Citizens Services section is open to the public. Registering makes it easier for the Embassy to contact U.S. citizens in case of emergency. The U.S. Embassy is located at Maharajgunj. The Consular Section can be reached at 977-1-400-7200, 400-7201. The number for after-hours emergencies involving U.S. citizens is 977-1-400-7266, 400-7269. The fax number is 977-1-400-7281. The Consulate's email address is consktm@state.gov.

Current information on travel and security in Nepal may also be obtained from the Department of State by calling 1-888-407-4747 toll free in the United States and Canada or, for callers outside the United States and Canada, a regular toll line at 1-202-501-4444. For further information, please consult the Country Specific Information for Nepal and the current Worldwide Caution, which are available on the Bureau of Consular Affairs Internet website.

Ministers' foreign junkets bleeding national coffer

2010-06-16T03:50:00.003-05:00

Ministers' foreign junkets bleeding national coffer
The Himalayan Times, 15-Jun-10
By Bishnu Prasad Aryal

The national coffer may get emptied, but foreign junkets won’t stop.

At least, this is the impression one gets by visits abroad both by the Madhav Kumar Nepal-led cabinet in a year and the visits of the erstwhile Pushpa Kamal Dahal ‘Prachanda’-led cabinet in nine months are taken into account.

There are 43 members in the present cabinet while the Maoist-led government comprised 24 ministers. The incumbent ministers visited foreign countries 133 times from May 2009 to April 2010, while ministers in the previous Maoist-led government went on 92 foreign junkets between August 2008 and April 2009.

A record of the Finance Section at the Office of the Prime Minister and Council of Ministers shows around Rs 4.45 million is spent on salaries for the present 43-member cabinet every month.

The PM receives 306 litres of fuel; a minister gets 207 litres and a state minister is provided 180 litres per month. They take cash in lieu of fuel.

Dhruba Prasad Sharma, secretary at OPMCM, said the expenses for each foreign visit varied according to the size of the team, distance and number of days spent abroad. A minister gets per diem US$ 200 excluding bills for travel, food, treatment and accommodation, said Sharma.

Around Rs 1.2 million was spent on a minor treatment for Deputy Prime Minister Bijaya Kumar Gachhadar in Singapore a few months ago.

Global Prospective: India - A strong, well-balanced recovery

2010-06-15T03:34:00.003-05:00

India’s cantilevered economy: Taking a high road
Economist, 1-Jun-2010

A strong, well-balanced recovery

ATHLETES competing in this year’s Commonwealth Games held in Delhi will travel to the stadium along the Barapullah Elevated Road, one of many transport projects sprouting up in India’s capital city. Half-built sections of the road loom dramatically over the streets below, as if straining to reach the concrete supports on the other side.

India’s economy has taken a similarly elevated route through the global financial turmoil. Its growth never fell below 5.8% (see chart), thanks to a timely fiscal splurge. But just as a cantilever cannot extend too far before it buckles, so an economy cannot place too much weight on a single source of support. India’s merits special caution, its budget deficit topping 10% of GDP in the fiscal year that ended on March 31st.

The growth figures released on May 31st were therefore doubly welcome. They showed that India’s GDP expanded by 8.6% in the year to the first quarter. And as heartening as the rate of growth was its source: investment in fixed assets (such as elevated roads) accounted for more than half of it; government consumption contributed hardly at all.

By “stepping up” its investments, “industry has shown its confidence in the economic recovery," said Chandrajit Banerjee of the Confederation of Indian Industry (CII). The biggest bets are being placed by India’s mobile-telephone operators, who bid no less than 677.2 billion rupees ($14.6 billion) between them in the government’s recent auction of the airwaves for speedy third-generation (3G) networks. A second auction now under way may raise another 300 billion rupees from firms seeking to offer broadband internet over wireless networks.

This windfall, far exceeding the government’s target of a total 350 billion rupees, will help it narrow its budget gap this year. But the government’s gain was the telecoms industry’s loss. To compete in the auction, mobile operators have borrowed heavily, some from overseas. Instead of India’s government owing money to sleepy domestic bondholders then, India’s most dynamic companies now owe money to foreign creditors. Whether this helps the economy or not will depend on whether the government spends the auction proceeds better than the telecoms companies would have done.

If a slowdown in government outlays was welcome, a slowdown in private consumption, which grew by only 2.6% in the year to the first quarter, was not. The CII blamed this weakness on high prices, which have dogged the government’s second term. In a press conference on May 24th, Manmohan Singh, India’s prime minister, singled out inflation as a "matter of deep concern", but pointed to signs of a "moderating trend".

He’s right to point out that wholesale-price inflation has eased, from over 10% in February to 9.6% in April, compared with a year earlier. But even as the cost of foods (including manufactured foods, such as sugar and dairy) begins to fall, the price of other manufactured goods is gathering some momentum. The Reserve Bank of India (RBI), which has raised interest rates twice this year, still has work to do.

The pace of rate hikes will be governed by two imponderables: the monsoon, which is now sweeping up the coastal state of Kerala, and the squalls on world financial markets, which have swept outwards from Greece. If the monsoon lives up to expectations, the prospect of a good summer harvest will help to quell food inflation. That will, in turn, lower inflation expectations, making the RBI’s life easier. By the same token, bad financial weather may keep interest rates low around the globe. If so, the RBI will be wary of raising its own rates too far ahead of other central banks.

The RBI worries that higher rates could invite heavier inflows of foreign capital. This would push up the rupee, damaging India’s exporters. Overseas investors traditionally flee emerging markets in periods of global financial angst. But an economy growing at 8.6% may look a safer bet than the moribund markets of Europe and America. Rohini Malkani of Citigroup points out that Indian companies were able to borrow $4.3 billion overseas in March, the most they have in two years. Prominent among the companies raising money were India’s infrastructure firms and its telephone operators.

That leaves India’s policymakers with a big strategic decision. They could rebuff this foreign capital, by tightening caps, regulations and other restrictions on foreign investment. Or they could take advantage of it, betting that a stronger rupee is a worthwhile price to pay for faster telecoms networks and elevated roads over India’s congested city streets.

Global Prospective: Singapore Tourism

2010-06-14T03:45:00.006-05:00

Nepal wants to bring in 1 million visitors during Visit Nepal Year 2011. To give a prospective on that number, the tiny Singapore got 10x that in 2010.

News Roundup: May, May be an inflexion month in Nepali politics

2010-06-11T17:59:00.013-05:00

Roundup of Nepali Economic and Business News for May 1-June 12
By NepaliEconomy.com
News Archive

For better or for worse, May 2010 could be an inflexion point in Nepali politics. It is the month when CPI (M) experienced its first political setbacks. Following its massive May Day parade, the group launched indefinite general strike but withdrew it only after 6 days following public backlash, and without getting anything in return from the government. On May 28th it made a last minute compromise with the ruling coalition to extend the tenure of the CA by one year, supposedly to prevent a vertical break-up of itself. Again, it got the short-end of the stick because MK Nepal is adamantly clinging to power. It has become obvious that although the Maoists are the most dominant political force they are not powerful enough to impose their will on the country. The result is that the country has multiple centers of powers and is heading towards fragmentation along ethnic/regional lines much like the Warlord era in China in the early twentieth century post-Manchu dynasty and in Afghanistan post Soviet withdrawal. The bottom-line is that political instability in Nepal is likely continue for a long time.

With the bandh over, it is time to take account of the damages. Total economic cost is anyone's guess - Industry Mahendra Raya Yadav estimates Rs. 250 million a month from bandhs - but there are few concrete claims of losses: Tourism Rs 15 billion, Kurintar Cable Car Rs 150 million and movie industry Rs 27 million. And politicians still talk of ending strike culture in Nepal.

Nepal’s economy continues to chug along despite unfavorable political backdrop. World Bank expects 2010 growth to be around 3%. Nepali government revised down its own forecast from 5.5% to 3.5% because of weaker than expected agricultural output; grain output fell 4% this year; not a surprise given the government has not been able to supply enough fertilizer. Given the country’s anemic economic growth, it is mind-boggling that the government is unable to spend allocated development budget. At least on one measure the government claims a success; it has reduced poverty rate from 31.0% to 25.4%.

BOP deficit is the country's top economic problem according to the NRB Governor. Nepal received $42 from the IMF’s rapid credit facility to finance its CA deficit but that is not quite enough or is the long-term solution. The NRB Governor talked about devaluing NRs vs IRs but that idea was officially shot down the very same day. For whatever reason the country suffers from acute shortage of IRs. Without any concrete policy, trade deficit continues to worsen; it widened 58% in the first 10 months of 2009/10 on the back of weaker exports. China is trying to help Nepal's exports by signing an accord that will allow zero-tariff entry facility to 4,721 Nepali exportable items in the Chinese market but that's more PR than anything given Nepal's widening deficit with China. Taking about trade, there is funny war going between CNI-FNCCI over issuing certificates of origin.

Financial sector continues to be under pressure. Deposits were down in Q3 vs Q2 probably because banks are limiting deposits rates to only 12%. Real estate remains weak with realty transactions in Kathmandu down 25% and aggregate loans down 3% in Q3 vs Q2. Auto sector is in the most severe recession in recent memory, the low-end more so than the high-end. Talking about cars, vehicle theft has gone up in the capital. On the regulations side, the NRB penalized 90 development banks and finance companies for not meeting Statutory Liquidity Ratio (SLR) but bankers were able to push back government’s plans to have deposits of Rs 1 million or more verify the source. On the flip side, the NRB rejected request from the NBA to relax terms of collateral for refinancing from the central bank.

Government has endorsed a new industrial policy but not sure what that means. The country has no respect for law and order; case in point despite the government's opposition truckers are forming syndicates to monopolize their routes. The country suffers from lack of power. Load-shedding first came down by half from 12/day to 6hr/day and then rose again to 9 hours/day. Most importantly for business, Nepal is the most corrupt country in South Asia according TI.

Remittances, which are already affected by the global economic slowdown might get hit more by country-specific issues like in Malaysia where Nepalese are going to compete with cheaper Bangladeshi workers. On positive news, Brunei wants to hire more Nepalese in its security agencies but shortage of passports is hampering those who want to get out.

SOE are a suffering bunch. NOC raked up losses of Rs 10 billion in 2066/67, up from Rs 9 billion in the previous year and is seeking Rs 1 billion loan from the government. NEA is losing Rs 4 billion a year and has accumulated Rs 12-14 billion debt and could go bankrupt. The government wants to privatize NAC which has Rs 12 billion asset at Rs 28 billion enterprise value and is expected to lose its monopoly over ground handling at the Tribhuvan International Airport. NAC is key to the success of Nepal Tourism Year 2011 and wants to expand its fleet by acquiring 9 aircraft but is having difficulty getting government’s loan-guarantee. In the east, Udaypur Cement Factory is on the verge of being closed due to mis-management.

The one sector doing well in Nepal is telecommunications and broadcasting. 81 foreign TV channels have applied for downlink permission with the Ministry of Information and Communications (MoIC) to broadcast in Nepal. NT has slashed 3G subscription price by more than 40%, while price wars in telecoms has move to international calls. And the government has unveiled IT Policy 2010.

There was a major financial scandal in Nepal. Unity Life Insurance Company (ULI), a multi-level marketing company, popularly known as a pyramid scheme, got lot of headline as its business practice came under question. ULI boasted that it had 650,000 clients and collected more than Rs 6 billion mainly from the working poor but the government found that it had only Rs 1 billion in assets. After lot of news coverage, the government froze the account on May 17. Before the government closed ULI’s 34 holding companies, had a money losing hospital in Pokhara and a dairy in Chitwan. The government has charged several ULI's managers. The government also issued order banning networking business but that decision was appealed. Supreme Court issued its judgment but one report says SC agreed with the government but another says it did not; go figure!

Nepal considers currency devaluation in medium term

2010-05-24T03:45:00.003-05:00

Nepal considers currency devaluation in medium term
Financial Times, 24-May-2010
By Neil Fullick

Nepal is considering devaluing its currency because a decades-old peg with the Indian rupee is posing problems for its monetary policy and competitiveness, the central bank governor was quoted as saying.

Yuva Raj Khatiwada, the newly appointed governor, told the Financial Times in a report published on Monday that Nepal needed to reconsider the currency peg "in the medium term" because of the disparity between India's fast growing economy and that of its landlocked neighbour.

The peg holds the exchange rate at 1.6 Nepali rupees per one Indian rupee.

"We have been overly stressed to maintain the peg," Khatiwada said, noting that India's economy was growing at twice the rate of Nepal's economy.

The governor said that India's rupee was appreciating because of the country's economic strength and capital flows.

"Our currency is strengthening just because we have a peg to Indian currency," the FT quoted the governor as saying.

He said Nepal had no choice but to keep the peg in place in the short term to maintain price stability. He feared rampant speculation if Nepal's currency, which is fully convertible with the Indian rupee, was allowed to float, the FT said.

At least 60 percent of Nepal's trade is with India, which is also a big source of worker remittances for Nepal.

Global Prospective: Educational attainment in the world, 1950–2010

2010-05-19T03:43:00.004-05:00

Educational attainment in the world, 1950–2010
Robert Barro, Jong-Wha Lee
18 May 2010

Empirical investigations of the role of human capital require accurate measures across countries and over time. This column describes a new dataset on educational attainment for 146 countries at 5-year intervals from 1950 to 2010. The new data, freely available online, use more information and better methodology than existing datasets. Among the many new results is that the rate of return to an additional year of schooling on output is quite high – ranging from 5% to 12%.

It is widely accepted that human capital, particularly attained through education, is crucial to economic progress. An increase in the number of well-educated people implies a higher level of labour productivity and a greater ability to absorb advanced technology from developed countries (Acemoglu 2009). Empirical investigations of the role of human capital require accurate and internationally-comparable measures of human capital across countries and over time.

Our earlier studies (1993, 1996, and 2001) constructed measures of educational attainment of the adult population for a broad group of countries. This column introduces a new data set (available at barrolee.com) providing improved estimates for 146 countries at 5-year intervals from 1950 to 2010. The data are disaggregated by sex and by 5-year age groups among the population aged 15 years and over (see Barro and Lee 2010).

The new data improve on our widely used earlier information by using more observations of censuses, surveys, and enrolment-rate figures and by employing better methodology. We use consistent census and survey data compiled from UNESCO, Eurostat, and other sources to provide benchmarks for school attainment by gender and age group. We use enrolment-rate data to fill in missing observations at 5-year intervals by forward and backward extrapolation from the benchmark statistics. As part of this analysis, we construct new estimates of mortality rates by age and education level. We also use estimates of completion ratios applicable to each country and level of schooling.

In 2010, the world population aged 15 and over had an average 7.8 years of schooling, increasing steadily from 3.2 years in 1950 and 5.3 years in 1980. The rise in average years of schooling from 1950 to 2010 was from 6.2 to 11.0 years in high-income countries and from 2.1 to 7.1 years in low-income countries. Thus in 2010 the gap between rich and poor countries in average years of schooling remained at 4 years, having narrowed by less than 1 year since 1960 (see Figure 1). In 2010 the level and distribution of educational attainment in developing countries are comparable to those of the advanced countries in the late 1960s.

We use the new data to estimate the relationship between education and output based on a production-function approach. Our findings confirm that schooling has a significantly positive effect on output. Our estimates of rates of return for an additional year of schooling range from 5% to 12%. These estimates control for the simultaneous determination of human capital and output by using the 10-year lag of parents‘ education as an instrumental variable for the current level of schooling. These estimates are close to typical Mincerian return estimates found in the labour literature.

Estimates of rates of return to education vary across regions (Figure 2). The estimates for the group of advanced countries, East Asia and the Pacific, and South Asia are the highest at 13.3%. In contrast, the estimated rates of return are only 6.6% in Sub-Saharan Africa and 6.5% in Latin America.

Results confirm that the rate of return to schooling varies across levels of education. The estimated rate of return is higher at the secondary (10.0%) and tertiary (17.9%) levels than at the primary level, which differs insignificantly from zero. The results imply that, on average, the wage differential between a secondary-school and a primary-school graduate is around 77% and that between a college and a primary-school graduate is around 240%.

Our improved dataset on educational attainment should be helpful for a variety of empirical work. For example, our previous estimates have been used to study the linkages across countries between education and important economic and social variables, such as economic growth, fertility, income inequality, institutions, and political freedom. We anticipate that the new data will help to improve the reliability of these types of analyses.

Disclaimer: The views expressed in this article are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank or its Board of Governors or the governments they represent.

References
Acemoglu, Daron (2009), “Modern economic growth”, VoxEU.org, 27 February.
Barro, RJ and JW Lee (1993), “International Comparisons of Educational Attainment”, Journal of Monetary Economics, 32:363-394.
Barro, RJ and JW Lee (1996), “International Measures of Schooling Years and Schooling Quality”, American Economic Review, 86:218-223.
Barro, RJ and JW Lee (2001), “International Data on Educational Attainment: Updates and Implications”, Oxford Economic Papers, 53:541-563.
Barro, RJ and JW Lee (2010), “A New Data Set of Educational Attainment in the World, 1950-2010”, NBER Working Paper 15902, (accompanying data are available at www,barrolee.com).

NRB Data: Current Macroeconomic Situation

2010-05-18T06:23:00.003-05:00

NRB Data: Current Macroeconomic Situation
Based on the Eight Months of Data for Fiscal Year 2009/10

Please click here to download the Excel file.

Nepal: a high altitude liquidity crunch

2010-05-17T03:50:00.002-05:00

Nepal: a high altitude liquidity crunch
Financial Times, 17-May-2010
By James Lamont

One of the most striking things about Kathmandu, Nepal’s capital, is its real estate sector. Construction is rampant on the city’s edges as new suburbs push out towards the surrounding Himalayan mountains.

Teams of workers atop wooden scaffolding are transforming this ancient city, not so long ago the seat of a Hindu king, with three storey residential homes. So great is the boom in property that imported building materials are a big share in the mountain republic’s balance of payments.

And now the country’s banks are on a crisis footing.

The expansion, and sharply rising property prices, is not a sign of a healthy economy. The construction boom is fed by remittances by Nepalese workers sending money home from countries like Qatar, Malaysia and Thailand. These represent 22 per cent of GDP, and probably much more since only 1 per cent of remittances from neighbouring India go through official channels.

Much of these capital flows are by-passing Nepal’s banking system. Concerns over political instability, and the prospect of a Maoist-led government, have encouraged a flight to safety as economic growth falls. Likewise, a desire to avoid paying tax encourages a large informal economy of undeclared earnings.

Nepalese rather than putting their earnings in bank accounts are building houses, buying gold and depositing money in Indian bank accounts where they earn higher interest.

Nepal’s financial regulators are worried by the trend. They say the country’s banks are facing a severe liquidity crunch. They are encouraging local banks to offer more attractive savings rates to raise deposits and avert failure. Of particular worry is the number of banks for a small nation of about 23m people. There are 26 in total and many are owned by wealthy families with other business interests. As worrying is the proliferation of largely unregulated savings cooperatives about which much less is known.

Nepal is, of course, a long way from New York and on the fringes of the world’s financial system. It usually takes its economic cues from India, which sidestepped the global financial crisis thanks to its conservative regulatory approach. Nonetheless, two years after the fall of Lehman Brothers, Nepal stands on the threshold of its own banking crisis.

Yuva Raj Khatiwada, governor of Nepal’s central bank, has been in the job only two months and identifies bringing liquidity from the economy into the banking system as his top priority.

He has a mountain to climb, and knows it.

“Nepalese have the tradition of learning lessons late. We don’t have the habit of pro-activeness and even if we do react we do it in a belated way,” he says.