The easy path to riches

  • It is probably a function of our socio-economic development, but rent-seeking seems ingrained in our psyche
- Deepak Thapa

Mar 8, 2018-

Soon after the new fiscal year begins in mid-July, the accountant at our office hands out our statements of accounts with the Employees’ Provident Fund (EPF) and the Citizens’ Investment Trust Fund (CITF), the two government entities that allow working Nepalis to save money periodically in return for a tax exemption. This scene is likely played out across the country. With the statements telling depositors how much the nest egg has grown in the previous year, calculations are made on whether the money should stay there or if it is better utilised as a loan to fulfil needs such as financing a child’s education, buying some land, adding another storey to an existing house, paying for a sibling’s wedding expenses, purchasing a motor-cycle, and so on.

Among the many rows in the statements that detail amounts deposited, interest earned and cumulative total, in some years there is a row that stands out. That extra row denotes what your share of the profits from the investments made by EPF and CITF has been for that year, which generally comes as a surprise bonus since you are already being paid a not-unreasonable interest rate on your savings to begin with.

That is the advantage of saving with the two financial behemoths that EPF and CITF have now become. From helping Nepal Airlines with its purchase of airplanes to kick-starting the Upper Tamakoshi Hydropower Project and now being marked as potential sources of funding for the massive Budhi Gandaki Hydropower Project, EPF and CITF are increasingly viewed as sitting on an endless supply of money. This supposition is not wholly incorrect, since both groups will continue to see a monthly augmentation of the funds at their disposal in near perpetuity from the roughly 1.1 million-plus contributors who have signed up, voluntarily or otherwise.

As working people saving money, we generally leave it at that and do not give much thought to the other side of the story, which pertains to some government bureaucrats feathering each other’s nests, openly and legally. Whether it is also morally so is the point of this piece.

Cosy circle

By law, all government officials see a 10 percent docking of their pay to be placed in their name in the EPF along with a further 10 percent added by their own employer, a facility that has now been extended to the non-government sector as well. Then came the CITF, where, too, one can save some more, provided that the combined savings at both EPF and CITF does not exceed 33 percent of your total income or Rs 300,000, whichever is lower. The idea is to encourage thrift and make use of that money for the ‘economic development of the nation’, as the CITF puts it. And, since thrift is rewarded by making all the savings in EPF and CITF tax-free, there is a strong financial rationale to save as much as possible.

There is nothing either the management or the staff of both EPF and CITF have to do to make sure that their depositor base continues to rise and that they also save the maximum possible amounts. Yet, both institutions now wield the kind of clout commercial banks can only dream of, and they are courted by one and all for possible investment. The investing has been done in a number of projects, and true to the Nepali saying that goes something along the lines, ‘Those who harvest honey get to lick their hands’, EPF and CITF officials have also ensured that they themselves benefit personally. Hence, every hydropower project that receives loans from either always includes the provision that a certain percentage of shares will be reserved for employees of EPF and CITF. In effect, staff at EPF and CITF use the influence our money gives them to guarantee themselves promoter shares in lucrative projects. Economists have an apt term to describe such a phenomenon: rent-seeking.

Let us next look at the said hydropower projects. All the projects funded by EPF and CITF have been owned by the Nepal Electricity Authority (NEA) or one of its subsidiary companies. There is a simple reason for that: NEA has reserved all the ‘good’ projects for itself, in which returns are guaranteed at a relatively higher scale. Not to let any opportunity to lick the honeyed hands pass, NEA, too, has invariably introduced the provision ensuring that its employees (and of its subsidiaries) are provided with promoter shares in these projects. What is happening is this. In the NEA, the government has created a monopoly that generates, transmits and distributes electricity, and has also granted it first dibs on all hydropower projects in the country. Leveraging such a position, the NEA is easily able to seek financial partners that would benefit not only the institution but also the employees themselves.

Rent-seekers galore

After June of 2001, when Prince Gyanendra became King Gyanendra, I, like many others, was asked if there would be renewed hope for Nepal with the new king since he has been a ‘successful businessman’, and would know something about management. The one answer I gave everyone was simple. He could be called a businessman if he had plunged into the open market in competition with our Marwaris. Operating out of the palace to ensure he was cut into every business deal that took his fancy and using his position to smooth things over for his businesses does not make him a businessman—only a rent-seeker.

It is probably a function of our socio-economic development, but rent-seeking seems ingrained in our psyche. Or else, what logic would have induced the Civil Aviation Authority of Nepal (CAAN) and the Nepal Oil Corporation (NOC) to announce bonuses to their employees last year? With government approval, CAAN charges every flyer that uses Nepal’s airports and every airplane that lands here. The money collected by CAAN is meant to be used to provide services to both travellers and airlines. Given that the Kathmandu airport has consistently been voted the worst in the world and the ones outside of the capital are even worse, it would take a fair amount of gall to argue that since CAAN has instead saved the money it would like to distribute bonuses.

Since a bonus is a profitable company’s way of saying thank you to employees for all the hard work they put in, there is something patently immoral about distributing bonuses to employees of companies such as the NOC that make money for the simple reason that they are monopolies mandated by a country’s laws. Public opinion and government action thwarted both CAAN and NOC from their bonus-distribution plans. But, the mutually beneficially racket being enacted openly by EPF, CITF and NEA has hardly generated a murmur. Or, perhaps we have failed to recognise rent-seeking even when we see it.

Just like no one seems to when some bureaucrats are paid ‘performance-based encouragement bonus’ for performing a job each has sworn to discharge ‘faithfully to the best of my knowledge and wisdom’. Introduced a little over a decade ago in the tax-raising offices of customs and internal revenue to encourage officials there to be more proactive in levying and raising taxes, I am not aware of any review conducted to see how effective the bonus has been either in terms of increasing revenue or decreasing corruption. Yet, that has not prevented the scheme from being extended to other government departments. Currently, employees of the following offices receive the ‘performance-based encouragement bonus’ of 50 percent of their salary: Customs, Internal Revenue, District Treasury Controller Office, Auditor General’s Office, Commission for the Investigation of Abuse of Authority, the courts, Attorney General’s Office, National Vigilance Centre, Department of Civil Personnel Records, Public Procurement Monitoring Office, Prime Minister’s Office, President’s Office, Vice-President’s Office, Parliamentary Service, and National Reconstruction Authority (NRA). Is it just a coincidence that apart from the NRA, whose employees have gone on strike now and then over the issue, all the other offices either have a regulatory function or are associated with the high and mighty of the land? In my view, performance bonuses would be better spent on public servants like teachers, health workers, technicians, etc, the ones without whose performance the system would easily collapse, rather that the rent-seekers mentioned above.

Published: 08-03-2018 07:53

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