Change the law

  • Foreign investment in small industries could do more harm than good

Mar 21, 2019-

For the first time in decades, Nepal has a stable government. It boasts a thumping two-thirds majority too. With that kind of strength, it could do anything. From ushering in new and innovative policies to bringing about changes in governance like never before. But instead of utilising that majority to do something good, it looks like this government too, like its predecessors, is guided by parochial interests only.

Recently, the government tabled the Foreign Investment and Technology Transfer Act in Parliament that would allow foreign investment in small and cottage industries too. Foreign investment is welcome in that it is an important source of external finance. Developing countries like ours could especially benefit from the expertise and transfer of technology and skill sets, too. Yet, inviting foreign direct investment in small industries could do more harm than good in the long run. More often than not, allowing foreign direct investment is often tilted in the favour of big companies; and having them in cottage industries like handicraft and garments will wipe out small, local traders.

The Investment Summit is being held next week. It aims to woo foreign investment in the country. To this end, the Ministry of Industry, Commerce and Supplies rushed to revise some 22 acts and policies related to industry and trade in a bid to attract foreign investment during the Investment Summit. Nepal last organised such a meeting in March 2017 to showcase the country’s investment opportunities, particularly to large investors. The government signed letters of intent with foreign investors for investments worth a combined $13.50 billion at the summit. But the pledges did not materialise because of unfavourable laws. Learning from that mistake, the government made efforts to revise them. That is laudable, but the government needs to realise that it cannot take any decision unilaterally. It is imperative for the ministries concerned to understand that whatever laws they draft, bypassing the concerned stakeholders is something that is not done. Any amendment needs to be widely deliberated upon.

According to Nepal Rastra Bank, foreign direct investment in the country has gone down by more than half year-on-year in the first four months of the fiscal year. Foreign direct investment totalled only Rs4.95 billion in the review period whereas the country received Rs10.17 billion during the same period last year. Given this scenario, the finance minister is focused on attracting more foreign investment. We are not against that. But laws should not be crafted hastily. The government’s job is not just to make the data look good, but also consider the social costs of any policy. The Foreign Investment and Technology Transfer Act needs to be amended so that it favours small local enterprises, and as a corollary, they remain in business and keep generating income and employment.

Published: 21-03-2019 09:59

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