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Wed, July 17, 2024

'Legislation for quarterly financial reports of state-owned enterprises could increase transparency in Nepal's economy'

B360
B360 June 9, 2024, 2:25 pm
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John Morrell is the Regional Director for Asia and the Pacific at the Centre for International Private Enterprise (CIPE). In this role, he leads a worldwide team of accomplished professionals and is responsible for a regional portfolio of dozens of programmes on anti-corruption, democratising opportunity, public and private sector governance reform, and creating political space in closed countries.

Morrell is a noted and widely published expert on issues related to corruption and governance. In countries across Asia-Pacific, he has personally designed numerous initiatives that build the political, civic and market institutions necessary for governance that is both participatory and accountable, and for economic development that is both inclusive and sustainable. 

Morrell was recently in Kathmandu when Business 360 caught up with him to learn about CIPE and its involvement in Nepal. Excerpts: 

In what ways has CIPE been involved in Nepal? Are there any particular or specific initiatives you would like to elaborate on?

Our foundational partnership in Nepal is with Samriddhi Foundation. In fact, CIPE helped establish Samriddhi Foundation and we were Samriddhi’s first ever partner. CIPE has been working with Samriddhi now for 20 years but one thing I want to make sure I get across is that CIPE is not a donor. Samriddhi is not our grantee but our partner. We form joint ventures with local organisations to design programmes that accomplish our goals. I was here for a meeting with AmCham. It is a new organisation and we were brainstorming on potential ideas that we could work on together. Though we are not a donor we do provide financing. We also provide expertise and access to resources. We have several programmes in Nepal. Right now, we are working with think tanks. Besides Samriddhi, we are also working with Accountability Lab and Bikalpa. We are working with think tanks all over the country, specifically at the local level of government. 

What CIPE is trying to accomplish in Nepal is to help make federalism work. Nepal is an ancient country but it has never been a federal system before. Federalism is a brand-new concept here. So, we are looking at things we can do to help make federalism work. And the idea that we came up with Samriddhi was what if we created local think tanks who could be independent repositories of policy expertise and could be basically a check and balance on provincial level governments. If let’s say a politician or a province says they have spent $10 million on primary education, well, is there actually a think tank in that province who can fact check that. A think tank who could either verify that that’s accurate or who could say, ‘actually, no, you didn’t do that, Mr Politician. You said you would but you didn’t.’ One thing that was missing in Nepal was a local institution that could be a check and balance on the government. That was an idea we came up with about five years ago and our work is going really well. We have think tanks now in five different provinces.

Why do you feel that we have still not been able to reap the benefits of the federal structure? 

Federalism is a means to an end. How do you make the government work better? Maybe federalism is the right path and I have had some meetings here. This is my first ever time in Nepal and people have told me, let us change course, federalism is not working. Let us try something else. At CIPE, we do not have an opinion on if federalism is good or bad. But that is the system that is in place here. What CIPE tries to help get across is that the role of government in general, whether it is a federal government, a monarchy, Maoist, whatever, is to almost be like the referee in a match.

The role of the government is to set the rules and enforce them. The referee does not tell people how to play the game. The role of the government is to set the rules and enforce them, not to pick who wins. It is not to tell companies this is how you should run your business or tell consumers you can consume this product but not that product, because that is like the referee telling people how to play the game. So, I think if policymakers in Nepal are pushed by think tanks and covered by independent media then the role of government becomes one of how it can set the rules and enforce them and allow people to play the game and let businesses and consumers do what they do. The government should allow people to make choices.

In your opinion, for Nepal, is federalism economically viable?

Potentially, yes, it can be viable. It is hard, though, because federalism is inherently decentralised. Public service delivery is decentralised and provincial level governments have a bigger role. Until a few years ago they barely existed. They did exist on paper but they did not do anything. But now provincial governments have to run school systems and build roads, among other activities. They have large budgets that they are responsible for but they do not have the experience of managing large budgets. So, yes, federalism can work here but it is ultimately an exercise in decentralisation. And one thing that Nepal has always been is that it is very centralised. There was monarchy for a long time. It has a legacy of everything being centralised whereby decisions are made in Kathmandu. Decisions have always been made by the boss. It is a culture shift as much as anything technical. How can the culture of politics in Nepal be more localised? How can decisions be made at the local level and not in Kathmandu? There is technical work that goes into that but it is also just a mindset shift and a culture shift.

How do you view the role of the private sector in the economic development of the country?

It is ultimately the private sector that creates wealth and pays for the government. It is the private sector that generates wealth, generates money, creates employment, and pays taxes to fund the government. So, what the government can do or what it does with that money is a policy decision. That is up to politics. It is not a matter of theory, or an opinion. It is an empirical fact that it is the private sector that generates wealth. Governments don’t generate wealth; they just set rules and enforce them. It is the private sector that drives economic development. I am not saying that the government has no role because it is the government that sets direction. The government sets policies and targets, but the government shouldn’t, in anyway, tell businesses how to operate. The government should also get rid of excessive red tape that may be well-intentioned but does not accomplish anything. So, the role of the private sector in economic development is central. Now whether it is a Maoist government or a Congress government, what the government does with the revenue, that’s a political question. But the role of the private sector is not a matter of opinion, that’s empirical fact. It’s the private sector that generates wealth.

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How can the private sector collaborate with the government and development partners for inclusive and sustainable growth?

There actually is no law that Nepal could pass or any politician who could ever come up with a law that would make Nepal like Singapore. No such legislation could accomplish that. But you know what a law could do? Very simple. Nepal could pass a law requiring that state-owned enterprises have to submit their financial reports to the central bank once a quarter. That is a very straightforward piece of legislation. Setting aside national security stuff, all state-owned enterprises, be it the airline or the road authority, should submit their financial reports. It is totally opaque. If any policymaker introduces legislation requiring that all state enterprises have to disclose their financials once per quarter to the central bank that would make a huge portion of the Nepali economy transparent. No one knows what they do. No one knows how they spend their money. No one has any idea because it is totally opaque. That simple legislation requiring SOE’s to disclose their financials to the central bank will increase transparency dramatically. And you cannot be inclusive if you are not transparent. People cannot really work together if they do not know what each other are doing.
So, what I would say is one piece of legislation cannot make Nepal great overnight. It does not work that way but you can identify specific problems. SOE’s have no transparency. That’s a specific problem that a specific piece of legislation could fix. So, if Nepal could take enough small steps like that, the aggregate impact could be transformative. People look for an all-encompassing solution and some might say if we do this, the economy will boom. How do we do something that’s comprehensive that solves everything at once? I have travelled to over 50 countries and I have never found a magic wand or never found a tree that grows money. So, maybe there is a magical piece of legislation that will transform the country, but I don’t know what it would be. But you can identify specific problems that a specific piece of legislation could solve and if the country could do that enough times, the aggregate impact could be transformative.

What is your opinion about government being involved in business?

My opinion is that government ownership of companies is kind of a technical detail. Volkswagen, the German car company, is an SOE. The German government is, I think the largest shareholder of Volkswagen. The United States government owns shares in companies at various times. During the big financial crisis that emanated out of the United States in 2008, what the US government did was basically buy all of the troubled banks. The US government bought shares in these companies to prevent them from failing. So, for at least a little while, those companies in the United States were SOEs. Hence, it is not necessarily that governments cannot own shares in companies. I tend to be more of a liberal thinker. I am a bit more of a libertarian. I agree with you. Government should build schools, build roads, focus on public health, protect the environment, and don’t get involved in commerce. Governments do not know how to run airlines. They do not do a good job at it but that is my own sort of philosophy. In some countries, they can make public companies work. It is not that government ownership of companies is inherently bad and you should not do it. It is more a matter of how it is done.

Volkswagen is traded on the stock exchange. So, it has disclosure requirements to make to the securities authority. Also, the Thai government is a major shareholder in Thai Airways but Thai Airways is traded on the stock exchange of Thailand. The government has shares in it but it competes on a market basis. The problem with SOE’s in Nepal is they are not necessarily commercial. They are things like the Highway Authority and the Port Authority. They are not subject to the securities disclosures. There is no competition for them and the effect it has is kind of the worst possible combination. The government owns these companies. They are not well-run. They lose money. In fact, Samriddhi has data that in Nepal one-fourth of the tax revenue collected by the government goes to subsidising SOE’s.
So, the government of Nepal spends more money subsidising SOE’s than it spends on primary education. Is that worth it? Is it worth it to subsidise the loss-making airline so that you, in exchange, are not spending more on schools? Again, this is my own personal opinion. I am a guest in this country. I would rather my government focus on schools and not on running airlines.

What are the ways to drive entrepreneurship and innovation in Nepal?

Part of it, I think, is a mindset and I do not know enough about Nepal to speak specifically, but I know in some countries being an entrepreneur has a positive connotation. If you are an entrepreneur then that means you must have ideas and are willing to take risks. It means you could be wealthy someday. 

However, in some countries it is the exact opposite. If you are an entrepreneur then that means you are poor because everyone wants to be either a doctor, lawyer, an engineer, or have a good government job. The only reason you’d be an entrepreneur is if you cannot be a lawyer, a doctor, an engineer, or you cannot get a good government job. So, in some countries the concept is that the reason you are an entrepreneur is because you are poor. That is a very ugly mindset to have, that the only reason you’d start your own business is because you cannot get a government job. In a lot of countries that I have worked and lived in, that is the mindset, and I do not know enough about Nepal to know which category Nepal would fall into. But ultimately, it is the role of entrepreneurs, especially young entrepreneurs to make any country’s economy strong. 

What I can say is that Nepal has a very big problem with population exodus. I have read that but I have not fact checked it, but I have read that upwards of one million Nepalis leave the country every year. I have heard that about one-third of Nepali people on earth are not in Nepal. Why is it so? Because of the lack of opportunity here. It’s entrepreneurs and a spirit of entrepreneurship that gives people hope. The feeling should be that ‘I do not have to go to Dubai or China or India. I can stay right here and start a company’. People should have the belief that if they have an idea they can make it work in Nepal itself. They should believe that they can build a company and hire other Nepali people. It is entrepreneurship, I think, especially young entrepreneurship that gives people hope. And if the marketplace is just so cumbersome, so riddled with corruption, where you cannot get a business permit or an electricity connection without paying somebody then definitely people are going to leave. The lack of hope drives people to leave. And it is entrepreneurs that give people reason for hope.

I do not have a magic wand whereby I could say if Nepal does this, entrepreneurship will take off. But if the leaders of the country and policymakers extoll entrepreneurship, lionise entrepreneurship, encourage entrepreneurship, then you would not have so many Nepalis leaving the country.

In recent years, there are many voices being raised against globalisation. Your comments.

Globalisation is a term that is unpopular everywhere. Globalisation is an ugly word in American politics, in Indian politics and Indonesian politics. The concept of globalisation is beginning to be implied as a loss of sovereignty. People run for office criticising others for being globalists. Hence, globalisation is becoming an ugly term but it is an inevitable trend. The world is getting smaller. We have meetings with our partners in Nepal constantly but we come here only about once a year. We can speak to people on a face-to-face basis in real time. We exchange information instantaneously. We move money, capital instantaneously. So, globalisation, even though it is a term with ugly connotations, is in some respects an inevitable consequence of technology, the world becoming a smaller place. Is globalisation a good thing or a bad thing? It is what it is; that the world is a small place at any given time.

There is an argument that’s happening in the United States. Should we have more trade barriers in place? Should we do more to support local business versus allowing people to buy things from abroad? It is not necessarily that it is a good or a bad thing, but it is here and it is here to stay. So, it is a matter of how a country positions itself to benefit from it. And an interesting way of thinking about it is branding. Usually when you think about brands, you think about companies like McDonald’s and Toyota. But countries have brands, too. This is my first time ever in Nepal and it is an outsider’s perspective. The brand of Nepal in the eyes of much of the world is first the physical beauty. There are things you can see and do in Nepal that literally you cannot see or do anywhere else. And not just the mountains, but the architecture, the food. That’s why the tourism business is booming the way that it is here. So, the brand of Nepal is that it is a place you want to visit. 

But the brand of Nepal is also one of a very cumbersome, very expensive and unpredictable place to do business. Millions of visitors come here every year. They are tourists; they climb the mountains, stay in the hotels, but then they leave. It would be better if people were to come here and not just climb the mountains and have dinner but say ‘I want to open a factory here. I could make money here’. People should feel that there is a labour pool here which they can utilise and want to stay here. Too few visitors to Nepal think that way. They think of Nepal as a beautiful place where they want to go for a vacation and have a lovely time and then leave.

So, Nepal needs to improve upon the entrepreneurial aspect of its brand and I think Nepali policymakers are trying to convey the message of stability. There is aggregate level political stability. There have been several consecutive elections. People could like or dislike the outcome, but they were free and fair. They were legitimate elections and so Nepal is a democracy. It has crossed that threshold. But how can Nepal make democracy work and unlock the potential of the economy? If Nepal’s brand is that of a country of entrepreneurs, then I would say that is a cool brand to have. But that is not Nepal’s brand yet. So, I feel Nepali policymakers need to work on building this particular brand. 

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JUNE 2024

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