The global economy has never before come to a near standstill as it has in the current time under nationwide lockdowns, and neither are there any prescriptions for it to open in the setting of an ongoing pandemic. Leaders in public and private sectors must now learn incremental adaptability as reopening starts. The risks are multiple and the choices few.
The Government of Nepal has shown little response in creating guidelines or support for the private sector, and has remained indifferent to the woes of the small and medium entrepreneurs who now face grave uncertainty even as multiple supply chains have been disrupted, employment severely affected, remittance at zero levels, and the threat to lives and livelihoods severe.
The FNCCI is the national apex body for business in the country. Yet, it remains strangely silent even after over 60 days of lockdown. Social media is rampant with questions for the FNCCI: Is their role limited to fraternizing with the top political brass over cocktails? Is it to accompany high powered trade delegations and sit on policy meeting? Will they push the needs of the MSME’s to the forefront to help them survive this crisis?
What is the FNCCI doing right now – we ask Shekhar Golchha, the Senior Vice President of FNCCI as well as the incoming President of the apex body. We also took his views on various consequences of COVID 19 on the economy. Excerpts:
Text by: Pushpa Raj Acharya
How do you assess the impact of the Coronavirus pandemic in Nepal?
Before entering a country specific scenario, I would like to talk a bit on the global scenario. Coronavirus pandemic is probably one of the most important events in our public life, social life and as far as health is concerned. Coronavirus outbreak caused a huge impact on the global economy. The global GDP is projected to slump by 6%.
Earlier, the global economy was projected to grow by 3.3% cent and now it is expected to shrink by 3%. Millions have lost their jobs and are in the process of losing jobs. The whole world order is going to be changed in the future. The world as we used to see it, the way we travel, the way businesses were done, the way countries run… everything will be changed in the future. I think the new change will be towards minimalism. People are not going to invest in luxuries and durables. That will change the business dynamics a lot globally.
As far as Nepal is concerned, there are enough consequences in the economy. We are facing manifold challenges at the same time. The initial estimates show $3-4 billion loss in our GDP. What is really worrying for me is the volume of jobs that people are losing. Significant job losses will impact the livelihoods of those already in the job market, newcomers and the migrant workers. Almost 500,000 migrant workers have probably lost their jobs and they are just waiting to come back to the country. This is just the start. We all know that the remittance sent by migrant workers to the country was lubricating our economy since long. Remittance was the biggest contributor for our economy. Remittance was driving the consumption since long and the government was generating revenue. This is how the whole country was running. When they return after losing their livelihood, it is going to be a very worrying situation for the country. In Nepal, in SMEs and organised sector, around 1.5 million people could lose their livelihoods.
Could there – by any account – be some optimism in disguise to come out of this situation if we adopt new ways of working?
We are a very young country and the fundamentals of our economy are very intact. This is not the first sort of big disaster or challenge which the economy has faced. In the past also we have faced challenges when political changes were taking place. There was a period when labour relations were at an all time worst and most factories had gone into strikes. There was a period when there was no power supply and we were doing business in 15-16 hours of crippling power outage. There was the period of earthquake and blockade. We have overcome all those challenges and we have bounced back very strongly in a short period of time. But COVID 19 has far-reaching impacts on our economy and the bounce back is going to be slow. However, I am confident in two things: we are going to bounce back and there will be new opportunity for all of us. If we can adapt to the change, then there will be opportunity, like in digital trade, opportunities in health, cleanliness and hygiene products, healthy eating. There will be a lot of changes in the psyche of the people as well. We could take a bit longer to bounce back in certain sectors like the tourism and hotel or tourism related industries. As in the next two years, tourist arrivals will be minimal.
I feel this is the time to think positive, to adapt to new changes and look for new opportunities. We are hoping the government is going to do some handholding. There is a lot that the private sector is expecting from the government. If the private sector becomes sick or unable, it will not be able to create jobs, manage cash flow through creating revenue and paying taxes. It is important that the health of the private sector should be kept intact.
Many countries have announced fiscal stimulus to address the consequences of the pandemic. How can our government best address the current challenges?
Basically, the private sector is hoping for help in four areas. First is managing our cash flows. Most of the private sector entities, whether a large-scale corporate or SMEs, is challenged with the cash flow situation. What we have been speaking to the government is about refinancing, lowering the interest rate, allowing restructuring of loan, and being flexible in debt equity ratio. Another request is regarding energy bill. Nepal Electricity Authority has still been sending demand charge bills despite the industries being shutdown. Demand charges should not be levied when the industries are closed. The fiscal budget 2020-21 has addressed this issue. Thirdly, there is going to be surplus energy from this rainy (wet) season. If there is surplus energy, the government can give it to the industries at cheaper rates. The budget has announced 50% tariff waiver in off-peak hours, it is a minimal 2 percentage points waiver as there was already a provision of 48% waiver in tariff. If the government would have provided more waiver, it would help industries to be competitive. The third suggestion is regarding labour. The organised sector in Nepal is employing around 1.5 to 2 million people. Paying salaries in these times when there is no revenue at all is very difficult. Private sector is extremely stretched to pay this. What we are saying to the government is to allow us to pay only 50% for those who have not worked at all. However, we have not reached an agreement with the government and trade unions. If some companies want to downsize because the business is going to change; the labour law should allow them to downsize as well.
What sort of stimulus package had the private sector visualized before the budget?
In terms of stimulus package, the sort of stimulus package we were visualizing is around 5% of GDP. Around Rs 3 billion from the stimulus package should have been allocated for the lowest socio-economic group in terms of some kind of relief – whether it could be salary subsidy for daily wage labourers or food subsidy or electricity subsidy. If we help the poor, then the demand cycle will become active again, then the industries can recover as well. It should be in the form of some kind of handouts.
We had also added that there is a lot of money in stock of the private sector with the government like VAT credit. We can claim VAT credit only after four months, if the period to claim VAT credit could have been shortened, the companies could manage some cash flow in this dire situation. However, there is no progress on that front. There are so many dues from the government to the private sector. If the government hurries up as a policy and releases those payments, the cash flow situation of the private sector could be improved.
All these suggestions we have given to the government is to ease this lockdown period. We are not asking for cash subsidy for ourselves; we are just asking for lowering interest rate, refinancing and some policy changes for us to revive in this situation. I think if the government does all these, our economic recovery will be faster.
What sort of amendment is the private sector seeking in labour law?
There is going to be huge challenges in the near future to create employment in Nepal. For the first time, the government and the private sector is going to be pressurised to create jobs. So far unemployment was not the bigger challenge for Nepal. At the same time, the private sector is going to be very uncertain as to how and in which direction the economy is going to head. Against this backdrop, we are seeking more flexibility to ‘hire and fire’. Around the world, governments have done this. We feel that this is the time to relook the labour law once again.
There is a conflict of interest between those businesspersons on the boards of banks and financial institutions and others on the issue of banks charging high interest rate even at this time. Will FNCCI take a lead to minimise the credit rate in this situation?
My point of view is clear on this. It is important for the banks to remain strong. If we see all the previous challenges that we have faced in the economy, we could have a very early recovery; one of the major reasons was the strength of our banks which are among the best run banks in the South Asian region. We are not suggesting that banks should lose their health. However, when non-performing assets (NPA) of the bank rise in such difficult times, it is a matter of moral obligation of the bank towards the businesses, towards the country. More than the profitability, we should create a win-win situation for both parties. We are not saying that the banks should not make money. We are giving stress on allowing the private sector to survive. Otherwise, there will be disaster.
I would like to also add that businesses should be competitive and currently interest rate is one of the highest components of our costs. Interest rate has to come down. We have sat with experts and bankers and said if the banks reduce the rate on deposit to the level where India is right now and request the Central Bank to tweak certain parameters in which the banks are running like cash reserve ratio (CRR), credit to core capital cum deposit (CCD) ratio and others, it would be possible to bring down credit rate as low as 5%. Banks should also look at the larger picture, they cannot just look at what they earned in the previous quarter and what they are going to make in the next quarter. Currently, even depositors have given enough flexibility to the banks and shareholders will also agree to some flexibility for the larger issue of the country and the economy. The banks must compromise and create a win-win situation for both the banks as well as the private sector.
Remittance driven consumption patterns will be shattered by the pandemic. The government is saying that this could be an opportunity for industrialisation. Do you agree?
This should be taken as an opportunity and is an eye opener. It’s been almost 20 years of high dependency on remittances, and the only reason that our balance of payment is positive. Our exports have been weakened extremely. We are signatory to the World Trade Organisation and we are a champion country in terms of compliances in WTO. Industries could not get protection and security on investment, cost of doing business in Nepal is extremely high; this is the time to review all the trade and transit treaties we have signed multilaterally and bilaterally. Now is the time to look into these and protect industries so that there will be more investment in industries and it will create jobs.
This is the time to relook everything that we used to do. This is not going to be easy; this could create inflation. Extra cost is going to be paid by the consumers. It will have 360 degree effect on how we live. But it is time we start looking inwards and try to see how we can create more jobs in the country and develop a solid and strong base for a resilient economy.
Even if the government ensures protection, the industries will require other incentives to be competitive. Your views.
I do feel that the cost of doing business in Nepal is very high. Most of the costs accrue from the interest rate, energy, logistics (trade transport) – cost of importing raw material as we are landlocked. We have inefficient infrastructure and the productivity of our labourers is one of the lowest in the world. International Labour Organisation has been sharing that our productivity is poor. Overall, there is no cost advantage or strategic advantage for setting up industries in Nepal until and unless the industries will be protected for the inefficiencies being created by the system. We need higher duty for imports. Of course, we can understand that this will create some kind of inflation in the country. Even though price get escalated, the revenue generated by the government can be allocated for redistribution to correct the inefficiencies in the system.
You are a strong lobbyist of the SMEs. However, the FNCCI is being heavily criticised for not representing the interests of SMEs?
If we look at the structure of the FNCCI, 50% weightage of our total voters are from the districts and municipality level chambers. Only 30% comprises of the large corporates. It is very evenly distributed. SMEs are a very important part of FNCCI. I have always championed solving the problems of SMEs.
The main problem of the SMEs firstly is higher cost. What we’ve been advocating is that refinancing should be available for SMEs as well as interest rate should be subsidised in some way for them. Second, SMEs have a lot of problems in compliance of various laws of the country. It does not mean that they don’t want to comply but sometimes it is far too complicated for them to comply with the laws whether it is vehicle consignment tracking system (VCTS) or registration charges, or providing reports to getting certification from various departments. Sometimes compliances raise the cost and highly complicate the business processes. We are saying that we must ease out the compliances for SMEs. Third is market related problems. SMEs obviously lack the capacity to have strong marketing of their products or the distribution network for their products across the country. We think that some handholding from the government is required in this regard. Fourth problem is challenge of access to technology because of their limited capital and access. Government should provide them support with technology and enable them to benefit from it.
Is the government paying any attention to the informal sector because large numbers of labourers are losing their livelihoods?
I strongly agree with this. Because of the pandemic, the informal sector is also hard hit. Informal sector may be sounding informal but they are huge contributors to our economy. It is very important that they get real and get serious government support. Sound fiscal stimulus should be focused towards the informal sector. I think we must find ways to help the informal sector and encourage them to come into the formal sector so that they can contribute more to the economy.
The fiscal budget 2020-21 has focused on agriculture, large scale infrastructures and industries. Do you think that enough jobs can be generated without streamlining all other potential sectors?
I think a lot of focus has to go into agriculture. Agriculture has been the biggest contributor to our GDP. If we see traditionally, agriculture is growing at average 4% per annum and has prospect to grow higher. There is low yield in agriculture. We are growing at 4% but consumption is increasing more than 8-10% every year. That is the reason for our dependency for importing many food grains, vegetables and fruits from India and the other neighbouring countries. It is important that we modernise our agriculture by mechanising and land pooling. Mechanisation cannot work without land pooling, both things should go simultaneously. We must hire experts to see which product has cost advantage while growing it in Nepal. Maybe some of the mainstream products we can still import and we should rather go for a higher value production. If we are able to do this, agriculture can be a bigger contributor.
You have highlighted the prospect of digital technology to reap advantage in many sectors. Could you elaborate?
One of the areas where there is huge opportunity is technology, especially information technology. In coming times, we will not be using paper money. Huge payment gateways could be developed. There are other prospects like e-commerce that has huge potential. A lot more people in the future will be accessing services sitting at home or in their offices. You need to be on top of technology. The youth of our country are educated and IT savvy, and this can be achieved.
How is FNCCI responding to the COVID-19 crisis further?
The way the government is enforcing lockdown is unfortunate; they could have been much better handling. The quarantine centers developed by the government are very poor and almost look like concentration camps to me. Sanitation and hygiene is very poor. We should have utilised the lockdown period to create infrastructure for when the numbers really start increasing. Unfortunately, that didn’t happen. My advice is we still need to develop quarantine and infrastructures, enhance the capacities of the hospitals with testing equipment, ventilators among others even though a lot of time has already been wasted.
Most importantly, the economy needs to start because more people will probably die from poverty, hunger and depression if the economy does not start. We need to take a call. Numbers are going to increase certainly once we open up; we don’t need to be too concerned about the numbers. What we need to see is balance of both: the economy and saving lives. Saving lives is important; it is not just a matter of saving lives from COVID-19 but also from the other problems we are facing.
There have been recommendations from the stakeholders to start the economy with workplace safety and certain protocols; however, the government is continuously ignoring such advices?
What the government has said is that if the industrialist wants to start the industry, the entire labour has to be managed inside which is not practical, it is like the government has to manage all government employees inside Singha Durbar. More importantly, for industries to run, the backward and forward linkages should be in place.
We’ve already gone through more than 60 days of lockdown. We cannot go on like this, otherwise the whole country will be bankrupt. We need to move on with healthcare protocols and workplace safety.
Capital expenditure of the government is consistently slow and there is a repetition in this fiscal and probably in the next too. How can the government ramp up development spending despite the current situation?
It will be very unfortunate if development budget is curtailed. Simply because at such times it is important that the government increase their spending. When they increase their spending, the economy revives faster. Even if they have to borrow money externally, internally or even print more money. They should bring more money into circulation and should not stop development projects. Because the moment projects get stopped, the cash flow situation stops and the whole economy slows down and we get into a vicious cycle. The government must not stop spending. We still have a lot of capacity to borrow because our Debt to GDP ratio is low and there is still a lot of headroom to borrow money from the international agencies, so we must borrow and we must not stop any development projects.
The pandemic sees the FNCCI postpone its election for 2020-2023 term. Why is this?
If everything had gone well, I would have been President of the FNCCI. As per our constitution, I should have taken over by mid-April. Unfortunately, the Coronavirus outbreak has affected everyone. Right now, my priority is to help my fellow businessmen recover. I have been trying to lobby hard on behalf of the private sector. Whenever the situation normalises or we are in the position to hold elections, the schedule will come out. I am really looking forward to it.
Why couldn’t the elections happen online when even schools and colleges are operating on digital technology?
It would be difficult to hold elections nationwide of the largest private sector umbrella body online. All the voters should be technology-friendly and there should be optimum trust in it before we embark on it. The whole world is changing to digital formats and FNCCI could adopt digital technology for its work in the future.
What is your focus once you take the position of President of FNCCI?
Our role is clearly defined to help the private sector to comeback from the difficult situation in their businesses. I also want to focus on providing assistance to the private sector in terms of advocacy, legal help, moral support and opportunities.