Nov 262013

Most public enterprises (PEs) were established beginning from the Second to the Seventh Five Year Plan periods as a vehicle of development. These units were created as instruments for production and for achieving socio-economic policies of the government. This initiative of the government was essential and justified at a time when private sector investment was not forth coming in the provision of basic social and economic services.

The number of such enterprises in the industry, business, service, social and public utility sector exceeded. Many of them were established with the assistance of donor countries. From these public sector organizations, it was expected that they would create an industrial base in the country, enhance domestic production, substitute imports, generate employment opportunities, and contribute to the national treasury.

But most PEs characterized by operating deficits, overstaffing, heavy dependence credit, and inefficient management and low capacity utilization/sub-optimal use of resources etc. incurred losses. The performances of public enterprises, particularly those involved in industry and trade sector, public enterprises, particularly those involved in industry and trade sector, turned out to be very poor. On the basis of analysis and evaluation of the roles and performance of these enterprises, the elected government which assumed power after the restoration of democracy in 1990, concluded that the economic conditions and financial efficiency of the government corporations were unsatisfactory. Lack of basic elements contributing to the development of professional culture in their inherent structure and operating procedures was singled out as the main cause for their poor performance.

Public enterprises confronted with various problems and hindrances such as lack of managerial autonomy, inefficient use of means and resources, shortsightedness and weakness on the part of political leadership, production of low quality goods and services, uncontrolled administrative expenses, lack of competitive ability, lack of motivation in incumbent human resources, adoption of traditional technology and minimum use of professionalism. All the factors brought about a progressive decline in their output and made the vast amount of government investment unproductive.

Thus, these public corporations have not only failed to achieve their objectives but also become a heavy burden on the national economy.

According to the observation of the World bank, “Their performance has been deteriorating steadily since the 1980s, while no attempts have been made to eliminate shortfalls in spending for operation and maintenance as such by public corporations, a review of their operation suggests not only that their operation and maintenance function is seriously deficient but furthermore many of these corporations are becoming a serious drain on fiscal resources.”

Nepal implemented Structural Adjustment Programme (SAP) as early as in 1985 which included tariff rationalization, reduction of fiscal deficits and privatization of PEs. But the efforts at privatization were not materialized until the political change in the country in 1990.

The privatization process went smoothly and could get active participation of private sector at the initial phase; however, the slow down in the economy experienced in latter part of last decade has plagued in momentum. Replacing public monopolies with competition, particularly in utilities sector, under appropriate regulatory rearrangements would further improve the environment for promoting the private sector.

Challenges in the Privatization of Public Enterprises

i) Most of the public enterprises have been unable to meet their targets of producing goods and provisions of effective service delivery. Government’s investment in the forms of share capital and loans has been on rise due to lack of capital management and capital formation of public enterprises.

ii) Most of the public enterprises are overstaffed and there exists absence of uniformity in the provision of facilities to their staff. These enterprises have created large liability as a result of their inability to manage their funds properly making it difficult to ascertain the extent of their liability. Therefore to create congenial environment to establish these enterprises as viable entities with the improvement in their efficiency has been a challenge of this time. Moreover, overstaffing and settlement of unlimited liability of these enterprises has been an obstacle on the way of privatization and their restructuring.

iii) The government decided to sell some of its shares in the market, so that the private sector could become the majority shareholder. So it floated 10% of the shares in the share market. Now the government is a minority shareholder, i.e. it holds on 39% of the total shares was taken back by the government and again leased out in December 2003.

iv) Political instability, deteriorating law and order situation/security environment have eroded business confidence; the poor implementation of policies governing the private sector continues to be an important constraint on private investment. A survey of private sector firms carried out in 1999 identified several such impediments including, among others, excessive bureaucratic delays in the provision of government services, lack of clarity of laws and unpredictability in the enforcement of government policies discretionary implementation of tax laws, excessive documentation requirements, and labour laws that prevent retrenchment of workers. To address this situation a regulatory framework reflecting clarity of laws and predictability of government policies, procedural simplification and reduction in discretionary powers of the authorities will be made that basis for making the private sector vibrant and dynamic.

However, the present Government in power is trying to make amicable policy to develop the private sector in the country.

Along with the adverse investment climate, low competitiveness and productivity are other bottlenecks for the private sector development in Nepal. Before embarking upon problems identification and coming up with remedial measures/implementation strategies in the private sector development, it will be quite relevant to examine the key issues such as competitiveness and productivity, and investment climate in Nepal. In this regard, various studies have been carried out and the government is in the process to implement findings of the reports as and when necessary.

Nov 222013

The vision of this plan is to build a prosperous and modern Nepal. With the realization of this envisaged vision, Nepal will be self-sustaining and free from the absolute poverty level. The gap between the rich and the poor would have been reduced. The relationship and behaviour between the people to people, community and State will improve. All Nepalese would have received equal rights according to legal, economic and social opportunities, to enable them to use their potential.

There would be a condition whereby, all Nepalese would exercise their rights legally for utilizing their competence. There will be changes in the conditions of the people in the overall context including social, cultural, educational, economic and fiscal, inspired by the modernization mindset. There will be an improvement in behaviour and appropriate technology and innovations would be absorbed and used. At the same time, all types of discrimination and inequalities including legal, social, cultural, lingual, religious, caste, gender, physical and geographical, will end. There will be a situation where people experience social justice, basic human rights and good governance. Nepal will be established as a dignified member in the international community.

Goals: The main goal of this Interim Plan is to lay a foundation for economic and social transformation to build a prosperous and modern Nepal.

Objectives: The main objective of this plan is to generate an experience of a direct feeling of change in the lives of the general public by supporting in the establishment of peace and reducing the existing unemployment, poverty and inequality in the country.

Strategies: The strategies of this plan are as follows:

i) To give special emphasis on relief, reconstruction and reintegration: Priority will be accorded to programs targeted by the plans like reconstruction and rehabilitation of rural infrastructure, investment plan for roads, and master plan for infrastructure, in order to reconstruct, rehabilitate and reintegrate physical, economic and social infrastructure damaged due to conflict, those that could not undergo maintenance, and those that could not be constructed according to their program. Special emphasis will be given to relief operation and social rehabilitation of individuals or groups affected by the conflict.

ii) To achieve employment-oriented, pro-poor and broad-based economic growth: The government will play the lead role as well as a facilitator, in creating opportunities for employment according to competence and skill of the new entrants to the labour market, while making the education system employment oriented. Policy reforms will be done to provide a working environment suitable for humans, for workers and labourers in both the formal and informal sectors. Institutional arrangement will be made for providing skills and training in order to support, to increase the productivity of labour. In the informal sector, for the enhancement of skills, training and transfer of technology for labourers, matching their absorption capacity will be made. In this process, special emphasis will be given to big projects with the capacity to generate jobs and small participatory projects. Priority will be given to projects providing more employment to women, Dalits, Adibasi Janajati, youths and the Madhesi communities, immediately.

For economic prosperity, strategies will be adopted to make the role of the private and cooperative sectors effective. For the alleviation of the existing poverty in the country, economic activities will be created and extended in order to raise their income by making them participatory for the poor and the helpless people. To this end, the production and service sectors will be broadened, and the self-employment sector will be included.

Conductive environment will be created to run economic activities in a transparent, legitimized and safe environment. Strategies to provide role of the private sector and cooperatives, and the concept of PPP will be adopted. The role of agriculture in economic growth will be enhanced. Inter linkages will be run to enable the poor and the helpless to make them use their competence in order to increase their income. NGOs will be mobilized in the implementation of such programmes.

iii) To promote good-governance and effective service delivery: By strengthening the value of the rule of law and the state machinery, and creation of people’s participation, transparency, accountability and a corruption-free environment, access of all Nepalese including those excluded in economic and social service delivery, will be increased. For this, the private sector, civil society (including NGOs and community organizations) will be accepted as partners in development, and necessary laws, policies and programmes will be revised, formulated and implemented in addition to an emphasis on decentralization, institutional strengthening and capacity development.

iv) To increase investment in physical infrastructures: In addition to putting special emphasis on reconstruction and development of social and physical infrastructures, new concepts will be utilized. In the context of infrastructure, strategy will be adopted for both, the construction of mega projects and medium and small-scale projects, based on identification and participation of the local people. In addition to roads that connect district headquarters and north-south corridors, rapid transit roads and road networks will be given special emphasis. Similarly, transport mediums like cable cars and ropeways significant from the perspective of tourism will be developed. Small and medium hydroelectric projects currently being constructed will be completed, while initiatives will be taken for mega hydroelectric projects.

Information and communication technology will be extensively expanded. In order to get the most out of infrastructure built through large investments, priority will be given to regular maintenance and quality improvement.

v) To give emphasis on social development: Additional investments will be made on education, health, drinking water and sanitation and other social development activities, to develop human resources and raise the living standard of the people. In order to make the services from these sectors effective, the responsibility of managing these services will be developed gradually to the local bodies.

vi) To adopt an inclusive development process and carry out targeted programmes: Clear policies, institutional structures and programs will be implemented focusing on the excluded groups due to prevailing discriminatory practices in society and weakness of state structures, such as Adibasi Janajatis, Dalits, Madhesi, women, and people with disability, extremely poor people, and people of the remote geographical areas. While adopting the inclusive development process, participation of excluded groups in development and investment outcomes will be ensured and geographical, economic, social, gender solidarity and re-integration will be emphasized. This approach seeks to make special efforts in ending all forms of discriminations and in promoting multiculturalism and peace. In order to ensure a basis for inclusive development, macroeconomic, social and political development processes will gradually be endangered.

Special programs for areas falling in the shadow of development programs in the Karnali zone as well as regions along district borders, and international border regions, will be carried out. Programs directly targeting, women, people excluded from facilities, Dalit groups, marginalized Adibasi Janajatis, Madhesis, people with disability, labourers and the poor, will be implemented bringing them into the mainstream of development. Even in the 21st century, many individuals, groups and communities are still living a life that is unacceptable from a humanitarian point of view from the perspectives of food security, health, education, and other social and economic conditions. Therefore, targeted programs will seek to end these conditions. Similarly, the people affected by conflict will be provided relief and they will be rehabilitated, and social reintegrated.

Priority Areas: The following are the priority areas of the plan:

i) The physical infrastructure will be reconstructed and rehabilitated and people affected by conflict will be provided relief and rehabilitation, as well as social integration.

ii) Investments will be increased to accelerate the pace of development through the inclusion of excluded groups, areas and gender in all mechanisms, spheres and processes of development.

iii) In order to revitalize the national economy, investments will be increased in physical infrastructures like hydropower, roads, irrigation and communication for supporting agriculture, tourism and industries.

iv) Investment will be increased in education, health, water supply and sanitation sectors for the development of human resources.

Economic Growth Rate and Management of Resources

The country’s low economic growth rate, existing unemployment and increasing income inequality are the main problems. In resolving such problems, it is absolutely essential to have broad-based economic growth in order to have a proportional and balanced utilization of the available natural, physical, human and other assets, decent employment growth, and to reduce income disparities and alleviate poverty. In addition, it has become necessary to:

i) Make the operation and expansion of economic activities dynamic by reconstruction and further expansion of physical infrastructure.

ii) Improve social development qualitatively.

iii) Make the Nepalese labour sector competitive within and outside the country by maintaining high quality in education and skill development.

Capital Investment and Incremental Capital Output Ratio (ICOR)

During this plan period, it is assumed that the implementation of progress will be faster and sound due to the expected peace establishment and improvement in the investment climate. Based on this assumption, ICOR is expected to slightly increase, due to the increment in the utilization of the existing capacity in different sectors. IN this plan, investment in infrastructure will be increased and the benefits of this will not be immediately accrued. So the ICOR is expected to be 4.8:1 with slight improvement. Based on this ICOR and the projected economic growth rate of 5.5 percent, it is estimated that the total fixed capital investment will be Rs. 587.68 billion at 2006/07 constant prices. Of the total investment the government investment is estimated to account for 30.5 percent.

Of the total government investment, 12.3 percent will be allocated in agriculture, and 87.7 percent to the non-agriculture sector. The major chunk of the non-agricultural sector goes to transport and communication, accounting for 25.8 percent followed by electricity, gas and water (19.4%). Similarly 20.3 percent is allocated to other community sectors, 8.2 percent to education and 7.2 percent will be allocated to the health sector. IN areas like electricity, communication, industry, finance, real estate etc., the private sector is attracted.

In these sectors private investment will be encouraged and the reduction in the government investment due to additional private investment will be transferred to agriculture, social services and infrastructure development. While deciding on the capital investment and ICOR, labour-intensive technologies will be used wherever possible. The goal is to create additional opportunities for employment in majority of the sectors of national economic activities, and to reduce the additional need for the capita.