Barun Roy: A sizzling opportunity

ASIA FILE

India could help redraw Nepal's economic blueprint.

I remember, while editing a weekly documentation magazine for the Press Foundation of Asia in Manila, back in the mid-1970s, I used to be amazed by the currentness of statistical data in Nepal Rashtra Bank's quarterly research bulletin. To be honest, one never expected that kind of efficiency from a country that was hardly noticed by the world; and yet, it took its obligation for public information quite seriously.

On a trip to the Himalayan nation in early June, I was equally amazed to discover that the seriousness hadn't ebbed in all these years. I was visiting the Federation of Nepalese Chambers of Commerce and Industry and looking for information on foreign investments in Nepal. I was given a neatly produced book that contained all the information up to mid-April 2005 and a supplementary piece of paper that had all the updates till mid-April 2006. I couldn't have asked for more.

And here's how the picture looked, in precise, well-organised statistics that showed the country wasn't as careless about its affairs as outside observers often thought. A total of 1,062 foreign investment and technology transfer projects had been approved as of mid-April this year, involving a total foreign capital of Rs 28,563.70 million. Of the total foreign-invested projects, India accounted for the most "" 331 "" followed by China with 121, Japan with 110, the US with 98, South Korea with 56, Germany with 45, and the UK with 41. The rest of the investments came from a host of other countries, including New Zealand, Bermuda, the British Virgin Islands, the Philippines, Brazil, Ghana, and Azerbaijan.

Two things become clear immediately. First, even for a small country like Nepal, the volume of foreign investment is very small. Second, in any effort to expand its reach, India and China will have to count for most. As Nepal gropes to fix its political and economic future, these two facts have begun to loom ever more seriously in people's thinking. Already, in the popular media as well as in economic circles, people have begun to talk of Nepal's good fortune to have both India and China as friendly neighbours when both their economies are literally sizzling. It would be foolish, these circles argue, not to exploit this opportunity to the fullest. Of course, a lot of support will have to come from soft-lending institutions like the World Bank and the Asian Development Bank to take care of the immediate issues of poverty and social justice, but it's foreign direct investment (FDI) that's going to make the real difference in the shortest possible time.

Nepal's existing foreign investment laws have identified a number of activities as having national importance. These include agro- and forest-based industries, agricultural and industrial machinery, pollution-control devices, solid waste processing, hospitals and nursing homes, computer software development, electrical and electronic industries, pharmaceutical industries, and textiles. These laws, which allow FDI in the form of equity, reinvestment of earnings, and loans, will now surely be looked at to make them more conducive and applicable to newer areas.

At the same time, the concept of investment will have to change too, as much for Nepal as for the investing countries "" India, in particular. To really exploit its growth opportunities, Nepal must be prepared to integrate its economy with its neighbours' and go for the kind of contract production that gave countries like Japan and South Korea, during their rebuilding phases, a quick industrial start. It's the best possible way to develop the industrial base, acquire the technology to build upon it later, and create immediate employment. The idea will attract countries like India and China since Nepal is too small a market to be an investment destination for its own sake.

All this will require a lot of convincing and, since the matter is likely to be mixed up with sensitive issues of nationalism, it isn't going to be easy. Then there's India's image as the Big Brother, who can at times be boorish. For all the goodwill generated by India's unstinting offer of help to Nepal's new transitional government, there's still an undercurrent of sentiment that one could often sense as anti-Indian. It's reassuring that Prime Minister Manmohan Singh is taking a personal interest in Nepal's affairs and it's necessary that he keeps a personal tab on the blueprinting of Nepal's economic future.

Much of this future will also depend on how well Nepal cooperates with its neighbours to develop the infrastructure needed to underpin its growth. There has been a lot of misunderstanding in the past on this account, but Nepal can't do without India's help to produce the electricity to run its industries and build the roads to spread its investments around. Geography has created the potential for cooperative growth. It's now diplomacy's turn to exploit it.