Pace of investment slows

KATHMANDU, JUN 03 -

The pace of investment has slowed of late, which means the government will have to scramble to meet the target it has set for the Nepal Investment Year 2012.

Investments in new small, medium and large industries declined by 39 percent in the first 10 months  (mid-July 2011 to mid-May 2012) of the current fiscal year, according to the Department of Industry (DoI). Investors pumped in Rs 48.84 billion over the period compared to Rs 79.76 billion in the same period last year.

According to the department, new industry registrations have also declined. This year, the department registered 206 industries, against last year’s 220.

The private sector has attributed the decline to fluid political situation, power crisis, rising bank rates and militant labour unions, which have made doing business risky and costly.

Golchha Organisation Vice Chairman Diwakar Golchha said political instability has hit the industrial environment and discouraged even those who had committed to start businesses.

However, the silver lining is that the manufacturing sector is back in investors’ priority. Capital investment in the manufacturing sector has doubled over the review period. The DoI data show that Rs 15.14 billion has so far been pledged in the manufacturing sector, against last year’s Rs 7.43 billion. This year, Sarbottam Cement and Palpa Cement are the major projects in the manufacturing sector with a combined capital investment of Rs 7 billion.

However, the largest chunk of investment has gone to energy-based industries. According to DoI, Rs 22.95 billion (47 percent) out of the total investment, has been poured into energy-based industries, including hydropower. Among the major energy projects are Kabeli Energy, Mount Kailash Energy Limited, Himalayan Energy Development Company, Siddhakali Power House and Buddha Bhumi Nepal Hydro Power Company.

The Independent Power Producers’ Association Nepal (IPPAN) President Subarna Das Shrestha termed the surge in investment in energy-based industries ‘encouraging’. There will be more investment in the sector if the government provides incentives, he said.

In terms of numbers, the service sector is at the number one position, followed by agriculture, manufacturing and energy sectors. The service sector secured investment worth Rs 8.76 billion for 80 projects. The surge in investment in the sector, according to DoI Spokesperson Ram Sharan Chimoriya, is due to its less risky nature and less capital requirement.

After the dissolution of the Constituent Assembly, industrialists have said they would take cautious steps, which could slow the flow of new investment. Industrialist Manish Agrawal said the DoI data reflects vulnerability of the country’s industrial sector. With the CA dissolved, investors will think twice before investing, said Agrawal.

Agrawal stressed on the need for a common minimum economic agenda from parties so as to shield the impact of prolonged political transition. “Unless the government comes up with a common minimum economic agenda and let the industrial sector free from the political turmoil, investment is hard to come,” added Agrawal.

Golchha was of the view that the Investment Board should take the lead and advocate for the private sector.

Source: The Kathmandu Post