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January 2018 Cover Story

Published on: 2018-01-23 09:59:32     172 times read    0  Comments

“New investments are much focused on Nepal’s inherent advantage” ​

Ananda Bagaria, Managing Director, Nimbus HoldingsAnanda Bagaria
Managing Director, Nimbus Holdings

How do you analyse opportunities in manufacturing sector in Nepal?
With almost 30 million population and increasing dispensable income, we have a fairly substantial market size. Our per capita GDP may be minimal but our purchasing power parity is almost four times what our absolute GDP per capita is. 

However, what should be manufactured in Nepal and what shouldn’t is tricky. The Indo-Nepal Treaty on Trade and Transit triggered growth in industry count in Nepal. A lot of manufacturing industries that came 3-4 decades ago gave us the impression that Nepal could become a manufacturing hub which is not true in current context. The treaty still exists but the situations don’t. For instance, India’s import tariff structure is very different from what it used to be. 

From Nepali perspective, there are a few parameters that define opportunities in Nepal; the domestic needs or consumption-based products and products based on availability of input such as raw materials and skill set. Domestic consumption based products are consumed within Nepal. For instance, agri-based products with limited shelf life like food and drinks are voluminous in nature. The availability of input indicates output of the industries such as cement which has sufficient availability of raw materials like clinker within Nepal. 

The new investments are much focused on Nepal’s inherent advantage. The earlier manufacturing industries that came in operation 7-9 years back came out from import tariff book of India. Those industries have unsettling presence at this point of time. 

Since the foundation of Nimbus is agro-processing, how do you view the relationship between agriculture and industrialisation?
Our understanding about market and its potential and government strategies about commercialisation and modernisation is only theoretical while ground realities are different. Within these crucial aspects of industrialisation, issues are talked about in isolation and the focused approach is missing. For instance, when we talk about agri-business, agri-sector and food has to come together. 

In the past few years, modernisation and commercialisation of agriculture has become a crucial government agenda. Government doles out a fair amount of subsidies for a number of agricultural produce at various areas. Availability of raw materials should have been sufficient in such case. Yet producers have to depend on maize imports from India although its annual production is around two million tonnes. It is same with wheat and paddy. How can we industrialise when raw materials aren’t sufficient? I believe the industries that are dependent on India for raw materials are standing on loose grounds considering other numerous constraints that the Nepali agri-business industry faces. 

The government can’t provide subsidies for every agricultural product. Subsidies should rather be product and zone focused. We need to identify the pocket areas where crops like maize, wheat or paddy have advantage and devise the subsidy structure accordingly. That way an investor would know where to setup factory plants. 

How do we perceive agriculture is also crucial. Agriculture is looked upon as a component of poverty alleviation rather than a commercial undertaking. I am not critical about poverty alleviation but that outlook will not commercialise agriculture. Commercialisation doesn’t only mean qualitative and quantitative production at a fair price. The output should be further processed. 

For processing, we need to bridge the link between farm and consumers. If I want to package what I produce, it should be encouraged. In fact, there is lack of encouragement for private sector in agri-sector while we talk about promoting the public-private-partnership (PPP) model. We export wheat to India and import back pasta. Noodles, ketchup, pasta and packs of tea, coffee and sugar all come under agro-processing and most of such products here are imported. Importing of products that don’t require high technology and can be self-produced doesn’t make sense. These examples are testimony to the level of our seriousness to our ambition for commercialisation and industrialisation of agri-business. For the overall industrialisation, we need to be reflective about our inherent capabilities one of them being the agriculture.  

What is your take on recent industrial policy changes?
The last few years have seen substantial works in business laws. However, the Nepali business community is disappointed with the ineffectiveness in the execution mechanism. Similarly, the bureaucracy isn’t interpreting the laws in the new light. Also, a lot of the policies don’t interlink. Agri-processing is either understood as agriculture or industry but not as one. It applies in other sector as well like ICT. Since the policies were envisioned in isolation, it will result in either ambiguity or absence of coordination among the concerned ministries including Ministry of Agriculture, Ministry of Livestock Development and Ministry of Industry. 

Apart from an integrated approach, projects and policies lack of sense of ownership due to weak institutional memory. For instance, by the time concerned government officials understand what needs to be done, either their tenure is over or they get transferred. 

How do you view the present scenario of workforce in the country?
There is scarcity of workers for industries. Migration and the ongoing post-quake reconstruction work and are the principal factors in this regard. It also implies that Nepali workers aren’t attracted towards the domestic manufacturing sector jobs. It is because the income level is relatively higher in other countries and other sectors in Nepal. Nonetheless, at mid and senior manager levels, the industrial sector is at par with any other sectors due to a phenomenal change in pay levels, quality of people and skill sets. 

Absenteeism, low productivity and unionism are other crucial challenges Nepali industries have been facing. The new improved labor act should change a few of these things in the coming days because it emphasises on productivity. Hopefully, we are allowed to run the cycle of carrot and stick. 

What is your take on Nepal’s youth bulge and its linkage with Nepali workforce?
The young generation has higher aspirations and they want to avoid the political mess. Industries are seen as a centre for political activities and strikes. For anybody who is educated, industry is a ‘no-go’ area. It is perhaps our mistake as well that we haven’t been able to attract them or make industries an appealing destination for jobs. It is why they seek overseas opportunities. Some go out because they feel that they can accumulate certain amount of capital. The people who return are skilled, organised, hard working and have a clear thought process. I believe that we are at the tipping point of witnessing a reverse migration outflow. I am hopeful that the younger generation will return and do well for the country if political stability is achieved in the coming days. 

How has the industrial working conditions changed over the years? 
Working conditions are different from across factories and industries. At Nimbus, we follow minimum standards that have been set. Personally, I have always tried to improve working conditions based on my international experiences. I believe productivity improves once the working conditions improve. It is a good investment to make. I also believe competition has stimulated a positive change in working conditions across industries. From hygiene to safety, working condition has changed drastically.

Where do you think the approach towards industrialisation is going wrong?
Somewhere, there is lack of focused and integrated approach. Nobody is taking a lead in imagining how our industrialisation should look five years down the line. Raising the national coffer through customs-based revenue generation has always been our focal point. Raising income tax and VAT through industrialisation has always been snubbed. It means somewhere the government and bureaucracy have understood that import is the way to run the country. 

Let’s talk about SEZ. I don’t see specialization happening if all types of industries whether agri-business or steel industry is allowed at SEZ. Since the infrastructure requirements for a steel plant and an agri-business plant aren’t the same, the system in-place will not be able to accommodate diverse needs of industries. 

How do you view the existing tax structure along the lines of industrialisation needs?
There needs to be some level of difference in import tax structure imposed on finished goods, raw materials and intermediary raw materials. There are many items where tariff levied on import of finished goods are lower than the raw materials used. For instance, resins used in paint industry can be imported at low import costs compared to the raw materials. It raises the question why would anyone set up a resin manufacturing plant in the country? It is similar with soya bean and soybean oil cake. Let me give an example that Nimbus has been facing that I have been raising for the last two years. Importing soya bean from third country has higher duty than soya bean oil cake. Unfortunately, we are a net importer of soya bean oil, a product that we are capable to produce by ourselves. We should able to seize whatever value addition and employment opportunity these products create. 

How is connectivity affecting manufacturing businesses? 
Cost of doing business in Nepal has gone up for everybody whether exporters, importers or domestic-based producers. For the export market, fulfilling business commitments in time and remaining competitive is difficult. It may diminish our preferential value. But the current state of road connection is not extremely deterrent to our industries.  Relatively and keeping other factors in mind, we have a fair level of connectivity. Connectivity to Kathmandu is good. In addition, a number of road projects are currently in the pipeline. Considering the trade relationship between Kathmandu and the Indian bordering area of Raxaul, the road infrastructure is worrisome that needs a quick fix. 

How do you analyze industrial demand for electricity in the coming days? 
Assuming that ongoing projects will complete in time, power supply will be sufficient for around 2022. At present, electricity supply is gradually improving whether through imports from India or addition of electricity into the national grid from the completed hydropower projects. We need to be optimistic because there are reasons suggesting improvements in the future. Once the electricity is sufficiently available, both domestic and industrial usage will increase too. I think, considering that the demand will grow; scarcity of about 15-20 percent will remain till 2030. 

If we reverse back to our earlier state of six-hours of daily power-cut, it will be difficult for power consuming industries like steel, cement and plastic to exist. High value-addition industries and less power consuming ones like food processing industries will manage to survive. 

How ready are Nepali industries to switch into automation? 
Automation is an industry-specific process dependent on scale. Not all industries require automation. If we are thinking about robotics, our industries may not remain viable because it will require large investment. Unless some level of technological advantage emerges, I don’t expect large capital-intensive industries entering Nepal. 

Automation isn’t only about replacing labors but also about bringing consistency in the output quality. The combination of labour shortage and the need to bring consistency in the quality has already pushed Nepali industries to adopt industry-specific automation. For instance, back in 2004 we manually batched some 40 odd items and put it in the mixture to produce animal feeds.  As there was low amount of production, some 100 tonnes per day as manual operation best suited us. As our production volume surged, there were chances for quality inconsistency due to human error. The human input couldn’t fulfill the machine needs. At present, our entire operation runs through auto batching. I can control entire formula composition from outside the factory. There is minimal involvement of workers in the manufacturing process. They put the raw materials in the bin of the plant and collect the final goods. What we started as a manual batching was converted into semi-auto batching. We will fully automate our systems soon. What I am trying to imply is automation is an industry-specific process of natural progression. 

How is overall political scenario shaping domestic investors' confidence?
It’s too early to say about it. But I believe it is bound to be better. Disappointments depend on what your expectations are. I expect there will be policy stability, at least for some years and resources will be mobilised in what we actually want to focus on. What I am apprehensive about is economic agendas may take a backseat in this whole process of organising federal structure. There is that possibility because ambiguities will emerge with the need to coordinate large number of local and federal representatives and manage infrastructures for state parliament and other federal institutions. How will fiscal federalism be implemented and how will tax structure look like is also among the concerns of the business community. 

 

“Meeting objectives of Agricultural Development Strategy will help the industrialisation process” ​

Shanker Aryal, Director General Department of Industry (DoI)Shanker Aryal
Director General
Department of Industry (DoI)

What are the opportunities in Nepal's manufacturing sector that should excite domestic and foreign investors?
There are opportunities in Nepal in almost all sectors as most of them are still unexplored. Opportunities in the manufacturing sector will become clear as development efforts pick up pace in the coming days. Industries manufacturing construction raw materials such as cement and iron bars are some examples of the manufacturing sector where there are good opportunities. One of the reasons behind the attraction in the cement industry is the sufficient supply of  raw materials. 

What are the specific concerns of the business and investment communities for starting and sustaining manufacturing businesses?
Investors are primarily worried by the lack of raw material. They expect favourable environment for producing raw materials. That is why increasing agricultural productivity is crucial. In fact, industrialisation will require a boost in agricultural production. 

If we are able to meet the objectives of the Agricultural Development Strategy, that will help in the process of industrialisation. For example, Britannia has shown interest in entering Nepal. It has already taken investment approval from DoI for an investment amounting to more than Rs 2 billion but we are concerned about fulfilling their demand for raw materials. It wouldn’t make sense to expect economic benefits if any investor is compelled to depend on imported raw materials. 

What are the policy level achievements in manufacturing?
At present, there is a hint of stability both in politics and policies. The government and political parties seem to have developed a positive attitude towards industrialization. Everyone is expecting political stability with the conclusion of the elections. This must boost the confidence of anyone wishing to do business in Nepal.

On the policy front, there have been certain improvements. The Industrial Enterprise Act 1992 has already been amended. The business community is excited thinking that it will improve the industrial environment in the country. The government has strictly prioritized Special Economic Zone (SEZ). The SEZ bill was endorsed last year. While a SEZ is already operational in Bhairahawa, another is being built in Birgunj. The development of other SEZs, as envisaged in the SEZ Act, is in the preliminary stage. Bills regarding foreign investment and technology transfer and intellectual property rights are also being worked out.

What are the other progresses?
Normalization of power supply has been a crucial improvement. But we should note that the industrial demand for power supply will increase in the future. Electricity authorities must brace themselves to meet the future demand.

The process for registering companies has been digitised. We are also planning to implement digital signature which will introduce a paperless decision-making system for industries applying with us. It will systemize application and review and even enable us to issue digital approval certificates.

There is also a need to review our taxation system for the import of raw materials and finished goods. Tariffs that make our own production expensive should be reformed. For instance, importing paper is expensive than importing a book due to the high tariff imposed on paper import. It makes the production of books uncompetitive in terms of price. We should avoid making the import of raw materials expensive and finished goods cheap. 

What is the present labour situation in the country? 
The supply of skilled and qualified workforce has become complicated. Skilled and qualified people don’t want to work here. They look for opportunities abroad. So, the workforce available in the country is unskilled or semi-skilled. Our industries have to depend on the labour supply from India for repairing even basic machines and equipment. 

Perhaps we aren’t being able to attract our skilled workforce or offer attractive incentives to retain them. We need to make them understand that they have career growth opportunities here as well. On the other hand, academic and training institutions have to take a practical but aggressive approach in polishing the available workforce. 

How can Nepal become a part of the global production network?
For us to become a part of the global production network, we need to improve the qualification and skill standards of the Nepali workforce. The supply of basic amenities like electricity needs to improve drastically. A number of countries like South Korea and Japan are interested in investing in Nepal but that won't be possible until the investment climate in the country improves holistically. 

How is the internal and external connectivity hampering the manufacturing businesses? 
Nepal has a number of remote regions. Road connectivity with China is relatively poorer than that with India. The entire road infrastructure needs upgrading. It has been one of the major concerns of the business community. With improved connectivity, economic activities will multiply and new market opportunities will open up. At present, we are trying to woo large investors by assuring them that the government will provide road access and regular power supply to their plants.

Do you think the dependence on imports and remittance kills the entrepreneurial spirit or the propensity to produce by self? 
Obviously, our economic capacity is restrained by our dependence on remittance and imports. Potential investors are discouraged by the country's increasing import dependency. We must realize that focusing on customs revenue or remittance will not help our economy sustain for long.

What is your view on the need to go for full automation in view of the existing labor issues?
Automation is a must for enhancing productivity. But even for automation, we need to prepare a workforce which can handle the automatic technology. 

How do you view the Nepali market?
Imported products are dominating the Nepali market while consumption is on the rise. It also indicates that we have ample market. Our manufacturers need to secure this market first. For that, it is our responsibility to create a favourable business environment where the domestic products can become competitive and our industries can thrive. This precondition also applies to our entry into the neighbouring markets, primarily India. We should review how the government incentivises manufacturers in India and try to provide the same or even better incentives to our export industries. 

 

“Political stability will be a big boost to the economy”​​

GP Sah, Vice President, Global Business Head, FMCG Division, CGGP Sah
Vice President, Global Business Head, FMCG Division, CG

What are the specific concerns of the business and investment communities for starting and sustaining manufacturing businesses?
Let’s hope that the country will enter an era of political stability after the recently held elections. There are numerous issues related to the manufacturing sector. The government needs to formulate a meticulous vision for the manufacturing industry in the new context. Presently, the market is flooded with imported products. There are entrepreneurs looking for opportunities in the manufacturing sector but a business-friendly environment is lacking. 

Recently, I was in Bangladesh where I came to know that the government there provides several incentives to the export-based industries.  Government incentives help industries become competitive in both domestic and international markets. We need incentives through policies, infrastructures and good governance which are currently missing.  In the new context, the government has to formulate new policies and prepare a new vision paper to promote industrialisation in Nepal.

What are the opportunities in Nepal's manufacturing sector that should excite domestic and foreign investors?
We are in the food processing business where I see ample opportunities. A country like Bangladesh which has lower agricultural productivity than Nepal exports food products to Nepal. Despite importing raw material from other countries, they are competitive enough to export. Today, Bangladesh exports even beverages and snacks. We should seriously analyze their competitiveness and learn lessons from them. Whatever compromises our competitiveness should be either reformed or discarded. 

Are you excited about Nepal’s youth bulge?
We are a young country but the lack of opportunities at home has compelled the youths to go for foreign employment. Thus, we are losing not only workforce but also consumers. The country has to do something to produce and retain skilled manpower. 

What is the present labour situation in the country?
Industrial relations have been cordial in Nepal since last year. The recently endorsed Labour Act has tried to address labour issues and create a win-win situation for both employers and workers. The minimum wage has to be calibrated in such a way that the economy can sustain. If the minimum wage skyrockets unreasonably, industries cannot sustain. In such a case, investors will look for options like industrial automation which may adversely affect the employment rate.

How can productivity be increased in the manufacturing sector? How ready are Nepali industries to switch to automation or adopt robust technologies?
Better machines, better technologies and product automation are a few ways to increase productivity. But the adoption of high-end technologies in Nepal is very low. Unless you get a platform, you are not going to invest in modern technologies just for the sake of increasing productivity. Except for a few industries, the level of adoption of modern technology is low in Nepal.

How is inadequate internal and external connectivity affecting manufacturing in Nepal? 
There is the lack of other infrastructures as well, not just connectivity. The lack of or poor connectivity has increased marginal costs and made access to raw materials and supply to markets difficult. Delay in delivery of goods has become an increasing problem. Transportation costs have gone up. In last two/three years, import costs have gone up. Both importers and exporters are compelled to pay high demurrage charges. 

How do you view the amended Industrial Enterprises Act and Labour Act? What other acts, rules and regulations do you think need to be amended to support the manufacturing sector?
The recently endorsed Industrial Enterprises Act is better than the previous one but it still requires a number of amendments. There are certain issues in the new Labor Act 2017 which probably will be addressed later, after regulations are formulated. We believe FNCCI and CNI will be consulted while drafting the regulations. 

There are other issues as well that need to be addressed. Taxes on raw materials have to be reduced to make our industries competitive. Industries with export potential should be provided with logistical support. The government should consider the additional costs associated with manufacturing in a land-locked country. The manufacturers have to bring raw materials from Indian ports to Nepal and take the finished products to the Indian ports and we know how the infrastructures are in our ports. It eventually increases the costs and reduces our competitiveness in the international market. The government needs to come up with policies which compensate the industries in ways that boost their export competitiveness. 

How do you see the government’s initiative to establish Special Economic Zones (SEZs) across the country? Are there any difficulties in terms of setting industrial facilities in such areas? 
The endorsement of SEZ Act and development of SEZ in Bhairahawa is a welcome step. But the new SEZ is too poor. We need to learn from other economies and develop modern SEZs as early as possible. Infrastructures such as power supply, effluent treatment, centralized supplies, minimum government set up are a must to expedite the production process.

How is the overall political scenario shaping the domestic investors' confidence?
The political transition has ended with the successful completion of the election. Now, if there is political stability, it will be a big boost to the economy which has faced frequent change in government. Stable politics is what our country has been longing for and the current political development is a crucial step forward and a good sign for the country.    

What is the current industrial demand for electricity and how may it grow?
The current growth in electricity demand is pretty low. Apart from the cement factories which need continuous power supply, the industrial demand for electricity isn’t that high. But future demand for industrial electricity will increase. We have the potential to generate adequate amount of electricity and even double it every two years. 

Look at the economic opportunities that hydropower presents if the right approach is made. If the government envisages replacing 50 percent of the fossil fuel based vehicles or replacing LP gas by electricity as cooking fuel, there will be a drastic change in our economy. In the first place, we will be mobilizing our own resources. It is a crucial step to becoming self-reliant. Secondly, it will save our foreign exchange reserves from draining through the increasing import of fuel. 

CG has established manufacturing units in India and most recently in Europe and the US. How is CG planning to move ahead in these markets?
Our offices abroad are looking after our overseas businesses. Our strength in noodles is illustrated by more than three decades of experience in the noodle business. We would like to expand our footprint in the entire sub-continent. At present, we are exploring opportunities in countries in Latin America and the Middle East. The Middle East project has been slightly delayed due to some issues. 

Are you planning to increase investments in your manufacturing lineup?
Back home, we are setting up a clinker plant in Palpa and a food project (noodle) in Sunsari. We are also planning to set up a couple of factories in the far-west region. 

 

“Sincere push for economic transformation will result in a good future for Nepali manufacturing sector”​

Satyanarayan Keyal,  Chairman, Keyal GroupSatyanarayan Keyal 
Chairman, Keyal Group

How do you see the immediate future of the manufacturing sector in Nepal?
As a LDC, Nepal needs a tremendous amount of development activities. Nepal aims to graduate to a middle income nation by 2030 which will require focusing on infrastructure development. We, as a group, focus on the production of construction materials and view this national need as an opportunity. There is also a need to boost our manufacturing capacity in order to substitute imports. By boosting our manufacturing potential, Nepal can generate both employment opportunities and revenue that will contribute to economic stability and social development. 

The good thing is the political parties have started prioritising the development agenda including the development of the manufacturing sector. The private sector has always stressed that manufacturing needs a strong push. If the government sincerely pushes for economic transformation, I see a good future for the Nepali manufacturing sector. 

What are the factors that should attract investment in Nepal?
With changes happening to the political and administrative face of Nepal, effective management and implementation will require new infrastructures which could cost hundreds of billions of rupees. However, there is no alternative to the politics of development in the coming days. The main focus will be on the development of roads and bridges and irrigation and hydroelectricity infrastructures. These factors have boosted the sense of possibilities in the manufacturing sector and excitement among investors. The upcoming government should leverage investors’ confidence towards capitalising the existing possibilities in manufacturing by developing a favourable investment climate. 

Are the existing laws and physical infrastructures in Nepal investment friendly?
Firstly, if the existing laws and physical infrastructures in Nepal aren’t conducive to investment, they should be improved. We have yet to see how the recently endorsed Industrial Entreprise Act and Labour Act will be implemented in the coming days. Secondly, it is up to entrepreneurs how they leverage the existing opportunities. At times, entrepreneurs must be able to translate challenges into opportunities even when the situation isn’t conducive. It is difficult to find a country with everything in place. 

Why is it that investors are unable to identify new opportunities in the manufacturing sector and invest in them?
It is primarily due to political instability and long-term policies. New areas are not only comprised of opportunities but have risks as well. In addition, Nepal’s market is too small for investors to be confident about investing in new avenues. But now there is a chance for political stability. We can now be hopeful that even new areas will attract investments. There are a number of such investment areas which haven’t been utilised and ones that require feasibility studies. If political stability is achieved and the government focuses on policies that will encourage identification of and investment in new areas, new opportunities will unlock. 

How do you see the current labour situation?
Even now, employers and labourers don’t share a cordial relationship. The new Labour Act has made an attempt to improve it but the act is not enough. Regulations are yet to be developed. Things will clear out only once the formulation and execution of the regulations take place. On the other hand, there is still a dearth of skilled labour in manufacturing and the tendency among Nepalis to migrate overseas is increasing. There are major issues due to the immense politicisation of trade unions which needs to be resolved. 

What could the solution be?
Political commitment is crucial. Youths are the foundation of an economy. At present, Nepal has a significant young population which is an opportunity for us. Such a demographic profile won’t last forever. We have to bridge the young productive force with Nepal’s productive areas. If the government is able to create an environment to retain the young workforce, the Nepali economy will change drastically. One such way is making substantial investments in developing human capital.

What is the current state of advanced technologies in Nepali industries?
Using advanced technology is crucial to minimise production costs, improve quality, increase productivity and ultimately stay ahead of the competition. Domestic industries have already realised its necessity. While new entrants in the sector are already equipped with new technology, older industries are also gradually upgrading the technologies they use. As far I can see, there is an increase in the use of PLC technology. New industries within Keyal Group are also based on the same technology. 

How do you analyse the overall connectivity in Nepal?
The number of manufacturing industries is increasing and so is cross-border trade. Both internal and external connectivity is poor in quality and insufficient to accommodate such growth. It may turn into a severe problem in the future as it will make cross-border trade difficult and costly.  Overall, the connectivity is largely poor and requires strategic intervention. 

How is current political scenario shaping domestic investors' confidence?
More than a decade has been spent on political transition. During the period, industries were unable to thrive. With the breakthrough in politics and the political parties advocating for economic development, there is hope in the private sector that economic development will pick up pace. The victory of the left alliance in the recent election is actually the people’s mandate for political stability and economic development. The private sector is hopeful that the next level of politics will be development politics.

What are the reasons behind Keyal Group’s focus on Birgunj?
Birgunj is an industrial and trade centre. Both, international trade and access to the domestic market is relatively easy from Birgunj than from anywhere else. Birgunj enjoys close proximity with the sea ports and railway service of India enabling industrial access to technology and raw materials and even easy exports. Birgunj is also close to Kathmandu, the capital city and major domestic market of Nepal. Birgunj is a major trading point with a dry port, industrial corridor, Nepal-India Integrated Check Point (under-construction) and features two proposed large projects, the Kathmandu-Terai Fast Track Road Project and the Nijgadh International Airport. 

 

“We will open a cement factory and a steel plant with investment totaling Rs 9 billion”​

Shiwaj Neupane, Director, Ambe GroupShiwaj Neupane
Director, Ambe Group

What opportunities in the manufacturing sector in Nepal do you think should excite domestic and foreign investors?
The manufacturing sector is moving on the right path. Many new factories have been established in the country in recent years. Big investments in this sector show huge possibilities and opportunities in this area of business. We should be hopeful that the investment will also come in the country. 

Currently, we are in the manufacturing of cement and steel. We also have been producing some food items. We are producing 150,000 tonnes of steel products and 400,000 sacks of cement per month. This size of production also indicates a huge opportunity for Nepali manufacturers. The market will become more competitive within the next few years and the price of the products will decline gradually. This will benefit the consumers in terms of purchasing Nepal-made products which will ultimately boost the manufacturing activities.     
     
How do you view the situation of labour in the country?
It’s not that we don’t have sufficient workforce in the country. But, the trend of forming trade unions has hit the manufacturing industry hard. We have a few Nepali workers in our factories as majority of them are Indian nationals. We have chosen to employ Indian workers because the Nepali labourers in the past have gone to strike halting the production activities severely. The situation is same with other manufacturing companies in Nepal. Similarly, businesses can’t sustain without skilled manpower. The migration of skilled workforce from the country has been a big problem for many years. 

How can productivity be increased in the manufacturing sector? How ready are Nepali industries to switch to automation or adopt new technologies?
Now, the power supply to industrial facilities is gradually becoming regular. So, to increase the production, the industries should use the latest and modern technologies in manufacturing. At present, there are very few factories in the country which have switched to automation. We are opening a new factory of Riddhi Siddhi Cement with fully automatic manufacturing system developed by the Danish company FL Smith. This will ensure that there won’t be any human errors in the production process.

 I think the lack of technology and equipment has not halted production activities in the country so far. If a new industrial technology is developed and supplied in the global market, it will be available in India in a very short time. And, to import equipment with latest technologies from the southern neighbour is not difficult for us. I think companies will switch to automation to increase the factory output as the competition in the market is growing significantly. 

How is internal and external connectivity affecting the manufacturing businesses?
The road connectivity is not a big issue when it comes to the supply of products. But, the long road routes have certainly increased the transportation costs. If the government works on constructing freight train routes, then the transportation costs will come down which will ultimately reflect in the prices of the products. We can learn about such train system from other countries. Most of the developed and developing countries have separate train systems to transport goods and commodities. 

How do you see the government’s initiative to establish the Special Economic Zones (SEZs) across the country? Are there any difficulties in terms of setting up industrial facilities in such areas?
The establishment of SEZs can largely benefit the manufacturing industry. This will also help to set up new factories in the country from both domestic and foreign investments. The government’s initiative to establish SEZs across the country has brought a sense of excitement among the Nepali manufacturers as they need not to worry about basic requirements for their industrial facilities such as supply of power and water, availability of land, and so on. The business can solely focus on activities related to production. 

How is the overall political scenario shaping the domestic investors' confidence?
If the country can have a stable government, the private sector will be the happiest one. It will assure the domestic investors about the returns boosting their confidence and also attract the attention of foreign investors. I hope the federal structure of the country will be beneficial to the manufacturing sector. If we can achieve political stability, there will be a competition among the provinces in terms of economic development. The provincial governments may also bring industrial and business friendly policies. 

Foreigners always take Nepal as a ‘third world country’. The main reason for this is the prolonged political instability which has been a major hindrance for creating an environment conducive to investment. We have to see where the country will be heading towards after the full implementation of the federal structure. At present, most of the manufacturing units have been established by big business houses as engaging in such business ventures has been very hard for most of the investors. But, I think within the next 2-3 years, even traders will be more confident and step into the manufacturing sector. This will happen only if we achieve a satisfactory level of political stability. 

What is the current industrial demand for electricity and how may it grow?
The regularity in the power supply has helped manufacturing companies to increase their production. The effectiveness of the Nepal Electricity Authority in terms of effectively managing and distributing the supply of electricity over the last few months is appreciable. Earlier, the government was providing electricity for only 8-10 hours a day. But these days the power supply has been regular, and sometimes we get power for 24 hours too. Our production has doubled after the gradual end of the power cut in the country.  Earlier, we were producing 75,000 tonnes of steel and 300,000 sacks of cement per month which has now grown to 150,000 kg and 400,000 sacks respectively. Nonetheless, more is needed to be done in this regard so as that factories can fully utilise their production capacity.  Currently, our steel factory has a demand of 16 MW of electricity, but we have been getting 12 MW only. The demand for electricity will increase in the coming days as many new factories are in the process to start production. 

Is Ambe Group planning to add investment to its existing manufacturing lineup?
We are opening a new plant of Ridhhi Siddhi Cement in partnership with the Shanker Group. With an investment amounting to almost Rs 7 billion, Riddhi Siddhi will be the biggest cement industry in the country in terms of domestic investment. We will also be opening a new steel factory in Nepalgunj with an investment totaling almost Rs 2 billion. It will be named as Jaya Ambe Steel. 

I have also heard that three other business groups are in the process to establish steel factories in different parts of the country. 

How has been the demand for construction materials in the market?
The domestic steel production is unable to meet the demand. This is also the case with Ambe Steels. This is the main reason we are establishing a new steel plant. When we use 80 percent of our production capacity, all the produced cement is consumed in the market.  And when we produce cement utilising the full capacity of our plant, the products remain in stock for some time. In this respect, we need policies that can help us also to become export-oriented. 

 


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