Time for Business to Return the Favour

So-called Nepali industrialists accumulated ill-gotten capital during the Panchayat years. The least these businessmen can do now is to invest creatively and become real entrepreneurs and risk-takers..At the end of seven five-year plans, Nepal still lacks a development cornerstone. The people have been thoroughly exploited by government mal-administration, and the Nepali economy is today characterised by despair, disappointment and disillusionment..There are many reasons why. A major factor has been the parasitical nature of Nepali business, which has taken benefits from the people and government without giving anything back in the form of entrepreneurial skill or daring..During the years of Rana rule, the privileged were the capitalists owning tracts of arable land and family fortunes in gold, jewelry and mansions. This class had neither the urge nor the need to engage in entrepreneurial activity. When, together with education and travel, access to industrial activity was made available to common folk in the 1950s, infrastructure base as well as capital for true industrial development was lacking..THE "INDUSTRIALISTS".The main financial beneficiary of 29 years of the Panchayat was the group known earlier as businessmen and now as "industrialists". Advantage was also taken by Indian business folk lured to Nepal by breaks on excise, taxes, import duty and a non-competitive monopolistic environment, in addition to tremendous scope for general trading activities. The Panchayat period saw the accumulation of capital not through honest sweat but through illegal, corrupt or questionable means. The following procedures played vital roles in the formation of such capital..Commission Agent Business: Small-time traders and a few Indian businessmen were quick to grab the opportunity to act as commission agents to suppliers of goods and services contracted under government procurement, or under bilateral or multilateral financing arrangements. These middlemen thrived in all sectors of development, from road-building to public utility and industrial projects. "Commission agenting", whose income is almost always hidden from the government, has been the major provider of windfall gains to businessmen..Over/under invoicing: Another moneymaking sleight of hand is over-invoicing the cost of imported goods such as equipment, machinery, spare parts and raw material. The difference between the true cost and inflated cost is profit, minus hush money. Such dealings are usually done with the consent of the suppliers (who may share in the profits) and the benefits are mostly held in foreign currency outside the country. When goods are exported, again with the agreement of the foreign importer, the value of goods are lowered or inflated from the real value depending on the individual situation in order to reap a tidy differential..Trade in imported raw materials: Rather than go through the bothersome task of establishing genuine productive enterprises, "industrialists" have often been more interested in importing large quantities of raw materials and selling them illegally to India at high profit. The concession provided by the government with regard to import duty and taxes on industrial raw materials is what attracts those with an eye for quick and illegal gains..Inflated project cost: The cost of development projects are highly inflated not only by over-invoicing the cost of equipment and machinery, but also, with the aid of corrupt engineers, by over-reporting the cost of civil construction. The benefits are reaped by the "industrialists", while the cost and liabilities are borne by the government and financing institutions..Assembly industries: The government had lately approved the establishment of many assembly industries in order to upgrade indigenous technology and know-how. But the only goal of the "industrialists" was to take advantage of the facilities provided by the government. The difference in cost of the imported electronic good (which is liable for full import duty, taxes) and parts of the same electronic good (reduced import duty and taxes) again went in the pocket to the assembler. The intention was to provide value-added benefit to the country. In practice, however, most of these electronic goods did not come as "knocked down" components. They arrived intact with little or no assembly work required. At the same time, the government never felt it necessary to insist that parts be produced within the country in due course..Price fixing: Even those industries that did produce actual products engaged in unfair practices. For example, even though they had the capacity to provide for the country's demand for steel rods and CGI sheets, the producers colluded to produce lower quantities. As the demand rose, they had no qualms about doubling or even quadrupling profits..Hidden profits: A mechanism was devised to divert profit from the main manufacturing company by creating sister concerns or marketing arms. Thus, the books would show the mother company always at a loss despite reasonable production, whereas the sister concerns would be making unbelievable profits. Through this ploy, the businessmen could play around with the capital that was due to the financial institutions..With the ushering of a new era in Nepali political history the expectation of the people have skyrocketed even while the economy is at the verge of collapse. Prices have never been so high, the unemployment situation is serious, and public enterprises are practically lifeless. The task before the government in the business sphere is enormous, but it would seem that the business sector too is not without obligation, for having taken so much while giving so little..MOMENT OF TRUTH.While amassing huge fortunes, businessmen and tradespeople always had ready answers for their failing industries and ventures: they blamed someone else for everything. First they cried, "No raw material!" When it was discovered that raw materials were available aplenty, they whined, "Where's the market?" When statistics reflected that the market too did exist, the bogey was that of high government excise, high taxes, high interest rates, high cost of utilities, and so on. With most "industrialists", these were just diversionary tactics while they did what they did best: accumulate capital through one or more of the methods listed above..So, if one significant thing emerged out of the past decades of rank corruption and misdirected policies, it is that capital has been accumulated in the hands of the "industrialists". In a country where legitimate sources for large profits are severely limited, the "industrialists" have done it nefariously. Can we now expect them to use this ill-gotten booty to do some good? Can the "industrialists" now be trusted to become truly entrepreneurial and to invest in honest enterprises that can contribute to steady and long-term growth of the economy? Certainly, the "industrialists" should not be allowed to operate in the traditional way anymore..These "industrialists" have now to get used to a different world in the making, where they will have to do real business. They will have to collaborate, produce, market, compete, earn, invest and re-invest. They will have to embrace the concepts of management, research and development, trained manpower, efficient utilisation of factors of production, quality control, proper pricing, and labour welfare and development..The "industrialist" will have to begin investing in his country and its people. Nepalis are as hard-working as any other people, including those of the newly industrialised economies. Compared to the 1950s, the country now has basic infrastructure. Access to internal and external markets is not that limited..The main impediment is in the mind of the "industrialist", who is diffident, inexperienced in real industry, and spoilt by easy profits. As long as the government blocks the loopholes that allow him to cheat the public, he will be forced to seek legitimate avenues for profits..There might still be hope. Nepal's under-ground capital might yet come to use. The lotus, after all, grows out of the muck of the swamp..'BIPPIB' are the pen initials of a former manager of a Nepali public sector company.