Today, when market is hardly limited by political or geographical boundaries, the global economy avails itself of an almost free market economy. But Nepal has been lagging in reaping the benefits of globalization and its strategic location. The shortcomings of Nepali market arise from poor infrastructure, under-performing businesses, unrevised trade and market policies, and unstable political scenario, among other things. These factors hold Nepali economy in the backwaters of global market, despite its potential. [break]
But why is Nepali economy so secluded and unable to catch up with the global economy? Among numerous possible reasons, I want to highlight the inability of our market to be less homespun and more adventurous.
Lloyd Marcus/americanthinker.com
Nepal’s market came into existence only after the sixties. The government(s) then made investments to establish state-owned enterprises. Such investments gave sufficient spark to ignite the economy of the country. From nothing, Nepal’s economy grew to become a tiny dot. These early investments were like seeds, they provided the critical mass to attract more investments from both private and foreign investors, and created more opportunities for employment and growth. Market opportunities were later available for Nepali economy. However, after that the economy lost track in more than one instance. If our economy had been able to convert from a command economy to a market economy, it would have been a vital turning point. But the failure of the government to recognize and follow the path to progress got the better of our economic growth.
The inherent property of market economy is to let its players function and adjust to supply, demand, resources and competition. It is a self adjusting economy which responds to changing market scenarios and grows organically over time. In such an economy, the government has a limited but important role of ensuring a level playing field through laws, acts, policies and monitoring. On the other hand, the government controls the market in a command economy, including market players, prices, and resources, which most often prohibits competition. In the latter case, most state owned enterprises exploit monopolistic powers and deter entrants from getting into the picture.
A study conducted by the Ministry of Finance in 2012 states that among 37 public enterprises studied in fiscal year 2010/11, 21 public enterprises were in profit, 14 were in net loss, while 2 of them didn’t have any transactions. Even among the ones in profit, there was a massive decrease in net profit—from NPR 10.56 billion in fiscal year 2009/10 to NPR 6.68 billion in 2010/11. Even though two public enterprises, Nepal Electricity Authority and Nepal Oil Corporation, each incurred a loss of more than NPR 5 billion, they continue to operate as state-owned enterprises. The reasons behind enterprises like NOC and NEA not being privatized are corruption, complicated bureaucracy, and inefficient governments which use these enterprises to serve special interest groups. If these institutions were privatized, well monitored and regulated, such monopolies could have given way to a competitive market economy and fostered growth.
Nepal still has a lot of state owned enterprises which have been ill-performing for years and contributing to the degrading of the country’s economic health. When we make a comparative study of two enterprises, Nepal Oil Corporation and Nepal Doorsanchar Company Limited (previously known as Nepal Telecommunications Corporation), we understand why we need to convert to a market economy. NOC is still state controlled, exhibits poor performance and provides unsatisfactory services, and is buried deep in debt. It has drained a considerable amount of national resources. NDCL, on the other hand, was privatized, and now is one of the companies functioning well in a fiercely competitive telecom market, making huge profits each year. The privatization of the company opened the doors to foreign direct investments, making it a booming industry, and the market became the place where only the fittest survived. The winners in such economies are always the best performing companies and the customers who benefit from the best services at best prices. It is because of this healthy market competition that service prices of telecommunications in Nepal are among the cheapest in the world.
At this point, the economic scenario of Kenya might sound familiar. Kenya after its independence in 1963 invested heavily in public enterprises. Because of these investments, Kenya achieved an average growth of above 6 percent for about 10 years. But during the 90s, Kenyan economy shrank and even recorded negative growth rate. The focus of the economy should have been on increasing competition, but instead the government exerted administrative controls on the economy, which stunted its growth. The government realized its mistake, and in 1994 implemented the Parastatal Reform Project. The objective was to reduce the Government’s direct role in the economy. One of the measures taken was privatization. Some time after that, the Government fully or partially privatized or closed 168 Public Enterprises of the original 207. From 2003, the economy showed signs of recovery, and though a war caused a momentary bump, Kenyan economy bounced back. Today Kenya is a market based economy with a liberalized foreign trade policy. Such conducive economic ecosystem has made it possible for Kenya to catch up with raised economic frontiers and become the current center of gravity of the worldwide mobile revolution.
There are many other economies which have shown amazing growths but later faltered due to wrong moves. Kenya is an example which shows that correct moves can revive an economy. Nepal can achieve what Kenya has, and more. What Nepal needs is a correct assessment of which policies/programs aren’t working and which need to be introduced to undo the harm done.
Nepal is a mixed economy, which means that there already is a founding stone for market based economy. But economic incentives have not been well directed in Nepal, which are most evident in many public enterprises. By protecting poor performing state owned enterprises, we are encouraging corruption and inefficiency and also abusing national resources (including citizens’ taxes and government’s loans) because these investments aren’t generating enough returns. To keep our economy alive and growing, the economy now needs to be outward looking. And since privatization is not a novel concept, but rather a proven one that helps create a self sustained economy, privatizing public enterprises for a dynamic and competitive market economy is our way forward.
The author is an Economics graduate with interest in
Public Policy
barshaaa@gmail.com
Related story
Nepal's Energy Leap in NDC 3.0
