Opinion

Strengthening Municipal Entrepreneurial Ecosystems in Nepal

Published On: February 26, 2023 09:00 AM NPT By: Niyati Adhikari


Niyati Adhikari

Niyati Adhikari

Niyati Adhikari, a lawyer by profession, holds a master's degree in International Criminal Law and International Human Rights Law from Bangor University, UK.
neeyatiadhikari@gmail.com

Nepal’s entry into the era of federalism came with the promise of more power to the local level and prosperity in areas previously neglected by the central power structures. As part of this move towards decentralization, local governments across all seven provinces of Nepal were granted increased authority and responsibility to promote and support economic development. It was in this context that entrepreneurship gained recognition as a crucial element in driving economic growth.While entrepreneurship has gained recognition as a crucial element for driving  economic growth, it is equally essential to further deliberate on the development of a conducive environment to foster and sustain entrepreneurship.

Stam and Van de Ven (2019) have developed a new framework called “entrepreneurial ecosystems” to appreciate entrepreneurship. This framework suggests that the level of productive entrepreneurship in a region is determined by the health of the ecosystem consisting of resource endowments and institutional arrangements. These resources include physical infrastructure, demand, intermediate services, talent, knowledge, leadership, and finance. The institutional arrangement includes formal institutions, culture, and networks. Together, these components create an environment that supports the growth of new businesses and start-ups, thereby supporting economic growth and development within a region.

The establishment of a strong connection between academia, government and private sector would ensure development of a sound entrepreneurial ecosystem. The absence of this interrelation and break in the existing relationship can impede the growth of the entrepreneurial ecosystem. However, the prevailing misconception remains that governance is the sole responsibility of the government, which is commonly known as “good governance”. We tend to hold the government solely accountable for governance challenges, despite the fact that both state and non-state actors exercise formal and informal authority to promote the nation's progress. Therefore, the concept of governance must not be restricted to the state; rather, it should extend to the different stakeholders in building a favorable entrepreneurial ecosystem.

To investigate the status of entrepreneurial ecosystem in the seven  provinces,  Daayitwa under the Sub-national Governance Program (SNGP) conducted a ‘Scoping Study for Municipal Engagement on Local Economic Development’ in the seven SNGP partner municipalities, (Damak, Mithila, Bhimeshwor, Waling, Tansen, Birendranagar, and Tikapur). The study found that the entrepreneurial ecosystem in the seven municipalities is currently underdeveloped which is concerning. Limited access to finance, access to market, networking and lack of entrepreneurial culture are the primary difficulties encountered by the entrepreneurs. This requires us to visit the challenges faced by the entrepreneurs.

Challenges and Proposed Solutions

The federal government has been working to boost entrepreneurship in the country by continuing the employment generation program through which a  budget is allocated to  municipalities annually. The local government has taken steps to support entrepreneurship through policies and programs including access to finance, subsidiary, incubation, leadership and training.

Despite the implementation of policies and programs aimed at supporting entrepreneurs, they continue to face significant challenges in establishing their businesses due to issues such as- limited access to markets and networking opportunities; lack of support programs for high-growth ventures and lack of well-defined scaling strategies for businesses run by entrepreneurs. To address these challenges, it is recommended to establish an entrepreneurship hub where existing and prospective entrepreneurs can learn, network and market their products. This hub would also serve as a scouting place for capable entrepreneurs with the motivation and ability to scale their ventures, granting them access to suitable acceleration programs.

Another challenge is about overt dominance of trading businesses which results in rural entrepreneurs often being excluded from the policy-making process at the federal level. This exclusion leads to creation of policies that are unfavorable to local producers, highlighting the need for their participation in policy-making activities.

The issue of competition from Indian imports is a significant challenge for local producers particularly from the bordering municipalities. This is due to better facilities and infrastructure available to Indian producers, making it hard for Nepali producers to compete on the basis of price.

The data analysis reveals that there is a significant gender gap in entrepreneurship participation in all seven municipalities, with women lagging behind men. The national average of women participation in entrepreneurship stands at 37.67%, indicating that there is a considerable scope for improvement. The statistics for each municipality indicate a considerable variation, with the highest participation rate in Waling at 48.00% followed by Bhimeshwor 42.40%, Damak 39.70%, Tikapur 39.30 % and lowest in Mithila at 30.76%. The data suggests that there is a need to implement targeted policies and programs to address the socio-cultural barriers that hinder women's participation in entrepreneurship. Furthermore, existing entrepreneurship support programs mainly focus on subsistence and necessity businesses such as parlors, clothing making, leaf plates, and terrace farming, with limited support for high-growth entrepreneurs. Despite training programs, the creation of enterprise as well as jobs and employment opportunities remains a significant challenge.

The Need for Intervention

In the light of the said challenges, the following interventions are required.

●The local government holds the responsibility of taking a leadership role in policy development to stimulate the growth of micro and small enterprises. Currently, there is a lack of promotion of entrepreneurship collaboration amongst diverse stakeholders such as academia, private sector, financial institutions etc. We suggest establishing a collaborative platform which will bring together all stakeholders for constructive policy dialogues and investment summits. Consequently, it will create a more supportive environment for thriving entrepreneurship.

●Also, the local government should prioritize the consideration of the available resources, cultural context, and geographical location in determining the suitability of the industry. In pursuance of the same, universities can come forward and provide evidence-based research to identify the most promising sectors for economic development and highlight factors enhancing the productivity of businesses and industries. In this way, guided policy decisions aimed at promoting entrepreneurship could be made. Universities play a major role in instilling an entrepreneurship culture among the youth by incorporating project-based learning into the curriculum. All of these efforts can contribute to the creation of an environment that fosters an entrepreneurship culture.

●Another intervention is warranted in the financial institution. Access to finance remains a challenge for aspiring entrepreneurs due to tedious procedures for loan approval and loan default. Banks conduct risk assessments and define risk categories by only providing loans to enterprises with low risk of default and higher margins. To foster an entrepreneurial ecosystem, it is essential to incentivize banks extending loans to MSEs. Municipalities can incentivize the banks by credit guarantee schemes. Such schemes provide an assurance to the bank that the loan will be repaid even if the borrower defaults.

●The private sector has a significant role to play in fostering an entrepreneurial ecosystem through branding and marketing of locally produced goods. Additionally, they can serve as a voice for rural entrepreneurs who lack access to government and international development communities. For example, the “Made in Nepal” program promotes Nepalese products, raises awareness of their quality and uniqueness, and encourages entrepreneurs to participate in trade fairs and exhibitions. This initiative encourages Nepalese entrepreneurs to produce high-quality goods and promotes them to potential buyers. Such efforts made by the private sector can help create a conducive environment for entrepreneurship to thrive, thereby contributing to sustainable economic growth.

●Civil society also plays a crucial role by advocating the entrepreneurial development policy which advances the cause of economic justice across all the sections of the society. This would bring voices of the common people including marginalized communities to contribute to the discourses of challenges and socio-economic reform. 

In conclusion, to develop a thriving entrepreneurial ecosystem; we need to create a culture that supports and celebrates entrepreneurs. The challenges to the system are the stepping stones to the dynamic world of new possibilities in Nepal. Despite challenges, there are steps which can foster and reform the whole system. The steps include focusing on the necessary institutional structure, establishment of policies which would make funding more accessible, reducing hurdles in decision-making and ensuring collaboration between academia, private and government sectors for constructive policy dialogues. Through these efforts, we can build a stronger and more vibrant entrepreneurial ecosystem which is equipped to produce high-growth ventures and drive economic growth.

(This article is based on a ‘Scoping Study for Municipal Engagement on Local Economic Development’ Daayitwa conducted in the seven Sub-national Governance Program Partner (SNGP) municipalities (Damak, Mithila, Bhimeshwor, Waling, Tansen, Birendranagar, and Tikapur). The SNGP is an Australian Aid initiative implemented by the Asia Foundation on behalf of the Australian Government.)


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