Econ-ity » July 3, 2016

Daily Archives: July 3, 2016

Let People Create Jobs

– This article was originally published by Akash Shrestha on July 3, 2016 in The Himalayan Times.

With the start of July, we are now into the month of the new fiscal year 2016/17. The budget that was presented before parliament five weeks ago will go into implementation from mid-July. The objective of the budget once again is to “… increase income and employment …,” and “to attain high economic growth through increasing productivity and production,” among many.

On one hand, we have these; on the other, there are people migrating out of Nepal by over a thousand a day in search of economic opportunities — including some of the most hostile territories in the world. They do so because they have no other choice. When there are no jobs in the country, one makes the obvious choice of becoming an economic migrant.

One common thing that binds the budget, the Constitution and migrants is jobs. And what creates ‘new’ jobs? Private enterprises! And creating private enterprises that will create new jobs is not easy for Nepali citizens to do. Thus, the immediate focus should be to work towards facilitating enterprises. To begin with, the two most important aspects of facilitating ‘enterprise’ will be ‘facilitating entry’ and ‘facilitating exit.’

Starting a business — facilitating entry

Facilitating entry should eventually translate to a situation where a Nepali can easily dream of starting his/her own business. Then, the next thing to look into will be how long does it take for an aspiring entrepreneur to get from thinking about starting a business to registering one and moving to the operation phase. As things happen in Nepal, the latter tends to hinder the former.

Say, one wants to start a small manufacturing industry. If one studies the official processes, it will look like the company can be registered in a matter of weeks, if one is lucky. But for an entrepreneur, registering a business at the Office of the Company Registrar is merely creating a legal person. This legal person does not have any right to engage in economic activities unless it gets necessary permission from other agencies, depending on the nature of its business. This is where things get more inhospitable for aspiring entrepreneurs. If one needs to do an Environmental Impact Assessment, it can only be passed through the Department of Industries and can take him anything between four to six months, to years.

Then there are a number other agencies to get the permission from before one can operate, vis. the Office of Cottage and Small Industries, the Inland Revenue Office, other concerned departments, et cetera. Some of the common grievances of all existing industrialists are that there are too many and unclear legal processes, and all of these cost a lot of time and under-the-table fees. Now that Nepal is going to implement federalism, people should feel that this is a positive change for them. From starting a business perspective, this can be achieved through devolution of the regulatory agencies that are centred in Kathmandu to all new provinces, further guaranteeing that people get all kinds of services from One Stop Service Centres (OSSCs), and reviewing and reforming existing procedures to get rid of redundancies and make them less time-consuming.

Closing a business — facilitating exit

Another equally important factor that affects people’s decision to start a business is how easy it is to close the business should s/he choose to. Sometimes businesses go in loss, other times, people feel that there are greater prospects of profit in another business and want to close their existing business. In order to make sure that the switch is prompt, people are still economically active, and the utilisation of resources is optimised, it should be easy for business to wipe their slate clean and start anew.

To put it simply, there is no clear policy regarding exit. One of the hurdles is that it is a challenge to find your own file at the regulatory agencies, then, tax files are practically never closed, you have to hire a liquidator irrespective of the size of your business, the regulatory agencies are not at all friendly, and there is no coordination and harmonisation across functions of different government agencies. When people see that it is difficult to get their hands off a business once they get into it, that their resources are likely to be stuck in a not-so-profitable or even loss-making business, and that they are always being monitored, that already acts as a big demotivating factor.

To start with, facilitating exit would require a clear exit policy on the regulator’s part. Then, the processes will need to be simplified and made entrepreneur friendly, redundancies be done away with, and entrepreneurs be made to believe that the regulators are there to facilitate rather than to stifle their entrepreneurial spirits. Just as in case of entry, the exit processes should be handled from the provincial level, too.

It is when people feel that they can earn their own livelihoods by starting their own businesses in Nepal that we will be able to meet the goals as stated in the Constitution and the budget. We cannot be promising to create jobs for people without analysing why people are not doing it on their own. At the end of the day, it is private entrepreneurs that create new jobs, and not the government.

Akash Shrestha

About Akash Shrestha

Akash Shrestha is Coordinator of the Research Department at Samriddhi, The Prosperity Foundation where his focus areas are petroleum trade and public enterprises. He also writes newspaper articles, blogs and radio capsules, based on the findings of the studies conducted by The Foundation.

Published by:

3 reasons why banning plastic bags is not pragmatic

 

If you are wondering how the plastic bag ban and the images of London in the 19th century and today are linked, we will come back to it in just a while. But before that:

The fiscal year 2016/17 budget of Nepal has called for a ban on the use of plastic and polypropylene bags in an effort to curb environmental pollution, improve human health, environment and urban beauty. Its implementation would mean that all manufacturers of plastic bags are required to shut down their operations altogether.

The manufactures on the other hand, and expectedly so, have expressed disappointment at the “sudden and unexpected” decision by the government and have suggested that there is a greater economic cost associated with this move which the government has failed to visualize. This leaves us with a very important question. “Does the economic cost outweigh the environmental cost?”

The economic cost of this move is undeniably very high. The restrictions on the use of plastic products have a huge impact on the survival of more than 30 plastic factories in the Morang-Sunsari Industrial corridor. These industries operate with a collective capital investment of over Rs. 5 billion in machineries and equipment, and directly support the livelihoods of more than two thousand families. A large number of workers having skills in making plastic bags will be unemployed until they acquire new skills and get new jobs. There will therefore be greater frictional unemployment.

With all the hue and cry about the environmental impact of plastic all over the world, the plastic industry has become an easy target for the government which is desperate to show that they are getting some work done. It is clear that the government has not done any homework whatsoever to support this decision.

  1. What about the investments?

 

Let us begin with the economic alternative the government has proposed to the entrepreneurs who have already invested in the industry. “A waiver of VAT on import of machinery and only 1% import duty for people wishing to switch to other industries.” But what about the Rs.5 billion already invested in the industry? Most of the investors are already indebted to banks and other financial institutions to operate these factories. We have not yet thought about concrete steps to help these entrepreneurs to repay the loans and recover their investments.

 

  1. Everybody is becoming worse off

In a market, new innovations and technologies replace the old and outdated ones. Like in the current case of plastic ban, it also puts a lot of pressure on the existing workforce. People lose jobs when machines replace them. This act as a signal to the people that are laid off that their skills are no longer in demand in the market and therefore they need to invest in acquiring new sets of skills and get new jobs. However, when this happens, the efficiency and the productivity of the system also go up. (For example, when an electric harvester is used for harvesting crops instead of having 10 people work on a field for days). In that case, it would be a case of creative destruction.

In this case of plastic ban, however, people are being laid-off, factories are being shut, investments are being compromised, and yet, we do not see a more efficient system in place that is going to replace all these factors. The society, on the whole, only becomes worse off with this policy.

 

  1. Economic growth or environment

 

There will still be a big support for the notion that the environment conservation is a far greater cause. But then, historically, economic growth, especially for societies that are already poor to begin with, has come at the cost of the environment (be it vast deforestation for agriculture, or the coal-backed industrial revolution). It is after a society gets to a certain level of economic development that they can now think about preserving the environment. This is also the phase where the society can now invest in new technologies that are more environment-friendly, or create such technologies.

 

As Johan Norberg explains in his ‘In Defense of Global Capitalism’, prosperity creates awareness and instills ‘a sense of responsibility that makes environmental protection easier in a wealthy society’. He argues, that ‘poorer countries are too preoccupied to lifting itself out of poverty to bother about environment at all’.  Further he argues ‘progress of this kind, however, requires the people lives in democracies where there are able and allowed to mobilize their opinions’.

 

 

 

 

 

 

 

 

 

 

Samrakchhina Ghimire

About Samrakchhina Ghimire

Samrakchhina Ghimire is a Lawyer based on Kathmandu. She holds L.L.B degree from ILS Law college, Pune University. She is a candidate of L.L.M in International Law and Commercial Law at National Law College, Tribhuwan University.

Published by: