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Corruption: Itchy Palms and Foreign Aid

The Nepali Times, in its most-read column, ‘The Ass’, once hilariously remarked that we belong to a nation where most acts in the Nepali vernacular are described as ‘eating’ rather than doing; ‘mwai khanu’ (to kiss), ‘churot khanu’ (to smoke) and ‘jhapad khanu’ (to get slapped) are a few instances. One act among these has become more or less synonymous with living in Nepal; ‘ghus khanu’ (to take bribes).

Nepal is a country only too familiar with the imagery of a government official rubbing two fingers and a thumb together. An itchy palm makes for an expectant bureaucrat. It was really no surprise then that the 2014 Corruption Perception Index released by Transparency International portrayed Nepal as the third most corrupt country in Asia. Nepal stands at rank 126 out of 175 countries and has a score of 29 out of a 100. The index is calculated by including reports from the Bertelsmann Foundation, World Bank, World Economic Forum, Global Justice Project and Global Insight, who carry out surveys based on a number of elements of good governance.

In recent years, it has come to light that foreign aid in Nepal has done possibly more harm than good; with money from taxpayers abroad helping fund corruption rather than much needed programs, inclusive of hydro power and community development among others. The 2014 report from DFID on its performance overseas proves to be a ‘damning study’ which asserts that “local communities in Nepal have for more than a decade benefited from British-funded support programs which allowed them to implement their own projects for schools, bridges and other needs in a way combining democratic participation with spending procedures that limited opportunities for corruption. It was a success story for British foreign aid, which surely pointed toward an expansion of the scheme. Instead the programs have been cut by more than half, because the Nepalese central government wanted to take over the work, which will now be both more distant from those it is supposed to serve and more open to the corrupt diversion of funds”, as reported by The Guardian.

Newsreaders clucking like chickens about corruption in hydro-power projects in Nepal do little else. The recent revelation of embezzlement worth 540 million at the Chameliya Hydro power project, caused, at most, grandfathers (excuse the generalization) to swear with relish at the prospect of being able to verbally slap these corrupt officials. Money vanished in the name of purchases and salaries and wages. The amount embezzled has been nothing short of ridiculous. Does this mean its time our ‘large’ neighbors (and the rest of the world) should stop throwing bundles of money at us?

Before we get all patriotic and say no, you know that we actually need a few of these bundles. Perhaps more than a few. So we get the money but once it passes through the bureaucratic sieve, you are going to barely get enough to make a good cuppa joe. Government officials ask money for every little transaction and every piece of paperwork. Political pluralism has further deranged much needed projects and supplied the money in areas as dictated by the numerous political parties, constantly breaking up into ‘hyphens’ and ‘sans-hyphens’ as need be. In ‘Corruption, Society and Politics in Nepal’, Thomas Wills identifies political experts who conclude, that ‘as far as corruption is concerned, democracy “has helped to aggravate the situation.” This may in part be down to the sheer multiplicity of parties.’

Democracy is necessary; so is political pluralism. But when the best are among the worst, the system does little good. Foreign aid needs to be cashed better by reducing bureaucratic hurdles and the red-tape. The 2014 ‘Doing Business Report’ by the World Bank places Nepal at 108 out of 189 economies outlining the near infinite bureaucratic obstructions that one needs to go through to conduct business in Nepal. Corruption in public administration has become endemic; systematic. It needs to be questioned and challenged before foreign investors lose hope in our economy before we do.

Labisha Uprety

About Labisha Uprety

Labisha Uprety is a Research and Communications Officer at Samriddhi. She enjoys debating and likes her tea black with a little sugar.

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Why I think twice before paying taxes?

Mounting grievances and inefficiency of government institutions in Nepal which operate on taxpayers’ money makes us wonder if tax is really the necessary evil it is often touted as being. In principle, the rationale behind tax is justified. However, the current scenario does not do justice to the rationale.

Citizens have incentive to pay taxes as long as the benefits of what is asked by government in various forms of taxes is higher than the services rendered by authorities. But the government is not doing what it is supposed to do for compensating taxpayers’ giving up of their hard-earned money; we get much less services than what we paid for.

The notion of paying tax brings second thoughts to my mind. There are a number of reasons why:

Bureaucratic Inefficiency

As a Nepalese citizen, I pay my share of taxes and by this virtue alone, the authority is obliged to ensure effective and efficient public service delivery to me. Sadly, this rarely happens. The service delivery mechanism has a lot of loopholes; there is excessive red-tapism, no proper delegation of authority and the idea of good governance is limited to plans and policies.

Furthermore, the government has failed to create conducive environment for the private sector. A substantial portion of the fiscal budget is spent on different administrative headings than making capital investments on infrastructure. There is lack coordination between authorities which results in significant wastage of resources. For instance, roads built by department of roads are frequently dug down by others, once for drainage, again for water supply, and so on and so forth. Moreover, with dismally low results, wastage of resources inherent in Nepalese bureaucratic structures implies that our tax money is going down the drain.

Corruption in Public Sector

Corruption in Nepal ranges from nepotism to significant monetary scam. It is dispersed like an epidemic in almost all government organizations. Corruption Perception Index (CPI) published by Transparency International gives Nepal a score of 31 on a scale of 0-100, where 0 and 100 represent “highly corrupt” and “very clean” respectively. Abuses of authority, secret deals and bribery have lasted for years.

While the commitment of Commission for Investigation of Abuse and Authority (CIAA) is commendable, our tragedy still remains that the corrupted receive clean sheets due to dysfunctional mechanism. Moreover, recent CIAA report reads rampant corruption at local levels, particularly at Village Development Committees (VDCs), Municipalities and District Development Committees (DDCs).

I can’t foot Public Enterprises’ Loss and their Inefficiency

As of today, the number of fully and partially owned public enterprise has reached thirty seven, out of which sixteen operate in net loss. The total cumulative profit of fourteen public enterprises is about NRs. 65 billion and loss incurred by seventeen others is around NRs. 43 billion. Here, NTC alone accounts for NRs. 39.5 worth of cumulative profits. (Source: Yellow Book, Performance Evaluation of Public Enterprises: Ministry of Finance, 2014)

Janak Shikshya Samagri Kendra, a public institution that has the responsibility of ensuring timely production of subsidized education materials for public school students across the country has not been able to deliver for quite some time now. There have been instances when the books have reached students in the second half of the academic year only. Another example is that of Nepal Electricity Authority (NEA).Despite of a lot of money being poured in for the purpose of electrification it has not been able to cut down hours of load-shedding. Nepal Oil Corporation (NOC), similarly, has not been able to deliver—long queues in the petrol stations despite over NRs. 39 billion worth of taxpayers’ money floated to them being a constant reminder of that failure.

The more I understand government and its actions, the more doubts I have over having to pay taxes to fund its inefficiency.

Suraj Dhakal

About Suraj Dhakal

Suraj Dhakal, a student of Development Studies works with Research Department at Samriddhi, The Prosperity Foundation. Mr. Dhakal was previously associated with We Inspire Nepal (WIN), a youth led leadership and personal development organization.

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Doing Business in Nepal: Ins and Outs of the Company Registration Process in Nepal

In an attempt to increase the ease of doing business in Nepal, the Office of Company Registrar (OCR) made online company registration process mandatory in October 2013. Since then, Nepal has gone up three spots in the Doing Business Index (2014) ranking 105th among 189 global economies.

But does it mean that it is much easier to register a company now? Not Really! My research shows that although corruption and bureaucratic hassles were among the major reasons for the change to an online system, they still remain intact. People still have to go through all the old processes and additionally provide documentation online. Moreover, the decade long problem of people outside the valley, who have to come to Kathmandu to register their companies and incur expensive travel and lodging expenses still exist.

The process map reflects the long bureaucratic procedures and the paragraphs below explain some prominent problems.

©Samriddhi, The Prosperity Foundation

©Samriddhi, The Prosperity Foundation

Corruption remains unscathed

In theory: According to the OCR IT personnel, an email regarding approval of the proposed name of the company or reasons for denial is sent to the applicants within 15 days. Following the approval, producing originals of required documents, paying the registration fee and collecting a signature is enough to get a registration certificate.
In practice: Mostly, applications do not get forwarded for approval unless there is some kind of under-the-table settlement. While the registration process is stuck even after 15 days if bribes aren’t given, the whole process can be completed within 2-3 days with proper connections and handsome payoffs.
Causes

  • OCR officials attributed low government salaries as well as the willingness of the business community to bribe as factors fueling corruption in the company registrar’s office. They also mentioned that performance-based-incentive-systems have been proposed, however if and when the system will be approved is uncertain.
  •  A lawyer mentioned in an interview that even if there was a situation where under-the-table settlements wasn’t necessary to get the registration certificate in 15 days, he would still resort to bribing to remain competitive as other lawyers would be finishing the job in 2-3 days through unofficial settlements.
  • Some applicants try to avoid providing necessary documentation and use shortcuts (settle unofficially) to complete their processes.

With both parties willing, corruption has become a norm in the OCR.

Too early to change?

Some employees within OCR, lawyers, and business people (who have to go through the additional online process) have shown some resistance to the change.
Also, for people who are not acquainted with using a computer (esp. people living in remote areas), finding a service center is a problem. When they do find one, the monopoly provider charges exorbitant fees. FNCCI and CAN have opened up service centers in 11 districts and plan to expand to all 75 districts, but due to lack of awareness among people these service centers do not seem to be very popular.

Technical Problems:

Although generators are set up in the OCR for the long and frequent power outages, they do not always work thus halting the registration process during times of power cuts.
Similarly, people also miss deadlines when server crashes occur due to high volumes of online activity close to the deadline date. The system does not recognize certain Nepali characters and thus spelling the correct company names become a problem. There have also been multiple complaints of the user–friendliness aspect of the system and even tech-savvy people have found it difficult to navigate it. OCR is aware of this fact and they are working on making the system more user-friendly and approachable. The software has been evolving and feedback are welcome at support@ocr.gov.np or info@ocr.gov.np.

Going online has increased costs!

cost of company registration infographics

So does it mean going online is a bad idea?

Absolutely not! The problem is not in going online but in the inability to go fully online. With a fully automated process, people don’t have to spend time or money to travel to the offices and consider office hours to view their documents or submit their applications. Going online makes document access and company existence verification easier, which helps while applying for loans. Transparency is increased when people are able to see information about registration fee, fines and application status online.  Issuing PAN numbers directly not only make it easier for the applicants but also help increase tax nets.

The online system allows applicants to reserve a name until 35 days and this opens up opportunities for people to approach potential clients or investors with the guarantee that their business will have that name. Complete automation would also significantly help remove corruption in the OCR.

Ideal deal

The ideal situation would be complete automation of the company registration process and efficient service centers. Since that will take time, the online system could be made optional until all OCR staffs are well-trained and reliable service centers with reasonable prices are established all over the country. It is also important that people get all the post-online registration work done in one place and a real ‘one-window’ is established. Additionally, provisions should be made to make registration possible in each district for the time being.
Ensuring electricity supply during office hours and making the online system more user-friendly and error-free through a constant feedback system is important.  Also, 15 days is a very long time period just to verify the name of a company and that should be reduced. Moreover, the Government of Nepal and Nepal Rastriya Bank need to find agencies and come up with policies that will recognize digital signatures as well as make e-payment possible so that complete automation can be realized as soon as possible.

What do you recommend to make the company registration process better? Please leave a comment below.

Sneha Pradhan

About Sneha Pradhan

Sneha Pradhan is a Research Assistant at Samriddhi, The Prosperity Foundation. She graduated from Mount Holyoke College with a Special Major in Economics and Statistics, and a Minor in Complex Organizations.

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Doing Business in Nepal: A Case Study in Tourism

China and India are set to be among the three largest economies of the world by 2020, accounting for 27% of world GDP in PPP terms. And what’s more? They are travelling. All we have to do is become the coffee-shop between two huge corporate houses, whose staff likes to venture out of the routine jobs every once in a while. But is doing business in Nepal so easy, including the tourism industry? The World Bank’s Doing Business report positions Nepal at 105th in terms of ease of doing business.

Here we will look at a case – the ground realities of the process of acquisition of green number plate licenses that travel and tour operators require.

Ground realities

The number plates are issued after a two-tiered process. First of all the applicant tour operator applies at Tourism Industry Division (TID) under Ministry of Culture, Tourism and Civil Aviation for a permission to apply at Transport Management Office (TMO). Excessive corruption, red-tapism, redundancy, lack of accountability in part of the concerned agencies are commonalities in practice.

Process of acquiring green number plate

Process of acquiring green number plate. CLICK on the image to get a better view.

Lack of Accountability

To begin with, all government agencies are required to host Citizen’s Charters (Nagarik Badapatra) at their premises as a measure of accountability towards the citizens. The charters posted at the TMO premises are a decade old and do not reflect the true processes that are followed at present. Besides, economic ordinances can make annual changes in details like vehicle tax. These issues are not addressed in the citizen’s charters posted at TMO premises. Therefore, if an entrepreneur were to follow the guidelines as mentioned in those charters, he/she would be misled and would be rendered unable to acquire the desired services from TMO.

Redundancy
Most procedures required at TID are repeated again at TMO, only increasing the scope of discretionary powers held by bureaucrats at different sections of TID and TMO. This, complimented by lack of information sharing between these agencies can cause the files to be stuck at one section or the other. For example, while the Travel Section at TID verifies all clauses as included in its 26-point check-list before writing an application to the TMO requesting that a green number-plate license be issued to the applicant tour operator, the road-test procedure conducted by the Technical section at TMO requires the applicant to undergo the similar set of processes to produce the same information all over again.

Too much information (to gather and comprehend)
Interaction with personnel posted at different sections of TMO (who are paid to have that information and share it with the applicant) revealed that they were unsure about the complete procedure for the acquisition of green number plate licenses. A number of personnel shared that they have been transferred to TMO only three or four months back (as of May, 2014) and admit how they themselves do not fully understand the steps that need to be followed yet.

The aforementioned problems lead to one, corruption and two, lawyers taking unfair advantage of the entrepreneurs’ lack of access to information. Some tour operators also expressed how they have been asked to pay a sum exceeding Rs. 100,000 at TMO being told that their vehicles do not meet the technical specifications even after being cleared by the Travel Section at TID.

Possible reform measures
Now we see, the faster the tourism entrepreneurs can acquire licenses – to operate their businesses – the better for the economy. Easy access to information for entrepreneurs and accountability on government agencies’ side is the combo that is the need of the hour. Certain steps can be taken to deal with the aforementioned issues.

A client (tourism entrepreneur) focused manual that includes a list of required documents and processes involved in the process of acquisition of a green number plate license can be developed as a short-term measure. This manual needs to be available online and should be updated as per the change in economic ordinances, for example, the tax codes. This needs to be seconded by an updated citizen’s charter at TMO premises. The concerned agencies (TID and TMO in this case) need to develop a mechanism whereby they share relevant information among themselves such that redundancy and excessive red-tapism can be avoided. Training of personnel at TMO is required at the moment, as evinced by the interaction with the personnel themselves. A medium term focus can be coming up with a one window policy to hasten the process. This will require some homework to be done on the government’s side and will thus take some time. If implemented, however, this will also help cut off the complexities, redundancies and room for corruption.

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.

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Attracting Foreign Direct Investment in Nepal

foriegn-direct-investment-nepalThe countries of Latin America, South-East Asia and Africa were initially reluctant toward foreign investment and consequently pursued a policy of import substitution until the 1970s. However, after the introduction of structural adjustment programs, many countries opened up their economies. The countries of Eastern Europe and the former Soviet Union have also liberalized their economies during the process of transition from state-controlled economies to market economies during the 1980s and 1990s. Many low income countries of the world have formulated policies to adopt Foreign Direct Investment (FDI) in order to increase economic growth and human development. Nepal also took some measures to allow FDI in the country for economic growth, such as formulating the appropriate policy and act in 1992. Nepal is in dire need of both market seeking and non-market seeking FDI because there lies a huge market for both kinds of FDI. However, the data taken from Department of Industry (DOI) shows that the flow of FDI in Nepal is not so impressive because only $95 million was attracted in the period of 21 years.

There are several factors that contribute to attracting such low volume of foreign investment in Nepal. Political and policy level instability is considered one of the main reasons because it is the pre-requisite for bringing any sort of investment. There are various bureaucratic hassles that discourage potential investors to start their business ventures in Nepal. It is even very difficult to register a company and get business visa. In addition to this, getting approval for FDI is also lengthy and cumbersome. That is why most of the Non-Resident Nepalese (NRN) bring money in the form of hundi and make investment in their projects. Although, it is illegal, they are compelled to do so to do business in Nepal. Brining money through these channels does not reflect the true financial position of a country. Besides this, financial institutions loose a large amount of money that can be earned in the form of service and other fees.

The recently introduced minimum threshold for FDI creates a hurdle for bringing such investment as investors want to start a small business in the beginning and if it works, then scale it up. Foreign investors have a hard time getting information as well because they cannot get comprehensive information from a single authority. The different officials of various ministries interpret policies and acts in different ways, either because they are unaware of the exact policies or so that they can find avenues for petty corruption. In addition, the process is very time consuming. Foreign investors have been known to lose patience during the approval process and have diverted their investment elsewhere even after getting approval. During the repatriation of profit, investors face similar administrative hassles and bureaucratic delays.

If the concerned authorities create an automated system wherever possible, the problem of delays and corruption will be resolved to some extent. It could accelerate rate of approval of FDI and also aid in repatriation of profits, consequently attracting further investment in future.

Pramod Rijal

About Pramod Rijal

Pramod Rijal is a Research Associate at Samriddhi, The Prosperity Foundation. He is also a lecturer of Economics at Mega National and Unique College of Management and has contributed a number of articles in various national dailies.

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