SEDF and the National Business Initiative Nepal conducted a survey of stakeholders regarding their attitudes towards private sector development in Nepal.  The study design, implementation, and report development were carried out by Solutions Consultant. The results are expected to contribute to the development of policy strategies and the design of interventions for public-private dialogue, as well as the improvement of the investment climate and stakeholder relations with Nepalese businesses. The objectives of the survey are consistent with Nepal Government’s vision for private sector development.

The survey depicts stakeholders’ views on the role of the private sector in the country’s development and will provide information on attitudes, relations, and trustworthiness as regards private sector development and business reforms in Nepal.

stakeholder groups for the survey were: i) opinion makers and influencers in the general population; ii) labor representatives, and iii) representatives (owners/senior management) of private businesses across Nepal.  The survey was carried out between May 2012 and July 2012.

Key Findings

Perceptions of the current economic scenario

  • All three stakeholder groups (opinion makers, labor representatives, and businesses) broadly agreed on the important issues facing the economy; political instability, lack of electricity (power), corruption, and the lack of a productive workforce are considered the top business and economic concerns.
  • Similarly, political instability, lack of electricity, education, corruption, and employment are considered to be the main issues facing Nepal.
  • Around 60 percent of all three stakeholder groups perceived that business and the economy were going in the wrong direction, though around 40 percent felt that the economy was improving compared to five years ago.

Perceptions of the priority areas for reform, government, and regulations

  • All stakeholder groups felt that reforms in the areas of agriculture, education, corruption, and politics were most needed for Nepal.
  • A higher proportion (47 percent) of businesses considered the government an obstacle to doing business; there was a general consensus that the government should focus more on helping smaller businesses.
  • Stakeholders generally agreed that the government fosters corruption, does not provide a level playing field to large and small businesses, and does not protect investors’ interests. These were the major reasons for considering the government an obstacle to business.
  • The government was also considered a facilitator for businesses in many ways (including by making it easy to start up businesses), for example by providing easier access to credit and working towards lowering the prices of goods. However, there is room for improvement: less than 39 percent of businesses felt that the government helps businesses.
  • Though about half of businesses (51 percent) approved of the way in which the government and its agencies had handled the national economic crisis, opinions were spilled as to the favorability of economic policies towards businesses.
  • Improved business regulations, easier access to credit, and political stability created favorable perceptions toward economic policies and the business environment. Conversely, political instability, lack of electricity, and poor policies/regulations led to unfavorable perceptions.
  • Around 53 percent of businesses indicated that more business regulations may be needed to effectively regulate businesses. Around 26 percent of businesses indicated that the current business regulations are favorable to their own businesses, while 24 percent indicated that the current business regulations are unfavorable to them.
  • Among the reasons for favorable perceptions of business regulations were their role in allowing businesses to run properly (33 percent), checking prices (30 percent), and preventing illegal businesses from operating (24 percent). Conversely, business regulations were considered unfavorable for similar reasons: for being ineffective in controlling prices and preventing illegal businesses, as well as for increased taxes.

Business and labor reforms

  • Almost all agreed that business reforms are essential for Nepal and most agreed that business reforms benefit all Nepalis (not just businesses). Ensuring fair competition, an easier tax filing process, and the amendment of existing business regulations was considered priority business reforms.
  • However, the majority of stakeholders had heard little or nothing about business reforms. Around 62 percent of businesses (40 percent of large businesses), 51 percent of opinion makers, and 68 percent of labor representatives had heard little or nothing about business reforms. Of the stakeholders who had heard about business reforms, over two-thirds perceived these reforms to be favorable for businesses.
  • Lack of access to loans or credit, infrastructure (power, water, information, and communications technology, serviced land), political stability, and market conditions were considered to be the major obstacles to business. In particular, political instability and the lack of electricity – seen as major obstacles as well as priority concerns for stakeholders – should be addressed by the government. Additionally, internal issues like the lack of management, unproductive labor, and unmanaged supply chains are also considered obstacles to business.
  • A considerable proportion (34 percent) of businesses indicated that they had decided not to make investments because of regulatory issues in recent times. For most businesses, it was not the time and cost of regulatory compliance, but the lack of certainty involved as regards the time and cost of compliance.

Private sector

  • Stakeholders believed that the private sector contributes to the development and provides employment opportunities, but only around 30 percent, including businesses themselves, agreed that the private sector is transparent, accountable, and honest.
  • An overwhelming majority of labor representatives (over 90 percent) indicated that fair wages and the welfare/security of workers are priority issues to be addressed by the private sector. Businesses and opinion makers considered the quality of products and services to be the top priority for the private sector (over 85 percent), followed by fair wages and the welfare of workers.
  • The enforcement of legal/regulatory standards, certifications, and awards for well-managed firms was seen as means to improve the reputation of the private sector.
  • Across 10 business sectors, the banking and financial sector, technology, and communications, the media, and the healthcare industry were considered more responsible. Comparatively, the energy and retail/trade sectors were less trusted.

Information sources and knowledge about priority investment areas

  • Compared to other stakeholders, a smaller proportion of labor (around 50 percent) had heard of the government’s investments in hydropower, though those who had were overwhelmingly positive. But it is to be noted that a significant proportion (around 25 percent) of respondents did not know of the benefits of hydropower development in Nepal.
  • Similarly, many respondents – a higher proportion of the labor representatives – were unaware of the benefits of investing in agriculture (commercialization) and tourism.
  • Television and newspapers were the most trusted sources of information about business and the economy across all stakeholder groups. However, businesses noted the dearth of much-needed information on new technologies, market demand, business opportunities, risk management, business regulations, and economic policies.

Key Insights

  • It is important to note that labor representatives, businesses, and opinion makers mostly agree on the key issues facing Nepal. This suggests that all stakeholders can come together to tackle these issues.
  • There is a favorable perception of current economic policies, driven partly by the knowledge of progress on key issues like political stability and business regulation. People believe business reforms are good, but most have heard little about them. The government should communicate its business reform initiatives more effectively.
  • The private sector is considered to be contributing to the development of the country, more specifically by creating employment opportunities. However, it was found to be lacking in terms of accountability, transparency, and honesty, and the retail/trade and energy sectors in particular suffered from a lack of trust.
  • Poor regulations, excess paperwork, a lack of transparency, and limited access to information are linked to the issues that hinder businesses. E-governance initiatives (online information systems, payment systems, access systems) could address these issues and facilitate business.
  • A significant proportion of people are not aware of or do not understand the importance of the government’s initiatives to develop investment in hydro-power, agriculture, and tourism. This has to be addressed if people are to understand why certain changes are necessary. Communicating the benefits of investment is key to securing the support of stakeholders.
  • Businesses identified an information gap in crucial areas for their development, including hydropower, tourism, and agricultural sectors. Better communication to all groups on the part of the government, as regards their priorities and activities, will help build awareness and support for initiatives that benefit Nepal.
  • TV and newspapers are trusted sources of information on business and the economy, while the Internet and radio are also important for opinion-makers and businesses. This highlights the importance of working with the media to communicate business reform issues with stakeholders.

January 2013