It is December 7, 2004 as I write this. America remembers it as ‘a day of infamy’. On this day, 63 years ago the Japanese attacked Pearl Harbour.

For me this is a day of infamy in Nepal. Petroleum products have yet again vanished. Throughout the day, queues of vehicles at gas stations lengthened. It is criminal at this day and age for Nepal’s policy makers to repeatedly subject its citizens to this torture.

It is ironic that even as prices at gas stations worldwide decline as a consequence of a drop of US$10 per barrel in price of oil, Nepali consumers cannot fill up their vehicle tanks. How many times does history have to repeat itself before something is done?

That ‘something’ is getting rid of Nepal Oil Corporation (NOC). And I do mean getting rid of it in double quick time. Government has had privatization plans on the anvil for far too long. It is time for action.

NOC must be sold in a fair and transparent manner. But that alone is not enough. Care must be taken to see that it no longer enjoys any monopoly privileges.

Open up the entire oil sector – imports, distribution, and sales – to competition. Allow any company from anywhere in the world to set up base in Nepal.

It is this competition that will end the shortages, bring quality products, enhance the service at gas stations and bring gas prices in Nepal at par with the international market after adjusting for local taxes.

A major benefit of allowing unfettered competition in Nepal would be to end adulteration of petroleum products. This practice wreaks havoc on the vehicles. When companies have to protect their reputation in the open market they see to it that their gas stations sell only quality products. It is only when you have a government protected monopoly that you couldn’t care less about your customers who don’t have a choice.

Why does the economy of this country have to be repeatedly wracked by government mismanagement? Why is no action taken?

Whereas other countries learn fast, Nepal shows a proclivity to take an unduly long time to absorb the lesson of past failures. It should have been clear to all that NOC can’t meet the expectations of the people. The citizens of this country deserve better than over and over becoming a prey of this government organization.

The US, which is the world’s largest consumer of gasoline, too has faced a situation similar to what Nepal faces today. However, that was during the time of one of America’s least economically savy President, Jimmy Carter. He believed in the ‘Whitehouse’ micro-managing everything from the distribution and pricing of oil to rescue of hostages in Iraq. He was a failure and lost the election to Ronald Reagan. Shortly after Reagan took office in January of 1981, he reversed Carter’s actions.

Reagan did this by removing price controls on oil and ending the practice of allocating oil by government fiat. The results confounded Carter and his supporters. They had said that eliminating the price ceiling on oil would result in an unacceptable increase in prices people would have to pay at the pumps.

Did this happen? The results were the reverse of what Carter expected. Deregulation freed the market, ended shortages, queues at gas stations vanished overnight, and best of all the price of oil dropped.

Though prices in the US go up and down in response to international fluctuations, no President since Reagan has ever instituted government ownership or control over oil flows. And the American people have never had to queue up at pumps again.

Private companies in America are adept at fulfilling the needs of their customers. Gas stations are sparkling clean, display prices prominently and many have department stores on premises. And customers have a choice. If you don’t like the service of one you can go to another. Each oil company – Texaco, Chevron, Exxon and many more – have their own or franchised gas stations.

Should the Nepali consumer not be pampered with similar levels of service and have the same choice as his American counterpart?

The Himalyan Times

The world has woken upto what is happening in China. In the last two years, every international business magazine has done at least one cover story on China. ‘Fortune’ not only put China on the cover in its special October 11, 2004 issue, but devoted the entire magazine to it. ‘Times’ cover had Chinese gymnasts on it in its August 16, 2004 issue. ‘The Economist’ has featured China on its cover in each of the last three months; China’s growing pains were in the August 21-27 issue, September 25 – October 1 featured Chinese leaders, and the November 20–26 reported on China’s growth spreading inland.

Why all this attention? China, in the last century, was largely ignored by the world. The only time the world leaders took note of this country was when it invaded Tibet. Today, any country which ignores China does so at its own peril.

The reason is that China’s 1.3 billion people are beginning to matter. China has become one of the world’s largest market for most goods, it is also one of the world’s principal exporters. China’s demand for oil is insatiable. In 2003, it surpassed Japan to become the world’s largest buyer of oil after the US.

What accounts for its economic clout? The answer lies in the phenomenal growth of the Chinese economy since the 1970’s. In the last three decades China has been growing at 10% per year: This double digit growth has propelled it to the status of an economic superpower.

At a growth rate of 10% an economy doubles itself every seven years. That means in 14 years, the economy quadruples, and in 28 years the economy’s size grows to 16 times of what it initially was. Give the country another 7 years of 10% growth, it will double again becoming 32 times of what it was at the beginning of period from which we are counting.

This is why China which did not count for much in the 1960’s is starting to matter. The evidence of this growth is everywhere. Each major city in China has thousand’s of skyscrapers. Shanghai’s growth puts New York to shame. Shenzhen is growing faster (over 10%) than the growth rate of Singapore and Hong Kong combined. Little heard Chongqing is the world’s largest city with its 31 million people. It is estimated that $200 billion of private capital will be invested in this city alone in the next 10 years.

China has become the world’s trading hub, its exports and imports are growing at a pace at which it is expected to cross the one trillion dollar mark by 2005. Its trade with the US and Japan already exceeds $250 billion.

China has left India far behind. Indians in the 1960’s enjoyed a per capita income which was higher than that of the Chinese. Not any longer. Each Chinese is today, on average, thrice as rich as each Indian.

The difference would have been even greater had India not started to reform its economy and liberalize in the 90’s. It was a case of too little too late for India. If India has to match China, it needs to do far more.

Double-digit growth rates require investment. Huge amounts of it. China understands this, India is just beginning to do so. China gets $50 billion in foreign investment, India aspires to get 10% of that. India will have to do better, much better, it will have to liberalize more, tax less, reform its labour laws, end its reservation policy for small industries, and bring down its inspector and regulatory raj. In other words India would have to become more like China.

Where is Nepal in all this? Unfortunately, it copied India. It needs to stop doing that. Nepal should align itself with the business friendly policies of China and it too will be transformed as China has been. 35 years of even low double digit growth will propel Nepal’s per capita income from its present US$250 to US$8,000 i.e. each Nepali will then earn, Rs.50,000 a month. Wouldn’t that be transformation for real? If this was to happen, Nepal too would attract the world’s attention as China is.

The Himalyan Times

India was under British rule. For India to have been paranoid of domination by foreigners after independence was perhaps understandable. But why is Nepal afraid?

India wrongly equated foreign investment with foreign rule and all but banned foreigners from investing in property, businesses, and shares. And where foreign investment was allowed, it had to come in only after fulfilling onerous regulations, and then face ceaseless monitoring by bureaucrats who excelled in creating red tape.

Time proved that this approach was wrong. Foreign investment did not result in foreign takeovers. Singapore, a dot on world map, after it got rid of the same colonial masters that India had – the British – opened up its economy to foreigners. No one took it over. It just made Singaporeans rich.

No country has in the last few decades been taken over by another because of a country’s openness to investment. So why should Nepal create such a burdensome environment for foreigners bringing money in?

Foreigners are not allowed to buy land, housing, or shares. Foreign investment in a number of businesses – retail, travel agency, tobacco, management consultancy, accounting, etc is prohibited. Why? A Nepali can go to the US or Australia and buy what he wants or start a business of his choice. You can, even while residing in Nepal, buy a house in Melbourne, and purchase shares in Microsoft.

You might say that US and Australia are big countries and Nepal is small and foreigners would end up buying everything. You would be wrong.

Let us look at countries which are even smaller than Nepal. Singapore and Hong Kong both permit foreigners to buy land, property, and shares. Buying of property has not resulted in the locals ending up without housing. They now have better housing. All that has happened is that there has been a huge construction boom. Skyscrapers have been built to fulfill the demand for homes and offices needed by foreigners and locals alike.

All this is to be welcomed not shunned. Constant construction and the arrival of foreigners with money has resulted in higher incomes, better living standards, and increased life expectancy for locals in all countries which do not distinguish between domestic and foreign capital.

The outcome in Nepal, if it opens itself to investment, would be no different. Nepalese are going to sell their property to foreigners only if they want to. No one can force them to do so. Why should we presume that people in this country would take stupid decisions and not act correctly? We must let people decide, whether they value their land more or the money they will get by selling it.

Increase in property values because of foreign buying will increase the wealth available to the people of this country. Those who unlock their capital will do so for good reasons. Should they not have the freedom to do so? This money, which is unavailable at the moment, will increase economic activity throughout the kingdom.

For those who don’t want to sell, they will find that even they benefit. They would if they wanted get bigger loans against property whose value has now gone up because of foreign interest. It would be a win-win situation for all.

Buying of shares in local companies by foreigners would put current management on guard against possible takeovers. There is nothing better than this threat to improve efficiency of management of assets with local companies. The consequent boost to the share prices in the country would increase wealth of the Nepali equity holders. This will benefit the ordinary shareholders who have many times been beguiled by a lackluster, insincere, and inefficient management.

Open up Nepal for investment. Lay a red carpet welcome instead of a red-tape trap we have at present for investors. Employment opportunities will increase. Growth rate will go up. Nepal will gain. Immensely.

The Himalyan Times