Ministry of Commerce And Supplies - Enhanced Integrated ...

N T I S2010infrastructure to Nepalese businesses as well to facilitate their growth. Furthermore, proximity offoreign and domestic companies in the same zone has often proven beneficial in terms of stimulatinglocal supply linkages. Technology transfer, in particular from foreign to domestic firms, will be keyto acquiring new technologies and improving productivity of domestic firms. Sub-contracting andother forms of collaboration will help insert Nepalese firms in global value chains and internationalmarkets;2. Replace the current positive list by a negative list (Sec. 5 (1) – (3)). The ‘positive list’ approach does notprovide the transparency needed for a well-run SEZ programme. There are too many possible industriesout there to be included in the list. It should not be the role of the SEZ Authority to determine whichindustries will fail and which ones will succeed in the zone. The draft law should be modified to includea ‘negative list’, rather than a ‘positive list’ that states which industries cannot locate in SEZs (such asmanufacturing of weapons, ammunition, coins, etc.—things that are clearly not in public interest orwould be unsafe). Negative lists are featured in almost all SEZ laws around the world.These issues cannot be rectified simply by addressing them in separate regulations. The SEZ Bill needs to beamended.GovernanceThe ADB-ILO-DFID report ‘Critical Development Constraints in Nepal’ concludes that the level of governancehas deteriorated and is a critical constraint to investment and growth in the country.The continued lack of political stability is a critical constraint to investment and trade. Apart from its negativeimpact on overall GDP growth and other economic indicators, political instability continues to be a majorfactor in deterring the much-needed foreign investment in virtually all sectors, including hydropower. Asindicated earlier, based on actual FDI inflows in the past few years, the amount of approved but unrealizedforeign investment proposals at DoI is estimated at around 95 per cent, which represents a huge and mostlyforegone opportunity in capital and job creation.Poor industrial relations and rigid labour regulations are among the most critical constraint to increasinginvestment and trade in Nepal. Together with overall political stability, this issue tops the rank of concern toboth domestic and foreign investors alike. Without addressing this issue adequately to the benefit of bothemployers and employees, there is no chance of significant growth in production and trade in Nepal. Strikes,lockouts, and lack of motivation are simply strangling the Nepalese economy and significantly reducing thechances of attracting any serious foreign investor to Nepal.Control of corruption seems to have weakened and is a constraint to investment and growth. The 2008enterprise survey found that 44 per cent of the responding firms consider corruption a very serious or majorconstraint. 4 Interviews with companies in November 2009 confirmed the huge constraint this imposes on firmsin Nepal, even to such a point that it jeopardizes commercial viability of investment projects and discouragesfurther expansion of projects.The law and order situation and in particular the lack of ‘industrial security’ was frequently cited as a majorconstraint and issue on the minds of investors. Violent crime, extortion, and kidnapping all contribute to aclimate that discourages further investments or potential new foreign investors.4ILO, ADB, and FNCCI 2008 Enterprise Survey.NEPAL TRADE INTEGRATION STRATEGY 2010BACKGROUND REPORT151