Sunday, August 5, 2007

Nepal as an Off-Sourcing Destination

Many aggressive companies are staying away form Nepal, thanks to past poor security situation. The power majors are considering of huge investment in Hydropower sector to export power to the power hungry states of India and China, and this is a good news for Nepal. A country with very high hydro-power potential has one of the costliest energy, which simply is not acceptable. Nepal need to reform the energy sector and prepare the base for development. Nepal government has started to work in that line and we can expect Nepal to produce one of cheapest electricity in the world in the days ahead.While the companies like Samsung, Kodak, LG, Kia etc have entered Nepal, their performance has not been very good in the past. But the latest results of these MNCs are very positive. The things are likely to change when Maoist are in the government. Many more companies are likely to follow the investment in this Himalayan country provided the early movers succeed. There are multiple reasons why companies would like to invest in Nepal:

1. Favorable Location:
Nepal is a country bewteen India and China, two fastest growing econonies globally.

2. Power Sufficiency:
Nepal is power rich (hydropower potential is more than enough for any future growth in economy). Currently the power is scarce but there are multiple investments done and the scenerio is going to change soon.

3. Pleasent Climate:
Nepal has one of the best climate in the world. The valley cities of Kathmandu, Pokhara, Surkhet and Dang are the front runners, while Eastern city Dharan and western city Butwal are other places with comfortably moderate climate in the likes of Indian Silicon Valley, Bangalore.

4. Untapped Qualified Manpower:
Nepal has very high unemployed and poorly employed qualified manpower. In terms of salary, the best man power can be found with almost half the amount in India and China. Nepal produces around 10 thousand qualified Engineers and other IT Graduates annually, and due to the lack of opportunity in Nepal most candidates make their way to US, UK, India and Australlia. These candidates can be tapped by the early movers.

5. Extravagant Public:
Nepal is a economy run by remittances. Nepal has poor government (comes in LDC) but the people does not seem to be poor. From Pajero to Mercedes, all vehicles are quite common in Nepalese roads. The public of Nepal are so fun loving and extravagent that it has one of the best developed liquor industry.

6. Easy Capital:
Almost all the IPOs have been oversubscribed in Nepal by more than 100 times for last 5 years. It itself justifies the ready cash for the companies looking for expansion. Also, the corporate loan is available at the annual interest rate of 4-5 percent while it cost more than 10 in India. The banks in Nepal are facing excess liquidity while their Indian counterparts are struggling for getting each extra cash as deposit.

7. Hospitable Public:
Nepalese people are regarded as the most hospitable public globally. Due to the emergence as a tourist destination for many decades, the people are Nepal welcome everyone who enter their homeland. They give more love than they charge for the service, the tourist say so. May be you can test it yourself, if you get some leisure before planning next investment project.

8. Everything to enjoy:
Rafting in rivers, boating in lakes, mountaineering in the Himalayas, visiting Buddha's birth place Lumbini or Sita's birth palce Janakpur, having a Helicopter sight-seeing of the Mount Everest, tracking to the Jungles in the National Parks etc., all these are available in Nepal and all these with in a few hundred kilometers. Nepal can just be the home for Nature Lovers to Religion and Culture Scholars.

9. Cheap and Quality High Class Hotels:
Hotels are pretty cheap in Nepal and they have all the facilities that anyone in the World has. From Casino to quality Pubs, from well facilitated rooms to good view, smimming pools to the Billiard boards etc. everything is available in much cheaper rates, thanks to low maintenance cost. The Hotel insiders say they don't have to spend on Air Conditioning (its naturally cool). The occupancy rate is low in Nepal (due to earlier political tension) and the competition is intense, which has too contributed to lower cost.

10. Lower Interest Rate and Flexible Capital Flight Norms:
Nepal has lower tax than China or India, and Nepal government has declared to make the capital flight easier for both National and International companies. This is in discussion in the council of ministry and it is likely to pass soon.

All these calls for the companies to go and invest in Nepal. If they miss, I can only be sorry later.


Anonymous said...

I read your article have to say ur arguments for investing in Nepal are very poorly made.
The main factor againt investment is the political instability in Nepal.I for one dono who rules Nepal is it the Maoist or some democratic party,it is not the amount of remmitance or climate in Nepal.Also the quality of the IT graduate matters not the quantity.Also Nepal is not well connected to the world(air links are poor).Lastly Nepal has a very poor image(maynot be true), imagine someone saying their workforce is in Nepal, India sounds bad enough.

Bye.Take care

Le_Plan said...

Thanks for stopping by my blog and passing your comment.

I have tried to show some positives in my post while I understand the adverse condition. But I would like to bring your attention that political instability in Nepal is not as bad as in Bangladesh, Srilanka or Pakistan. Nepal does not have any major communal clash or ethnic clash. Now some smaller sections are trying to bring those divisions there, but they are still feeble.

Also, it is the question of egg coming first or hen coming first. Without economic progress, political stability is difficult come and vice versa. So to wait for good political situation for investment is a bad idea. There are profits now in Srilanka, Bangladesh, Thailand, Burma or Nepal. And who taps these profits make it huge, as he will have early mover advantage.

To my mind comes a case of Kazakstan, when LN Mittal moved into that country there was neither political stability not economical. He went in the complete disorder and started his journey to become the World's Largest Steel maker.

Therefore, I do understand that political challenges remain but economic gains are plenty. There are opportunities and that is left to be tapped.

Your points are very much valid about quality of graduates. Nepal do have few collages who produce good graduates. And my experience of being in India and seeing its workforce for general general IT companies, I consider Nepal's graduate considerably good. They are not lower than the average here.

Air Links are poor and that is one of the major hindrance. Nepal government is trying hard to solve that and in near future some of the foreign private carriers are starting the flights. We may see some improvement but Nepal is yet to come with second international airport. I comepletely agree with you here.

Regarding Nepal's brand image you are again very true. This hurts.

Thanks again for the thoughtful comment.

-- Bhupendra

CFO Yourself said...

Recently posted on the Venture Capital Carnival Vol. 3.

Anonymous said...

I only have one thing to say. Obviously its about your main argument. What came first? The chicken or the egg. I understand mittal was very successful in his gamble for Kazakhstan but obviously he had some serious political back up otherwise he would not risk huge investments. The
problem with Nepal is that terrorists are running the country. Few years ago this government was killing innocent lives 10000 in terms of statistics. Bottom line: it is very easy to foresee good investments but very diffcult when it is u who is investing. I speak from experience. From my father to uncle to cousins, everyone who invested in this country is now suffering from the maoists. Crores of rupees down the drain. And they want chandas evry month. Every potential entrepreneur I know personally want to leavethis country and leave their hard earned businness. The Maoist better change their ways if they want to improve economy. Not to forget UN ranks maoist as a terrorist. How can u expect investment in such a country. The only business that will thrive is Maoist owned. I pray for Nepal.

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