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.

(Article on Business Opportunities in Nepal)

Some Business Opportunities in Nepal

I am being quite patriotic today. I had once made a study about the business opportunity that Nepal provides today. I have not taken any political or social issues. It is just with the economics.

I had written this post in other blog of mine. This is just a copy of it.

1. Tea export to Pakistan

Pakistan, one of our closest neighbors is second largest importer of tea (after US) and there is no active tea trade between India and Pakistan. Currently Pakistan imports Tea from China and Kenya. There leaves a room for Nepal to export Tea to Pakistan.

2. Export of Nepali Forest Product to India, China and rest of the world

Bhutan has made good progress in exporting forest products like paper and furniture to two of our giant neighbors. Nepal with huge forest and varied vegetation can tap this opportunity.

3. Back-office Pharmaceutical Production

Indian Pharmaceutical companies are doing too well in the Global Pharmaceutical Market especially in generic segment. There are very few reasons why Nepali companies cannot tap that market. Also, many global giants are focusing more on brand management and marketing outsourcing the production. Nepal, a country between India and China is an ideal production base for multinational targeting these two countries.

4. Business Process Outsourcing from US, EU, ASEAN, India

India is now the most preferred outsourcing destination for most MNCs, but the market is maturing due to the shortage of qualified manpower and high salary rise. This brings Nepal into the outsourcing picture in supplementing India.

5. Travel and Tourism

A country with varied vegetation having as much as 8 National Parks, 6 Forest Reserves, 2 Conservation Area and 1 hunting area is clearly one of the best green tourism destination in the world. To add to it, there are many holy hindu and Buddhist sites like Pashupati Nath, Janaki Temple, Swayambhu, Lumbini etc. Not to forget is Himalayas with Mount Everest.

6. Hotel and Hospitality, and Real Estate

The tourism potential explains the importance and potential of hotel and hospitality, and real estate sector of Nepal. Nepal is sure to become a good economy in the years ahead as a fine tourism destination and a market place with the likes of Mauritius, Switzerland, and Singapore.

7. Financial Institution (IB, Venture Capital, Mutual funds etc)

Retail Banking has survived very hard times in Nepal. Even when many companies were dying, these banks stood strong with the constant liquid flow into the economy in the form of remittances. Now, the market is poised to grow to other types of FIs like Investment Banking, Venture Capital, and Mutual fund.

8. Infrastructure (Power and Transportation)

Nepal has second largest potential for Hydropower after Brazil and both of the neighbors (India and China) are hungry for energy. So, there are the resources and there is the market. It is just about tapping it at the earliest and benefiting that is in waiting.

Also, Nepal has very weak transportation system. It will need private investment in both traditional ways like Road, Railway and Airport, as well as non-traditional ways like Rope ways. Nepal can be one of the biggest market for Rope Way Companies.

9. Apple export

Nepal produces on of the best quality Apple (in Humla and Jumla). They are searching market for centuries and now is the time when world should get chance to taste those sweet apples.

10. Healthcare

Sri Lanka has done much in the field of Ayurveda and now Kerala is following it. Nepal has the cold climate and the herbs. It is the market awaiting investment. Also, there is huge opportunity in other forms of Healthcare services Nepal can provide to the world in far more competitive price than Philippines or India.

Business Proposal for Bank Buyout in Nepal

Business Proposal

Aim:

Purchase of majority stake in one major Bank of Nepal.

Target:

(1) Nepal Bangladesh Bank

(2) Nepal Credit and Commerce Bank

Why in Nepal?

1. Nepal, still a Least Developed Country, is situated between India and China (two among the top 5 markets of the world).
2. Nepal has a very good future for banking studying its geographic analogy with Switzerland, Singapore or Mauritius.
3. Nepal has one of the safest banking industries in the world. It is well regulated by Nepal Rastra Bank (Central Bank of Nepal).
4. Nepal is in cross-roads now. The only reason for Nepal to remain poor is political instability. But now after political parties and Maoist had historic agreement, the road is paved for peace.
5. Nepal is an economy run by Remittances (US $5 billion in 2005-06). The main industry includes Tourism, Entertainment, and Liquor etc. apart from Agriculture. Agriculture gives good scope for Microfinance and other sectors scope for Retail Banking.
6. Nepal has FTA and Free border with India.
7. Takeover of Bank in India is very difficult and the valuation may be much higher than the target’s market valuation. And so takeover of Bank in Nepal will be an easy entry into the South Asian Financial Market.
8. Nepal has a functional bureau, Credit Information Bureau (CIB) but there is not much penetration of Analytics. Only few of the top banks including Standard Chartered do.

Why any of these two banks?

Nepal Bangladesh Bank recently faced a crisis. Nepal Rastra Bank found some serious irregularity being done by the promoter cum management group so the Bank’s management is now under Nepal Rastra Bank. IFIC Bank of Bangladesh holds 50% stake in NBL, promoters hold 20% and rest 30% is own by general public of Nepal. Now, the talks are open for sale for the promoter’s holding and news are coming for IFIC’s interest in selling its stake as well.

NB Group, the promoter group of NBL also holds some minority stake in Nepal Credit and Commerce Bank. News has spread for the possible sale of their in NCC Bank to pay the debts in NBL. NCC Bank’s current CEO, Narendra Bhattarai, is one of the most influential executive in the banking industry of Nepal. He has won several awards for service excellence, and has taken several banks to a good height.

Benefits of the buyout:

1. Both the banks have good market coverage in Nepal. NBBL has about 15 branches and NCCB has about 5 branches diversified in various towns.
2. Chance for purchase at lower than market cost.
3. Entry into booming Nepalese Financial Market.
4. Relation with IFIC and NB group. NB group own 8 firms in Nepal including two banks and IFIC group own Banks in Bangladesh, Pakistan and Oman.

Market Valuation of the Targets:

1. Nepal Bangladesh Bank

Authorized Capital 1500 million rupees (US $21 million)

Issued Capital 1000 million rupees (US $14 million)

Paid up Capital 360 million rupees (US $5 million)

Statuary and other Reserve 324 million rupees (US $4.5 million)

2. Nepal Credit and Commerce Bank

It is almost of equal size to NBBL but figures are not available.

Regulatory needs:

1. Foreign stake holding cap in Banking is 74%.
2. Market is open for all, not much restriction.

Steps to be taken:

1. Contact Nepal Rastra Bank with proposal.
2. Get the details from Nepal Rastra Bank and start valuation of the target. Few weeks’ Nepalese market research and consultation with banking figures is essential for that.
3. May need to hire some investment advisor, as many others are seen to be interested for the deal. The process may face stiff competition.
4. Look in for Finance and/or scout for financers.