WHAT DO YOU SEE THE IMPACT OF COVID-19 ON THE FUTURE OF BUSINESS IN NEPAL? WHAT MEASURES SHOULD THE GOVERNMENT BE ALREADY CONSIDERING AND SHOULD AN ECONOMIC RESPONSE TASKFORCE NOT ALREADY BE IN PLACE?
The COVID-19 outbreak is a human tragedy with a growing impact on the global economy but what will it mean for business in Nepal. With overarching uncertainties, no one can really predict the wide ranging short and long term impacts of this phenomenon on the economy; Business 360 collected a few expert opinions on the impact of the coronavirus crisis.
Former Finance Secretary
COVID-19, in just about three months, has failed many pundits. All predictions have tumbled and uncertainty is in the horizon. Many predicted initially that with the draconian measures China – the initial epicenter of outbreak – executed, the world will conquer this invisible war. In weeks after, the epicenter became Italy, now it’s the United States and no one knows where the next epicenter will be. If this moves to least prepared and weak states, Corona-ravages will be the worst in mankind’s recorded history.
Pundits initially predicted that the global supply chain breakdown due to closure of factories and complete lockdown of transport logistics will hit global economic growth by a few percentage points. As oil prices started nose-diving, stock prices in the major markets followed suit. Authorities in the large economies quickly acted to salvage the fall in market. But this was just not enough.
Workplaces became difficult to work, people lost jobs. Hardest hit were the ones working on daily wage basis. Then came the second round of larger fiscal packages, largest ever done in our times. It is not certain if this will be enough. Human knowledge of managing economy in dealing with a crisis of this nature is facing a monumental challenge.
It’s not just economic activities, major sporting and cultural events, global dialogue on important issues have all been postponed indefinitely. The world has come to a standstill. Over half of the world population is in lockdown.
Here in Nepal, the potential impact was initially downplayed, officially. Minister at the helm claimed, “we are corona-free”. Even until a few weeks ago, citizens were asked to be proud of our high-immunity lineage. What an imaginary lineage? As a result of this initial complacency, we lost much of valuable time in making right preparations. This was the reason for inadequate testing and severe shortage of essential medical supplies at the time when government announced nation-wide lockdown.
Government kept on watching and analysing the situation before announcing any economic policy measures to counter the corona threat to economy. The measured approach taken through the announcement of economic package announced last week is good. The question is how effectively it will all be implemented.
Our tourism industry was the first to suffer almost from the beginning of this year, which unfortunately happened to be Visit Nepal Year 2020. The jolt to tourism industry wasn’t like shocks in the past. This time, the industry had made huge investments in anticipation of success of immensely ambitious tourism year promises. Due to supply constraints, manufacturing industries, too, reported slowdown in production. However, there were also words of consolation from industry leaders that nation has enough quantity in inventories to meet the demand for next few months by which time supplies will be restored. This expectation also appears to be losing ground in the recent weeks. Particularly, the SMEs, which normally don’t maintain large inventories, are facing complete closure. Financial sector is expecting worst to come in their in their balance sheets. Even before lockdown was officially announced, many daily-wage earners in prominent commercial towns had lost their work. Their small savings eroded quickly, they found themselves in precarious situation.
Agriculture, which was expected to be less affected, is also now facing challenge. Farmers have difficulty reaching their products to market. And, as the winter crop harvesting season is nearing, there’s worry in the countryside if they will be able to harvest the crop. Remittance, in the last three months remained stable or growing slowly, can be hit badly going forward. If mass layoffs happen in foreign employment destinations, we are going to face insurmountable problems.
Government kept on watching and analysing the situation before announcing any economic policy measures to counter the corona threat to economy. The measured approach taken through the announcement of economic package announced last week is good. The question is how effectively it will all be implemented.
There are very critical issues that government needs to put all its powers. First, health services must be beefed up immediately equipped with all the necessary physical facilities and critical supplies. Second, and even more important, is to ensure that farming activities continue, and farm-to-market logistics are given all-out support by government. Third, all efforts must be made to restore the supply chain of SMEs, help them by loan rescheduling and additional loans to resume operations.
Managing Director, Chaudhary Group
The ongoing COVID-19 pandemic has not only had devastating effects on the health of people all around the globe but is also having a growing impact on the global economy; Nepal is no exception. The current focus, rightly so, has been geared towards navigating this crisis. However in the urgency to win the battle against COVID-19, it’s easy to lose sight of the actions that might be needed in preparedness for tomorrow.
I feel that one cannot rule out structural economic damage combined with the lack of policy response to prevent widescale bankruptcies, unemployment, and a financial crisis. Therefore, the Government must act now; it is imperative not only to provide possible support and relief to businesses and employees to survive the current debacle but to also create a taskforce to monitor, analyse, strategize and prepare the country for immediate resurgence once the outbreak has relented. The Government must start planning today with its stakeholders for an economically and socially viable path to the next stage.
For the businesses, while the need of the hour is to balance business needs and manage employee expectations, build employee morale and take appropriate measures for their health and safety, all businesses whether big or small, and every executive should use this time also to deliberate on the company’s rapid response, adaptation to change, and re-emergence in a position of strength.
We no doubt live in a digital economy and I firmly believe that in the ‘new tomorrow’ the ‘position of strength’ will come from digital prowess and infrastructure. However, Nepal is far behind in embracing the digital advances taking place in more developed nations. In the current shutdown, it’s the digital infrastructure that has enabled the latter countries to remain productive in many sectors by making their employees work from home and provide access to services and products from the digital platform. A number of Nepalese companies, mainly in the food sector, have taken the initiative to provide e-commerce for their customers. As people remain in lockdown, individuals have realised the far-reaching significance of digital technologies and capabilities in their lives.
The Government must act now; it is imperative not only to provide possible support and relief to businesses and employees to survive the current debacle but to also create a taskforce to monitor, analyse, strategize and prepare the country for immediate resurgence once the outbreak has relented.
Having experienced a new way of living, there is bound to be a paradigm shift; the likelihood that spending may permanently shift between categories and online services could get adopted far faster. I have a feeling people will become financially conservative and there will be a huge influx of consumerism; not for the high-end luxury goods but for necessities.
Decoding this new normal—and ensuring that the company has a strategy and wherewithal to navigate it—is an important task facing businesses. The ability to visualise from now the shift in industry-specific regulatory and competitive environment and plan how to reinvent is the key. I am sure in times to come people’s usage of data and data penetration will rapidly increase and open up an ecosystem for digital economy. I foresee that no matter which industry you are in AI, data mining and analysis and the ability to leverage your internet, 4G, 5G capabilities will give you competitive advantages to take the quantum leap of capitalising on the opportunity that will come.
However, most businesses in Nepal have not invested in logistics and ERP software. Creating e-commerce and supply chain logistics will be a challenge but have to be established. The banking sector will have to re-innovate and leverage on digital banking which already exists extensively in the developed countries. The perspective of financial services will change. Digital is the way forward across multiple segments as witnessed in the success stories across the globe; specifically in South East Asia. The paradigm shift, albeit challenging, provides incredible opportunities in the days to come.
I think the COVID-19 phenomenon will make us prudent and stronger. At CG we have laid the grounds by laying the foundation of ERP, redefining certain aspects in e-commerce, the financial services, the supply chain, marketing of electronic consumer goods, and managing our various companies as an ecosystem.
Ultimately, I think businesses will not die, but they will evolve by leveraging technology to refine their experiences.
Thought Leader, Author & CEO of beed
The COVID19 has hit the world in an unprecedented manner. For Nepal, our government response was nothing unexpected. The Nepali way of doing things in a manner that lacks plans, coordination and focus. This is reflected in the business sector also as large businesses like not having good successions plans and do not have contingency plans.
This is the Nepali way of doing things i.e. respond to crisis as it comes rather than working on plans and executing it. However, the Nepali businesses have seen much disruptions created by different actors apart from natural calamities like earthquakes and floods. Political parties and labour unions protected by them have been responsible for long shut downs of businesses. Therefore, compared to other parts of the world Nepalis are more adaptive to working across these shutdowns.
It is too early to say what will happen after the dust settles but for Nepal, two major areas that will be hit will be tourism in short to medium term and remittances in the short term. For tourism, it will not only be about the hotels and airlines but many other micro and small enterprises including tea houses, handicrafts and other allied businesses. With Nepal opening up domestic travel and international travel being restricted, domestic tourism will boom as people who are used to traveling will do so. So a bit can be recovered as let us not forget that 60% of tourism revenues in Nepal come from domestic tourists.
In terms of remittance, a lot of Nepali migrant workers will get into agriculture labour that will increase agriculture product prices but ensure the supply chain disruption from imports from India will be managed. Nepalis will find newer destination to migrate to in the medium term as the traditional job markets will have challenges.
In the past three decades of multiparty democracy, rarely government seeks opinion to handle issues but relies on their sycophants and members close to the party to come up with solutions. Like elsewhere in Nepali society, government is reluctant to take advice from people who are smarter than them.
The government is in disarray as the focus is on managing the Prime Minister’s health and ensuring the cracks within the current ruling party does not widen. The Finance Ministry thinks it knows how to fix it well so leave it to them to handle the crisis.
In the past three decades of multiparty democracy, rarely government seeks opinion to handle issues but relies on their sycophants and members close to the party to come up with solutions. Like elsewhere in Nepali society, government is reluctant to take advice from people who are smarter than them. Therefore their reliance on people from cartels and super-cartels for advice will continue.
The business community is also reluctant to reach out to firms specialising in crisis management and business continuity management but look upon their respective cartel leaders to provide direction. In a country, where professionalism and corporatisation is a far cry, the solutions will evolve the Nepali way. Everyone loves to be in their comfort zones and not disrupt the status quo.
Hope can be pinned on the new generation and first generation entrepreneurs who will devise innovative collaborative solutions to meet the crisis. They will realise new opportunities that the crisis has presented and perhaps silently break the status quo. For instance, a good fleet of delivery vehicles will disrupt the existing transportation cartel protected by super-cartels or new ways of aggregating artisans to delivery handcrafted goods for Nepali diaspora will emerge. It is all about looking at potentials.
Narayan Bajaj FCA
Head of Operation, Global Reach NEPAL
The economic scenario and statistics show that the world economy is running out of steam. If the pandemic is not controlled worldwide shortly, the Nepali economy is also going to suffer a crisis, even though it remained immune to the great recession of 2007-09 and others. We can only hope for this again.
The Nepali economy is likely to see severe effect mainly on three segments:
Tourism industry, remittance inflow where the recovery phase might extend to year 2021 and international trade in the short term due to the impact of supply chain constraints and decrease in consumption.
The reduced flow of tourists will likely continue for at least a year or two. It will put the hospitality industry in peril leading to loss of jobs in this industry at a larger level.
I foresee the possibility of liquidity crisis in the financial market. Financial institutions will be under tremendous pressure to reschedule debts, both for short term and long term. The expected new governor is going to be leading in very tough times.
The already hit global economy is likely to hit Nepalese worker jobs and hence remittance inflow: NRB statistics shows more than 50% of the remittance comes from Gulf countries. Given that Nepal’s foreign currency reserves are highly dependent on remittance, in the worst-case scenario, a reduction in remittance and export earning inflows on the economy could be an eye opener for the future.
The GDP of Nepal might have an impact due to tourism and remittances itself which together contributes close to 20%. In recent times, financial institutions have invested heavily in long term debts to real estate, manufacturing, infrastructure projects. The impact is yet to be evaluated since the supply chain constraints of goods and labour might delay the projects leading to over capitalisation of cost and capital shortage. I foresee the possibility of liquidity crisis in the financial market. Financial institutions will be under tremendous pressure to reschedule debts, both for short term and long term. The expected new governor is going to be leading in very tough times.
The Nepalese economy is primarily SME driven and all these factors will bring the SME under financial constraints too. The consumption factor in the short term will show the way forward to their survival.
I feel that this is the most testing time for the Finance Minister who is working on the Budget which is due in a month’s time. Given the limitations of resources, the need of the hour is how to stimulus the confidence of the private sector, tax payers and investors; and how the private sector can come together to support the government in this scenario.
Raj Gyawali, Responsible Tourism Expert &
Founding Director of Social Tours
Covid 19 has brought the world to a standstill, and Nepal is no different. One of the biggest fallouts of this entire crisis globally will be the economy, no one doubts that, and the implications of that are – of course – a bit scary. Here is what I think at this moment (considering that I could be entirely wrong, as this unfolds in front of us) will happen and what our response to this should be in Nepal.
The mega and large businesses are hurting but they will survive. They have the credit rating to take another loan, or are loud enough to take advantage of any bailout scheme the government launches. They will scale down operations as they reset, but will keep going once this is over.
The medium and small businesses will suffer the most, and the only ones that will survive are the ones with the least overheads right now, have the capacity to wait, especially the ones who have the financial patience to wait it out (time sensitive obviously), the ones who improvise, pivot and change according to the situation and take advantages of the new reality, or the ones who are clearly benefiting from the fact that the people who are staying at home now, hence are benefiting because of this crisis, while still delivering a service. The rest will collapse and the bigger ones will consolidate the market and take over that section of the pie, however big it might remain once this is over.
In the tourism business – that’s my mainstay – the impact is going to be irreversible. The entire industry is turning on its head, travel behaviour is going to change, as well as travel spending as more and more middle class spenders are earning less during the lockdown and will do so as the economic fallout of this crisis sets in. The poor never travelled and the rich have the financial stability to continue where they left off. The implications of that are clear, and again the only companies that will survive will be the ones who move fast into this new reality.
The financial response to this has to come fast from the government. They should launch a good analysis of all the data that they accumulated over the years – through financial records of companies – to quickly understand the effect on the workforce and the unemployment fallout.
What should Nepal be doing? The financial response to this has to come fast from the government. They should launch a good analysis of all the data that they accumulated over the years – through financial records of companies – to quickly understand the effect on the workforce and the unemployment fallout.
They should immediately launch an unemployment cell where people who got redundant from this crisis can register themselves, giving them essential data to start looking at a national-wide relief package. They should use this opportunity to modernise, changing the age old file pushing system (who wants to touch that adulterated file anymore) to a more modern online system. Nepal should also start the process of getting rid of paper notes and coins, it will take time to filter down to deeper parts of the country, but if we start, we will get there.
Overall, they should come out with a clear, well thought out financial relief package for stimulating the economy. This should address not only the needs of the big guns, but also the smallest businesses as they are the backbone of the economy.
What should businesses do in the medium term? Consider this. Post this crisis, the public inertia will mean more need for hygiene and social distancing while you do business. The implications of this are huge for the changes that are required in businesses. Cafes will have to maintain better hygiene and space out the tables a bit more, for example. Social distancing will be a norm for a while, so big events might not happen. More and more meetings will be online, meaning smaller office spaces, perhaps and a smaller workforce? All this and many other implications of this will mean that the following should be the current strategy
- Keep yourself aware of what’s happening in the market, as behaviours and demand changes
- Be flexible and be ready to pivot your business in the way it works, the markets, the workforce
- Keep your teams ready, use the time to train them, and keep them informed and motivated (the last part is the toughest)
- Change your offerings. Pretty much like post earthquake everything had to be new. The world is going to be new post covid19. Anything old is useless.
- Learn from this and make disaster plans and recovery plans ready.
In the short term, remember that the big fight is not the economy or your teams or unemployment or loan repayment. It’s the virus. Without that solved, we are going nowhere. So do your part and encourage all your stakeholders and teams to do the right thing. Stay at home, social distance, and collaborate and support all initiatives that can collectively defeat this scourge.
Shyamal Krishna Shrestha
Economist and Member of Sajha Party
The Covid-19 pandemic has sent shockwaves throughout the global economy, killing more than 50,000 people and infecting another million people so far. Global trade, commerce and travel have been severely disrupted and its resumption uncertain. Until an effective vaccine is found, the pandemic will continue to take its toll on human life and create uncertainty. Most governments have resorted to complete shut-down of their countries to prevent its spread. Due to sharp contraction in global demand, oil prices have declined significantly and led to sharp fall in carbon emissions, reducing pollution drastically. Many countries have announced economic relief packages worth trillions of dollars for recovery.
In South Asia, governments – including Nepal – have enforced shut-downs to check the spread of the pandemic. This extreme step has disrupted daily life and brought countries to a complete standstill. Unlike high-income nations where the entire labour force is employed in the formal sector, the majority of workers are engaged in the informal sector in LDCs like Nepal as daily wage earners, without a social safety net. The shut-down in neighbouring India (which supplied 65% of Nepal’s imports in 2018) will choke the supply of essential commodities (including food, fuel and intermediate and final capital goods), lowering domestic productivity while raising inflation. A food crisis could ensue when current stocks of food-grains run out and imports from India remain disrupted. A breakdown in law and order could trigger social unrest.
The labour force in Nepal’s tourism sector chain – including aviation, travel and trekking agencies, cargo, hotels, restaurants – will face prolonged unemployment until global travel and movement restrictions are eased.
The share of remittances in GDP will decline significantly as migrant workers are sent back to Nepal, putting pressure on the balance of payments. Reduced oil imports will, however, reduce Nepal’s trade deficit with India. Exports of pashmina and readymade garments will contract sharply due to disruptions in main markets viz. the EU and the USA. The downturn in exports and tourism will reduce foreign exchange earnings and create macroeconomic pressures.
Unavailability of raw materials will bring the manufacturing sector to a complete standstill, creating unemployment and pushing people into poverty. As industry and services together contribute 75% to Nepal’s GDP in 2018, a lengthy closure will lead to loan defaults, create a huge liquidity crisis in the banking system and raise the risk of financial instability.
In South Asia, governments – including Nepal – have enforced shut-downs to check the spread of the pandemic. This extreme step has disrupted daily life and brought countries to a complete standstill. Unlike high-income nations where the entire labour force is employed in the formal sector, the majority of workers are engaged in the informal sector in LDCs like Nepal as daily wage earners, without a social safety net.
National pride projects under construction have been halted, escalating costs and delaying their completion. With virtually no government spending, private investment and revenue collection in the last four months of the current fiscal year, GDP growth will be lower than targeted.
Before the lockdown came into effect in Nepal, the government announced various measures to ensure availability of food grains/other essential commodities and curb black marketing. As the Covid-19 pandemic is an unprecedented shock compared to the 2015 earthquakes and border disruptions, it will require innovative strategies for mitigation. GoN should form a mechanism to remove bottlenecks arising from disruption in the production and supply chain of essential commodities by mobilising its entire state machinery.
For the business sector, extension of deadline to file tax returns, reduction and/or waiver in interest on bank loans for investment purposes, and reduction in prices for commodities provided by public utilities, are needed. In the long time, more bold reforms will be required to make Nepal self-sufficient in food production (as it is currently a net food importer), restore investor confidence and revive industrial growth. This could include reducing import duties on raw materials, providing subsidies and price support to farmers, increasing cash incentives to exporters, reducing/removing the monetary threshold for FDI, liberalising additional sectors in agriculture for attracting FDI to boost production and productivity, with the objective to raise investment, production and boost domestic employment.
The domestic health care system also needs to be reformed to face the challenges that the Covid-19 pandemic poses.
Bhawani Rana, President , FNCCI
Nepal is yet to feel the gravity of this global pandemic. The economy is bound to endure a huge blow. We have asked experts from every sector to prepare a complete report on the subject. So far, the tourism sector has been the most affected. I think the hotel industry won’t be operational for another six months. The supply chains in all industries have been disrupted. Thousands of people are going to be jobless in the aftermath. Foreign employment rates will decline so the unemployment rate is set to spike. We are yet to see the end result of this situation so I cannot give you exact numbers. But the economy is sure to suffer. The duration of this lockdown depends on what happens in India.
I think the hotel industry won’t be operational for another six months. The supply chains in all industries have been disrupted. Thousands of people are going to be jobless in the aftermath. Foreign employment rates will decline so the unemployment rate is set to spike.
Nepal, having faced two major blows in the recent years, the 2015 earthquake and subsequent Indian blockade, is facing a major concern with the Covid-19 pandemic. The major economy of the country being dependent on migration and tourism, Nepal is being severely impacted by the global pandemic. With business coming to a crushing standstill globally, the landlocked country will surely not be an exception.
Impact on the business sector
A tough blow for the Nepali economy, the COVID-19 outbreak will hit almost every sector of the country’s economy, shaving up to 0.13% off the gross domestic product and rendering up to 15,880 people jobless, as per an analysis by the Asian Development Bank (ADB).The COVID-19 outbreak affects Asian economies through numerous channels, including sharp declines in domestic demand, lower tourism and business travel, trade and production linkages, supply disruptions, and health effects, as per ADB.
Nepali economy will be impacted on four major fronts, affecting economic growth and employment opportunities.
The dire need of today is that the Nepal Government, looking at the examples of the neighbouring countries, should also set up COVID 19 Economic Response Taskforce, to decide on the relief package for sectors hit by this outbreak. To tackle the current situation, food security, funds for healthcare, and sector related incentives and tax deadline extensions should be thoroughly thought upon.
Now is the time when all the taskforce of Government should combine with the think tanks of the nation and call upon the views and opinions of intellectuals, economists, chambers of commerce and industries, banks, developers, etc and work together to rebuild the nation, in a sustainable way.
First, the travel and tourism industry, which was preparing for an expected tourist flow in 2020, is feeling the effect of Covid-19. The Visit Nepal 2020 mission now has a very slim chance of achieving the ambitious two-million tourist target.
Second, hindrance in project execution is likely in several large infrastructure projects in the airport, hydropower and road transport sectors. The delay in completion of several infrastructure projects like Pokhara International Airport, Gautam Buddha International Airport, and Melamchi drinking water projects are being greatly affected due to the absence of Chinese workers. It will affect projects led by chinese contractors that are employing some Chinese workers and managers. It includes the cement industry, whose capacity utilisation had already dropped to 40% in 2018-19.
Third, the Coronavirus outbreak will disrupt supplies of raw materials and intermediate goods because of China’s central role in global value chains. Nepal’s manufacturing industries mostly rely on raw materials from China. China accounts for about 15% of Nepal’s total trade. Furthermore, the Coronavirus has started threatening the nation’s ‘inflation’ rate. Nepali rupee has been falling after the local market placers started investing in gold and dollar against stocks and businesses on the back of COVID-19 threat. Moreover, the adverse impact of Coronavirus outbreak on the supply chain has further affected the inflation rate in Nepal.
Fourth, foreign employment is a major source of remittance in Nepal. Remittance contributed 26% to the country’s GDP last year. Nepal received more than 50% of its remittance from countries like Qatar, Saudi Arabia, Kuwait and UAE. Outmigration to attractive destinations like South Korea is already suspended. A sharp global economic slowdown due to supplies and economic disruptions will gradually lower investment in migration destinations such as the Middle East. This will decrease the demand for Nepali migrant workers, leading to a decrease in remittance inflow.
Need of an Economic Response taskforce
The dire need of today is that Nepal Government, looking at the examples of the neighbouring countries, should also set up COVID 19 Economic Response Taskforce, to decide on the relief package for sectors hit by this outbreak. To tackle the current situation, food security, funds for healthcare, and sector related incentives and tax deadline extensions should be thoroughly thought upon.
Now is the time when all the taskforce of Government should combine with the think tanks of the nation and call upon the views and opinions of intellectuals, economists, chambers of commerce and industries, banks, developers, etc and work together to rebuild the nation, in a sustainable way. For this, we can think of the solutions via:
- Promote entrepreneur ecosystem to meet the gap of supply chain demand. Entrepreneurs should come up in the production line front so that the deficit is met and service sector can effectively run.
- Optimum skill utilisation of the people coming back to homeland from international labour market. Through entrepreneurship, we can tap their potential and create exportable products, which in turn will help create economic sustainability.
- Planned real estate and safe shelter is the need of the hour. Be it during the earthquake or the present day pandemic, HOME has always been the safe abode for us. Our ancestors also believed that home is the safest investment and thus used to invest their lifetime earnings in a home. Thus, serious thoughts need to be laid on functional homes and focused urban planning.
- Real Estate needs to be facilitated immediately because it has forward linkages to many other industries. Creation of employment and support to country’s economy can be achieved.