Aug 31, 2014

So You Registered a Company. Now What?

Legal compliance is not over with the company registration process. In fact, the legal complexities and burden for any entrepreneur just begin with the completion of the company registration process. The following chart lends a help to the already over burdened entrepreneurs on what compliance to follow after completing the registration process. Thanks to Venture Plus magazine for coming up with this infographic.

Click on the image to view its full size!


Jul 31, 2014

How to Help Developing Countries Effectively?

These days everything is getting smart. Beginning from our phones we are in an endless quest to smarten up every gadget we have been using in our daily lives. The quest has resulted in revolutionizing majority of the industries of the world by changing the way people interact with each other as well as the machineries. Unfortunately the same cannot be said of a few institutions and industry, most notably of the global aid industry. The global aid industry has been spewing billions of dollars for endless list of causes around the world. And yet, the effectiveness of aid in helping developing countries stand on their own has been debated again and again. Among the myriads of issues faced by developing countries what are the most important issues, which issues should be the priority for the development aid agencies? This is one question that has never been properly answered. Which issue gets the largest share of aid money at any point of time, seems to be determined by the hype and glamour the issue is commanding at the time.

In this context, Matt Ridley has come up with these five priorities for the development aid to focus on if they really want to make an impact to the developing countries. These five priorities are not based on his personal preference though. It makes economic sense to invest in these priorities as they have been found out to bring the highest return on per dollar spent on the cause. The priorities were determined based on the extensive cost benefit analysis done by The Copenhagen Consensus Center, an internationally reputed think tank.

According to Ridley, following are the issues rich countries should be spending aid money on if they really wanted to help poor countries:

1. Reduce malnutrition. When children get better food, they develop their brains, stay in school longer and end up becoming far more productive members of society. Every dollar spent to alleviate malnutrition brings $59 of benefits.

2. Tackle malaria and tuberculosis. These two diseases debilitate huge populations in poor countries, but they are largely preventable and curable. In the most harshly affected countries, two people often do one person’s work because one of them is sick. Benefit to cost ratio: 35 to 1.

3. Boost preprimary education, which costs little and has lifelong benefits by getting children started on learning. 30 to 1.

4. Provide universal access to sexual and reproductive health, which would save the lives of mothers and infants while enabling women to be more economically productive. It would also lower birthrates (when fewer children die, people have fewer children). Benefits could be as high as 150.

5. Expand free trade. This isn’t considered sexy in the development industry, and it may seem remote from humanitarian issues, but free trade often delivers phenomenal improvements to the welfare of the poor in surprisingly quick time, as the example of China has demonstrated in recent years. One of the discoveries of the Copenhagen Consensus process is that incremental goals such as expanding free trade are often better than supposedly “transformational” goals. A successful Doha Round of the World Trade Organization could deliver annual benefits of $3 trillion for the developing world by 2020, rising to $100 trillion by the end of the century.

You can read Ridely’s complete article at this link.

What do you think of these five priorities? One of the popular causes, climate change has not made it to the list. What is your opinion on it?

Jun 17, 2014

Who failed in the SLC exams? Students or the Government?


The Iron Gate has opened ajar. Only 43.9 percent students taking the School Leaving Certificate (SLC) exams made it through. As it happens every year, disappointing results come out, the education officials make a few apologetic remarks; the government promises yet another education plan with huge funding; public intellectuals berate private schools for their success and lament the inequality; people make consolatory remarks such as passing SLC is not everything; and after a week or two, the hue and cry dies and then it’s business as usual.

SLC may not tell much about the prospect of a student in life but it does tell a lot about the educational system. The pass percentage, despite relaxation of standards and cheatings allowed during exams, is embarrassingly low. If we segregate the SLC performance of public and private schools, a clear picture emerges which points out to the root of the problem. Ninety-three percent of students from private schools have passed the exams this year as compared to 28 percent from public schools. For the past four years, the pass rates for private educational institutions have been above 80 percent whereas the maximum pass rate for public schools was 46 percent in 2011. 

The problem is not with the whole educational system but with the public schools and the way they are run. Private educational institutions are doing just fine and in fact are the saving grace of our educational system.

Why such a disparity? Most people, like the Ministry of Education spokesperson, would be quick to point out higher investment in private schools as the reason behind better results. But there are many private schools with less investment than government schools and are yet doing much better. Consider Samata Siksha Niketan, popularly known as Bamboo School, which charges Rs 100 a month and yet achieves 100 percent result; or Melamchi Ghyang Secondary School in Helambu which has achieved glorious results despite being in a remote place and without much investment. It is also interesting to note that one of the toppers of this year’s exam, Sanjog Karki, comes from Reliance Academy in Kapan, a school catering to middle or lower middle class, and not from an elite school.

Upon being asked about their secret to success, many schools attribute it to good management and dedicated teachers, which are precisely the things lacking in public schools. Government school teachers are paid ranging from Rs 14,000 to Rs 31,000 whereas private school teachers generally get paid between Rs 5,000 to Rs 20,000. But these costs for government school teachers are just the tip of the iceberg. 

Lifelong pension after retirement and additional benefits for rural assignments comprise another major chunk of overall cost. It is important to note here that millions of dollars received in aid through government and non-government channels are also spent on public schools. And yet, the excuse government comes up with is lack of investment as if more investment in the past has done any better. A full 331 community and government run schools across the country had zero results this year. There is just no justifying that. 

Lack of a linkage between the performance of the school/teachers and the revenue they get is a more credible reason behind the poor performance of public schools. As news reports in the past have highlighted, teacher absenteeism is a major hurdle towards learning for pupils in public schools. We have had many news reports detailing how teachers of government schools are more interested in side jobs, political activities and protesting for permanency rather than teaching. Early at the start of the educational year, reports surfaced about millions of rupees allocated for textbooks being embezzled by school officials, and pupils were denied access to something as basic as textbooks.

Hence, the problem is neither with the overall educational system nor lack of investment in education but more with the incentive structure of the educational system. In fact, as much as a billion rupees is being spent on ‘fake’ schools, as reported in April 2014, using the same channel (the government) to invest more is completely ludicrous. 

One of the major flaws with the government-run schools is that the guardians never have a say on the revenue generation or rewarding of the school or the teachers which encourages them to neglect their responsibilities. Since the schools and the teachers generate their income from government rather than the guardians, they have very little, if any, incentive to heed the wishes of the children or their guardians. 

The first step towards reforming our educational system would be to change the incentive structure. The government should fund the students, not the schools. The government expenditure on education is for the sake of the children not for the sake of the schools or the teachers. Experimenting with the education voucher system being practiced in countries like India, Sweden and the US (as well as with charter schools) could be one way to restructure the incentive system. Similarly, encouraging and helping organizations like Teach for Nepal is important because they truly care for better education in the country. 

There are dozens of measures the government could take to lift public schools’ performance and set them at par with the private schools. Pouring more money into the existing structure is not one of them.

-Surath Giri

Jun 8, 2014

Luxury or necessity?

Google’s driverless cars are making headlines once again. These self-driving machines have logged more than 10,000 miles already without a single ticket and are being touted as the future of transport, at least for the developed world. Similarly, automatic drones which can be controlled by smart phones are revolutionizing industries ranging from online retails to pizza delivery through more effective and efficient transportation. 

On the other side of the world, however, we Nepalis are being forced to look at a simple four wheelers with wistful eyes. Thanks to the exorbitant rates of import duties and taxes the Government of Nepal levies on the import of automobiles categorizing them as luxury items, vehicles are out of the reach of the majority of Nepalis.
Nepal government levies 241 percent tax and duties on vehicle import. This is the highest imposition of tax on the automobiles in the world. As a result, when the world’s cheapest car Nano entered Nepal it was already seven times more expensive than it was in India, effectively out of reach for majority of Nepalis. As of April 2014, the number of vehicles registered in Nepal is only about 1.7 million which means our penetration of vehicle rate is just 5.67 percent of the population which is one of the lowest in the world. 

It is interesting to note that while the government thinks vehicles are luxury goods and not every Nepali should have access to them, the government officials and politicians ride on ultra expensive vehicles with taxpayers’ money. Hence, we have a scenario where only the rich, the government officials and the politicians can afford four wheelers. For the rest, the choice is between purchasing a two-wheeler with safety hazards and using the public transport which is not just unreliable but risky and costly if you consider the opportunity costs.

The usual justification given for the exorbitant taxes and duties is that it will minimize the use of private vehicles and thereby save environment, prevent congestion and save our foreign exchange reserves as the country has not been able to produce any vehicles of its own. The justification is true only as far as the theory goes. 

In practice, the question would be: Has the NRs. 11 billion plus revenue generated from the exorbitant import taxes, duties and road taxes and license fees translated into better roads, better public transport and better traffic management? Not exactly! In fact, it works the other way round. Because of the poor road conditions and unreliable public transport system more people are opting for private vehicles. Nepal could very well be the only country without a mass transit system in the world. The public transport run by cartels is as unreliable and as costly as things can become when impunity from both crime and competition is granted and ensured by the government.

Road construction is mired with corruption and government negligence in action. Roads are black-topped during the rainy season which last only for a few weeks before they are patched again. 

Because of the high taxes and the resulting increase in prices, primary medium of transport for many Nepalis, especially for those living in the cities, is two wheelers. Two wheelers are inherently less safe compared to other vehicles, resulting in more fatalities during accidents. The risk has been increased tremendously by the condition of roads and lack of traffic rule enforcement. As a result, we lose thousands of precious lives every year because people are compelled to ride unsafe vehicles. Roads are relatively safer for the rich but not for the poor because our government thinks safer and more comfortable vehicles are a luxury, not a necessity.
One of the concerns shared by the policymakers and general public with regards to lowering of import taxes is that it will encourage everyone to own vehicles and lead to high congestion in the roads. The fallacy stems from the trend of thinking of only cities and urban centers while designing national policies. 

The road network of the country does not even receive traffic enough to make them sustainable. Although road networks have connected all the 75 districts of the country, the actual utilization of the tracks is very low. The highest vehicle movement per day in Nepal is along Nepal-India borders which get 2500-3000 vehicles. On the other hand, most of our roads get only 300-1000 vehicles per day making it hard to sustain the regular maintenance and upgrade of these roads because of the low revenue generated from less traffic.

It is high time our policymakers rethought this policy of treating vehicles as a luxury item rather than as essential goods required for economic growth and development. Only when we make automobiles affordable in this country will the infrastructure development and its intended benefits materialize. But above all these concerns, the primary question we need to ask is: When the world is dreaming of affordable space travel why should we be denied access to something as basic as a four-wheeler?

- Surath Giri

May 21, 2014

How to Register a Company in Nepal?

Registering a business company in Nepal is not an easy process. In an attempt to make the process easier the Office of Company Registrar (OCR) made online company registration process mandatory in October 2013. As a result, Nepal has gone up three spots in the Doing Business Index (2014) ranking 105th among 189 global economies. But that does not mean, navigation of the bureaucratic processes and hassles has become easier. Following chart shows the company registration process in detail. I hope aspiring entrepreneurs in Nepal will find it useful. Please feel free to share the image among your friends and network.

Company Registration Process in Nepal

May 20, 2014

Entrepreneurship Education : Need of the Hour

Imagine this classroom scenario. The teacher asks the students, “What do you want to be in the future?” Bright students in the class reply, “I will become a doctor or an engineer or a pilot.” Others usually say that they want to join the army. The rest have no clue as to what the answer would be. This scenario is likely to have occurred in every classroom of Nepal regardless of time and location.

Our education system so far has been focused on making students employable once they graduate. Whether it has been able to meet the objective is debatable. However, our education system has definitely been unable to develop entrepreneurs who will create jobs that most students will aspire to get later on. As a result, out of the 450,000 young people who enter the job market every year, only a handful get employment opportunities. Most of the remaining leaves the country seeking employment opportunities. 

It can be argued that in our context, level of education is in fact inversely proportional to the chances of the person being employed and doing something productive. The prestige associated with formal education vis-a-vis lack of dignity of labor makes it difficult for an educated person to engage in menial or traditional jobs. At the same time, proper jobs are hard to come by as country is reeling under political instability and mismanagement for decades. Hence, an educated person finds himself/herself in a precarious position of having an education but limited job choices. Therefore, it is not uncommon to find a person who has multiple degrees and is yet jobless.

While we continue to struggle with the inadequacies in our system, the world has been changing at an unprecedented speed. Thanks to the rise of information communication technology and globalization, jobs and industries are transforming and disrupting the status quo like never before. Consider this! Some of the most popular jobs today like smart-phone apps developer and social media expert did not exist until a decade ago. The phenomenon, however, is not limited to information technology field. Jobs like sustainability expert too were not in the mainstream until a decade ago. And many jobs that existed a decade back do not exist today. 

This means that education alone does not ensure meeting the needs of the market. Having students graduate without skills to adapt to the latest market demands is becoming a major issue for developed societies as well. Therefore, the major question today is not whether students have the right set of skills and abilities but whether they are entrepreneurial enough and can adapt to the changing environment. The question is about whether we are creating entrepreneurs or just job seekers. Nepal is in dire need of the former.

In this context, it is high time that we in Nepal include entrepreneurship in our educational curriculum from the school level itself. If we start teaching students about employment skills from an early age why don’t we start teaching them to think entrepreneurially from an early age? When we teach them about Malla Kings and Lichchhavi Kings why not teach them how Nepal was a nation of entrepreneurs and how our historical monuments stand to bear the fact that once we were very prosperous and entrepreneurial. While we tell them that Nepal is home to eight of the ten highest peaks in the world, why not tell them about the immense opportunities of entrepreneurship in the tourism field. Showing them the opportunities while they are young will probably help us counter the pessimistic mindset that seems to have been infesting our nation till date.

Instilling entrepreneurial mindset among the pupils will not be enough. It is also necessary to introduce them to workings of a market and the role of an entrepreneur. This can be achieved by involving students to run small scale enterprises on their own. It can also be achieved by adding entrepreneurial components like profit-making, revenue generation and sustainability to the existing projects related to different subjects such as environment studies or social studies. 

The success of student entrepreneur groups such as Enactus and Students for Advancement of Global Entrepreneurship around the world in creating entrepreneurs out of high school students shows how entrepreneurship is the solution to not only our economic but also our social problems. These two groups have been teaching entrepreneurship to high school students and encouraging them to start their own ventures which could be either profit-making or social enterprise while they are in school.

Teaching entrepreneurship to our future generation while they are young is the need of the hour for Nepal. It could be the surest and the most sustainable way to seeing a reduction in the length of lines of migrant workers waiting for their flight to foreign countries at Tribhuvan International Airport. It could also be an effective way of countering the myriads of social problems that besiege us.

-Surath Giri

May 11, 2014

Proposed Foreign Investment Policy 2014: Is that what we need?

Ministry of Industry has recently come up with the draft of the new proposed Foreign Investment Policy 2014 whose lack of common sense has surprised even the most ardent believers of bureaucracy in Nepal. Notwithstanding the fact that countries around the world, especially the ones lacking capital, are courting foreign investors for capital and technology to spearhead their economic growth, Nepal’s attitude seems to be that of a nation who already has too much of an investment and can afford to be selective in choosing investors. The policy is an example of how our bureaucracy is so out of touch with reality. A few provisions proposed by the policy will prove this assertion.

One of the provisions made by this policy is to ban foreign investments of less than 200,000 US Dollars which is a four-fold increase from the existing floor of 50,000 US Dollars. The policy also bans foreign investments on hydro power projects of less than 30 Mega Watts and less than 3 star hotels. It is difficult to understand why the government wants to dissuade small scale investments and investments in smaller hydro power projects as well as smaller tourism establishments when it is already among the countries with least amount of foreign direct investment in the world. As of February 2014, the total foreign investment in Nepal is valued at around US $1.14 billion from 78 countries which is very low compared to not only its huge neighbors but even compared to other economies in the region. Sri Lanka attracted US $870 million as foreign investment in 2013 alone whereas Pakistan received about US $ 1.4 billion during the same period.

Putting a minimum floor on foreign investment not only decreases the amount of foreign investment coming to the country but also helps concentrate those investments towards larger businesses and industries only. This increases the possibility of undue influence among policy makers and government officials by the few large scale investors among. Such a floor also prevents foreign investment and technology transfer in small and medium scale enterprises whose capital requirements are lower compared to their labor requirements such as restaurants, tourism agencies and information technology companies. Majority of the IT companies in Nepal are small and medium enterprises requiring investments much lesser than the minimum floor proposed by the policy. Implementation of such policy would eventually result in elimination of small scale IT companies who have been providing large number of lucrative employment opportunities to Nepalese IT professionals.

Similarly, the provision of not allowing foreign investment in hydro powers of less than 30 Mega Watts will bring nothing more than harm to the economy. The cost of production for one mega watt of hydro electricity ranges from 150 to 180 million Nepalese rupees which is unlikely to be raised from Nepalese investors alone. On the tourism sector too, what we need is more innovations in more destinations rather than large scale investments in already crowded sectors and activities. 

Big Contradictions

Hence, the prudent step for the government would be to encourage more small scale foreign investments not discourage them.Some government officials have been quoted as saying that the minimum floor of investment is needed to prevent some foreigners from opening up small scale enterprises and using such investments as a reason to keep staying in Nepal. One would wonder what the problem in that is. On one hand, Nepal is trying to attract a million plus tourists in Nepal. On the other hand, government does not want these people to make small scale investment and use it as a reason to stay in Nepal. It is definitely hard to find logic in these contradictory approaches. 

And if foreigners staying in Nepal using small scale investment to their advantage is a problem then isn’t it a problem of department of immigration? Banning all the small scale investments just because some foreigners are “misusing” them is tantamount to throwing the baby out with the bathwater. 

Another provision in the policy that raises huge concern is the formation of Foreign Investment Promotion Council. The council, per se, would be a positive step towards facilitating the investment process in Nepal but the way it is staffed raises concern. The council is supposed to be chaired by Minister of Industry and consist of representatives of more than 12 government agencies. Since the membership is so diverse and the council duties are not among the priority for the officials, the council is likely to never convene or be efficient enough for making decisions which will ultimately end up leaving investment processes in limbo.

What next then?

With all these clauses, the new proposed Foreign Investment Policy 2014 is more likely to do more harm than good to the Nepalese economy and can be considered a regressive policy when compared to the existing foreign investment policy. The right thing to do for a developing economy like Nepal, is to attract as much investment (both local and foreign) as possible not discourage them. In this era of globalization, too many countries are courting foreign investments and we cannot afford to be choosy with regards to investment. The best policy for Nepal would be to welcome any investor with any amount of money who is willing to create jobs and prosperity for our citizens. It is imperative that policy makers understand this reality and revise the policy accordingly.

-Surath Giri