Why Nepal’s private sector is choosing safety over growth

Entrepreneurs in Nepal are increasingly prioritizing the safety of their businesses and investments over pursuing growth, a significant shift from the traditional profit-making objective.

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Private sector morale remains weak and businesses continue to operate in an atmosphere of fear and uncertainty.

This defensive stance stems from a confluence of factors including sluggish economic activity, weak market demand, regulatory uncertainty, and ongoing disputes related to industrial estates and power supply. Furthermore, heightened scrutiny under anti-money laundering and asset disclosure rules has contributed to an atmosphere of fear and uncertainty among business leaders. "Private sector morale remains weak and businesses continue to operate in an atmosphere of fear and uncertainty," said Bhawani Rana, former president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI).

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The finance minister says the budget has provided many wings for the private sector to take flight. But those wings have not yet gained strength.

Although commercial banks report abundant liquidity and historically low lending rates, credit demand is notably subdued. Economists and business leaders interpret this as a symptom of deeper structural issues undermining investor confidence. While Finance Minister Swarnim Wagle points to supportive measures in the upcoming fiscal year's budget, Rana notes that these initiatives have yet to translate into renewed confidence. "The finance minister says the budget has provided many wings for the private sector to take flight," Rana commented, "But those wings have not yet gained strength."

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Unless local investors feel confident, foreign investment cannot be expected to grow.

Rana emphasized the need for systemic reforms, stating that while the private sector supports good governance, improvements in state systems are essential for enhancing private sector practices. She also highlighted the critical role of domestic investor confidence in attracting foreign investment, as international investors often seek local feedback. "Unless local investors feel confident, foreign investment cannot be expected to grow," she argued. Additionally, Rana pointed out the prevailing societal perception of entrepreneurs as mere profiteers, a mindset she believes must change for the sector to thrive.

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The state and society still tend to view the private sector as profiteers. That mindset needs to change.