Nepal has negative investment environment and unfriendly business climate

Krishna R Pandey: Deal makers, investors and entrepreneurs Shrivastav Brothers are betting that Nepal will likely remain an unattractive country for foreign investments unless the government and private sector both change the way they have been used to do business.

Pankaj Shrivatav and Ash Shrivastav have advised and invested in many companies in different geographies of the world. They say that Nepal has a very unique problem. Nepal’s private sector is extremely weak. Established businesses are very unfriendly to new businesses. There is no culture of established businessmen to mentor or offer support to new entrepreneurs. Even a good deal for partnerships between new business and an established business that in fact would help more the established business is less likely to happen. “Nepal is an extremely difficult place to start or operate a new business”, say the brothers.

Government is known to move very slowly. It is not known for solving problems. It’s understandable. However, when the private sector is not vibrant, economy is in peril. Around the world, when the governments have not done enough to create a business friendly atmosphere, great businessmen and companies have demonstrated a leadership in changing the way a nation functions. Unfortunately, no one has or is willing to take that lead in Nepal.

The country needs to become entrepreneur friendly

People usually tend to blame the government for unhealthy economic situations but in Nepal’s case private sector is an equal problem. Government is not a solution to economy or job problems. “It’s appalling to see that Nepal’s public and private sector both think and behave the same way which prevent investors from making even a seed round investment in this country thereby affecting the overall economy. It’s not surprising that Nepal has 50% unemployment. The unemployment problem could be reduced to a much lower percentage only if the private sector becomes more efficient”, says Pankaj.

Business negotiation in bad faith

Ash also says that several top level management negotiate in bad faith. For example, in one of the mergers and acquisition deals, Ash was negotiating with one of the largest conglomerates in Nepal. The chairman asked his M&A team to negotiate the deal. Their company’s M&A director went for days to negotiate the contract. When Ash suspected that the director wasn’t following the general deal negotiation practices, Ash put his theory of bad faith negotiation to test. He convinced his senior partners to agree on whatever the company was asking for. That should have sealed the deal. That did not happen though. He proved that his theory of bad faith negotiation was correct when he did not get the signed agreement for several days. As expected, the company’s M&A director kept on stating that he would get it signed the following week. That went on for months. The deal was never signed.

Lack of defined ownership of work

Ash says that the individual he was negotiating with had in fact no authority to get a deal signed. He may have been working under vague instructions of the management. In this case, they might not have a strategy at all. “When one party agrees to all terms of a contract, the other party should have no issues signing the papers. When they don’t, it’s clear they don’t know what they are doing. It’s like going for street shopping in Nepal, negotiating the price you want for the potato and when the shop owner agrees with your price, you just walk away. It’s lack of integrity.”

In Nepal, the Board is often the same as Executive Team. If it’s not all, still there is a good chance that there is a significant overlap between the Board and Executive Team. Majority of the decisions are centralized. Even the smallest level of operational decision is usually made by the chief executive himself. This makes the overall process slow or the deal falls apart. The terms you may have agreed with the head of operations remains no longer valid when he presents those terms to the chief executive. In order to save time and subsequent frustration, it would be wise to check whether the person you are negotiating a contract with is indeed the person with authority to sign those papers.

Broken chain of command

“There is no chain of command. The CEO of a bank receives a request for partnership. The CEO thinks it’s valuable and asks his COO to handle the talks. However, the COO ignores his CEO’s email”, says Ash. It’s not just the ignoring part; even the CEO doesn’t bother to inquire whether his email was followed though. They just forget. He says that it’s not just one time he has seen this. The lower level management constantly ignores the instruction and direction of their executives. Several times, he says, even one executive ignores another executive’s instructions. The leadership is weak and most often company lacks a clear strategy.

Moreover, almost every business houses or financial institutions in Nepal need professional training. Most never check their emails. Some read the emails but misunderstand so they forward to someone else who adds further confusion and some do not understand at all.

Lack of leadership and strategy

In one partnership deal negotiation, one of the brother’s portfolio companies was offering an additional stream of revenue and free marketing to a large hotel in Nepal. The General Manager of the hotel agreed within a day to the terms offered by his company. That fueled the excitement.

Then there were a few days of silence. The GM asked his lower level operational executives to make the deal happen. Emails rotated between several other employees. Many did not even understand the basics of what the partnership was about and how it would benefit their business. “One of their teammates sent a discounted hotel rates which was not even the matter of our partnership discussion. We had to send the agreement again so that she knew what the partnership discussion was about. It clearly shows a lack of communication.” Pankaj added.

They all wanted to know some terms of the deal but they failed to understand the full deal. Then the brothers realized that if the GM were the decision maker who had already agreed, the email rotations with operational team wouldn’t have happened. It became pretty apparent that there was no decision maker.

Because of the lack of understanding and a decision making authority, they could not fully understand the benefits of partnership and backed out. “It is not uncommon in Nepal”, Pankaj says. There is really no concept of partnership development in Nepal. First, they lack the understanding that their business can grow because of a good partnership. Second, they don’t want another business to grow more than they can grow. In such a case, they wouldn’t partner with you if they think that they will grow less than you will. In some cases, they prefer others loss than their gain.

Businessmen have no experience building their business ground up

“Many businessmen are not competent because they didn’t build a business from ground up”, says Pankaj adding that most of the large business houses were inherited or acquired through political means. That’s the reason they lack the fundamentals”.

There are so called Industrial families who talk about philanthropy and say that their company’s social responsibilities are helping the Nepalese economy. Contrary to that, when aspiring entrepreneurs or outsiders try to partner with them to help fuel the private sector with boost the economy of the country with jobs, they become silent. Some have also become just the “Yes Men” of the politicians so that they could preserve the empire that they inherited.

Entrepreneurial problems

Young entrepreneurs have a lot of energy. We have seen some great entrepreneurs building amazing products. It’s unfortunate that they don’t become much successful because they don’t get any support. There is no shortage of talent in Nepal.

Great entrepreneurs and businesses are born because of a supportive environment. They have “Heroes” they follow. It’s really unfortunate that Nepal doesn’t offer these. Many foreign investors have analyzed several great companies in Nepal but they shy away from doing deals because of various hurdles the private sector poses. Regulatory uncertainties also make it difficult to do a deal but they are secondary to the people problem in the private sector. Uncertainties are not good.

Words of thought

Pankaj says that if you are building a business from ground up; think how you could avoid dealing with the government and the private sector both. In developed world, regulated businesses are not very attractive. In Nepal’s case, add private sector dependency or control in that deal. You might very well have to put same amount of effort in making a deal with the private sector as much as you would while making a deal with the government.

Finally, when asked what their outlook on Nepal is, they say they have to Short Nepal for now.

(Krishna Raj Pandey is a Central Committee Executive member of Nepal Journalist Association and General Secretary of Nepal India Journalists Friendship Association. Currently Mr. Pandey lives in the United States. Please send your comment at editor@nepalekhabar.com or editor.nepalekhabar@gmail.com.)