Post pandemic the government must expedite the foreign investment process to show that Nepal is back in business
As we face an unprecedented and precarious pandemic that has caused uncertainty to the entire global economy, Nepal’s own response to it will determine at what velocity our economy will hit the ground. We need to brace ourselves for a very hard landing.
All businesses have been severely disrupted by the COVID-19 lockdown. As private equity investors, our first task has been to assess the nature of the problem that they face and provide solutions.
The effect of this contagion has not just been sector-specific, but has affected the entire value chain. In Nepal this problem is compounded as we are heavily import dependent, which has created severe disruption in intermediate (raw) materials and components for production.
All sectors of the economy are facing limitations. The tourism and hospitality industry has suffered immensely due to cancellations of visitor arrivals, local restaurants have had to close down due to lack of business. Agriculture will be next to be affected due to the lack of fertilisers and other inputs. As the lockdown is extended, the state of the economy will progressively deteriorate.
The foremost factor for a private equity is investor like us in a crisis like this is to ensure the management of impact on the work force. Human resource must be well taken care of and all our partner companies have preventive measure against this virus.
Secondly, we assess the financial health of the companies. Our advisory role is to give oversight on what they should do to alleviate the problem. It is no surprise that all are in a stage of cash shortage for working capital and debt repayment compounded by receivables that seem improbable of getting paid on time.
We impress upon them to consolidate their accounts, manage expenses prudently and cut costs. Management of operational risk is very important at this juncture — this is not the time for bottom line expectations but to ensure top line sustainability.
Depending on the gravity of the state of their balance sheets, we support them to acquire bridge gap funding or, in the long run, increase our equity portion. The companies that are in a better situation have been active in providing philanthropic activities to the community.
Whether it is providing free lunches to the police and health workers or building and providing swab collecting booths for safety of medical workers at hospitals or setting up a call center that provides access to doctor services have all been pro bono activities in this hour of need. We encourage such endeavors and also provide linkages between the companies in our portfolio.
Never has private equity impact funds been more relevant than now. Patient risk capital with a hand holding mechanism that provides diffusion of knowledge along with the much needed capital is what private equity has been doing in Nepal for the past five years.
For a foreign direct investor (FDI), we are restricted due to the time taken by the government agencies for approval, which can take as long as 3 to 6 months. There are capital increment requests for investments that have been waiting for over 18 months for FDI approval.
Businesses will not have that long a gestation period if they are strapped for cash. Therefore, the government needs to put in place a mechanism to expedite onward investments or top ups for these companies to move forward. Furthermore, this will also help the weak situation of the balance of payment of the country.
Millions of dollars are awaiting approval at this moment. Post lockdown, this will be an opportunity for the government to show its sincerity towards foreign investors by expediting the process and demonstrating that FDI is an important component to Nepal’s development showcasing that we are open for business in action rather than words.
Siddhant Pandey is Chairman and CEO of Business Oxygen Pvt Ltd (BO2).
Source : Nepali Times