Mr. Jitesh Surendran is the CEO, Mercantile Exchange of Nepal and Vice Chairman, South Asian Federation of Exchanges. In this #Conversation, he talks about the current state and expectations of the Nepalese economy, and the recent initiatives taken by MEX.
Q: In the backdrop of the recent political changes, how is the Nepalese economy placed now?
A: The Nepalese economy, sandwiched between China and India, has seen challenging times in the wake of prolonged political instability and the lack of economic growth. The political environment has seen immense transformation with the successful staging of the three tiers of election for the local, provincial and federal levels in the same calendar year. The policyholders who are planning the country’s future development should take a leaf out of the book of our more affluent neighboring nations, who by of developing their basic infrastructures had paved the way for rapid economic growth. At this point, it would be futile of me to compare our nation with others given the current state of affairs. Yet, with ample opportunities arising in key industries including hydropower and tourism, Nepal could wake up from the ruins of the past and thrive to make a mark on the global and regional map. The Nepalese economy has seen only muted growth in infrastructural development activities (the definite catalyst for overall economic progress). But if Nepal has to make a mark in the sands of time, the time is definitely now.
Q: Tell us a bit about the background of this economy?
A: No direct access to the high-seas and depending on the ports of India for expanding international trade has been a constraining factor at times. The Nepalese economy is undergoing a transition phase demarcated by economic stagnation, and it is a classic case of pervasive poverty combined with sluggish economic growth, poor governance and rampant corruption. The result, a majority of the population lives in sub-standard conditions and struggles to make both ends meet. The economy is heavily dependent on the agro-sector which accounts for one-third of the GDP. Two-thirds of the population is engaged in such primary sector. The secondary sector i.e. the industrial sector has undergone a rapid transformation with the government privatizing major enterprises to shift the production from the government to the private sector. The service sector has shown robust growth in the recent years with investment in sectors like education and tourism leading the way.
Q: What is the current state of the economy?
A: The economy of Nepal had hit rock bottom due to the earthquake and the alleged blockade imposed at our southern border in 2015. But according to the Economic Survey of Nepal, the economy had bounced back in 2016/17, with the nation assuming an optimistic outlook in the ensuing days. According to the survey, the GDP growth for the FY 2016/17 is estimated to reach a 9-year high of 6.9%. The major reasons highlighting this growth will be the increase in the capital spending and improved investment environment. Per Capita Income jumped to $850 in FY 2016/17 vis-à-vis $747 in the previous fiscal year. However, analysts proclaim that the growth rate is still slow. According to the Economic Survey report, the growth in agricultural production coupled with improvement in the supply chain ushered a low level of inflation. The inflation rate was 5.1% in the first eight months of FY 2016/17 against the 6.5% target rate.
With the economy at the crossroads of change, the market pundits are questioning whether it can sustain the same drive in the next fiscal year. Although the political environment has undergone a rapid transformation, the import-driven economy has yet to transform itself into a progressive nation seeking a change from the current stagnation levels. However, the negativity underlying the economy has transformed somewhat driven by positive figures like abundant monsoon rainfall and improved electricity supply; therefore, maintaining and improving the growth rates.
Q: How is MEX Nepal leveraging on this opportunity?
A: Mercantile Exchange Nepal Limited (MEX), established in 2007, became the second commodity exchange in a market which was coming to grips with the benefits of a commodity exchange in the eco-system. With time, as the participants comprehended the perceived benefits and the markets warmed up to the alternative form of investment, the markets flourished. Due to MEX’s continuous training programs for market awareness in collaboration with other stakeholders, the knowledge levels of the market practitioners has improved leading to disciplined trading. MEX incorporated the SPACE (Strategic Participation in Commodities Education) and MCPT (MEX Commodities Professional Training) programs targeting university students and market participants respectively, to bridge the gap between the current and the desired state in knowledge levels. The journey elevated as the exchange contributed towards state coffers and employment generation.
Q: How does the future augur for MEX?
A: MEX has been the front-runner to implement the delivery processes in gold, silver and hen egg, focusing to envelop the physical markets under its framework. Although the delivery process is still in its infant stage, with the act and the rules relating to the commodity market now in effect, the markets can brace for a system where the produce of farmers will be channelized into the commodity market yielding the benefits of fair price discovery and production of qualitative products. Nepal has slowly ushered the importance of the commodity industry in a collaborative manner. The commodity markets received an added impetus with the announcement that Securities Board of Nepal will be the regulator and all market participants will come under its framework. Although the new rules are perceived as challenging, the times ahead will propel the industry to heights never attained before.