Reference Materials

• Interim Constitution of Nepal, 2063 (latest)

Business Environment Analysis

• Policy Documents of Government of Nepal

• Election Manifesto of major Political parties
• Constitutions of major Political parties
• Newsletters and Magazine published by parties
• Websites of Election Commission of Nepal,
Political Parties, Nepal Government, Court and
Constitutional Assembly etc.
• Current articles published in newspapers, journals
and magazine,
• Interviews of the political leaders &
entrepreneurs
 Some Issues
• What is political risk and what is the impact of
political risk in business?

BEA_MBA_POLITICAL FACTOR 4
"Man is by nature a political animal."– Aristotle

Politics is the major policy of the state what leads

all policies.

BEA_MBA_POLITICAL FACTOR 5
Some common definitions of politics:
– Politics leads all other sectors of the
state.
– Politics is the exercise of power
– Politics is the public allocation of values
– Politics is the resolution of conflict
– Politics is the competition among
individuals, groups, or states pursuing
their interests.
BEA_MBA_POLITICAL FACTOR 6
 An overview of Nepalese Politics
Business Environment Analysis

• Multiparty Republic system in transition

• Constitution drafting process is ongoing
• Proposed system of state - Federal Republic
Multiparty system,
• Law & order of the country is very weak,
• State is ruled on ad hoc basis, on the
consensus of 4-5 major parties rather than
in system

BEA_MBA_POLITICAL FACTOR 7
 Head of the different components of state
Business Environment Analysis

1. Head of the State : President

2. Head of Government : Prime Minister

3. Chief of court : Chief Justice

4. Chief of of Parliament - Speaker
5. Chief of Constitutional Assembly: Chairperson ( it
no exists till election for the new government.

BEA_MBA_POLITICAL FACTOR 8
 proposed Structure of CA
members.
Business Environment Analysis

CA members Direct Election – 240

Nos. of CA members from proportion basis - 240
Nomination by Govt. -11

Collapsed after 14 Jestha 2069 without releasing the

constitution. Nos. of CA members from

BEA_MBA_POLITICAL FACTOR 9
Representation in last CA
Sadbhavana Party
2%
Tarai-Madhesh
Others
Loktantrik Party
( Nepal) 10%
2%
Tarai-Madhesh
Loktantrik Party
2%
Madeshi Jana Communist Party of
Adhikar Forum Nepal (Maoist)
Nepal (Yadav) 39%
4%
Madeshi Jana
Adhikar Forum
Nepal (Lok tantrik)
5%
Communist Party of
Nepal (Unified Nepali Congress
Marxist-Leninist) 19%
18%

BEA_MBA_POLITICAL FACTOR 10
Structure of Constitution Assembly

Communist Party of Nepal (Maoist) 236 39%

Nepali Congress 114 19%
Communist Party of Nepal (Unified Marxist-Leninist) 106 18%
Madeshi Jana Adhikar Forum Nepal (Lok tantrik) 28 5%
Madeshi Jana Adhikar Forum Nepal (Lok tantrik) 28 5%
Madeshi Jana Adhikar Forum Nepal (Yadav) 25 4%
Tarai-Madhesh Loktantrik Party 9 2%
Tarai-Madhesh Loktantrik Party ( Nepal) 9 2%
Sadbhavana Party 9 2%
Others ( 2 independent and 20 small parties) 34 6%
Total (Source: Kantipur, 2067/10/21) 598 100%
BEA_MBA_POLITICAL FACTOR 11
 Political Philosophy, Political Parties, Political
Structures
Business Environment Analysis

Political • Legislature , Executives &

System Judiciary

Political • Feudalist, Capitalist,

Parties Socialist, Communist etc.

• Individualism & Socialism /

Political Conservatism & Liberalism
Philosophy • Autocracy & Democracy
 Political Philosophy
Business Environment Analysis

• Socialism is an economic and political theory

advocates that public or common ownership and
cooperative management of the means of
production and allocation of resources.

• Capitalism is an economic system in which the

means of production are privately owned and
operated for profit. Income in a Capitalist system
is split between the business owners and the
workers.
 Political Philosophy
Business Environment Analysis

Liberalism is the belief in the importance of

liberty and equal rights. Liberalism supports
such fundamental ideas as constitutions,
liberal democracy, free and fair elections,
human rights, capitalism, free trade, and the
freedom of religion.
Conservatism is a political and social
philosophy that promotes the maintenance
of traditional institutions and supports, at
the most, minimal and gradual change in
society.
 Political Philosophy
Business Environment Analysis

Democracy: - Government is by the people,

exercised either directly or through
elected representatives
- Safeguards hold elected representatives
accountable
Autocracy : An autocracy is a form of
government in which one person possesses
unlimited power. An autocrat is a person
(such as a monarch) ruling with unlimited
authority. It is called totalitarian system.
Economic System is determined by political system
• Market economy: what is produced in what
quantity determined by supply/demand and
through a price system
• Mixed economy: a balance of both of the
above
• State-Directed economy: state directly
influences investment activities of private
enterprise through “industrial policy.”
• Command economy: planned by government
BEA_MBA_POLITICAL FACTOR 16
 Political Parties
Business Environment Analysis

• Political environment is most powerful

and most influential components among
the external factors.
• Political system is the outcome of the
agreement of the various political powers
( parties and social factors).
• In multiparty system, political parties are
the backbone of the political system of
the country.
 Components of State

Elected body
Legislature from people
(601 )

Ministries/Depart
State Power Executives ments/Districts
Offices

Supreme
Judiciary Court/Appellate /
District Courts

BEA_MBA_POLITICAL FACTOR 18
 Issues
• How can these three departments of the state
support to the business?

• Do you think legislature, executives and

judiciary have been playing positive roles to
promote business? Justify your answer.

BEA_MBA_POLITICAL FACTOR 19
 Political Structure of the state
Business Environment Analysis

• Political structure comprises : a)

legislature, b) Executive and c) Judiciary.
• Legislature is also known as House of
representative or parliament or Pratinidhi
Sabha in Nepal.
• Executive is also know as Government or
Council of Ministries or Mantri parishadh.
• Judiciary is known as Court of Justice or
Sarbochcha Adalat.
Legislature ( House of Representative)

• Most powerful institution of the state / nation

• Representation of the people / elected body
• Prepare acts even constitution as per the need
of the society / country.
• Approve budget, control executives,
• Facilitates the business through formation of
various acts.
• Direct the executives to prepare policies and
provide supports.
BEA_MBA_POLITICAL FACTOR 21
 Executives ( Council of Ministries)
• Centre of political authority which possess
immense power to exercise.
• Prepare rules, regulations, policies and procedures
to enhance the business environment.
• It composites Ministries, Department, Division,
district branches of various ministries, District
Development Committee, District Branches,
Municipalities and VDCs.
• It shapes, guides, controls, promotes, fosters and
destroys the business activities.
BEA_MBA_POLITICAL FACTOR 22
Judiciary ( Courts)
• Three levels of courts are exist : Supreme -1,
Appellate-16 and District - 75.
• Supreme court has rights to review and make
void any acts prepared by parliament if
contradict with constitution.
• Legal disputes are settled by the court.
• It provides justice to the victimized group and
give punish who break the law.

BEA_MBA_POLITICAL FACTOR 23
 Labour / Trade union in Nepal
• Trade Union Act secures the rights of workers
• Trade union(s) have been established under the most
of the establishment / enterprises.
• Trade Union are influenced by different political
ideology so their voice is not unified to raise the
common issues of labours.
• Characteristics of labour movement are two types:
revisionary and revolutionary.
• Labour union should be directed to establish the
healthy industrial relations.

BEA_MBA_POLITICAL FACTOR 24
 Political Stability Issues
Business Environment Analysis

• Political stability is prerequisites to

increase the productivity of the business.
• Why should be stable government ?
– more contribution for the development of
economy.
– stability in rules and regulation, policy &
program
– industrial security
– less anarchism
- Less uncertainty, less risk
 Current Political Scenario of Nepal
Business Environment Analysis

• Unstable government
• List of demand from each and every sector
increasing day by day (ethnic, marginalised,
regional , deprived, labour and peasants )
• Lack of unanimous decision in the national
interest, constitution formulation and economic
development.
• blackmarketing, strikes, corruption, turmoil,
impunity and nepotism are contemporary
challenges
Relationships Between Business & Government
Government 's support to Business contribution to
Business : Government :
• Money, Foreign currency • Employment generation
& Credit • Taxes
• License • Voluntary welfare program
• Tariff & Quotas • Consultancies Services &
• Infrastructure Contacts
• Security / law & Order • Foreign currency
• Information • Information
• Technology • Political Supports
• Resources mobilization
• Appropriate policies
• Economic Development
• Regulating the business
BEA_MBA_POLITICAL FACTOR 27
 Government interfere in Markets
– Protect future, e.g., environmentalism, build
infrastructure,
– Provide public goods, e.g. parks, highways
– Encourage R&D that is not directly profitable,
– Correct for business cycle instabilities
– Maintain principles of justice and equality, e.g.,
equal access to good schooling
– Encourage in Corporate Social Responsibility
(CSR) activities

BEA_MBA_POLITICAL FACTOR 28
 Role of Government
1. Facilitating Role: Providing grants, subsidies, facilities,
build infrastructure ( Road, port, hydropower, airport
etc.)
Eg. Establish Industrial Districts with full of facilities
like, BID, HID, PID etc.

2. Regulating Role : Control the business organization by

formulating acts, rules and policies, forming different
of regulating authorities. Eg. Nepal Rastra Bank,
Securities Board of Nepal, Insurance Board, Office of
the Company Registrar etc.
 Role of Government
3. Entrepreneurial Role: Setting up business
enterprises (PEs) and deliver service to the society in a
affordable prices.
eg. Nepal Food Corporation, Nepal Oil Corporation,
Nepal Airlines Corporation etc.

• Nepal Bank Limited is first State Owned Bank in

Nepal( B S 1994). RBB is 100% government owned
bank.
• Total 75 PEs were established during Panchayat regime.
 Government in Business ( Entrepreneurial
Role)
• 12 PEs had been already privatised,
• 18 PEs are in pipeline for privatisation.
• Out of 36 PEs 19 were operating on loss .
• Based on the financial performance of the
enterprises, 5 are best, 3 are satisfactory, 7
are going to improved, 13 are poor and 8 are
worst.
• In FY 2008/09 equity in PEs Rs. 133,740
mil. BEA_MBA_POLITICAL FACTOR 31
 Political / Bureaucratic Scenario
• Political decision is implemented through
bureaucracy.
• Leadership of government changes time to
time
• Bureaucracy is permanent organization.
• Need warm relationship between government
and bureaucracy.
• Nature of bureaucracy is much more rigid.

BEA_MBA_POLITICAL FACTOR 32
 Political Culture of Nepal
1. Delay in decision making / implementation
2. Lack of clear idea on Globalisation &
Privatisation
3. Violation of laws and system
4. Lack of farsightedness
5. Nepotism
6. Corruption

BEA_MBA_POLITICAL FACTOR 33
 Doing Business in Nepal
• Doing business in Nepal is not easy ( world
bank report, 2012)
• Report includes country profile of 183
economies.
• Comparing with 2011, somewhat progress is
found (110th rank in 2011, 107th in 2012.

BEA_MBA_POLITICAL FACTOR 34
South Asian Countries- DB-2012

BEA_MBA_POLITICAL FACTOR 35
Ease of DB- 10 Criteria for Ranking

BEA_MBA_POLITICAL FACTOR 36
 Ranking of Countries ease of doing Business
Country 2012 Rank 2011 Rank 2010 Rank 2009 Rank

 Singapore 1 1 1 1
 Hong Kong 2 2 2 2
 New Zealand 3 3 3 3
US 4 5 4 4
 India 132 134 133 132
 China 91 79 89 86
Nepal 107 116 123 123
 Bangladesh 122 107 119 115
 Bhutan 142 142 126 124
 Sri Lanka 89 102 105 97
 Pakistan 105BEA_MBA_POLITICAL 83
FACTOR 85 85
37
 POLITICAL RISK
FACTORS AND
THEIR ASSESSMENT

BEA_MBA_POLITICAL FACTOR 38
 Political Risks for Business
Sources of political risks:
I. Unstable government / system
II. Political involvement of religious or
military leader
III. Frequent changes in government
IV. Corrupted or poor leadership
V. Civil disorder due to:
• Economic conditions
• Human rights violations
• Conflict among races, religions & ethnics
• Group animosity
3-11
BEA_MBA_POLITICAL FACTOR 39
 Political risk
• Macro political /country specific risk - It exists
outside the firm such as political which which is
the beyond the control of the firm. Eg. seizure
of property, Protests, civil wars, riots, terrorism,
policy changes etc.
• Micro political /firm specific risk - risk like
protest against the services, boycotts and
campaign against the certain products, strikes
by the trade unions etc.

BEA_MBA_POLITICAL FACTOR 40
Types of Political Risk

Conflict &
Violence

Local
Terrorism &
Content
Kidnapping
requirements
Political
Risks

Policy Property
Changes Seizure

BEA_MBA_POLITICAL FACTOR 41
Consequences of Political instability:

I. Procurement difficulties

II. Work stoppages

III. Shipment delays

IV. Property damage

BEA_MBA_POLITICAL FACTOR 42
 Property Seizure
1. Confiscation : The forced transfer of assets
from a company, to the government without
compensation,
2. Expropriation :The forced transfer of assets
from a company to the government with
compensation,
3. Nationalization : It is a process of transferring
ownership of numbers of private firm to
government firm.

BEA_MBA_POLITICAL FACTOR 43
 Political Risk
Due to the instability in the political system of
Nepal there are various risk exist.
• Ownership risk – Risk of insecurity of the
property.
• Operating risk - interruption in the smooth
operation of business.
• Transfer risk – barriers to transfer of the fund
from one country to another country.

BEA_MBA_POLITICAL FACTOR 44
 Political Risk…
• Intellectual Property Rights / design and patent
rights: Nepal has very weak mechanism to
protect the intellectual properties.
• Restrictions : Action imposed by the government.
• Boycotts or blacklisted or rejected of foreign
goods by government or society.
• Inflation, taxation and devaluation of currency
due to political instability.
• Embargo ( restriction ) by government.

BEA_MBA_POLITICAL FACTOR 45
 Procedures to analyse the Political risk

Step 1 : Assessing of relevance issues to the firm,

Step 2 : Assessing potential political events

Step 3 : Assessing probable impacts and

response

BEA_MBA_POLITICAL FACTOR 46
 Managing Political Risk
Avoidance

Influencing
Local Risks Adaptation
Politics

Information
Gathering

BEA_MBA_POLITICAL FACTOR 47
 Managing Political Risk
Local equity / debt

Localization
Adaptation
Adaptation
Incorporaterisk
Incorporate riskinto
into Development assistance
businessstrategies
business strategies

Partnerships

Insurance
BEA_MBA_POLITICAL FACTOR 48
 Managing Political Risk

Current employees
with relevant information
Information gathering
Information gathering
Gatherdata
Gather datato
tobetter
better
predictand
predict andmanage
manageriskrisk

Agencies specializing
in political-risk services

BEA_MBA_POLITICAL FACTOR 49
 Managing Political Risk

Lobbying
Influencing local lawmakers
Influence local
Influence local politics
politics
Presentfirm’s
Present firm’sviews
views
onpolitical
on politicalmatters
matters

Corruption
Foreign Corrupt Practices Act

BEA_MBA_POLITICAL FACTOR 50
 Political Risk
Issues events probable
impacts
Privatization Labour Production
of the Strike interrupt and
Company heavy operating
loss

BEA_MBA_POLITICAL FACTOR 51
 Class Discussion
Documents to be discussed:
I. Doing Business in Nepal- 2012 ( The
World Bank )
II. Policy of Previous and current
government
III. Budget Speech 2068/069

BEA_MBA_POLITICAL FACTOR 52
 Assignment
• Sketch the detail account of various components of
political structure and examine theirs’ role for the
betterment of the business community.
• Stable political environment is foremost requisites to
make business success. Explain this statement.
• Trace out the current political structure of Nepal. How
political factors regarded most influential factors for
business?
• Discuss the present role of various components of
political environment in Nepalese context. Prepare a
detail accounts of the role and responsibilities of
government in hydropower and civil aviation industries.
BEA_MBA_POLITICAL FACTOR 53
 Assignment
 Political environment is most important factors to be
considered by the business. Comment the statement.
 What are the responsibility of business towards the
government and society?
 How should be the relationship between labour
union and management and what is the reality in
Nepal?
 Why labour union is regarded on of the most
powerful component of business environment?
 Examine the political risk associated in the business
community.
BEA_MBA_POLITICAL FACTOR 54
 Assignment
• Compare the economic policies, industrial
policies and trade policy of three major
political parties of Nepal and express your
view.
• Prepare profile of national level trade union
and FNCCI.
• Write a report of a firm describing how the
firm has been affected by trade union and
how workers are treated by management.
BEA_MBA_POLITICAL FACTOR 55