The Establishment of the Industrial Enterprise Development Institute
A Vision for Private Sector Development in Nepal

Prashant SJB Rana

Introduction

His Majesty King Birendra Bir Bikram Shah Dev, granted royal assent to a bill to establish the Industrial Enterprise Development Institute, on 4 November 1996, after its approval by both Houses of Parliament. This was the culmination of a near decade long series of parallel efforts to institutionalize the programmes and activities of the Nepal-German Small Business Promotion Project on the one hand; and to rationalize the support structure for cottage and small enterprise promotion in the country on the other.

Institutionalizing the Small Business Promotion Project

The Small Business Promotion Project (SBPP) emerged as an independent programme from the Nepal-German Bhaktapur Development Project in 1983. It was jointly implemented by the Ministry of Industry on behalf of the Nepalese Government and the Gesellschaft für Technische Zusammenarbeit (GTZ) - the German Agency for Technical Cooperation - on behalf of the German government.

The SBPP's target group consisted of existing and potential micro, cottage and small entrepreneurs from all areas of manufacturing, processing and service oriented businesses; including tourism, agro-based industries and commerce. The innovative activities focused on continuous development, testing and dissemination of an integrated package consisting of new business creation and management trainings, small business consultancy and linkage services. The approach pioneered and developed in Nepal, due to its positive impact, is being marketed abroad by GTZ under the brand name of CEFE (Creation of Enterprises, Formation of Entrepreneurs) in over 70 countries in Asia, Africa and South America.

Taking note of the achievements of the SBPP and the need to multiply the impact of the approach, HMG of Nepal and the Government of FRG decided to institutionalize the project as a permanent and autonomous institution. Along these lines HMG of Nepal by a decision of the Council of Ministers, approved the formation of the Industrial Enterprise Development Centre (IEDC) in May 1995 under the Development Committee Act 1956. A notice to this effect was published in the Rajpatra - the government gazette - on 3 July 1995 whereupon the organization came into being. The staff, assets as well as the programmes, activities and methodologies of the former SBPP were transferred to the new centre.

Rationalizing the Support Structure for Cottage and Small Industries

Looking at the promotional organizations, various organizations had been providing technical and consultancy services in the field of technical (skill oriented), entrepreneurship and management development for the promotion of the cottage and small enterprise sector.

As mentioned above, the SBPP had developed several approaches towards introducing effective methods of micro, cottage and small enterprise development. It not only offered such services to potential and existing entrepreneurs, but also through other institutions and projects based on local needs in many areas. SBPP designed promotional systems and pilot programmes for them, trained their staff, cooperated in strengthening such service delivery institutions and followed up to ascertain the results. Furthermore, SBPP carried out action research to develop replicable models of business promotion for rural areas and special target groups.

The agencies at the forefront of delivering training and support services to the target group are the Department of Cottage and Small Industries and the Cottage and Small Industries Development Board. They at present function in 27 and 48 districts respectively and possess considerable organizational infrastructure and human resources. Their full potential had not been utilized due to the absence of an institution to develop and test new approaches to entrepreneurship and management development based on the identification of needs and on demand.

In addition, skills development programmes have been imparted by the Department of Cottage and Small Industries; and there specifically by the Training for Rural Gainful Employment Project (TRUGA) now succeeded by TRE - Training for Rural Employment Project. Such programmes are also delivered by the Cottage and Small Industries Development Board and the Skills Training Centres of the Ministry of Labour. Although the present programmes are being conducted as expected, their trainings are not fully effective for various reasons. Among them, the main reasons are the inability to vary subjects according to demand and potential and the absence of entrepreneurship and management inputs into the process.

Some Achievements of Support to the Cottage and Small Enterprise Sector

The Rationale for the Centre

Although numerous achievements had been made, there were also future opportunities that were identified. For instance, the successful approaches researched and piloted by SBPP had not been replicated nation-wide, the delivery capability of the CSIDB and the DCSI had not been fully used and skills development programmes were missing an entrepreneurial input.

It is here that the two aims of institutionalizing the Small Business Promotion Project and rationalizing the support structure for cottage and small industries came together. The Industrial Enterprise Development Centre was envisaged as an institution to enhance the capability of service delivery institutions in the small enterprise sector so as to provide quality services to the cottage and small industries in Nepal based on approaches created and applied by SBPP. It would develop and facilitate the provision of integrated services through service delivery institutions such as the Department of Cottage and Small Industry, the Cottage and Small Industry Development Board, local government, chambers, associations and NGOs. To ensure the participation of various actors and their ownership of the new institution, the governing board of IEDC was evenly divided between the private and public sector.

The fact that the new Centre would still require some support during its formative period led to the continuation of German support through GTZ on a project basis. The SBPP represents here the final phase of German support to the IEDC. Although the name of SBPP still remains, its tasks have undergone large changes. From a project that used to implement programmes itself with the target group, the Project now plays the role of supporting the institutional development of IEDC. It will provide the necessary technical advisory support, consultancies, equipment and staff development programmes for the effective functioning of the IEDC. In addition, it will grant orders for programmes to be carried out by the IEDC as another donor. Both steps have the aim of preparing the IEDC for sustainability once the SBPP ends in 1999.

From the Centre to the Institute

As mentioned above, the formation of the IEDC was brought about by two parallel developments. On the one hand, it provided a means to institutionalize the human resources and methodologies of the SBPP; and on the other, it found itself in the role of acting as a resource centre for both governmental and non-governmental service delivery organizations. However, the momentum of change was continuing. Due to various reasons, positioning the IEDC under the Development Board Act was not seen to be the optimal situation.

Legally speaking the Board Act usually provides for temporary organizations of the government. In addition, any changes, including its dissolution, can be made by a decision of the Council of Ministers and a notification in the gazette. Personnel and financial rules are also more closely aligned with government regulations. In other words the autonomy essential for effective functioning was not fully guaranteed.

On the operational side, the working area of the IEDC was more confined than that which the rationalization of the support structures would demand, taking this process to its logical conclusion. What was required was a truly autonomous institution which could act as a resource centre and an umbrella organization at the same time for different support services for entrepreneurs and enterprises. This idea of the umbrella organization would ensure total autonomy of the support services as well as coordination and communication at the policy level. It would in fact function as a think-tank for the government on matters related to the industrial sector.

A further development was the setting up of new centres and projects by the government in the periphery of the IEDC to deal with different aspects of industrial development. The Technology Park Project (TPP) was set up to promote software development and computer know-how in Nepal. It will be establishing an information technology park for both domestic and international firms to manufacture and programme computer software and hardware. Similarly, the Technology Transfer and Development Centre (TTDC) was set up to develop and disseminate appropriate technology as well as technical skills. Due to the absence of an umbrella organization, both these organizations were set up as autonomous bodies, with their own budgets, but under the direction of the Executive Director of the IEDC. The problem of coordination was self-evident and would have continued as long as IEDC was a board.

With these facts in mind, the Ministry of Industry and the IEDC initiated steps to present a bill in parliament which would provide for the establishment of the Industrial Enterprise Development Institute. The objective and rationale of the bill as presented in Parliament in November 1995 by the Hon. Minister for Industry, Mr. Dhundi Raj Shastri read as follows:

"With a view to achieving the all round economic progress of the nation through the medium of industrial development, it is imperative that the required entrepreneurship, quality management, technology transfer, technical information and technical human resources essential for the development infrastructure be provided to the entrepreneur from one location and such services should be increased and improved."

This Bill was passed by the House of Representatives in January 1996 and the National Assembly in June 1996. It was enacted after HM King Birendra Bir Bikram Shah granted royal assent on 4 November 1996.