Thursday, May 22, 2014

Can Nepal unlock its potential?

The 10-year insurgency that had claimed over 13,000 lives came to an end with the United Communist Party of Nepal (Maoist) (UCPN) joining mainstream democratic parties. Nepal was declared a federal democratic republic in May 2008 after elections to the Constituent Assembly, and the Shah dynasty came to an end in June when the last ruler, King Gyanendra, vacated the palace and his position without resistance.

The process of writing a constitution began after the election for the Constituent Assembly (CA). The drafting process was extended on three occasions, adding two years to the deadline to finalise the document, but the 601-member CA engaged mostly in intra- and inter-party fighting and failed to write a constitution. As a result, the assembly was dissolved on 28 May 2012. An interim government of retired bureaucrats led by the chief justice was formed in March 2013 to hold yet another election for the CA.

The election, though boycotted by a splinter Maoist group, was conducted peacefully on 19 November 2013. Whereas the earlier assembly had the UCPN as the leading party, the current CA has the Nepali Congress in the lead with the Communist Party of Nepal (United Marxist–Leninist) in second place and the UCPN in distant third. After three months of wrangling, Sushil Koirala was named the Prime Minister. He leads a Nepali Congress and UML coalition that has seen yet more internal squabbles, questioning the likelihood of delivering a new constitution within a year’s time.

Since 1950, when the 102 years of autocratic Rana rule ended and the Shah kings took power back from the Rana prime ministers, political uncertainty has been the only constant in Nepal. More than 40 prime ministers have served in 60 years, with no-one serving a full term.

For a long time, Nepal’s isolated lands were ruled from Kathmandu, which was synonymous with the whole country. Kathmandu was where most national budgets were spent and opportunities existed.

After 1990, when reforms were initiated, more parts of the country were connected by roads and markets developed. However, with the advent of modern communications in form of mobile telephones, the internet and radio, people began to realise that progress could be made in spite of political uncertainty. And with more than US$5 billion entering Nepal each year in remittances from Nepalis working abroad (making up nearly 25 per cent of GDP), growth in household income did not necessarily rest upon political certainty.

Nepal has been dependent on remittances for centuries, be it from people in foreign armies or, now, people working in Gulf countries and Southeast Asia. Poor labour conditions and the fatalist mindset that nothing happens in Nepal have caused many workers to seek opportunities abroad. And with more educated youth leaving in search of further education and work opportunities outside Nepal, the diaspora continues to inject cash into the system.

But Nepal’s economic development has a long way to go. ‘Development’ (bikas in Nepali) has always been thought of as a business propagated by the developed world. The signs of development began to be equated with expatriates and Nepalis working in development agencies living in nice houses, driving fancy SUVs, dining at good restaurants and clocking airline miles.

To date, the report, conference and workshop-oriented development discourse in Nepal has seen only a fraction of development assistance reach people in need. While a few initiatives have helped Nepal’s economic growth, there are many stories of failed interventions and projects. Modern toilets were built without thinking about who would pay for the water to flush them; vehicles were provided without asking who would pay for the fuel and maintenance to keep them going.

But the most unfortunate part of Nepal’s economic growth story has been the private sector. It has proven incapable of undertaking pressing reforms. With focus being on taking advantage of arbitrage opportunities, the private sector is static and inward looking, not and does not intend to spread its wings outside Nepal or to welcome foreign technology or international standards. Attempts to influence government policy for private interests through connections with political parties and leaders are common.

Despite this, Nepal has huge potential to move from an erstwhile fragile country to a frontier investment destination. A country of 30 million inhabitants, Nepal is surrounded by more than half a billion more people within a 500-mile radius. An open border with India and land links to China provide Nepal with a unique opportunity to ride on the growth of both these countries.

Nepal’s population, where more than 50 per cent are less than 25 years of age and more than seven million are in schools, provides a solid platform for a workforce that can shape the country’s economic future or work outside and bring back money to fuel economic growth. The hydropower potential of more than 50,000 MW gives Nepal the opportunity to make more money by exporting power than Saudi Arabia makes by exporting oil. Being home to Buddha’s birthplace and the majestic Himalayas, tourism can also be leveraged beyond imagination.

But political deadlock has always created impediments for Nepal. The same can be said of the country’s concentration on rent-seeking and selling an image of itself as a landlocked poor country in a sorry state. However, the critical issue lies in Nepalis not being able to think big, look at future opportunities on a long-term basis and take advantage of its assets, people and capabilities.

Sujeev Shakya is author of Unleashing Nepal (Penguin Books, 2013). He is founder and CEO of the management consulting and financial advisory firm Beed.


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