Nepal – overcoming structural challenges

Following on from my previous article on the opportunities in Nepal, it is also important to address some of the wider structural challenges that may severely impede Nepal’s development and economic progress.

Some of the issues to consider will be:

  • Political reforms and stability – the ongoing political stalemate does not help either the local populace or international business sentiment. Long-range planning and investment decisions become virtually impossible. A quick resolution of the deadlock is required. 
  • Greater clarity on the rule of the law and resolution of regular labour/union strikes – A better balance needs to be found to addressing valid and legitimate labour concerns and the crippling strikes (or hartal) that take place which paralyse all business activities and operations. Widespread strikes do not provide any stability to businesses or visitors to the country. However, it is also important that a heavy handed approach is not taken to resolving the issue of strikes. A calibrated approach needs to be taken to ensure workers’ rights are taken into serious consideration but also allow for optimal business operations.
  • Enhanced governance and anti-corruption – Both of the above can only be addressed through taking on a robust governance approach – from government down to businesses to individuals. This is a wider problem across emerging economies (particularly in a South Asian subcontext) but if serious approaches can be taken to tackle them, some headway will be made. This will be critical for sustained growth and development prospects for the country.
  • Continued support to rural and agricultural development – Nepal still remains a largely agricultural nation. It is vital that farmers and rural areas are given complete assistance from the Nepal government and other international donors. Often, nations in their hasty eagerness towards development focus a disproportionate amount of resources towards the development of a commercial and industrial centre and tend to ignore the rural development. The protection of a nation’s food sources and breadbasket is a vital aspect of nation building which cannot be overlooked or underestimated.
  • A more open and liberal banking system – Currently, the Nepali banking system is not widely integrated into international banking systems. The use of credit cards are low and electronic payment facilities are also limited. To further support the export sector development, Nepal needs a greater liberalisation of the banking sector and financial markets to further support growth. Greater investor education is also required for a more efficient functioning of the existing capital markets too. Banks should also further support micro-financing initiatives and SME initiatives to further spur easier access to finance which will support greater innovation. SME focused growth always provides for a broad-based economic development and creates a more resilient and innovative economy.
  • Continued focus on education – Nepal should increase the level of GDP spend on education. This will include increasing the quality of schools (from primary level up to college (SSLC) levels). Increased investment is also required for the leading universities in the country (including Tribhuvan University, Kathmandu University and Pokhara University) and to support enhanced teaching and research faculties. There should also be a support for vocational and professional training to ensure better alignments of educational outcomes to the country’s developmental needs.
  • Improved redistribution of resources and income – Nepal has the worst levels of income inequality in South Asia (and amongst the highest in all of Asia – Hong Kong has the highest followed by Singapore). Nepal’s gini coefficient has increased from 31 to 47 over the last decade. The gini coefficient is a measure of income inequality across the country’s entire population. A value of zero suggests absolute equality and a score of 100 suggests absolute inequality. What this also means is that in Nepal, over 40 percent of income/consumption is held by the highest 10 percent of the population whilst the lowest 10 percent of the population only share 2.6 percent of income. This means that the growing economy of Nepal is not benefitting all of the country and much of the wealth is being concentrated at the very top. This is a problem faced by most emerging nations and one that needs to be tackled at policy and operational level. Over a long period, this will also lead to political and economic instability and the potential for class warfare becomes much more distinct. It is vital that the Nepali government, policy makers and international donors address this very critical issue. It is also something which the larger businesses should address – ensuring better equality will lead to greater stability of the business environment – it’s simply good business to have greater equality.
  • Infrastructure improvement – It is excellent to see that the roads are being widened, expressways being built and greater investment in information and communications technology. Nepal also needs to address the chronic electrical brownouts or outages and ensure better redistribution of hydro power being generated (Nepal has the potential to be the world’s largest producer of hydro power) to wider segments of the country. Ongoing commitment to infrastructure commitment will be crucial to support future growth.
  • Renewed focus on environmental and social protection – It is vital that amidst all of the industrial and commercial developments that Nepal does not take an eye off the impacts on the environment. With the large investments in hydroelectric power stations, there will always be a temptation to close an eye to the environmental degradation and pollution, but the impacts will be significant, if not immediately then over a longer time frame. Progress today is worthless if future generations do not have clean water, fresh air and a healthy environment.
  • Prevent a housing bubble – With rapid developments, most emerging economies go through a period of a sharp upward creep of property and housing prices. It is critical that the Nepal government and relevant authorities ensure that this is tackled swiftly. Housing booms lead to bubbles and as most children can attest – all bubbles burst! There are some instructive experiences from Vietnam, Iceland and other emerging economies and if nothing else, it is important we learn through the painful experiences of others. Housing and property booms do not contribute to the economic growth of a nation. They are depreciating asset classes which do not produce or contribute to a nation’s growth contrary to popular beliefs and expectations. Affordable housing has to remain at the core of nation building and the moment it becomes too expensive for the locals to afford a home in their own lands, it leads to painful corrections.

The above are some of my own personal thoughts on the various structural challenges facing Nepal based on my own limited experiences in the country. Nepal has reaffirmed her commitment to the Millennium Development Goals and this is highly laudable. The commitment must not only be in the form of agreement at international meetings and forums but also in the form of concrete developments and actions on the ground.

Nepal – reflections on opportunities

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Having just returned from Kathmandu, I realise that it is one of the few places in the world where there is a direct inverse correlation between the temperature of the environment and the warmth of the people. The colder it gets, the warmer the people!

The purpose of this is to share some personal thoughts on how Nepal could further develop its economy and deliver on its vast potential. It is not intended to give an economic analysis of Nepal’s development, but for robust information in that area, the following link will be a good place to start: http://www.adb.org/countries/nepal/economy  

Specific areas for development

  • Improvements in airport infrastructure and management (in brief: outsource to external private contractors)

The airport management system at Nepal currently is not optimal nor ideal to support increased volumes of tourist arrivals. The immigration queues are normally snaking through the entry doors and it takes an excessively long time for individuals to clear the airport customs. Airports tend to provide the first view to a new tourist and shape one’s own perceptions of a country. First impressions tend to be lasting ones.

Airport infrastructure improvements are extremely financially incentive affairs and governments often find it difficult to raise necessary capital and finances to support the required improvements. However, one possibility the Nepal government can consider is to outsource the management of the airport, immigration and customs duties to an independent private company and impose on them strict Service Level Agreements (SLAs).  This is widely practiced in countries such as Singapore where SATS (Singapore Airport Terminal Systems) Pte Ltd is the private contractor who manages the Changi Airports. This has led to better efficiencies and also improved the customer/passenger experience.

An improved airport management system will certainly encourage repeat tourists and business visitors owing to the ease of travel and entry/exit into Nepal. It also will lead to better clarity on immigration and customs procedures and systems (something that is not clearly available at the moment).

  • External tourist agency for Nepal in select countries (in brief: Nepal as a centre for tourism. Regional/international tourism centres established by  the Nepal government. Tie-ups with regional airlines serving Nepal airport. Consider new potential markets like the Middle East and South America aside from traditional visitor markets in South Asia, Europe, Australia and South East Asia). 

Nepal should also consider establishing tourism centres in a number of targeted countries to encourage tourist arrival numbers. The impact of a tourism centre in increasing the number of a visitors from a particular country cannot be underestimated.

This will require a significant investment on Nepal’s part, but with the increased tourism dollars as a result of these investments, we can be reasonably certain that there will be a significant returns on investment (with a relatively short payback period).

Nepal should also consider working with airlines serving Nepal (particularly regional ones like Silkair, Thai Airways and Qatar Airways) to promote Nepal as a centre for tourism destination and to set up joint country promotions. This will have an impact in increasing passenger volume for both the airlines and also Nepal.

In addition to the traditional markets of South Asia, South East Asia, Europe and Australia, Nepal should also perhaps consider new markets like the Middle East (where Nepal can be an attractive and relatively nearby destination during their sweltering, hot summer seasons) , South America (where the allure of the mountains of Nepal can prove to be an intoxicating difference) and Africa (particular the rising middle-class in Africa who seek to explore new places aside from the traditional European/American destinations).

  • Burgeoning MICE (Meetings, Incentives, Conferences, exhibitions) potential for Nepal (in brief: Nepal could be a choice location conferences, regional corporate meetings, exhibitions, staff retreats etc for most Asian countries)

Nepal’s geographical proximity to a wide number of countries (from Europe to Asia) and her natural advantages (beauty of surroundings, weather) and relative low costs could result in Nepal being a primary MICE location. Plenty of large corporate companies could host their regional meetings, staff retreats and conferences and exhibitions in Nepal.

Obviously this will necessitate investment in other areas including infrastructure (roads, stable electricity, etc), facilities (meeting halls, sufficient business grade hotels, etc) and training of local staff to accommodate the needs that come along with MICE.

  • Nepal as the medical destination of choice (in brief: Nepal could be a key medical hub for Asia and Europe and has natural advantages which can facilitate this development including great weather, relative low-cost and a generally spiritual environment conducive for healing)

Nepal has plenty of natural advantages that could potentially establish it as a key medical hub for medical visitors from Europe, the Middle East and Asia. There are already plenty of regional students pursuing their medical degrees (MBBS) in Nepal. If investment is made by a private medical health group and encourage some key physicians and medical experts to be based in Nepal at different times in the year, there is a real possibility of Nepal becoming a choice destination for individuals seeking medical treatment. Currently, Asian and European individuals go to Singapore, Thailand, India and Cuba (which has an excellent medical system). Nepal could also join the ranks of these nations.

Furthermore, Nepal also has a calming and enriching spiritual environment which is critical for healing. Emotional fulfillment is critical to physical recuperation.

  • Promotion of Nepal as an ecotourism destination and perfect location for movie/film shoots. 

Nepal has significant potential to be a key ecotourism hub. Nepal needs to ensure that in the wake of various industrial developments (particularly in the energy sector) that it does not neglect her own environmental obligations and protection of its rich biodiversity.

Nepal’s scenery and settings could also be a prime film shooting location for Bollywood and even Hollywood films!

The above are some suggested developmental opportunities for Nepal. A nation that has gone through significant changes in a relatively short span of time. However, it is a nation that has kept its heart and where people remain fundamentally passionate about the causes that matter the most for them and their loved ones. If this passion is retained, then I am in no doubt that the good times will be back soon!