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.