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Nepalonomics!

May 01, 2011

In Nepal today, when trying to book a hall for an event at a good hotel venue, one is almost inevitably told that the venue is unavailable – this, despite the fact that the prices for such spaces have tripled over the past half-decade. Indeed, more and more social functions seem to be taking place nowadays, with announcements for new venues filling the newspaper pages. More vehicles can also be seen plying the country’s roads, with even small towns now hosting competing two-wheeler dealers. Elsewhere, exposed rebar on new construction seems to have become the dominant contemporary Nepali architecture. One expatriate who recently moved from an African capital said he was amazed at the bounty available – not just in the aisles of department stores in Kathmandu, but in the small town of Itahari in eastern Nepal. At the same time, newspapers regularly report on the grim situation of the economy, with dire warnings of Nepal moving towards becoming a ‘failed state’.

The complexities of today’s Nepali economy are indeed bewildering. How can a country so rich in water resources reel under 16 hours of scheduled power cuts every day? How does a tourism-rich country receive the same number of tourists today as it did a decade ago, and that too with average spending per visitor declining? How has a country in which property prices in the capital have increased tenfold in the last ten years seen rentals only doubling in the same period? Answers to such questions are difficult to find as Nepal has lost out on opportunities as China and India grew, not only due to political instability but also due to the lack of leadership from the business community to take charge of the agenda of economic growth and development.

When we examine Nepal’s chequered political history of the past six decades – since Nepal opened up to the outside world – it becomes apparent that instability has been the country’s only constant. Following the restoration of democracy two decades ago, successive governments have been plagued with intra-party squabbles; as a result, these two decades have produced as many prime ministers and governments as number of years. The current political scenario pretty much resembles the Panchayat era – 30 years of partyless government chaired by the king – in which proximity to power resulted in economic benefits.

The short stints of governments have also resulted in greed taking top priority among politicians, thereby further squandering economic opportunities. Corruption has become rampant and decentralised, with money changing hands at all levels of government and politics. Political power has been equated with monetary gain, which every political party wants. Further, the debate against a market-oriented economy has also gained ground: politicians in power do not want to lose control over the markets and businesses, as the state budget and state-owned enterprises continue to provide lucrative opportunities to make money as well as employ relatives and cadres. Politicians thus continue to harp on an agenda of ‘distributive politics’, which provides them with money from state coffers to be distributed – without accountability.

Decentralisation of corruption
The image of Nepal’s private sector continues to be that of a bunch of capitalists ruling through the promotion of crony capitalism under the cover of nationalism. The fact that 14 well-known business people from large business groups in Nepal are represented in the Constituent Assembly through different political parties could be seen as reflecting a certain lack of ideological unity among the private sector; more to the point, it seems to highlight a desire to make inroads in business through political connections rather than by developing competencies.

Nepal’s businesspersons continue to focus on heading business organisations, chambers and associations, rather than prioritising the taking of their businesses to regional or international levels. The way the recent elections for the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) was conducted gave an impression similar to party elections, where various groups spend large amounts of money to woo voters and, eventually they also visit political party bosses for support, and become unruly during vote counting. The paradox is that the large private-sector organisations which contribute significant taxes and run their operations professionally are not engaged in such organisational politics, while those that are so engaged typically do not feature on lists of major taxpayers and have not engaged professional management teams.

Unfortunately, sycophancy, working hand in glove with powerbrokers and the rent-seeking mindset of those in business, has led the private sector to lose the opportunity to lead Nepal’s economic agenda. During the late 1990s when India was reeling under political instability, that country’s private sector came together to decide upon the economic agenda, help the government draft the necessary legislation, and professionalise their own operations. Aside from anything else, a significant result has been fairytale growth rates.

The nexus of businesspeople doing politics and politicians doing business has made phrases such as corruption, nepotism, conflict of interest and governance hard to define. Recently, Finance Secretary Rameshwor Khanal resigned due to disagreements with the new Jhala Nath Khanal government’s stance over two issues: first, of pushing a supplementary budget that will give the Unified Communist Party of Nepal (Maoist) money to distribute under multiple plans, and second, over official reluctance to punish people who have been evading payment of value-added taxes (VATs) – the latter a serious crime. Khanal’s resignation evoked outrage among civil-society activists and others who want to change the way things are done in Nepali finance, but these voices have since largely died out.

While much of the international community shared concerns over Khanal’s resignation and what it indicated, Nepal’s business community was almost entirely silent on the issue. In the minds of the general public, this only reinforced the idea that the country’s businesspeople do not want reform, at least as far as corruption is concerned. Ultimately, it is the decentralisation of corruption – wherein most government positions are auctioned off, licenses for the exploitation of natural resources are liberally provided through non-transparent means, and legislation is tailored to the needs of the business community – that continues to provide the most significant challenge to Nepal’s economic progress. It is not that Nepal does not have the necessary legislation or institutions to deal with such issues, but the efficacy of the system poses massive impediments. For instance, the Commission for Investigation of Abuse of Authority (CIAA) is more powerful than the envisaged Lokpal in India and has been in place for nearly two decades, but that institution itself is plagued by controversy and allegations of corruption.

Over-developed
The advent of private media houses in Nepal, especially competing economics-focused newspapers, television channels and Internet portals, has made for far more emphasis being placed on breaking news, rather than analysis of what goes behind the news. The level of economic journalism is far from desirable and good economic journalists, especially with English skills, find lucrative jobs in development organizations, leaving novices to experiment in the media sector. This has certainly impacted on the business community, as well, which has developed a fondness for ‘media mention’ that leaves it more interested in getting company photographs in the newspapers than in the content that accompanies those photos. Such a situation recently led to a press conference for a proposal on a new international airport made by a company whose credentials few, if any, in the media appear to have checked out. In fact, the Korean company in question lists only one previous project on its website, and nothing at all about airport-related work.

Nepal’s economy has also been negatively affected due to the longstanding crowding of the development space by a plethora of multilaterals, bilaterals, INGOs and NGOs. Every year, thousands of reports are churned out that keep a huge population of development workers busy. The analysis and implementation of programmes related to economic growth is risky, so organisations tend to shy away from these, to focus instead on issues such as social inclusion, gender and empowerment. Seemingly, for every ten projects that promote social inclusion, gender and empowerment, just one focuses on enterprise development. With development work tending to command the best pay, perks and privileges in today’s Nepal, talent is attracted naturally to this sector – making it difficult to raise voices against donor apathy towards economic issues, private sector development and economic reforms.

Still, an economy that shares a permeable border with an open economy that is growing under a democratic government (to the south), alongside access to a fast-growing ‘command-capitalist’ economy (to the north), leaves lots of opportunities in the middle – hence, the boom. Since Nepal’s economy is still largely informal, and with remittances having dominated inflows for the past six decades, gross domestic product cannot be the right parameter by which to judge health or potential. Rather, the search for new parameters needs to continue.

With half of the population under 25, Nepal will continue to produce youths who will have to leave the country for labour, employment or education. While this process is regularly bemoaned, such a dynamic does bring in new skills, money and outlooks that have and will inevitably change the economy. For instance, restaurants were earlier influenced by foreign tourists and brought about a café culture targeted at European tourists. Today, interesting restaurants in Kathmandu and elsewhere are opened by returnees, who have brought with them skills and money to provide a variety of dining options for the emerging Nepali middle class. Similarly, social networks fuelled by the expansion of telecom networks are changing Nepali lifestyles, as fashion in the streets of Kathmandu, Pokhara or Dharan are increasingly determined by fads in Japan and television soaps from South Korea. The streets in rural towns too are transforming, as more and more transport and communication options reach them. Such collective transformations will determine the transformation of Nepal that will be written about only after it has happened – much like the transformation of India, and so many nation states of Africa.