December 23, 2014 Sujeev Shakya

Goodbye, 2014

At the beginning of 2014, Nepalis were at different levels of skepticism. After the second elections to the Constituent Assembly (CA) were successfully held on  November 19, 2013, politicians were back to what they did best—fighting for power. When Sushil Koirala was sworn in as prime minister, leading a wait-and-watch coalition of the Nepali Congress (NC) and CPN-UML, people again said, let’s see how many days he will last. We moved from one point of uncertainty to another, but 2014 passed peacefully.

Apart from the four days of state-sponsored closure for Indian PM Narendra Modi’s visit and the Saarc Summit, Kathmandu and many parts of the country stayed open. The number of flights increased, bringing in more tourists, which resulted in the opening of more new hotels. In the banking sector, some banks shut down and many merged to stay afloat. The government’s darling sector—cooperatives—saw an unprecedented number of fraud cases, embezzlement, and vanishing acts from promoters. The stock market recovered and the real estate sector witnessed a rise in transactions. Overall, the economy did better than in 2013.

Of Development, Private Sector

In 2014, the government also sought to tighten regulations on the development business. More bilaterals started to sub-contract development work to global consulting firms whose priority is making money rather than development. While Nepal has kept much-needed international accounting, legal and other consulting firms away in the name of protecting local ones, international consulting firms started to do more business under the garb of INGOs and other development agencies. The government, instead of  regulating them, decided to clamp down on the activities of many agencies that are also doing good work. More powerful local NGOs that do not mind flaunting their political affiliations started bagging bigger contracts and more funding through these development brokers. Attempts to regulate and make this sector more accountable remain a challenge.

The Nepali private sector got more fragmented this year than ever before, with the Federation of Nepalese Chamber of Commerce and Industries splitting internally and making the organisation an ineffective institution. More money was spent on winning elections to positions of power in private sector organizations, as the relationship between associations and politics came out in the open. Cartels had a field day, as water cartels blocked government supervisors from quality checks, gold cartels shut down businesses after being questioned for quality, and illegal quarry operators lined up trucks to block any government intention to regulate illegal exports of stone and sand. More people were added to the list of defaulters, who did not pay back bank loans, and people stopped noticing the naming and shaming advertisements that appear in newspapers.

India and the Economy  

One international event that had a major impact in Nepal in 2014 was the thumping victory of Narendra Modi in India. His speech addressing the CA members in Nepal changed many perceptions and the course of many Nepal-India matters. India, after many years, started to focus on bilateral economic issues, rather than getting engaged in petty politics. Nepali politicians seemed to realise that it was futile to make trips to Delhi. We will not see the Indian interest dwindling in 2015, but rather consolidating, which should be good for Nepal’s economic growth.

The new coalition in Nepal brought back Ram Sharan Mahat of the NC as finance minister. Mahat was responsible for unleashing the first wave of reforms in the 90s as finance minister. Despite serious opposition from the coalition partner UML, he has been able to drive home reform agendas for economic growth in conjunction with a new look of the National Planning Commission and a professional-minded Investment Board. However, in many areas, reforms still look distant. The Central Bank is drawing inspiration from erstwhile models where only state-owned banks existed and rolled back many reform-oriented regulations to give way to those seeking to control even perhaps what brand of tea people at private banks drink!

The New Year

The CA that promised to deliver a new constitution by January 22, 2015 will miss the deadline again, as the contentious issue of carving out states will not have been resolved. Even if the constitution is to be delivered in later months, there will be disgruntled elements that will oppose the statute. Right-wing Hindu fundamentalists will oppose secular Nepal and secular Nepalis will surely oppose anything that will bring about restrictions on conversion. Parties, and especially NGOs, that have survived on the agenda of ethnicity-based federalism will oppose a constitution that will not guarantee it. Conversely, there are groups that oppose federalism along ethnic lines. CA members are trying to find a utopian solution to a constitution that will please everyone. In politics, everyone knows this is not possible. If you try to please everyone, you will please no one!

While political issues surrounding the constitution will take centre stage, work on economic development could continue as the government is saddled with a fiscal surplus and excessive liquidity. Financial institutions are interested to invest in Nepal and some more projects should take off the ground as these initiatives reach financial closure.

The strengthening of the Modi government in India in 2015 will continue to help Nepal as the bilateral relationship will move towards harnessing common economic goals for the people in the border areas, rather than playing political games in the Capital.

The key issue for 2015, however, will hinge on whether economic reforms will continue. Nepal’s need to spend $4-5 billion on infrastructure annually can only happen if international investors feel welcome and safe here. The way political parties have allowed their local politicians go all out in demanding shares in erstwhile power projects and interrupting projects under construction, all political parties will have to endure an acid test on their commitment to development and growth. 2015 will be a year to really prove that they really mean business and remove the label of troublemakers.

If 2014 has been a year of surprising calm and progress for Nepal, 2015 can be a game changer.

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