Sujeev Shakya

Articles & Publications

What they said at CII

The timing of the Confederation of Indian Industry (CII) session on the eve of an election may have ushered a new era as far is acknowledging the role of business and commerce in Indian politics is concerned. Never before had such a jamboree of political leaders taken place in which they were expected to lay out their economic agendas before the captains of industry. Politicians have realised over the years that election manifestos have become a joke and that the influence of business houses is paramount. A hung parliament stares at the politicians and they look forward for the corporate world to bail them out.

The BJP leader Atal Bihari Vajpayee was impressive when he spoke at CII, but the other leaders were clearly uncomfortable in talking brass tacks before businessmen. It was clever of Vajpayee to have harped on the swadeshi plank, defined and adapted for the ears of Indian tycoons. At a time when lots of Indian business houses are succumbing to the onslaught of multinationals, they have found solace in the swadeshi slogan. What is clear is that while former Finance Minister Monmohan Singh has shouted himself hoarse in calling for liberalisation, the large pro-protection lobby of business houses has not gone away. And it is this lobby within the CII, breaking decorum to speak out last month, which might define how the reform process in India is going to unfold.

The coming five years shall determine whether or not India will become an economic superpower on the basis of its reforms, and how soon the government can get out of running business and industry. It is clear that reforms will not take place at the pace that Mr Singh generated these last five years. Since other economies in South Asia have keenly followed, and emulated, the Indian experiment with liberalisation in varying degrees, reforms in the other countries will also definitely slow down. Hence, can we see a South Asian deceleration, which will leave it as a whole even further behind the Chinese and the Asian tigers?

While referring to the CII meet, I must note with some chagrin that not one political party saw it necessary to focus on the regional economy —meaning South Asia´s economy as a whole. While India might have remained, and wants to remain, insular, market forces are bound to force it to look at economic relationships with Bangladesh, Sri Lanka, Nepal and—on a different plane—Pakistan. When the entire world is busy forming trade blocs, the delay in doing so in South Asia may be detrimental to the regional countries, although it is true that this insularity will affect the smaller economies like Bangladesh or Nepal than the larger two.

The bull run started by the FIIs on the eve of an election shows healthy signs as far as their trust in the Indian economy is concerned and reiterates the de-linking of politics, human rights and economic issues that is visible in the case of China. This clearly indicates that, slowly but definitely, economic agendas, and other ´non-political´ issues are having more of a role in the Indian politics than before. Perhaps the time will come when the politicos will also deign to look at neighbouring economies. Is the new government in Delhi listening?

Of hung parliaments and hanging reforms

First Nepal, then India and now likely Bangladesh—hung parliaments have become a South Asian phenomenon. Stable party governments are becoming rare as parties with different ideologies and values compromise to maintain their seats in power This, more than anything else, is affecting economic agendas the most.

In Nepal, the reforms that were initiated robustly by the Nepali Congress government under Girija Prasad Koirala slowed down when the communists came to power and now, under the present coalition, have completely lost direction. Liberalisation has become simply a buzzword for umpteenth seminars and conferences.

Equally robust were the reforms launched by Narasimha Rao in India but they began to lose steam in Mr Rao´s last year in office, presumably because of the approaching elections. With the United Front coalition in power the pace of reforms shall depend on how each partner of the Front chooses to define liberalisation. Though the state of West Bengal has opened up in the past few years even under leftist rule, it needs to be seen how the left parties in the United Front shall okay swift reforms at a national level. One thing, however, has become clear: no party can shy away from liberalisation although stances to the contrary might have been adopted while seeking votes. Even the BJP, with its Swadeshi rhetoric, had acknowledged this in its brief tenure in office.

In the case of Bangladesh, the little headway Khaleda Zia had made in opening up the economy in the post-Ershad era was stalled by two years of political turbulence and the drainage of resources in this year´s two elections. A hung parliament would lead to economic agendas being relegated to lesser priorities, hampering the process of reforms.

In a region that nurtured state control over most areas of production and provided subsidies on practically all basic necessities, policies that do away with state benevolence are never very popular. As Mr Rao´s term in office has shown, it needs a strong government, to confidently goad the economy to move, no matter what the cost. But when government is held hostage to the number game of coalition politics, reforms that come heavy on the electorate will certainly not be top priority. No party can risk alienating voters with the possibility of snap polls always lurking around the corner.

Sri Lanka, in spite of its internal problems, has been able to maintain the pace of reforms, leading it to be economically more developed than the other countries in the region. This leaves one wondering whether this process is being facilitated by a presidential form of government.

To wait for a time when reforms come about through businessmen becoming prime ministers may be a far cry, but the possibility of redefining democratic systems should not be ruled out. Hung parliaments should definitely not keep economic reforms hanging.

Surplus of Deficit

The common string that binds all ´South Asian economies is the ever-menacing problem of fiscal deficit. The region´s finance ministers always have a difficult time presenting deficit budgets, for they can only offer short term corrective action which do not really tackle the structural correctives that are required.

The gap between revenue and expenditure is ever -widening and is a matter of grave concern for every South Asian country. While inflation plagues all of them, the high deficit has curbed the growth of the Gross Domestic Product (GDP). The remedial measure of privatising industries to generate revenues has only been partially successful, and high government borrowings have raised regional interest rates to one of the highest in the world.

In a scenario where political dominance over economic issues prevails and hunger for power results in populist moves such as providing subsidies and sanctioning profligate feel-good schemes, the burden on the state exchequer is immense.

The fiscal deficit in the region has hovered around five and six percent, bringing down the GDP growth to below four percent. India, which generates 80 percent of South Asia´s GDP, has been raising the price of petroleum products. The purpose, which could be considered ridiculous, was to bridge the fiscal deficit gap. However, the move is will have a cascading effect on prices of all commodities. Inflation that has been kept at single digits for the past, few years may rise, leading to the vicious circle of higher interest rates, lower economic activities, higher deficits resulting in higher borrowing.

The way out may be a long drawn policy on encouragement of economic activities. Foreign Direct Investment (FDI) inflows in infrastructure are a necessity coupled with a transparent business environment that induces public accountability. FDI investment in developing countries is expanding at 10 percent per year, but the figure rests at a low 3 percent for the South Asian economies. The challenge is to increase the FDI-to-GDP ratio in these regions. Unlike other trade blocs, where intra-regional trade bails out nations with problems, this safety valve is not available to the economies of our region. Here, intra-regional trade is under five percent of the region´s trade, requiring the economies to have more of a global vision.

Fiscal discipline can be brought in by rationalising expenditure and simplifying revenue collection, administration and procedures. The parallel economies created in the countries of South Asian have helped sustain trade activities in Dubai or Singapore. The curtailment of flight of capital aided by plugging of revenue leakage shall contribute to narrowing the gap. While reforms are underway in the region, the speed of integration shall determine the destiny of these nations.

The opportunity of the yam

Nepal’s relationship with its northern neighbour, Tibet, was cemented when the Nepali princess Bhrikuti Devi married the king of Tibet, Songtsan Gampo, in the seventh century AD and earned the divine title White Tara. Thereafter, hundreds of Nepali artisans visited Tibet to build monasteries; and trade in bronze, gold and silver idols of Tara and other deities became one of the cornerstones of commerce between the two countries. For Nepal, Tibet was a more immediate entity than China, for thinking of distant Shanghai as a city with which to do business was farfetched.

During the mid-16th century, a treaty was signed between Nepal and Tibet that made Kathmandu the sole entrepot for the latter. In a fairly short timeframe, this allowed the ethnic Newar merchants of the Kathmandu Valley to build a roaring business with Tibet, trading with goods to and from India. However, defeat to a Chinese expedition force in 1792 changed Nepal’s fortunes till trade was restored in 1856, when Nepal invaded Tibet and forced the trade routes to re-open. The Newar merchants again began to set up businesses in Lhasa, where they could trade goods from India and other parts of the world for gold and silver.

Newly communist China invaded Tibet in 1950, the same year that Nepal’s first flirtation with democracy began after the end of the autocratic Rana regime and the reinstatement of the Shah kings. The relationship with Tibet quickly came under review, particularly in the context of an India that was at the time attempting to play a dominant role in Nepal, while King Mahendra attempted to play Nepal’s ‘equidistance’ card between India and China. Kathmandu subsequently agreed to Tibet being a part of China by substituting an ambassador in Lhasa with a consul-general. Nepal signed a comprehensive friendship treaty with China in 1960, and the following year construction began on a highway connecting Kathmandu with Lhasa, though this did not see commercial use for long. The 1962 India-China war changed the equation again, however, as India became increasingly concerned about Nepal’s position vis-à-vis China, leading to New Delhi’s agreement to a more flexible trade-and-transit treaty with Nepal. In turn, by 1964, Beijing agreed to unfreeze the bank accounts of Nepali traders in Lhasa, leading again to a resumption of trade relations between Lhasa and Kathmandu.

Yet over time, India’s role in Nepal’s geopolitical scheme remained dominant, despite Kathmandu’s attempts to prop up the Beijing relationship as a counterbalance. While China supported King Birendra’s Zone of Peace proposal for Nepal during the 1970s and 1980s, India saw it as an attempt by Nepal to wriggle out of its sphere of influence. India rejected the concept and Nepal itself dumped the proposal after democracy’s second coming, in 1990. India’s geopolitical supremacy vis-à-vis Nepal was thus confirmed, yet again. In 1989, the import of arms by Nepal from China without the knowledge of the Indians led to the imposition of a trade embargo by New Delhi. While this action sparked international condemnation of India, it did weaken King Birendra’s authoritarian power, giving way to a constitutional monarchy. In the democratic era after 1990, India continued in its privileged place in Kathmandu’s radarscope. The rush of Indian multinationals investing in Nepal further consolidated its position. It was only in 1994, after the Communist Party of Nepal (Unified Marxist-Leninist) won general elections that the relationship with China was revisited. The recent electoral success by the former Maoist rebels is a further extension of this, as the comrades just out of the jungle have sought rather desperately to woo Beijing.

As noted previously, however, Nepal’s relationship was long mostly with Tibet, not with China. Goods and services that were imported from or exported to mainland China always had to go through Calcutta, by sea to either Shanghai or Guangzhou. But Nepal was seen as a haven for Chinese goods by Indian customers, at least until India liberalised and reduced import duties during the early 1990s. Chinese goods would arrive in Kathmandu from Shanghai via Calcutta, and then be smuggled into India. This is the only explanation as to why, for instance, Nepal imported more than 25 million Chinese umbrellas every year during the late 1980s, at a time when the country’s total population was less than 22 million.

These Chinese goods found their way to India via many of the border towns of Nepal. But an especially large centre emerged in Dhulabari, in eastern Nepal, just seven kilometres from the Indian border. These items were bought largely by Tibetan businesspeople, to be sold in Darjeeling and Kalimpong, as well as in a full-fledged grey market in Siliguri, from an area popularly known as the Hongkong Market. One always used to wonder about the fact that, apart from raising their collective voice every year on 10 March (the annual Uprising Day, commemorating the attempt to evict the newly arrived Chinese soldiers from the plateau), these Tibetan traders seemed happy enough to make a good living trading Chinese goods.

During the modern era, Tibet and the Tibetan people have been the only issues about which both the Nepali and Chinese state seem jointly concerned. Whenever the Kathmandu government felt the need to appease its Chinese counterpart, it would simply ensure that it curtailed the activities of ‘Free Tibet activists’ from among the roughly 25,000 Tibetans living in Nepal. This would take the form of, for instance, the royal regime shutting down the Dalai Lama’s representatives’ office or, most recently, the Maoist-led government trying its best to ensure that no Tibetan protestors showed up in front of the Chinese embassy during the days surrounding Uprising Day in March.

For Nepal, the show of proximity and friendship to China came to be judged by the extent to which it went to curtail the movement of Tibetans within Nepal, and the nationalist way in which the ‘One China’ policy was supported, almost by rote. With the West taking the Tibet issue as something of a boutique cause associated with Nepal, there has never been a dearth of Tibetan sympathisers, from the diplomatic community to the legions of tourists visiting the country, many of them using Kathmandu as an entry point to Lhasa. To this day, US senators write sporadically to protest the Kathmandu government’s actions in interdicting and accosting Tibetans. To Kathmandu’s dismay, continuous streams of ‘pilgrim-refugees’ continue to flee across the high passes into Nepal, en route to Dharamsala in India.

Anchoring the axis
Nepal’s unifying figure, Prithvi Narayan Shah, famously referred to the new state of Nepal as “a yam between two boulders”. He was mostly pointing to the danger of being crushed between two empires; but in the modern day, with evolving transport and easier access, there are vast opportunities as well. With the emergence of China and India as potential leaders of the next global economic order, and as international economic visioning slowly shifts to the Bombay-Shanghai axis, Nepal is suddenly in an ideal position to take advantage of the emerging reality.

The situation has certainly changed quickly. While Kathmandu still believes that it should play the China card every time it engages in deal-making with India, the reality is that Beijing and New Delhi have closer ties than ever before – working together on myriad economic issues, and leaving only a few border issues to be sorted out later. With Indian companies now manufacturing goods in China for the Indian market, and Chinese companies beginning to set up companies in India for the global market, Nepal stands the chance of soon losing its relevance. Gone are the days of smuggling through the Nepali Tarai, with Chinese goods now being directly redistributed in Indian markets after they arrives in port at Calcutta. While Tibetan traders still peddle Chinese goods in Kalimpong and Darjeeling, these have been imported by Indian traders in Siliguri.

At the same time, new opportunities could well arise as China and India squeeze closer together. Nepal is now faced with the possibility of engaging in some longer-term, not to mention strategic, thinking in terms of gaining from the increased business activity between India and China, and legitimately benefiting from the same. The rail link from Beijing to Lhasa via Golmud is currently slated to be extended to near Khasa, the border town 120 km northeast of Kathmandu. In turn, this could lead to an extension of that rail-and-road link to the Indian border town of Raxaul, only another 200 km. Nepal’s strategic location as a transit link could subsequently be augmented by industries that would take advantage of the location. There would be income from links and through-transit. Indeed, a compelling business opportunity exists merely in transferring containers from trucks coming from China – which are left-hand-drive – to those coming from India, which are right-hand. To be sure, there are also many north-south road tracks being pushed through right now between the northern rimlands of Nepal and the midhills. These are bound to grow as commerce grows, taking advantage of the China trade as well as the natural bounty of the Tibetan plateau as it comes up for exploitation.

As Nepal goes forward, tourism also holds a potent opportunity for leverage. With more than four million tourists (though the number dropped dramatically after the protests on the plateau last March) now visiting Tibet annually (many of them from Mainland China), Kathmandu’s Tourism Ministry has to find ways to get a fraction of them to come south of the border. In this, building a good transit road (and allowing for a slightly more relaxed visa regime by the Chinese authorities) could well facilitate young Chinese and Tibetans to drive to enjoy Nepal’s unique tourism and entertainment offerings, including new ones yet to be established. If a million Chinese citizens go to Macau for gaming and entertainment every single day, then a small fraction could certainly be lured into world-class centres in Nepal, too.

Similarly, two of the holiest places for Hindus and Buddhists anywhere in the world are found in Tibet, with both Mansarovar Lake and Mount Kailash being must-visit pilgrimages for many. Nepal has already being a transit point for Indian tourists visiting this lake, though the country has yet to figure out how to take a slice of revenue from this tour. The Indians come via Indian airlines and transit from Khasa in Chinese vehicles, thus leaving Nepalis with only a bit of the money spent on a few nights’ worth of hotels, as well as the commission that Chinese tour companies provide. This is only a small example of Nepal being unable to charge a proper price for the vast offerings it has.

In the future, Nepal needs to focus intently on the two T’s – transit and tourism. In doing so, it will vastly increase its ability to bridge between the nearly two and a half billion people of India and China. This would certainly be preferable to the rote rendition of traditional political equidistance voiced by every Nepali prime minister on a visit to Beijing. Nepal needs to view its two massive neighbours not from the perspective of their geopolitics, but rather through the lens of economics. The starting point could be the forming of a China-India Economic Council in Nepal, which could not only look at Nepal’s economic position linking these two countries, but could also be a serious institution that could do much to anchor the Bombay-Shanghai axis. Critical economic strategy and research alike could flow from such an institution, which could hold out the possibility of not only redefining the next global economic order, but also of finding and rooting Nepal’s place in that new paradigm.

Beed@ 10

When I quit my job as Group President of Tara Management and Bhote Koshi Power Company after spending twenty years with the group, I did so to follow my inner call—to establish a management consulting and financial advisory firm that would extend its operations beyond Nepal. The firm was envisioned as a platform that would help Nepalis redefine themselves and their nation and be a catalyst for the positive transformation of individuals and organizations.

Ten years after it was first established, beed has remained faithful to its pioneering vision. Over the past decade, beed has served over 120 clients across multiple sectors and economies and positioned itself as the go-to institution when people run out of ideas or are eager to start a novel venture. beed has consistently been able to attract young Nepali talent who have joined the firm as interns, fellows, consultants and full-time beeds. Over the years, we have built a unique organization that expertly navigates between different segments of the corporate, government and development sectors.

Our ability to stay ahead of the curve has been our biggest strength. We began the discourse on doing business in federal Nepal in 2012 when it was uncertain whether the new constitution would even adopt a federal structure. We advised clients on sustainable eco-tourism resorts when people in Nepal were still figuring out what eco-tourism meant. We latched on to regional connectivity issues and started the discourse on the Bangladesh, Bhutan, India and Nepal (BBIN) Motor Vehicle Agreement when the government itself was unsure about the agreement it had signed.  All the while, our ability to foresee what was coming next and prepare for what was coming helped us thrive in an ever-changing environment.

In building a work culture, we got the basics right: respecting people as individuals and scrapping hierarchy, shunning dogma and embracing innovation, giving everyone a voice to contribute to the discourse, fostering networks and emphasizing continuous learning and sharing. At beed, we have always executed in teams and celebrated in teams. Adaptability has been our biggest mantra as we have traversed diverse geographies, cultures and natures of work. Today, beeds can as easily engage in dialogue with villagers in remote parts of Nepal as they can deliver presentations in global cities.

For me, the biggest joy of the journey has been engaging in a mutual learning process with the people who have worked at beed over the years. The people who joined beed, did so not because they wanted to build a fortune or a lifestyle on par with that of bankers or development professionals, but because they want to build a future. Today, when I travel around the world, I have the pleasure of interacting with former beeds who now work at some of the world’s best companies. In Nepal, former beeds are at helm of innovative work and many have become entrepreneurs in their own right.

As we look forward to the next ten years, especially at 2030 when Nepal will be a USD 100 billion economy, we cannot help but see more opportunities. We look forward to pushing our boundaries while staying true to our core values of integrity, professionalism and world-class delivery. We will strive to continue to attract the best talent and contribute to the learning and development of young professionals in Nepal and beyond. We will ensure beed continues to positively influence our own lives and those of others. The positive transformation business has inelastic demand, the latent demand is for us to excel.

Digital Detox: Exploring Mindfulness and Awareness

Gadgets have taken over our lives. E-habits have become so entrenched into our day to day lives, that people are known to face withdrawal and distress on being cut off from gadgets and internet.  Personally I was keen to figure out a way to get Digitally Detoxed and spend time without gadgets. Challenging myself, I then committed to a ten day meditation retreat with this intent.

THE DEMANDING SCHEDULE
The retreat I opted for was a rare one that combined meditation along with being ordained as a monk. It was organized on the occasion of the 78th birthday; or 1000 moons of the venerable Jnanapurnika Mahasthavira. Apart from the digital detox, I was also keen to be a part of this retreat as I have been exploring the theme of Buddha as a Coach, in search of mindfulness, awareness and presence.

The schedule of the retreat was demanding; with days beginning at 4am at the sound of a ringing bell, followed by thirty minutes of getting ready and into our robes. Accommodation and bathrooms were shared and cleaned communally among the attendees. At 4:30am, we had to show up for a walking meditation, and then from 5am the schedule alternated between walking meditation and sitting mediation every hour till we retired at 10pm. Two meals were served in a day, one at 6am and the other at 11am; as under one of the disciplines one should refrain from eating after noon.

There were no gadgets and nothing to read or write as the point of the retreat was to ensure that the mind does not wander. All in all, we were to do nothing; an extremely difficult task for a mind that is used to doing so much is suddenly asked to do nothing. Even the eyes were not allowed to wander and we were to keep visual contact within three feet. Meanwhile eyes needed to be half closed; very much like the images of Buddha, and we were to keep silent, and not even talk to each other. From day three onwards, we were allowed to speak while sharing our experiences with the teacher.

FAMILY IS WHAT YOU ARE FOR
Whenever I have traveled in the past, digital communication platforms have ensured that I have been able to keep in touch with my family on a perennial basis, be it through phones or messages on social media platforms. During the retreat, I did not miss work, gadgets or talking, but I did miss my family a lot despite being just over a kilometer away from home.

Many questions rolled over my head as I emerged out of the retreat. I longed to see my family and be with them. On the penultimate day, when the vow of silence was broken and I could just see them, I realized that I had never felt happier in life. It is these little things that drive us and perhaps not the big ones I thought that are important in life. This moment made me realize my priorities and the importance of other little things that we often take for granted.

BUILDING AWARENESS
In books on the subject mediation is described as an experience where you walk while you walk, eat while you eat and sleep while you sleep. On that note, this retreat helped emphasize how we are often completely unaware of what we do, and how we do it. One of the key takeaways for me was to be aware of every moment that we are living- from the time you open your eyes in the morning to the time you shut your eyes at night. We do hundreds of mundane tasks every day, and we just need to be aware of what we do. And ultimately everything that we do, hear or see helps to build our awareness, whether it is the noise we make while eating, the noise our slippers make while walking or the way we react to other people snoring. That is simply the meditative practice we need to build; simple sounding, but so tough to execute.

MORAL COMPASS
At the graduation Chyoki Nyima Rinpoche; meditation master and renowned Buddhist teacher, spoke on how following five basic precepts; i.e. to abstain from harming living beings, take what is not given, sexual misconduct, lying or gossip and intoxication, laid down by Buddha can make the world a different place. If those five percepts are followed:

· There will be no war; there will be peace.
· There will be no greed; there will be gratitude and satisfaction.
· There will be no need to  discuss the impact of Climate Change as people will be doing less harm to nature and learning to be content.

With unprecedented advancement in technology the interconnected world forces us to engage constantly through some medium or the other; more than we ever have in the past. Just being aware of our deeds, our wants, our greed and being able to distinguish what is necessary and what is not makes a world of difference in our individual lives.

High hopes for Nepal derailed by 2020

There was still a glimmer of hope for Nepal’s political transformation in 2019. But COVID-19 and political turmoil have since engulfed the country, derailing high hopes for 2020.

The rift between the two chairmen of the ruling Nepal Communist Party (NCP) — Prime Minister KP Sharma Oli and former prime minister Pushpa Kamal Dahal — was visible from the end of 2019 and only widened in 2020. Different factions aligned to the two leaders have impaired the functioning of government. The Prime Minister worked with President Bidya Devi Bhandari to hold onto power. After their attempts failed, the Prime Minister and President colluded to dissolve parliament on 2 July 2020. This move split the NCP and plunged the country into uncertainty as the legal wrangling, street protests and infighting between rivals took over provincial and local governments.

The embattled government could not efficiently enforce its lockdown to control the COVID-19 pandemic. When it lifted the lockdown, it could not regulate businesses or transportation effectively, leading to a spike in infections and deaths. Nepal’s response to the pandemic was poor. Citizens initially followed the lockdown and other rules. Leaders then started to flout the rules and Prime Minister Oli dismissed the issue as mere flu, causing people to take the pandemic lightly. Social, religious and political events became super-spreaders in Nepal.

The pandemic provided an opportunity for the government to hide corruption. A movement started by youth activists against political corruption forced the administration to listen. The estimated US$2 billion spent during the pandemic provided opportunities for graft. As the world prepares to roll out vaccines in 2021, meetings within government began to determine the recipients of the most lucrative contracts. Former finance minister Yubaraj Khatiwada performed below expectations and became unpopular when he imposed taxes on imports of books and electric vehicles. His subsequent appointment as ambassador to the United States was controversial, prompting questions about his continuation in government as a reward for his loyalty.

The economy did not plummet as expected during the pandemic. Remittances and cash from graft kept the economy afloat. Consumption did not fall because Nepal imported more foodstuff and sales of vehicles did not plummet. Tourism took a hit, but with 60 per cent of tourism revenue dependent on domestic tourism, it will slowly return to normal.

Nepal’s relationship with India plummeted to a historic low as the Prime Minister took his tried-and-tested India-bashing nationalism and released a new map challenging borders with India. It was only in November that the Indian Foreign Secretary visited Nepal. The Nepali Foreign Minister is now set to visit India in mid-January. After the dissolution of parliament, India seemed to support Prime Minister Oli, while China flew in a vice minister to see if the party split could be averted. The year also marked a souring of Nepal’s relationship with the United States. Nepal reversed course on the US$500 million grant signed with Millennium Challenge Corporation (MCC).

As elsewhere in the world, 2020 for Nepal was a year of digitisation and globalisation. The lockdown drove much needed adoption of and innovation in local digital technologies — e-commerce, digital payments and content management. The appointment of Maha Prasad Adhikari to head the central bank, having previously served as CEO of the Investment Board of Nepal, marked a fresh push to financial inclusion and financial digitisation, and encouraged institutions and firms to modernise and innovate. Global social media platforms further entered Nepali households, providing opportunities for Nepalis to globally showcase the nation’s beautiful nature, living heritage and culinary diversity. A Nepali chef making it to the final rounds of MasterChef UK provided an international outlet for globalising Nepali cuisine. The announcement of Mount Everest’s increased height also provided the country some positive publicity.

The bottom-up digital transformation of the economy may eventually make Nepal’s notorious cartels redundant in the long run and provide a boost to national development and investment. Similarly, the hope remains that increasing political activity among high-performing local leaders will reach a national mainstream audience and drive bottom-up national political change.

While elections at the federal and provincial level had been announced a year in advance for 2021, there is concern as to whether they will actually be held given Prime Minister Oli’s move towards authoritarian control of the state. The hope in the new year is for things not to slip in that direction further

Political manoeuvres compromise Nepal’s COVID-19 response

The Nepali government did little to combat COVID-19 when its first case was confirmed on 13 January 2020, viewing it at the time as an isolated problem in China rather than a looming global public health crisis. Nepal was prompted into action only after Europe was hit, followed by the United States. Nepal implemented nationwide lockdowns on 24 March, and further measures were taken following neighbouring India’s response. The COVID-19 pandemic has heightened political tensions both domestically and with India, compromising the effectiveness of the public health response to help combat the virus in Nepal.

Nepal initially responded by suspending incoming international flights on 22 March. But the porous open border with India enabled people to undertake risky border crossings by bribing border police. The Indian government’s apparent lack of sympathy for migrant workers amid the health crisis caused complete chaos and led to the mass movement of migrant workers. With many trying to return home, it increased the risks of an uncontrolled and untraceable spread of COVID-19. These workers felt that it would be better to return to Nepal rather than stay in a city under lockdown without work where they would never be prioritised for healthcare if they got infected.

Political tensions have risen between India and Nepal over the inauguration of India’s Himalayan link road that traverses disputed territory claimed by both countries. Increased geopolitical tensions amid a pandemic could compromise public health responses and access to required medical supplies and equipment. The humanitarian crisis at the India–Nepal border dominated social media news but the Nepali federal government has kept quiet amid the growing tensions with India.

The pandemic has also infected Nepal’s domestic political stability by exacerbating divisions in the government. Nepal’s Prime Minister Khadga Prasad Sharma Oli was in frail health after a second kidney transplant in March this year that left him largely incapacitated. Deputy Prime Minister and Minister for Defence Ishwar Pokhrel was instead entrusted to handle the COVID-19 response through a high-level Government Coordination Committee. But the government failed to provide a single point of coordinated effort as each minister acted on their own volition, with the effect being more ceremonial than impactful.

The procurement of testing kits and other medical supplies became highly controversial as the ruling party made sure to procure suppliers who were willing to contribute the party. Graft became pervasive at every step of the procurement process. The government even handed over parts of its civilian functions to the Nepalese Army in procuring supplies — a concerning politicisation of the military.

Despite his frail health, Prime Minister Oli has tried to portray an image of normality as he addresses the nation, but his credibility and popularity is waning. In his quest to ensure his own political survival amid intra-party squabbles, he announced ordinances that would purportedly risk splitting the ruling party and enable control over the appointment of people to the constitutional bodies, such as the anti-corruption body. But President Bidhya Devi Bhandari retracted these ordinances after facing much criticism.

Prime Minister Oli then trained his political guns on stirring nationalism to consolidate his weakening political position as he has often done in the past. He has taken on India over the inauguration of the Himalayan Link road to China through Nepal, alleging that its construction was undertaken without Nepal’s permission. The Chief of the Indian Army provided further ammunition for Oli when he characterised Nepal’s opposition as acting on the behest of external forces, pointing to China.

The media frenzy in India that portrayed Oli as China’s stooge provided him a powerful political veil to push his nationalist agenda. Oli’s nationalist push garnered the political support of the Nepali Congress in seeking to grant constitutional status to an updated map claiming the disputed territory of Kalapani as Nepal’s territory. Oli’s political manoeuvring is distracting the country from taking effective measures to combat the pandemic. It draws attention away from the inadequate testing, the absence of an economic recovery plan and the lack of general preparedness to handle the pandemic.

Having previously faced shutdowns during natural disasters like earthquakes and floods, Nepal can respond well to lockdowns and supply chain disruptions. Police effectively enforced the initial lockdown, but over time political agendas trumped the public health agenda and those with political ties could pay their way through the country during lockdown.

Quarantine and isolation facilities became grossly mismanaged and a few voluntary groups scrambled to provide basic food and water. Private hospitals blamed the government for failing to integrate private healthcare facilities. The Nepali private sector was busy figuring out rent-seeking opportunities in their cartel groups rather than cooperating with the government in overcoming this challenge.

The pandemic has shown that Nepal’s politics and government reflect the state of society. The border crisis became an opportunity to divert Nepal’s attention from the public health crisis towards politics instead. It reflects a blissful ignorance that discussing border maps will keep coronavirus troubles away.

Hope amid political, geopolitical and investment challenges in Nepal

When Nepal’s Prime Minister, KP Sharma Oli, finally made it to the World Economic Forum in Davos in January 2019, it seemed that the communist government was considering opening Nepal for foreign investment. The Nepal Investment Summit was held in March 2019 and a buzz arose in the international media as many foreign investors thought Nepal was now ready for investment.

But less than a month later, the government put agriculture on the restricted list for foreign investments. Then the government decided to increase the minimum threshold for foreign investments to US$500,000 at the behest of protectionist business cartels. The government refuses to upset its source of political funding — Nepalese businesspeople. By the end of 2019, the government had made many decisions that did not make economic sense, including the Central Bank restricting access to foreign exchange.

The cabinet reshuffle in November 2019 reaffirmed Oli’s dependence on funding from businesses cartels. He removed a well-regarded labour minister who pushed for reforms that impacted the businesses of employment agency cartels. And a businessperson, who allegedly paid to become a member of parliament, was appointed as a junior minister for industries.

Business folk popped champagne bottles open as libertarians mourned.

The year 2019 also exposed the working style of Oli, who asked his advisors to resign and then appointed a new set that included some of them. His allegedly coterie-driven aggressive leadership style is being discussed more and more openly. His health challenges preoccupy his life and the media extensively.

The former Maoist leader Pushpa Kamal Dahal continued to make his claim for a greater role in government. But with the potential for investigations into the killings during the 1996–2006 Maoist insurgency, Dahal’s challenges for power have faced resistance. By December 2019, the rift between Dahal and Oli was obvious and as a local Nepali news source reported, there are now two power centres.

Nepal’s President Bidhya Devi Bhandari, supposedly a symbolic head, has also been unexpectedly intervening in government matters including cabinet reshuffles. She has been criticised for her opulence and desire for entitlements — from the conversion of the open grounds of the Nepal Police Academy into part of the Office of the President, to ordering expensive personal helicopters and throttling traffic during her movements. She reminds people of the days of autocratic kings.

Nepal’s year in terms of foreign relations was marked by the historic visit of Chinese President Xi Jinping in October 2019. But keeping him in a hotel from arrival to departure marked how ill-prepared the Nepali side was. Token agreements were signed just to irritate India, rather than utilising the visit to discuss important projects for investment. It was like a visit from a favourite cousin with gifts.

India, a brother Nepal has to live with, continued to pose a challenge in 2019. The re-election of the Bharatiya Janata Party in India and the appointment of Subrahmanyam Jaishankar as foreign minister, who was the foreign secretary when India imposed a blockade against Nepal in September 2015, did not improve expectations. The term of the Eminent Persons Group formed between India and Nepal expired and its report is probably sitting in a recycling bin in the Indian Prime Minister’s Office.

In November 2019, India released a new map of its territory after the reorganisation of Kashmir that claimed part of Nepal’s territory as its own, evoking much criticism and public uproar. Indian intelligence and security agencies are still managing the bilateral relationship as the diplomatic missions of both countries are weak, so improvements to this relationship in 2020 look dim.

With the annihilation of the South Asian Association for Regional Cooperation (SAARC) complete and the Bangladesh, Bhutan, India, Nepal (BBIN) Initiative and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) not having the necessary steam to move forward beyond conference rooms, there are no regional platforms Nepal can rely upon to manage bilateral issues with India. Nepal’s relationship with the United States has also deteriorated as the current Nepali government continues making remarks on Venezuela and arresting US citizens who are allegedly Free Tibet activists. Nepal’s relationships with its development partners are limited to the theatrics of the Vice President Nanda Bahadur Pun attending embassy events as a mascot of goodwill.

Despite its political, geopolitical and investment policy challenges, Nepal’s resilient society keeps looking forward. The proliferation of power at local levels ensured good work in some municipalities despite many local governments being controlled by businesspeople known for resource extraction. More women entrepreneurs showed increasing will and empowerment. The joy of a big medal haul at the South Asian Games in December 2019 showed that the youth can perform without much support from government or society.

More start-up entrepreneurs emerged and Nepalis are traveling like never before, exploring their own country and beyond. Art, music, literature and other forms of creative voice remain strong. There are more young people returning after studies abroad and they are opening cafes and businesses supported by technology platforms and building a foundation that will help to unleash Nepal’s potential.

Nepal was the prosperous link state in the 16th and 17th century when China and India comprised 70 per cent of global GDP. With India and China again poised to lead the global economy by 2040, new opportunities will emerge for Nepal. In the long run, Nepal has the potential to overcome its short-term mess.

Flourishing ‘cartelpreneurship’

Political uncertainty is what most Nepali businesses love.

In the past couple of months, as political uncertainty moved from fights within parties to the courts, many decisions that government agencies have made have been exposed. These range from the procurement of vaccines to the building of infrastructure projects—to giving a free hand to the exploitation of natural resources. The latest one being the intent to force Nepalis to buy mobile phones in Nepal.

While cars have always been notoriously difficult to import individually, this is perhaps the first time something as ubiquitous as the cellphone has such entry barriers propped up. Many countries push for mobile phones to be manufactured or assembled within their boundaries as a step to make them cheaper to sell. But in Nepal, it is about protecting distributor cartels and giving them super-profits. This is not new in Nepal, as we have seen this sort of decision in the past; so, it is important to understand the linkages. Here are three things to ponder upon

Political uncertainty boosts business

There have been private studies that reveal the close nexus between politicians and business groups. Since the Rana regime, different business entities have benefited from aligning with political groups. These alignments also change. There are very few homegrown businesses that do not have their rise linked with politics, and at many times political uncertainty. In Unleashing Nepal, I dedicated a whole chapter to discussions of the business of ‘Conflictonomics’, where the perpetuation of the conflict benefited some interest groups. Similarly, the years between the 2006 and 2018 elections saw different business entities emerging riding on political uncertainty.

Since Parliament has been dissolved, there have been many interesting ordinances and regulations that have been brought in by the government be it relating to the Securities Board, Insurance Board or other business regulatory authorities. For a country that uses political uncertainty as an excuse to delay legitimate ventures, particularly relating to foreign direct investment, it is surprising to see how certain decisions are taken swiftly. Most bureaucrats will tell you that it came from the top. But why would they do something if there is no motivation of political appointment or financial incentives for them? Homegrown Nepali businesses do very well in working out solutions with bureaucrats during uncertain times.

Cartels thrive on connections

Many business associations are cartels under the veil of registration. Rajib Upadhyaya, a former World Bank official, in his book Cabals and Cartels, provides an account of how the cartels and the political cabals shaped Nepal’s current mess. The powerful cartels are now well represented in the government and the line between the political leader and the business leader are blurring. It is very rare, even in the case of folks leading super-cartels, that anyone is charged with allegations of graft—like in the recent vaccine purchase case or in different projects identified with political groups.

The fact is that the political parties have to depend on businesses to raise money to contest elections, which are getting more expensive to run. The easiest way to raise funds is to patronise groups in certain cartels that will raise money collectively in exchange for favours. It is no more surprising to hear of panels in different business and professional associations that are aligned to the political parties. Given that Nepali businesses mostly do not have to compete with international companies means they find this unique space very beneficial and would do little to change this arrangement.

Consumers bear the brunt

A study conducted by Nepal Economic Forum revealed that the cost of cartels to the GDP is 15 percent, which at current terms means around $4.5 billion a year! These range from people paying more for inefficient services to substandard goods. In Nepal, for instance, consumers are at mercy of suppliers of petroleum products and shortages are common. Transport cartels make transportation costs one of the highest in Asia. It is not only about high costs, but also about poor service. Even in banking, studies have shown collusion when it comes to fixing interest rates and service fees. Similar studies have shown collusive behaviour in private healthcare and education. However, with cartels being omnipresent, we talk about the vicious cycle where one member of another cartel does not mind the collusive behaviour as long as they also engaging in another similar scheme. I have continuously written about how apart from the production and sale of momos, it is hard not to find cartels.

The only hope that remains for Nepal is the young entrepreneurs who are competing globally with businesses find it worthwhile to fight this plague as the size of the Nepali economy increases. Further, when Nepali companies will be open to fighting competition outside their own country, perhaps they will be forced to fight the systemic challenges. Like in politics, we are waiting for the old men to leave the business stage. Perhaps it may be the same as the wait for the pall-bearers of cartels to step up.