Economic Development the Nepali Way

Prof. Douglas Allen was a professor of philosophy, a peace activist and a renowned scholar on Gandhi. I was not his student, but we both shared the common interests; peace and prosperity of a billion plus in South Asia. Once at a friendly coffee talk, he asked me if Nepal had anything like a “brand recognition” that identifies a country; such as software to India and micro-finance (Prof. Yunus) to Bangladesh. I was tempted to say Mt. Everest and Buddha, but thought they were either nature given or an ancient phenomenon, so simply said “No”.  Our rich cultural history is not a mystery and so are the occasional political gimmicks on the paths to prosperity from natural resources, such as exporting electricity to India and becoming a prosperous nation, when people face more than 12 hours of black outs every day. Throughout my studies at Vanderbilt, questions like his always haunted me as I was trying to understand the trajectory of economic development in Nepal.

Paths to economic growth can be unique to nations, yet there are some basic ingredients that are common to all; such as investment and human- social capitals. Resource endowments may provide comparative advantage in some cases, but is not the basic ingredient for growth. In Nepal though, natural resource endowments provide prospects for both short and long term economic growth. Tourism, energy, agriculture and in some extent mining sector, though it is in incipient stage, can fuel the economic growth engine of Nepal. There is also a possibility of harnessing population dividend where majority (56 %) of people is from 15-59 years old (Nepal Census, 2011). Lack of proper education, training and skills may deter to fully exploit the potential of population dividend. This population group, however, has become the major source of remittances in recent years. World Bank estimates show Nepal as the sixth largest recipient of remittances ($3.5 billion) as the percentage of its GDP (23%) in 2011 alone and the number is only going to increase in future. We can argue for both the pros and cons of labor migration and the narratives of brain drain, yet it does seem to have positive impacts in terms of credit creation, liquidity and foreign currency reserves in Nepal.

From the tourism perspectives, Nepal is destined to be one of the best tourism spots of the world. It has comparative advantages both from the resource as well as cultural endowments. High hills, Himalayas and current water systems favor adventure tourism, which attracts people from all over the world. Cultural endowments such as Pashupatinath and Lumbini favor religious tourism. Nepal being the epicenter of both Hinduism and Buddhism can draw hundreds of thousands of religious tourists both from South Asia and South East Asia. In Nepali context, tourism is a minimal investment industry. World Tourism Organization estimates total direct contribution of tourism to be more than a billion dollar by 2022 and creating 1.3 million jobs. Provided political stability, this number can be significantly increased making tourism as the major source of national income and employment. With Indian and Chinese seeing big increase in their purchasing power, millions more of them will travel for both adventures and religious purposes, which can be the major source of tourism industry in Nepal.

Nepal is also greatly endowed with water, wind and solar resources which can be the major sources of energy. As much as hydropower seems promising, both wind and solar powers are also equally possible. I don’t necessarily want to go after the statistics of 80,000 MW of hydropower potential and political gimmicks on selling power to India. The truth is Nepal can be more than self-dependent in energy sector and its vast reserves of current river systems provide comparative edges against its peers. Firstly, we have to concentrate on small and medium scale projects that can produce enough energy to light every Nepali household. Large scale projects can be costly from investment and environmental externalities perspectives. Surplus energy can always be traded and countries like Estonia and Greenland have made billions of dollars of revenues annually by selling power. Current water systems make energy production cheaper that will reduce costs of producing goods and services making them competitive with other markets. Moreover, complete electrification of Nepali households will have positive long term impacts on education, productivity and competitiveness of the people. Now the question comes for the investment on energy sectors. Nepal is not equipped for mega projects due to capital and technological constraints. It will have to welcome foreign direct investment for big projects while promoting domestic investors for small scale projects.

Agriculture also holds a big potential to fuel the growth of our economy. However, the current subsistence way will have to be replaced with modern techniques. With increased irrigation, fertilizers and modern equipment, agricultural productivity can be increased by several folds. Nepali farmers should also shift towards producing high yield agricultural goods from conventional items such as rice, corn and wheat. Like in energy sector, Nepal can be way more than self-dependent in agricultural production. In addition, as banker Anil Shah of Mega Bank says, we also need to culture pride for being a farmer. There are several instances where farming profession is looked down. One way of cultivating pride in farming is to turn the profession lucrative so that farmers can get both personal pride and good financial returns. Modernizing agriculture sector is one of the immediate measures we can take right away. Indian experience of green revolution shows its feasibility in Nepal.

None of these insights are new to us; especially the political gimmicks for exploiting these resources go back as late as 1950’s. From a development economist perspective, I firmly believe exploiting tourism, agriculture and energy can provide the startup fuel to growth engine of Nepali economy. We are not favored to become a manufacturing led economy at least in a near future due to capital constraints and lack of social and human capitals. We can definitely increase our current GDP of $40 billion (PPP) by several folds in next two decades and be a middle income country. Growth histories have shown that once it catches a momentum, it can stay in motion for a long time like the Newton’s First Law of motion. What are holding us back are the political instability and the lack of youth participation in economic, political and social discourse of our country. Political rent seeking has turned really virulent and is destroying our nascent economic and social infrastructures. To Nepali youths in particular, this is our time to turn economic and social changes into reality.