Why governance matters

Nepal has been a country in transition for the last two decades. In this timeframe, it has gone from being an absolute monarchy to a constitutional monarchy to a republic. These are significant achievements in what is a short span of time; but in the process, Nepal has also suffered from an acute lack of effective democratic governance which has translated into a lack of development.  

The pursuit of inclusive economic growth and sustainable human development should form the foundation for policymaking in the developing world. One of the key factors underpinning the degree of success countries have enjoyed in meeting development challenges is that of democratic governance, and the quality and legitimacy of its institutions. Poor governance either undermines the effectiveness of policies or prevents policymaking altogether.  

Today, Nepal is confronted with multiple challenges that include, but are not limited to, stagnant economies, poor physical and social infrastructure, a prevalence of poverty and a lack of investments. These challenges can be attributed to poor governance and weak institutions that are often struggling to establish their legitimacy.  

Since 1990, Nepal has not seen a single government serve its full term in office. The extent of the political instability comes to light when one considers that Nepal has had 18 different governments in the last 22 years, excluding two periods of direct rule by the King.  

The culmination of the civil war in 2006 brought along its own set of governance challenges which Nepal has not been able to cope with fully. The country has only had an interim constitution since 2008. Its elected Constituent Assembly also served as an interim government from 2008 until May 2012 when it was dissolved. Today Nepal has a caretaker government.  

Nepal achieved democracy, but not enough time was invested in entrenching and sustaining the democratic advances made. One political crisis after another further eroded the legitimacy of its already frail institutions.  

As a result of these problems, Nepal has suffered from a development deficit. The political parties have not been in a position to invest enough time, thought and effort into creating a sound development policy. In the few instances they have, they have not remained in government for long enough to see the implementation of these policies through. Successive governments have spent significant time and resources trying to ensure their longevity, and have not focused on laying down policies that could boost development in Nepal.  

The last time Nepalese citizens had the opportunity to elect their representatives to parliament was 14 years ago in 1999. This has led to severe problems of accountability and legitimacy. People don’t have a say in how they are administered, and even the legitimacy of institutions is questioned. Today, several people in the country query the legitimacy of the Maoist-led caretaker government, and the legality of its decisions is being questioned.  

The key problem is that the senior leaders of the key political parties – the Maoists, the Congress and the CPN (UML) – are not accountable to the public so long as a new constitution for the country not promulgated, which is when they will be faced with electoral pressure. Only when Nepal has its next election to the Constituent Assembly (who knows when that will be?) will people have a chance to elect their representatives again. Till such time that happens, the divide between the political parties and the populace will continue to deepen.  

For now, democratic governance is all but absent as citizens are neither properly represented in government, nor allowed to participate in decision-making through institutional frameworks. Besides, there is little to no accountability as politicians have not been faced with electoral anxiety for the last five years. This has all led to an acute legitimacy crisis for the government, which in turn continues to impede its performance. 

(This was a column printed in the Himalayan Times on 24 February 2013)

FDI in Nepal: A hard sell

For several years now, entrepreneurs in Nepal have cried hoarse over the need for greater foreign direct investment into the country. These years of effort on the part of the private sector have been matched with years of inability on the part of successive governments (whenever we have had one) in convincing the world to seriously consider investing in Nepal.

The intention to promote FDI is evident, but it has rarely been accompanied with concrete steps to the same effect. For instance, one of the most seemingly compelling arguments in favour of greater FDI into Nepal is its location between economic behemoths China and India and its potential to serve as the natural trading corridor between these two economies. It is an argument that is often made, and yet, we have not really seen much being done to realise this potential.  

In fact, the word ‘potential’ is perhaps the most commonly used word in Nepal’s economic development lexicon today. And ‘hydroelectricity potential’ is undoubtedly its most commonly used phrase.  

Hydroelectricity has been Nepal’s nearly industry for several years now. Far from servicing a large part of India’s demand for power (as hoped for), more than half of all Nepalese households today do not have access to electricity; and of those that do, most don’t really see too much of it.  

The state of the hydroelectricity sector in Nepal today is both a cause and a symptom of low levels of FDI inflow. The grossly inadequate supply of power is a deterrent for any potential foreign investor looking to set up an industry in Nepal. On the flip side, because there is such little foreign investment coming into Nepal, the country’s hydroelectricity potential remains just that, and the nation’s power woes continue unabated. 

This is just one example of the kind of challenge Nepal is confronted with. It would be foolish to believe that with the kind of political instability, uncertainty in the labour market and the poor infrastructure we see today, foreign investors will be willing to take a risk investing in Nepal. It is hence imperative for the government to create conditions conducive to the inflow of capital. For too long, we have relied on ‘potential’ and have hoped – and even expected –members of the global investment community to park capital in Nepal. The results have not been flattering thus far, with just US$95 million of FDI – equivalent to 0.5% of GDP – flowing into the country in 2011.   

Different approaches have to be tried now. The government could start at home, by encouraging domestic entrepreneurs to invest locally with assurances of stability in policy, and economic incentives. Increased economic activity domestically is potentially the biggest catalyst for increased FDI inflow into Nepal. Till such time Nepalese entrepreneurs themselves are not convinced about investing greater sums of capital in Nepal, it would be imprudent to hope for increased FDI inflows. Nepal is competing with several other late developers for the same capital and it is essential to provide investors with compelling reasons to invest, because potential is enough only to pique the interest of investors, and not much more.  

It is true that Nepal’s leaders are simultaneously grappling with a number of other challenges that some would argue are more pressing, but it is also worth remembering that several of these challenges are of their own making. In trying to resolve the continuing political crisis in Kathmandu, economic initiatives have taken a backseat. As important as political consensus is, economic development cannot be forgotten.

 

(This was a column printed in the Himalayan Times on 17 February 2013)

Dilli abhi duur hai

Narendra Modi created a buzz in New Delhi last week, providing his first clear hint at prime ministerial ambition. Modi, invited to address students at Shri Ram College of Commerce, one of India’s premier tertiary education institutions, used the occasion to reach out to the country’s youth and to establish his credentials as the right man for the biggest job in India.

In the past few months, references to Modi being appointed the prime ministerial candidate for the Bharatiya Janata Party (BJP) have been ubiquitous in the Indian media. The next general election has already been pitted as a Modi versus Rahul Gandhi contest, despite the former not having stated anything to this effect. Modi has maintained silence on the subject and let everyone else do the talking on his behalf. Until now.

On Wednesday, he provided the first clear indication he is aspiring for a bigger role on the national stage. Articulate and compelling, Modi did so by providing an insight into his own aspirations for India and its youth. He talked about the youth’s disillusionment with and the erosion of its confidence in India’s political system. India’s future, he claimed, will depend on how well India can reap the benefits of its demographic dividend and on how it can best utilise its natural resources.

He talked about Gujarat – where he has been chief minister for the last 12 years – and remarked how the state has continued to prosper economically despite having the same laws, the same bureaucrats and the same political system that some have held responsible for India’s shortcomings. This was due to his model of good governance, he said. He charmed the audience with the use of colourful anecdotes and was clearly out there to sell his model of development, one that has been successful in Gujarat. And the key message: What has worked in Gujarat can work in Delhi.  

It is the view of the Indian right and a large chunk of the urban middle class that in Narendra Modi lies not just the BJP’s but also India’s best shot at redemption, so to speak. The commonly held view is that in light of the various challenges the country is confronted with in the form of huge corruption scandals and a rapidly slowing economy among others, India needs a ‘strong’ leader, a trait they almost always associate with Modi.

Moreover, it is assumed – with almost complete disregard for the current state of Indian national politics – that if Modi does indeed become the prime minister, he will be a ‘strong’ leader. What is mostly ignored is that a large part of this ‘strength’ that is often associated with Modi stems from the absolute majority the BJP enjoys in the Gujarat state assembly. By extension, this clear majority gives him absolute control over the state’s political machinery and its bureaucracy, allowing for efficiency in decision-making and good governance.

In the same vein, to be a ‘strong’ leader at the centre, Modi needs ‘strength’. This ‘strength’ will be derived from the degree of political control Modi and the BJP will have in the lower house of parliament. Even if the BJP-led National Democratic Alliance (NDA) is to win the next general election, Modi will have to continually placate and appease allies, affecting his ability to act swiftly.

In Gandhinagar, neither is Modi in bed with any allies and nor does he have to woo any. At the centre, it can be said with almost complete certainty no one party will win a clear majority of seats, thus diminishing any one leader’s ‘strength’.

Hence, the assumption that Narendra Modi will be a strong leader if he goes on to become prime minister and is therefore the answer to all of India’s problems, is a flawed one. The assumption is a huge leap of faith, and in my view, a tad unrealistic and lacking in reason. Modi may yet go on to become a very successful prime minister if elected, but that will not be because of his success in Gujarat. It will be because he would have done things differently at the centre.

(This was a column printed in The Himalayan Times on 10 February, 2013)

Walking a Tightrope

Tourism in Bhutan is treading a fine line. On the one hand, the Bhutanese government wants to limit the number of tourists it receives every year, and yet, on the other, tourism has been marked out as one of the key sources of economic growth. Try as it might, obtaining the right balance between the two objectives is proving to be an arduous task for the government.

In keeping with its theory of Gross National Happiness (and we can come to that another day), Bhutan, which only opened its doors to foreigners as recently as in 1974, strongly controls the inflow of visitors. This is done to preserve the country’s culture, heritage, traditions and the environment. The government believes that letting in a larger number of tourists can have an adverse impact on the country and its people.

The number of arrivals is controlled through a rather expensive fee each tourist must pay. In six of the 12 months, tourists must pay US$250 as tariff for each night of their stay in Bhutan. While this sum covers for almost all expenses, it is still exorbitant enough to deter a large chunk of tourists who would otherwise be interested in visiting the country.

This policy has led to larger dollar spend per tourist, but definitely fewer tourists. As compared to Nepal, for instance, tourists visiting Bhutan spend four times the money on average. However, in 2011, the country saw only about 37,000 tourists with total tourism receipts of US$48 million. It is a number the government is keen to increase rapidly. According to the Bhutanese government, the tourism industry is expected to contribute up to 25% of GDP by the year 2017. Bhutan is trying to develop new tourism products and selecting new markets in which to promote its tourism industry. There are plans to build new domestic airports and to develop other relevant infrastructure that will help promote the tourism industry.

Here lies Bhutan’s greatest challenge: Its needs more tourists, but it is not sure whether it wants them. The government wants to focus on the tourism industry as one of the key pillars of economic growth, but its guiding philosophy of Gross National Happiness stands as an obstacle in the pursuit of this objective. Bhutan’s policy objectives are at odds with the policies it is currently pursuing.

Moreover, by limiting the number of tourists through the imposition of high tariffs, Bhutan has thus far succeeded in managing its tourism industry and in ensuring that visitors get to see an unspoiled, untouched Bhutan. It is purely of this reason that tourists are willing to pay through their noses as Bhutan is often regarded as the last Shangri-La. A larger stream of tourists will be more difficult to manage and words such as “unspoiled” and “untouched” will be associated with Bhutan with ever decreasing frequency. And if that happens and Bhutan is not viewed as being as pristine as it earlier was, tourists will not be willing to pay US$250 per night as tariff anyway.

This constant tussle between greater economic growth and sustainability will define Bhutan’s tourism policy in the near future. If the early signs are any indication, then sustainability will take a backseat again, as it usually does everywhere.

(This was a column printed in The Himalayan Times on 3 February, 2013)