Arranging growth

One of Nepal’s primary economic concerns has been the stunted growth of its industrial sector. Despite moderate growth of 4.6 percent in the economy in the financial year ending July 2012, the industrial sector grew only marginally by a poor 1.7 percent. A variety of factors have contributed to this, chief among which are labour disputes, persistent power shortages and the protracted political transition and the disturbances it brings along with it.

There are opportunities still in the Nepalese market, but many of these have been untapped for a variety of reasons, not least the political uncertainty that has plagued the country for half a decade now. The caretaker government led by the Chief Justice cannot really take any decisions without the approval of the four major political parties. As such, there is very little confidence in the economy as no policy is being articulated. 

Nepal heads to the polls in November this year, and it is imperative for any interim government that is formed after these elections to the constituent assembly, to prioritise economic development. Social inclusion is important, but it cannot come at the expense of the pursuit of economic development.  

The new interim government will need to identify areas of the economy where there is either greatest potential for growth or those that require the highest levels of investment to kick start economic development in the country. The paucity of financial and human capital resources means that the government will need to take a measured approach towards economic development and not try and do more than what is feasible.  

Such opportunities do exist. The most talked about of these is the hydropower sector, the development of which will have a dual benefit on the economy. On the one hand, it will help address power shortage woes by providing industries with access to a regular supply of electricity, and on the other, sufficient electricity generation will improve the country’s trade balance as Nepal will export more electricity to neighbouring Indian states. 

Nepal is primarily an agrarian society, with the agriculture sector employing three quarters of its population and contributing about two fifths of GDP. The sector should form the base on which Nepal’s economy is built as it is critical for sustainable economic growth. Besides being home to traditional food and cash crops, Nepal also has the potential to become a preferred destination for the cultivation of rare species and herbs, homegrown or otherwise.  

One of the mainstays of Nepal’s economy is tourism. Few countries are as well-endowed as Nepal is in terms of natural beauty and postcard landscapes and it should be a natural choice of destination for Asians looking for short vacations. Yet, it isn’t. There is tremendous scope for private investors and the government alike to invest in the tourism sector to make it as important a pillar of the economy as it should be.  

Holding all of this together is infrastructure—both physical and social—of which there is a dire need in Nepal. There are opportunities to invest in toll roads, airports, bridges, the power sector, and social infrastructure such as hospitals and schools. Investing in these sectors, however, requires a long term commitment from investors which will only come about with some certainty in policy. The sector presents several opportunities, which will in turn provide a fillip to wider economy at large.  

Over subsequent weeks, this column will seek to address an opportunity at a time, dwelling upon what needs to happen for these opportunities to become viable; and suggesting steps the government needs to arrange growth in this manner.

 

(This was a column published in The Himalayan Times on 23 June 2013)