The big push

In recent years, Nepal has been among the countries to have taken the greatest strides in improving human development. According to the Human Development Index, a composite measure that takes into consideration health, education and income, Nepal has shown more rapid progress as compared to other late developers.  

This improvement can be attributed to improvements in the areas of education and mainly healthcare.  While incomes have also increased over the years, the rise has been only marginal when considered in real terms.  

Despite the rapid advances Nepal has made in the areas of health and education, it is worth bearing in mind these advances have been made from a very low base. The lack of social infrastructure still has huge consequences for the Nepalese economy. While much still remains to be done in the area of healthcare services, they have improved dramatically in Nepal over the last three decades. In the education sector, on the other hand, the improvements have been sporadic and concentrated in the urban sectors.  

Adult literacy in Nepal today stands at around just 60 percent, thus highlighting that while significant improvements have been made, they only tend to mask all the work that is still unfinished. Thus far, the social sector has been the primary catalyst for the improvements seen in Nepal in the education sector. NGOs, charities, donor countries and multilateral institutions among others have been instrumental in supporting the development of the education sector in Nepal.  

The government itself has been too preoccupied over the last twenty years with first trying to establish a democracy, then dealing with the Maoists, and then plotting the end of the Monarchy, to now finally squabbling over the new constitution and the structure of the state. The development agenda has pretty much been outsourced to the non-government sector. And it does not help matters that the state just does not have enough money to invest as much as it should.  

The time is now right for the private sector to make investments in the education sector. There just aren’t enough schools in the country; teacher-student rations are too low; the quality of education being imparted leaves a lot to be desired; education is not easily accessible to many living in rural Nepal; the surrounding infrastructure has not been adequately developed.  

There is a massive demand for education that can only be met through private investments building schools and vocational training schools. Second, the demand for education is relative inelastic and constant, presenting opportunities for the private sector to generate a return.  

On the other hand, the government needs to focus more extensively on the education sector as more and better education brings both direct as well as follow-on effects, whose benefits are accrued over years. Education will increase the employability of Nepal’s youth and it will allow industries and companies to find the talent they seek. Moreover, it will lay the foundation for greater economic development in the country. It is therefore essential for the government to promote investments in education. 

The private sector should undertake the setting up of new schools and other infrastructure that schools may need. The private sector can also play a key role in scaling up educational institutions that have been set up by various charities and non-government organisations.  

The numbers looking to get educated will only increase as incomes in the country rise. Not only will people want to study, but those studying will want to study longer. Currently, Nepal does not have the social infrastructure to support the aspirations of so many students. If it is to meet requirements, it must act swiftly to incentivise the private sector to invest in education. That is a big push the Nepalese economy can do with.

 

(This was a column published in The Himalayan Times on 28 July 2013)

The won't just come

Nepal’s tourism story, much like several other stories, is the ‘what could have been’ story. Endowed with some of the world’s highest mountains and its most beautiful landscapes, Nepal also presents visitors with a heady mix of different cultures, beliefs and traditions. But they need to be drawn to Nepal.

However, the performance of the tourism sector in Nepal has been patchy at best. Tourism numbers have increased, but only gradually and the sector’s relative importance to the economy has stagnated over the years. While it still remains one of the mainstays of Nepal’s economy, its contribution to the economy has not been nearly enough.  

Tourism is the largest source of foreign exchange in the country, following money sent back home in the form of remittances. In 2012, Nepal saw almost 600,000 tourists, a 10 percent increase over the previous here. Most tourists into Nepal last year were from India, China, the US, Japan, the UK and Australia. However, if one were to look back at 1999, the number of tourist arrivals stood at 421,000. This means that the number of tourist arrivals into Nepal has increased by about an average of 3 percent per annum – hardly the kind of growth that can make Nepal a major tourism destination.  

For a country which considers tourism a key pillar of its economy, very little has actually been done to promote the tourism industry in the country. Customary ad-campaigns have been launched and certain days of year have been commemorated in support of tourism, but actively and on the ground, much remains undone.  

This is unfortunate because the sector provides employment to three quarters of a million people throughout the year and it provides revenues of $370 million per annum as of 2012, showing its significance to the country. Perhaps more importantly, the secondary impact of increased tourism activity on domestic economic activity is immense too, and cannot quite be quantified.  

One of the key reasons Nepal suffers from poor tourism performance is poor air connectivity between Kathmandu and the rest of the world. This means it is tough to get to Kathmandu from most cities around the world, and it is extremely expensive to travel in too. The lack of sufficient flights has meant that the few routes that are currently plied have excess traffic and very high fares. The Nepalese government has to proactively encourage the national carrier to improve its services and enable an increase in the number of destinations it can fly to through the purchase or lease of additional aircraft.

One of the ways to improve air services in the country is to encourage foreign participation and investment in the country’s airports and national airline. Today, the services of both are well below par and not indicative of a country that is taking itself seriously. Most tourists enter Nepal from Tribhuvan International Airport – an experience usually so bad it is best forgotten. Greater foreign investment into the sector will invariably bring along with it better services and a better experience for tourists. Nepal also needs to improve road infrastructure. Most of the movement domestically is by road, and the poor state of the network or its complete absence prevent tourists from getting to some of the country’s most beautiful areas.  

Tourism infrastructure in Nepal requires much greater spending by the government and the private sector if Nepal is to meet its goal of receiving two million tourists a year by 2020. It is an admirable goal, but not much has been done thus far in achieving it.  

(This was a column published in The Himalayan Times on 21 July 2013)

Let there be light

‘Performance must meet potential’ is a commonly used refrain in sports commentary—especially in reference to exceptionally gifted players or teams that continue to underperform and to frustrate in equal measure.  

The hydropower sector in Nepal is not any different. The country has more than 80,000 megawatts of hydropower potential of which 43,000 megawatts is technologically and economically feasible. Yet Nepal’s grid-connected generation capacity is currently lower than 750 megawatts, or about two percent of the feasible potential.

Around three-fifths of the country’s population does not have access to electricity, and those that do are sometimes faced with load-shedding of up to 18 hours a day. The lack of power is the biggest infrastructure bottleneck obstructing the growth of Nepal’s industrial sector and the economy at large. 

Several industries in Nepal today are almost entirely dependent on diesel-powered generators for their operations and with the Nepalese rupee in a freefall, entrepreneurs are really feeling the crunch due to increased diesel costs. The lack of a regular power supply is a big deterrent preventing companies from investing. Moreover, even the electricity that is supplied to industries is at tariffs among the highest in the world.  

Some changes are happening for the better in Nepal’s hydropower sector, especially with the government and the multilaterals realising that building huge dams is not really the way to address energy woes. The focus has distinctly shifted towards smaller projects, most of which are run-of-the-water. These projects are relatively less expensive, take less time to build and are easier to manage. 

Nepal needs to reduce its dependence on multilateral institutions such as the Asian Development Bank and the Word Bank, and other donors. As long as multilaterals are putting money in more money into the sector than private investors, it is a clear indication Nepal has not managed to address risks associated with investing in the hydropower sector. Investing in hydropower is a long-term play and for investors to put money in the sector they require assurances from the government. That the multilaterals are still the biggest investors in Nepal’s hydropower sector means that the private sector still does not the propensity to take the risks involved.  

The government’s main task is to address these risks as companies are still not very comfortable with the risk-reward pictures they have in mind. The Nepal Electricity Authority (NEA) is the sole buyer of electricity in the market and that brings with it payment risks centred on the NEA’s potential (in)ability to pay for what I buys. Construction risks are another concern, with almost no project being concluded on time and hence leading to higher costs. Finally, the political risk and the fear that there may be changes in policies such as tax structures or tariff structures is another concern for investors. However, on recent evidence, the last of the three seems to be more of a perceived risk than a real one. It must be said that despite periods of abject governance interspersed with no governance, various administrations have managed to bring about a certain degree if continuity in policy and in expectations.  

Money is beginning to enter the sector. For instance, the China Three Gorges Corporation is developing the West Seti hydropower project while Indian energy major GMR Energy is working on the Upper Karnali project. Similarly, on the multilateral side, the World Bank approved a project in May this year, while the ADB and other investors agreed to a $430 million financing for the Tanahu Hydropower Project.  

A lot of work remains, and the new government will have to improve confidence in Nepal. Investors obviously know making money is not going to be easy, but in order to invest, they too need to see the light at the end of the tunnel.

 

(This was a column published in The Himalayan Times on 30 June 2013)