Building a New Nepal: Focus on the Economy/Nepal PM said nepal not to play china against india(28/8/11)

Building a New Nepal: Focus on the Economy/Would like to balance between India and China.


Scott H. DeLisi

US Ambassador to Nepal

During my sixteen months here, I have been continually surprised how little public debate and discussion there is about Nepal’s economic challenges. I have met with dozens of senior political leaders during my time in Nepal – from prime ministers to local party cadres – and invariably the discussion focuses on the peace process, the constitution, and, more often than not, their party's plans to retain or gain control of the levers of political power.

Gaining control of power, however, is a mixed blessing if you are not prepared to exercise that power on behalf of the people and on building a democratic, prosperous and stable nation. Thus my surprise, and at times dismay, that so many of those who aspire to lead the nation appear to have not devoted the same degree of attention to the nation’s development strategy, the strengthening of the economy, and the creation of jobs, as they have to their political agenda.

Admittedly, there are those in politics who do talk of these things and it may be that the leaders I meet have pondered these matters more than I realize but, if so, this has not been part of our dialogue -- that is something I hope we can change. I think it is important that people hear the views of their elected political leaders and that those leaders spearhead the national debate on these critical issues that lie at the heart of the policy agenda for Nepal's future.

I certainly believe that these issues give rise to fundamental definitional issues for the "new" Nepal. What protections will you give to private property? How will you manage land reform? What are the agricultural policies that can lead to food security? How do you balance cooperatives and private enterprise? How do you create jobs for the future? How long can you sustain an economy built largely on customs revenue and exporting your youth to labor abroad?

This is not an exhaustive list of the issues; it is merely an illustrative one. But, in my view, these are critical concerns crying out for discussion and debate now. I believe that Nepal’s toughest challenge is not concluding the peace process or drafting the constitution, but rather building an economic future for the young people of Nepal.

I described these issues as "definitional" and I think they are. When I ask young men and women here what it means to be a Nepali in the "new Nepal" they struggle to answer. I think part of the reason is that these, and other issues related to fundamental values about governance and the purposes to which power should be put, have not yet been clearly articulated.

Being a Nepali must be more than an accident of birth within certain geographic boundaries. It must first be an identification with shared national values. Citizens also, however, must feel an identification with the State; an identification that grows from the government providing its people an economic landscape in which they can grow, prosper, and care for their families and loved ones.

Today, when we look at a Nepal where 73 percent of the population is under 35 years of age and 50 percent is under 18, we have to ask: do they feel invested in their nation? Do they see opportunities? Do they see a bright future for themselves in their homeland? Do they hear values they can believe in being articulated by political leaders? And do they and their families believe they are deriving benefit by virtue of the compact between the governed and those they entrust to lead them?

If not -- and I fear that the nation has not yet given its youth reason to believe -- the country may be squandering its future. That is why, to me, it is so important to begin now to change that narrative. There is an urgent need to find a real message of hope founded on values that matter. A message that has at its core a truly inclusive democracy in which there is real opportunity for all citizens, in which the public good comes before personal privilege, and in which corruption, impunity, and the disregard of basic human rights are an exception to be condemned rather than a norm to be tolerated.

Current Situation

Let’s look at the current economic situation, for you must start there if you hope to create a different future for this nation's increasingly frustrated youth.

Nepal is situated between India and China, two of the fastest growing economies in the world. That’s an enviable location. Just the spillover effects from these two economies should create thousands of jobs and expand trade.

But, in reality, Nepal’s economy will likely grow this year by an anemic 3½ percent, one of the lowest growth rates in Asia. Investors are scared off by the political instability, labor problems, and power shortages. You only have to look at the recent headlines to understand the concerns. Yet another government has fallen and meanwhile the youth wing of one of the preeminent parties not only defies the law and the government but threatens retribution against the wives and children of those who seek to enforce the law. Such reprehensible conduct inevitably sends a message – the wrong message – to potential investors.

At the same time, Nepal’s own business houses are focused only on short-term profits. Many seek to avoid paying taxes and maneuver to sneak their money out of the country. Young entrepreneurs who want to start businesses must deal with rent-seeking behavior from government officers who are supposed to help them. Many State-owned enterprises -- which often are staffed through political favoritism rather than as a result of merit – are badly managed, draining resources from state coffers while failing to provide services.

Meanwhile, last week, I was very disheartened to learn that Surya Nepal, one of the few companies that remain competitive in Nepal’s readymade garment sector, has closed down its operations due to labor problems. More than 2,000 people – mainly women –employed directly or indirectly through Surya's operation, have lost their jobs. In my opinion, the closure was a setback for the country’s economic development and diminishes our efforts to convince foreign investors that Nepal is open for business. In a globalized world where countries have to compete for foreign investment and the success of a business depends on timely delivery of goods and services, labor disputes that hold companies' operations hostage for months inevitably lead to such unfortunate consequences.

Equally troubling, some political leaders seem to view businesses as sources of funding for their parties – or even worse – as targets to be exploited for their personal gain. The private sector accepts the status quo as the price of doing business in Nepal. Both the exploitation and the acquiescence undermine Nepal’s long-term economic prospects and ultimately democracy.

With some notable exceptions, what little debate there is about economic policy focuses on how it benefits the individual and not how it benefits the country. Meanwhile, policies meant to create jobs or promote investment languish in Parliament for months or even years.

Brain Drain and Migration

Against this backdrop, young Nepalis look abroad for their future and for hope. The most privileged of them never imagine staying in Nepal for their education. Every day I see hundreds outside my Embassy seeking to study in the United States. Their eyes are trained on the West. Even at the tender age of 18, many have already given up on their own country.

Thousands of less privileged youth flee the country each month to work in the Middle East or Malaysia. Others manage to go to South Korea – a country that fifty years ago had a per capita nominal GDP of slightly more than $100 and a reputation as the basket case of Asia. Today Korea’s per capita GDP is more than $30,000, and its economy continues to grow by 6% a year.

Like many of the students heading abroad, these migrant workers too have given up on Nepal, taking menial jobs in Qatar – the same jobs that ironically they would never do in Kathmandu. The economic necessity of labor migration has massive social consequences, ripping apart families. Human traffickers prey on the most desperate. Young Nepalis, from all ethnicities, regions, income levels, and religions, suffer.

And the economy suffers as well. Remittances may currently be the lifeblood of Nepal's economy but those who suggest that remittances are positive for Nepal in the long run fundamentally misunderstand economic realities. Like an addictive drug that feels good today but causes devastation in the long run, remittances provide a short term boost to the economy but only forestall the need to make tough economic choices – which are even harder to accommodate the longer government waits. In Nepal today, remittance flows are fueling increased consumption but by all indicators, are not being channeled into productive investment. Meanwhile, Nepal’s competitiveness and productivity continue to decline over the long term.

Yet Hope

Nonetheless, despite the many challenges, there are reasons to be optimistic about Nepal’s economic future. This is a rich country with vast potential – rich in human capital, rich in natural beauty, and rich in water resources.

This country has too much potential to remain among the poorest in the world. Too many talented people, to just watch them fly off to Doha, perhaps never to return. Too much natural beauty, not to share with tourists. Too many water resources, not to harness them to power Nepal and much of South Asia.

From my vantage point, a better future rests not just in the big, established business houses, but in the young Nepali entrepreneurs I meet. People like Rudra Pandey who came back to Nepal to start D2Hawkeye, a software development company, creating hundreds of high-paying jobs for Nepal’s youth. He reports that, he has found his Nepali employees to be loyal, dedicated, and, among the best of the workforces he has seen anywhere in the world.

Another company, Incessant Rain Animation Studios, a US-Nepal joint venture, is producing world-class films for companies like Disney – right here in Kathmandu. Its Operation and Production chiefs - both are young Nepali women. There's the future!

Equally, there’s Entrepreneurs for Nepal, a virtual (and real time) entrepreneurs’ network that provides fertile ground for exchanging ideas, for building skills, for mentoring and for inspiration. That too is the future!

Sectoral Opportunities

So where are the opportunities waiting to be built upon by Nepal's next generation of entrepreneurs? I have already touched on IT outsourcing which we believe is one industry ready to take off. Similarly Nepal, in many ways, has only begun to tap the massive potential of the tourism sector.

Everyone knows about trekking, but the real potential for growth could be in new products like adventure travel, eco-tourism, religious tourism or even in niche markets like "birding tours" and, as a birdwatcher myself, I can tell you that Nepal has plenty to offer in that regard. And, I would add, Nepal is particularly well positioned, with two giant neighbors, to make tremendous gains in tourism. If just a tiny fraction of the tourists from neighboring China and India started coming to Nepal, the effect on the economy would be massive.

Nepal’s hydropower potential is well-known and has been talked about for years. The failure to develop it is a story of failed potential that undermines economic growth. I believe, however, there is a growing appreciation for the importance of this industry for Nepal’s future and I applaud the government's efforts to enact coherent, rational policies to develop hydropower.

The recent selection of a technocratic head of the Nepal Electricity Authority (NEA) through open competition sends a positive signal about the commitment to reform. If Nepal could change the way NEA does business and develop just a handful of the approved hydropower projects, it could end load-shedding forever and earn much-needed income for the Nepali people.

Agriculture is another sector with huge opportunities if the right policies are put in place – a rational seed policy, contract farming, and efficient fertilizer distribution systems. Nepal’s unique climate and geography create a comparative advantage in horticulture and high-value agricultural products like coffee, tea, and medicinal herbs. As an outgrowth of the recent visit to Nepal of a trade delegation from American Chamber of Commerce in New Delhi we have the American agricultural giant, Monsanto, actively seeking to engage here in new education programs, knowledge sharing, and agricultural development.

The list can go on. There is no lack of opportunity but there must be the political will to create a conducive business environment.

U.S. Role

As Ambassador, my responsibility is to ensure that the US government contribution to Nepal’s economic development is focused, sustained and constructive. As outsiders, we recognize that our ability to generate the needed political will to create an enabling environment for business is limited. It is Nepalis – from all walks of life -- who must make that change.

We are committed, however, as friends of Nepal, to do our part to promote trade and investment. Part of our role is communication and education. Many outside of Nepal still think of this as a country struggling with the challenges of an insurgency. Others assume that the challenges of infrastructure, power, and labor (to name just a few) must be insurmountable. I believe there is a different narrative. A narrative of potential and opportunity and a narrative that tells the tale of those companies that have overcome the challenges to create jobs, make profits, and most importantly, make a difference in Nepal’s future. It is that message we seek to deliver. That is the message that potential investors, and the Nepali people as well, need to hear and believe.

As part of articulating this alternative narrative we recently hosted the high-level trade delegation from the American Chamber of Commerce, which I mentioned earlier. It had been 13 years since we last hosted a trade delegation and we challenged the members to come to Nepal to form their own opinions about the trade and investment potential. The delegation left intrigued and impressed and I followed up with them last week on a trip to New Delhi and found that interest not only remains strong but that several additional companies are starting to look seriously at Nepal.

The United States and Nepal recently signed a Trade and Investment Framework Agreement or “TIFA” to facilitate trade and investment and resolve disputes. We are working to prepare for the second TIFA council meeting in the coming months in Kathmandu.

In addition, every two months, we have scheduled meetings with thoughtful members of the business community, labor, academia, and government on key economic issues. This economic strategy group has helped generate ideas for reforming the policy environment. When the Finance Minister visited Washington, the U.S. Government arranged for a high-level briefing for interested Americans on the Nepali government’s energy plans, building interest among energy companies and other partners.

Our USAID program is focused on growing the economy. No longer content just to be involved in community-based programs, our Nepal Economic, Agriculture and Trade program is working to reform outdated trade and agriculture policies, improve the business and investment climate, increase access to finance, and build export markets in the region for products where Nepal has a distinct advantage, such as vegetables, lentils, tea, and ginger.

More than that, however, we will refocus our development efforts to include a much stronger policy component. Development projects are good and can have a tremendous impact, at least in the short term, on the lives of people.

But for progress to be truly sustainable we need to look at fundamental policy reforms that will create an environment that encourages and supports development, strengthen agriculture, empower the private sector and helps create jobs.

I feel as though we have failed to be as effective in fostering, and even insisting on, policy reform as part of the development dialogue with the government. That will change.

I am proud, however, of the successful projects we have undertaken. For example, our youth-targeted Education for Income Generation (EIG) program, working in all districts of mid-western Nepal, is increasing youth’s access to productive job opportunities and improving incomes of the poor and disadvantaged, while also creating a workforce that is crucial for the country’s economic growth. In four years EIG has trained almost 72000 disadvantaged youth in literacy, vocational skills and agricultural productivity and enterprises. Eighty two per cent of the vocational graduates (9,450) are in well-paying jobs. This was achieved by working with the private sector. In addition, the agriculture productivity trainings have enabled disadvantaged youth to increase their annual income by 134%.

To increase food security, rural incomes, and agriculture productivity, our Feed the Future initiative is improving access to new agricultural technologies, and high-yielding seed, and we are actively pressing for policies promoting the production of high-value crops and facilitating access to markets. Working in close collaboration with the Government of Nepal and other donors, Feed the Future will help Nepal to feed its people and keep Nepali children from going hungry.

Through the Global Health Initiative, we are supporting the Government of Nepal’s Health Sector Plan II to prevent HIV, save the lives of mothers and children, improve nutrition, and deliver clean water, which will ensure that the next generations of Nepalis are able to live healthy, productive lives. The Global Climate Change Initiative will help to preserve the unique biodiversity and rich environmental resources that make Nepal such an attractive destination for tourists. It will also assist communities in developing their own plans for adapting to the risks that climate change may bring in the form of floods, drought and other natural disasters.

We are also working with the diaspora community in the United States to build connections and encourage Nepalis to invest in their country or, even better, reverse the brain drain and bring their skills and expertise back to Nepal. The diaspora, whether in the U.S. or elsewhere, can offer additional expertise, know-how, connections, and resources that can have a multiplier effect on the vitality of any new initiative. I encourage both the Government of Nepal and private business to expand and develop contact with this dynamic and diverse community.

Conclusion

We are investing in Nepal -- and will remain focused on economic issues -- because we know that no matter where the political winds blow, growing the economy and creating jobs will remain critical to Nepal’s future.

We want to work with leaders from the business community, civil society, labor, and yes, even politicians, who are committed to promoting economic growth. We want to work with young entrepreneurs who can drive the economy. When they thrive, big businesses and even foreign investors will follow.

Not only is growth good for the country; its good politics. The smart politician will focus on the economy and advocate for policies to create growth. I am confident that the leader who figures this out – whatever the party – will reap massive political rewards. This isn’t just my prediction; the history of political-economy in Asia and elsewhere demonstrates that leaders like South Korean President Lee Myung-bak and Nepal’s neighbor Indian Prime Minister Singh benefit politically from effective, private-sector led economic policies.

We know that some of the needed policy reforms are not easy. Cracking down on corruption and nepotism is not easy. Cutting off the vested interests in state monopolies is not easy. Raising prices on fuel is not easy. But these are necessary steps, albeit painful ones, that will end the current market distortions and pave the way for sustainable economic growth.

We also know that the Nepali context is complex. Growth must be equitable and inclusive. For too many decades, only a few Nepalis flourished, while millions struggled to survive. But government alone cannot redress these inequities. Generating strong growth through the private sector and foreign investment must form the cornerstone of any coherent economic plan.

Policies that would seek to limit the role of the private sector are fundamentally misguided. I am a strong proponent of cooperatives – such institutions play a key role in the U.S. rural economy and there are some wonderfully successful cooperatives making a difference here in Nepal.

But, as the political debate about Nepal’s future unfolds, there are those who worry that the characterization of “cooperatives” as the third pillar of the economy could be code language for expanded government control of the economy.

I will only say that if that were to be true I would have to argue that this flies in the face of the lessons of the last 50 years which demonstrate time after time that is that only an open, liberal economy can spawn economic growth. It is the private sector, in partnership with government that must create jobs. At a time when India and even communist China have learned this lesson, it would indeed be ironic and self-destructive for Nepal to move in the other direction.

As the new generation of economic thinkers, I encourage you to begin to shape the discussion about Nepal’s economic future. Engage today’s politicians and business leaders. Debate how best to generate jobs and build a robust private sector. Your voice – more than mine as an outsider observer – will be instrumental in helping to move Nepal forward.

(Excerpts Only: Speech made by the Ambassador at a program jointly organized by the US Embassy and Society of Economic Journalists of Nepal, August 25, 2011; Text Courtesy: US Embassy Website)