Uphill task to revive Nepal in 2016

Author: Sujeev Shakya, Nepal Economic Forum

In my Year in Review piece from 2014, I had a very optimistic view for 2015, dubbing it a potential game changer. 2015 has been a game changer, but for all the wrong reasons. The earthquake in April 2015 was a devastating blow to the Nepali economy, which was chugging along slowly due to the political focus on power sharing during the transition period.Nepalese students and volunteers clear the rubble at Kathmandu Durbar Square, a UNESCO World Heritage Site, in Kathmandu, Nepal. (Photo: AAP)

Following the earthquake, more than half a million people were pushed below the poverty line and billions of dollars’ worth of damages were incurred. The earthquake pushed the country to embark on a long-term vision of rebuilding. Yet, as 2015 comes to a close, the National Reconstruction Authority has not even been created, let alone begun the task of rebuilding real infrastructure.

The major political parties adopted a lackadaisical attitude to reconstruction efforts during the relief period, yet were able to find a common focus on rewriting the constitution. In the end, the reform of the constitution came to a rapid conclusion. The new constitution came into effect on 20 September 2015, supposedly bringing an end to more than a decade of political transition.

Yet, the new constitution failed to incorporate the rights of Nepali women married to foreigners and the rights of minorities. The children of Nepali women who have a foreign husband, for example, are not automatically given Nepali citizenship. But the children of Nepali men with foreign wives are. And minorities are unhappy that the percentage of seats in the national parliament that will be elected via proportional representation has been reduced to 45 per cent from the 58 per cent earmarked in Interim Constitution. In response, the Madhesi community — who live in southern Nepal bordering India and make up around a third of the population of Nepal — started an ongoing protest in August, pressing for proportional representation and the redrawing of provincial boundaries.

India’s support of Madhesi demands has resulted in an informal blockade of Nepal’s access to Indian seaports. The state-owned Indian Oil Corporation has subsequently been impeding supplies of petroleum products to Nepal, citing orders from the top.

A country that was battered by an earthquake is now facing a severe fuel supply shock. Nepalis who had demonstrated their resilience as they recovered from the earthquake, now have to make major lifestyle changes, such as switching to firewood in the absence of cooking gas or cycling to work due to fuel shortages.

The natural and human disaster has pushed the GDP growth rate to negative for the first time in 32 years. Tourism has plummeted to a 20-year low. Banks are also starting to feel the heat. This is likely to have a flow on effect on the Nepal Stock market — which is dominated by the financial institutions. Project costs have risen, and international investors, who were already discouraged by the risks related to investments in Nepal, now also have political risks to deal with.

The political realm saw changes as well. Khadga Prasad Sharma Oli of the Communist Party of Nepal–United Marxist Leninist (CPM-UML) party was sworn in as Nepal’s 38th prime minister with the support of the United Communist Party of Nepal, Maoists, royalists and one of the key Madhesi parties. Yet, despite this agreement, government ineffectiveness continued to compound existing social and economic problems. Black marketers have had a field day and, like previous governments, the ruling coalition started appointing their own people into key government positions.

Contrary to expectations, there have been no major political upheavals due to the blockade. But, at the end of 2015, Nepali society has become polarised like never before. The silence on the part of the international community to Nepal’s growing political and economic challenges demonstrates that their interests in Nepal remain limited to furthering small-scale development projects, such as sanitation and community participation, rather than engaging in activities that support larger and more meaningful socio-economic transformation.

Overall, 2015 would be a year most Nepalis would like to forget. The focus in 2016 is likely to be on recovering from the 2015 slump. Yet given the mindset of Nepali political and business leaders, even returning to the status quo at the end of 2014 would be a great achievement.

There are several key steps that Nepal must take in 2016 if it is to have a real chance at recovery.

Nepal must urgently rebuild ties with India. Two visits from Indian Prime Minister Narendra Modi in 2014, as well as Indian support in the relief and rescue operations following the earthquake saw historic highs in the India–Nepal relationship in June 2015. But, within six months the relationship has plummeted to a new low. Both countries will now have to work hard to rebuild the relationship at the political and business level, but more importantly at the level of people-to-people relations. Without improvements in the bilateral relationship, regional and sub-regional initiatives will continue to flounder.

The Nepal government, with help from civil society, business and concerned communities, also needs to build short-, medium- and long-term plans for reconstruction. A government focused on the short-term cannot deliver policies for sustainable change over the long-term. Any policies that have resulted from knee-jerk reactions need to be reviewed for their long-term impact.

It is time for Nepal to take action on major unresolved policy challenges. Many of these remain the same after 25 years. The immediate priority should be pushing for food security through an agricultural revolution to reduce Nepal’s dependence on imported essentials. Energy security must also be addressed by lowering the dependence on fossil fuels. And Nepal should diversify its trade, with focused engagement both north and south of the border. If Nepal takes these important steps it will help pave the way for a brighter 2016.

Sujeev Shakya is Chair of Nepal Economic Forum and author of Unleashing Nepal (Penguin 2013).

This article is part of an EAF special feature series on 2015 in review and the year ahead.

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