During my 16 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 Ė from prime ministers to local party cadres Ė 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.
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. Today, when we look at a Nepal where 73 per cent of the population is under 35 years of age and 50 per cent 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?
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 3.5 per cent, one of the lowest growth rates in Asia. Investors are scared off by the political instability, labour problems, and power shortages.
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. 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.
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. 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.
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.
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. Thousands of less privileged youths flee the country each month to work in the Middle East or Malaysia. 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.
Nonetheless, despite the many challenges, there are reasons to be optimistic about Nepal's economic future. IT outsourcing is one industry ready to take off, and Nepal has only begun to tap the massive potential of the tourism sector. And 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.
The failure to develop hydropower is a story of failed potential that undermines economic growth. 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. Agriculture is another sector with huge opportunities if the right policies are put in place: a rational seed policy, contract farming, and efficient fertiliser distribution systems.
We are committed to do our part to promote trade and investment. We recently hosted the high-level trade delegation from the American Chamber of Commerce which left intrigued and impressed. The United States and Nepal recently signed a Trade and Investment Framework Agreement (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.
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.
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 Ė whatever the party Ė will reap massive political rewards.
We know that some of the needed policy reforms are not easy. We also know that the Nepali context is complex. Growth must be equitable and inclusive. 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. 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.
Excerpt from an address last week to the Society of Economic Journalists of Nepal (SEJON).
For full transcript of speech:
Duty on duties, PAAVAN MATHEMA
The hefty taxes we pay for automobiles should be reflected in better roads and highways