ECONOMY OVERSHADOWED
As political events unfold with breakneck speed, economic issues have been swept beneath the carpet. Paralyzed by weeks of indefinite Terai bandh, the economy could face another round of problem as the agitating parties in Madhes have declared that they will continue to carry forward their programs such as customs closure. Ten months after the breathtaking April change, the much promised peace dividend has not happened. While politicians continue to concentrate on political agenda – which is not likely to change in the foreseeable future – the economy has become nobody's baby. However, in the absence of economic improvement, the political changes may fail to become sustainable. Even if only to institutionalize the political changes, the economic growth have become essential
By SANJAYA DHAKAL
- An Indian company with the largest investment in the eastern region has decided to shift its base from Nepal to India . Faced with unending bandhs, disputes and strikes, Arati Strips – with investment over Rs 2.8 billion – has decided to shift its base. It used to manufacture zinc plates. In the last fiscal year alone, it had exported zinc plates worth Rs 5.25 billion.
- Due to Terai bandh, over 450 containers carrying goods for export and import have been stranded at different places like Biratnagar, Birgunj, Kathmandu , Raxaul and Kolkata. According to Nepal Freight Forwarders Association (NEFFA), the trade sector has been thoroughly crippled due to the bandh as over 90 percent of the country's trade takes place through land route. Traders are desperate due to rising demurrage and other charges due to the delay.
- Business community active in Morang-Sunsari corridor warned they will not pay taxes, revenue, bank interests, electricity/telephone charges for the period of bandh. After meeting with them, Prime Minister Girija Prasad Koirala assured to look into their demands and provide necessary concessions.
- A delegation of business leaders of the Federation of Nepalese Chamber of Commerce and Industry (FNCCI) met with Speaker Subas Nemwang along with various other ministers and presented a seven-point demand list. Their demands include declaring industry/business as peace zones; banning of bandhs and strikes in highways and major roads; waiver of electricity and telephone charges and other taxes for the period of bandh, rescheduling of payment of bank loans/interests, among others.
The snippets of these recent news reports give a clear indication about the state of economy of the country.
On Tuesday (March 13), Finance Minister Dr. Ram Sharan Mahat made a fervent plea to all concerned to stop all kinds of bandhs and strikes. He said that the economy was bleeding due to these activities.
Dr. Mahat reminded that the country could have attained 5 percent GDP growth had the post-conflict period been free of such disruptions.
Since the day one he was appointed as the Finance Minister after April change, Dr. Mahat has been calling on all to give priority to economic agenda but to no avail.
As he watches with trepidations over the bleeding economy, the country continued to suffer from not only bandhs but huge surge of unproductive expenses – like over Rs 450 million already spent for the management of cantonments and upkeep of combatants; distribution of compensation to all kinds of victims; allocation of money for the holding of the elections, among others.
Although these issues are greatly important to ensure smooth political transition, their effects on the economy of a poor country like Nepal is quite obvious. It is not because of his stinginess that Dr. Mahat frequently snubs Maoist demand for more money for their combatants. “They should first give accounts of their spending to the government,” he has repeatedly said.
Recently, another minister also drew the attention towards addressing economic issues. “As the country is preparing to resolve political agenda, there is a need to pursue economic agenda,” said Gyanendra Bahadur Karki, Minister of State for Water Resources, speaking at a program in the capital. “Let us not waste any more time,” said Karki, who is also a member of the government team formed to hold talks with agitating Madhesi and Janajati organizations.
Not only the minister and economists of the country, even visiting foreign officials have started pointing out to the need for taking care of economic issues.
“It has been the experience of my country that political freedoms must be accompanied by economic freedom,” said Henrietta H. Fore, the Under Secretary of State of US government, who made a brief trip to the country last week.
Adds economist Dr. Raghab Dhoj Pant, executive director of Institute for Development Studies (IfDS), “Without creating jobs and improving economy, we will not be able to arrest the socio-economic and political problems. Just look at the genesis of our conflict. They started and rapidly spread in districts with poor economy. This should teach us some lessons.”
Desperate Situation
Frustrated by the unending strikes, FM Dr. Mahat has warned that the government was planning to adopt tough measures to stop bandhs.
Earlier, talking to delegation of business community, Prime Minister Girija Prasad Koirala had assured that the eight parties will take steps to ban such bandhs and strikes.
“The government is doing homework to keep the highways always open, end bandhs forever and provide strict security to industries,” PM Koirala told a visiting delegation of business community in Biratnagar on Saturday.
During their interaction with the PM, the business community asked for security so that they can open their factories. PM also assured that the government will compensate for losses due to vandalism during bandhs and also assured concessions in bank interests during such period.
Meanwhile, the desperate private sector representatives are running from pillar to post clamoring for attention towards their plight.
“The private sector makes significant contribution to the economy. The strikes and bandhs for the past one and a half month has crippled not only the private sector but the total socio-economy. People’s fundamental right to do business has been violated,” the delegation of Federation of Nepalese Chamber of Commerce (FNCCI) informed Speaker Subas Nemwang a few days ago.
Stating that nobody was paying attention to the plight of private sector, the FNCCI presented a seven-point demand list including demands for declaring highways and major roads bandh-free zones; rescheduling of their bank loans and interests; waiver of electricity/telephone bills and other taxes for the period of bandhs, among others.
Power & Tourism
Despite all the doom and gloom, Nepal ’s economy pins its hope on twin promises of hydropower and tourism – but efforts to exploit them in a major way are nowhere to be seen
For a country endowed with natural and cultural resources, Nepal quite rightly pins its hope on the development of tourism and hydropower.
Quite unfortunately though, these promises have remained just that – promises. Though the country is almost completing one year since the remarkable April change last year, people are still unable to taste the peace dividend.
Tourism has not been able to witness the growth given the continuous bandhs, strikes and instability. The unrest in Terai and instability in politics has hurt its prospects.
On the other hand, due to lack of exploitation, the hydro power remains untapped potential. Worse still, the country is facing crippling hours of load-shedding.
KHUDI HYDROPOWER
Small Addition
Khudi Hydropower starts commercial generation
By A CORRESPONDENT
Though it is small in quantity, the completion of Khudi Hydropower project has lessened the burden on the national grid, which is under pressure due to energy crisis.
At a time when the country is facing crippling hours of load-shedding, a private sector company has commissioned a new hydro project of small scale.
Despite having started its construction amid the escalating conflict, the Khudi Hydropower Limited (KHL) completed the construction of 4 MW strong Khudi hydropower project within 15 months. It was formally inaugurated at Khudi – 9 km north of Besisahar in Lamjung district on March 8. Speaking at the ceremony to commemorate the inauguration of the project, Minister of State for Water Resources Gyanendra Bahadur Karki congratulated the developers for completing the project in an exemplary manner despite conflict.
"Although this is a small project, the success of its construction can provide us with models for future," said Gyanendra Lal Pradhan, chairman of KHL.
The KHL is promoted by three developers including Butwal Power Company (60% share); SCP Hydro International Inc, Canada (25%) and Lamjung Electricity Development Company (15%).
The KHL project is located along Khudi river in Simpani, Khudi and Ghanapokhara VDCs of Lamjung district. The power generated is evacuated through 14 km long 33 KV transmission like to Udipur substation. The project was put into commercial operation on December 30. At present, the project is supplying electricity to Khudi, Besisahar, Dumre, Bandipur and nearby areas.
Completed at the total cost of Rs 560 million – Rs 40 million less than initial cost estimation – the project has also invested over Rs 24 million in social mitigation efforts with the help of CEDA. "We have electrified parts of three VDCs, supported 26 schools, set up health posts, constructed football ground, motorable road to village and provided training to many local people," said Pradhan.
According to Francois Vitez, Director of SCP Hydro International – a Canadian investing company – the result at Khudi has generated a lot of interest among big Canadian investors about projects in Nepal .
The Canadian delegation led by Andre Boulanger has already met with Finance Minister, Minister of State for Water Resources and Managing Director of Nepal Electricity Authority (NEA).
Boulanger, chief of distribution of Hydro Quebec, speaking at the commemoration ceremony, said that Nepal should keep its vision alive so that it can succeed. Hydro Quebec is the largest hydropower utility in Canada with the generation capacity totaling 40,000 MW.
Besides, the team of Khudi developers have already identified Nyadi project as their next venture. "Once the PPA (Power Purchase Agreement) is sealed, we can start the 24-MW strong Nyadi within three months," said Pradhan.
Meanwhile, Pradhan said the National Planning Commission (NPC) needs to upgrade the plans so that Nepal can develop at least 5000 MW power between 2007 and 2017. "This alone will take the GDP to double digit growth," he said. According to him, the Nepal Electricity Authority (NEA) can develop few thousand megawatts of power on its own, the private sector can add few hundreds and the rest through foreign investment.
"The Government Feels No Compulsion To Act"
Dr. Raghab Dhoj Pant
Dr. Raghab Dhoj Pant is the executive director of the Institute for Development Studies (IfDS). Dr. Pant, former acting vice chairperson of the National Planning Commission (NPC), spoke on the overall situation of economy.
How do you see the current situation of economy?
It is quite obvious that the situation is not good. But I don't see any compulsion on the part of the government to act to set things straight. I see that all the actors – the government, the financial sector and others – are feeding on poverty. In fact, it is the poverty that is sustaining our economy. And poverty itself is very high, but statistically declining. Since poverty is important to sustain our economy, I doubt there is any target to alleviate poverty even.
So, how is the economy running, then?
There is a very interesting vicious circle that revolves around poverty. Population is growing and young people have left for overseas due to lack of jobs in the country. They send back billions of rupees as remittances, based on which the banks and other financial institutions are running. This has increased our foreign exchange deposit. Consumer spending has also been pushed by the remittance leading to fairly growing revenue (out of imports) for the government. As such, the government is under no pressure to do anything more since the macro-economic indicators are fairly stable. This is how our economy is running. I want to add here that while India is enjoying demographic dividend, Nepal is suffering from demographic crisis. In India , there is a huge population of young people. Recently The Economist reported that the pool of highly qualified graduates in India will be twice as large as China within few years. India is reaping dividends from its population. On the other hand, in Nepal we have been incapable of providing jobs to our youths forcing them to go overseas for works.
How do you read the economic policies followed by the current government?
I do not find any economic policy aimed at bringing about change in the situation. There is no policy to uplift the economy. As I said earlier, the authorities have no motivation to do anything more. They are content at just getting by. Unless they face serious crises to economy, they won't feel tempted to take any constructive initiative. There is high but statistically declining poverty and the receipts from remittances associated with it appear to have generated an impression of a self-generating well managed process of the macro economic structure. And, this has led both the government and the central bank not to hurry to initiate new policy measures. Neither the government nor the political parties feel the urgent need to take initiative in the area of economic management.
There have been continuous bandhs and strikes. How have they impacted the economy?
This again is quite obvious. However, till now, there has not been any study to measure the impact of such bandhs. But, of course, the bandhs hit at the transport, trade, manufacturing, consumption etc. The continuous bandhs have definitely hurt the economy. But as I said earlier, without the crisis our leaders will not be inclined to take any initiative.
So, will Nepal 's economy continue like this or will it face grave crisis?
There is no indication that Nepal 's economy will collapse because there are still resources pouring into the nation in the name of remittances or foreign aid. Besides, though it is small, Nepal is in a strategic location and other countries will not allow its economy to totally collapse. But if our leaders are to prevent economic crisis, they must address the issue of employment, first and foremost. I do not think depending on remittance income is wise or appropriate. Already we are noticing huge social costs of the unbridled growth of foreign employment.
What about inflation?
That is going to be another serious challenge. Besides, India is also suffering from inflation and there is quite a panic about rising prices there.
You have been talking about discrepancy in exchange rate vis-à-vis Indian currency. Can you elaborate?
There is quite a discrepancy in the exchange rate between Nepalese and Indian currency. I don't think the current exchange rate (at Rs 160 for IRs 100) is realistic. We have to depreciate it to about Rs 180. We should not make it a prestige issue. The central bank can just let the market fix the exchange rate also.
