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Unified by King Prithivi Narayan Shah, in 1768, an independent small, landlocked and poor, the Himalayan Kingdom of Nepal was first opened to the outside world in 1951. Lord Buddha (Siddhartha Gautam, 563-483 BC) was born in this country but still considered as the only Hindu nation in the world. However, the main religions are Hinduism (87%), Buddhism (8%), and Islam (4%). Even though Nepalese is the national language, there are 70 different languages spoken by diverse ethnic groups. Nepal was dominated by authoritarian rule for seven centuries and was never colonized. Nepal remains one of the world’s poorest countries with an annual per capita income level of $210. Infant and maternal mortality rates remain very high and average life expectancy is estimated to be only 55 years. Only 40% of the population is literate. The population growth is also high, 2.5% annually, and is expected to double within the next 30 years.
Nepal’s development is constrained by high population density, low industrial output, limited natural resources, difficult topography, geopolitical crisis, a weak human capital base with extremely poor levels of education and health, poor public management capacity and a long history of autocratic regime, and public intervention. Rapid population growth further complicates the delivery of services for the improvement of human welfare. Because of unequal distribution of income, opportunities and power equations, almost half of Nepal’s 22.4 million citizens live in absolute poverty. The poor are predominately rural subsistance farmers. Agriculture is the primary occupation for 80% of the population. Cultivated land constitutes only 18% of the total (147, 181 sq. km) land area of Nepal. Since opportunities to bring additional land into cultivation are limited, a high population density has resulted in over-exploitation of the natural resource base and erosion of soil fertility.
Nepal was often called ‘a forbidden kingdom shrouded in the mystery’ because during the authoritarian regime, there was no contact with the outside world. When the Tribhuvan International Airport was established in 1951, the diplomatic relations with foreign countries increased dramatically. Unfortunately ‘absolute monarchy’ was imposed by the 10th King (Mehendra) of Nepal in 1959. Once again all the economical and political systems were centralized. Although revenue from the tourism increased from $12 million (in 1960) to $172 million in 1995, it brought a little change in overall development of Nepal. During these 20 years (1969-1989), corruption, deforestation, poverty and cultural erosion went almost unchecked (if not out of control). During the 1980’s alone, it was believed that a billion dollars were injected to various banks of Europe.
Autocratic regime ended only in 1989 with the establishment of a constitutional monarchy and multi-party democracy. All three major political parties in Nepal -- the Communist Party of Nepal (United Marxist-Leninist), the Nepali Congress, and the National Democratic Party -- have agreed for liberalization and privatization of the Nepalese economy. Although there are some differences in the manifestation, they are committed to the establishment of democracy, and a market-oriented economy. The Nepalese governments have shown progress in the liberalization of its economy over the past eight years. Nepal has privatized a number of public enterprises, eliminated public monopolies in air transport and hydropower generation, eliminated price controls on most products, reduced consumer subsidies, established a convertible currency for all current account transactions, modernized its commercial and company laws, and set in place a program of tax reform by introducing a new value-added tax system. Because of a large balance of payments deficit, the governments now face the difficult task of establishing a basis for sustained growth (through hydropwer development and exports). In order to reduce such problems the governments have started other areas of basic economic reform programs, privatizing public enterprises, freeing trade and prices, revitalizing the stock market and setting in place a program to attract private investment. A new transit agreement with India has also been discussed which Nepal can easily export/import to/from the third country.
The democratic governments have recognized four major sectors of economic growth: hydropower generation, tourism, transport (and air transport in particular), and telecommunications. Tourism industry has grown dramatically becoming one of the largest foreign exchange earners for Nepal. In early 1990’s, the domestic air transport was privatized which resulted in a four-fold increase in air traffic. However, poor transportation and communications facilities have hampered its growth. The country has only some 10,000 kilometers of motorable roads, therefore, the surface travel is limited/difficult, especially during the monsoon season (June-September), where it can rain as much as 500 mm within 24 hours. Moreover, Nepal is a mountainous country so that better development of roads is very difficult and costly. Consequently, the existing infrastructure is inadequate to meet the needs of tourists. The slow development of an appropriate road network has put further pressure on the limited domestic air transport. Although the governments have given a high priority for private airlines to fly international destination, it’s still uncertain that whether demand will be fulfilled adequately.
The other two sectors are all areas in the process of being privatized. Hydropower is the most significant and the Nepalese governments have, now, laid the legal basis full-scale private development and for private exports of hydropower to China and India. Nepal has roughly 83,000 MW of exports of hydropower potential and half of which is economically feasible for development. Some of these private-projects are now underway and others (costing billions of dollars) have put forward, namely West-Seti, Pancheswor, Karnali-Chisapani and Arun III sites. As far as the telecommunications concerned the progress has been slowest. However it’s also under discussion for privatization as well.
Even though some economic progresses have been seen since 1989, still the government bureaucracy is felt even at a more local, project level. This has created some animosity between the government and the private sector. “Many aid workers identify the root cause of Nepal’s slow development as ’institutional problems’ a euphamism that covers a multitude of sins. They speak of management bottlenecks, where bureaucrats hoard power to such an extent that project managers have to spend most of their time in Kathmandu queuing for signatures instead of getting things done in the field.” After eight years of democracy people are still not satisfied with the political and administrative system of Nepal. Political instability has been one of the major factors because since 1989, the power equation has changed for the fourth time. It seems that politicians have always been fighting more for the parliamentary chair than for the national interest. Crime and violence rates have increased four fold, and bribery and corruption problems still appear unresolved. Reduction in city pollution and installation of clean water supply still remains very insufficient. People under absolute poverty have not seen any differences but shocked with ‘skyrocketed prices’ for necessity goods. Since February 1996 so called ‘people’s war’ (Maoist insurgency) has claimed over 130 lives, in the isolated western districts (e.g. Rolpa, Rukum) of Nepal. Many people are forced to get involved with the Maoist. This has frightened the local people and some of them have already left their homes. However, so far, efforts made to stop such problems have failed.
In order to implement better economic growth and development, both the public and private sectors must work cooperatively. The governments should establish clear and systematic policies which can provide better opportunities and employments for the poor. For Nepal as a whole, a political stability, commitment, vision, and will is in need, and corruption, violence, and pollution should be reduced. Appropriate steps should be taken immediately but seriously. Without these, it will be hard (if not impossible) to achieve an efficient economic development.
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