× 4th Newbiz Business Conclave Awards 2017 Nobel Prize in Economics 2017 Tourism Watch Educational Management Best Print Advertisement Published on NBA 2073-74 3rd National B-schools Rating-Ranking-Awards 2017 Investing Organisational Management Company Profile Education Dataspeak Business Visitors Nepal Politics Economy and Policy Cover Story Corporate Focus Business Financing Sectoral Tourism Trends Business Education Startup Scene Stock Taking Liquor Indicators Crossword Corporate Movements Living + Personality Interview No Laughing Matter Special Photospeak

June 2015 Economy and Policy

Published on: 2015-06-12 00:00:00     1266 times read    0  Comments
 
As the mighty rivers flowing through Nepal are shared by four sovereign countries, power sharing would be the best option for all in order to benefit from the hydropower potential of the Himalayan region.
 
--By Prof Kamal Raj Dhungel
 
The Economy
The size of Nepal’s economy is small. In 2012, it was just ahead of Senegal, with its GDP estimated at USD 19.41 billion. The fact remains that the country is yet to recover from a decade-long insurgency which wrecked the economy substantially before coming to an end in 2006.
 
This conflict-prone economy depends heavily on remittances and basic agricultural production. For years, the country’s economic growth rate has averaged at around 3-4 percent per annum. The growth rate primarily depends on subsistence farming which in turn depends on the monsoon. A good monsoon equals a good harvest. 
 
The movement paths of both real GDP and agriculture GDP are identical. It indicates that the main determinant of the growth rate of the Nepali economy is agriculture.  Oscillations in the annual growth of the agriculture sector more or less determine the annual growth of real GDP.
 
Manufacturing, which has been badly suffering from a short supply of power, contributes only six percent to the GDP. In addition, Nepal has been blighted by weak institutions and poor governance, factors responsible for Nepal nearly becoming a failed state.
 
Nepal’s low per capita income of roughly USD 700 reveals the low level of development. A lower level of savings is the likely outcome of this situation. Low income means low savings. Low savings limit the size of investment. The size of investment in an economy depends on the size of the savings. In Nepal, the low savings have led to a vicious circle of low investment. It limits the country’s capacity to invest in development projects. 
 
Sinful Water
Nepal has a vast water resource. But there exists no easy solution for the utilization of water. Water management has emerged as a problem. There are multiple stakeholders who hold an array of values inherent in water resources management, rendering decision-making difficult. 
 
The utilization and management of Nepal’s water is complex. Almost all our rivers originate in Tibet, an autonomous region of China. They enter Nepal and cross the Nepali border to flow into India and then into Bangladesh before reaching the ocean. This indicates that rivers in Nepal are shared by four sovereign countries. These rivers are the source of drinking water, irrigation and electricity for the people of these sovereign countries. 
 
Nepal has few or limited alternatives to choose from. Water is the only resource on which Nepal’s future prosperity depends. It is nature’s free gift. Nepal’s geography can make it become a hydro rich country. Hydropower is a form of clean and renewable energy. It has limited environmental impacts. Nepal’s hydropower potential, if tapped properly, could allow all stakeholders to share the resulting benefits.
 
Trade Transit Hub
Nepal is one of the least developed countries in the world. It is also one of the landlocked countries in South Asia with India to the south, east and west. However, to the north Nepal is connected to China which makes it a key strategic country having the potential to integrate both the markets of China and India by facilitating and allowing trade and transit. 
 
This type of integration could make Nepal a trade and transit hub, boosting the tourism industry. However, two obvious reasons stand in the way of integrating the markets of both of these countries in this way.
 
One, there is a direct link between these countries to open trade routes through their own borders. Two, the goods manufactured either in China or in India, if traded in either of these countries through Nepal, would incur a high cost in comparison to direct trade operated through their own borders. 
 
Neither of these countries will choose the former option for the obvious reason that it reduces transportation and dry port costs which makes trade in goods cheaper for both these countries. 
 
Hydropower Potential
The techno-economic feasible stock of Nepal’s hydropower is nearly 42 GW. Few countries in the world have such potential. Its proper utilization would make the country prosperous. The modern age is an age of specialization. Nearly all global economic activities are based on the comparative advantage to specialize. Nepal has few alternatives to choose from. It has to depend on the development of hydropower.
 
Hydropower projects by nature are capital-intensive. Huge investment is required to put them into action. Nepal’s investment capacity is low while hydropower projects require high investment. 
 
With the available domestic capital, Nepal can only build small size plants which would not be enough to meet the growing domestic demand. It keeps Nepal in a stationary state. No development. No progress. This is known as a state of inaction, ultimately requiring foreign investment. 
 
Development Indicator
Electricity is one major source of power needed for economic activities to go on. Per capita electricity consumption is considered as a development indicator. Higher the per capita electricity consumption, higher the level of development.  Nepal’s installed electricity generation capacity (hydro and thermal) is 782.5 MW (NEA, 2014). Nearly 50 per cent of the population has access to electricity with a very low per capita availability of 105.5 KWh.  The per capita electricity consumption of Nepal is the lowest even among the South Asian countries.  This indicates that Nepal’s development is low judging from the perspective of per capita electricity consumption.
 
Conclusion
Anticipated economic growth needs a smooth supply of electricity. The average annual growth rate of electricity consumption has been found to exceed the growth rate of GDP, indicating that people or households have the tendency to climb up the highest ladder in spite of their income status. But for the past two decades, power outages continue, paralyzing social and economic activities and leaving an adverse impact on economic growth.
 
Poor governance breaks the rule of law and stimulates corruption. Insecurity is rampant everywhere. Policies in place have largely failed to attract FDI to harness the hydropower potential. This needs adequate infrastructure, a market for electricity, sound policies and strategies, competitive pricing policies and low cost generation. 
 
As the mighty rivers flowing through Nepal are shared by four sovereign countries, power sharing would be the best option for all in order to benefit from the hydropower potential of the Himalayan region. 
 
The author was Professor of Economics at the Tribhuvan University.
 

#  
No comments yet. Be the first one to comment.
Laws of The Land

Laws of The Land

By Madan Lamsal

There are many who complain that there is nothing in Nepal and that the government here does nothing. But these people don't know that the government has formulated so many laws in Nepal that it seems to have become the country with the highest number of laws. . . . read more »