People can flourish even in conditions of worst human rights, or in harsh dictatorships, such as in China, Singapore, or some African states. But it is very difficult for people to survive in harsh economic conditions, as it directly affects their daily lives. In Nepal, all symptoms indicate towards a looming economic avalanche that will have a fatal effect on the people, worse than from the existing political turmoil.
Our GDP growth rate, which is one of the major indicators of economic activities, is continuously declining. In 2010, our GDP growth rate was 4.1 percent, which declined to 3.5 percent in 2011. Our growth rate is lowest among our neighboring countries, even lower than chaotic Afghanistan and Bangladesh.
Agriculture is considered the backbone of our economy. However, it has been declining in terms of production and income for the past few years. In the year 2000, contribution to GDP from agriculture was 36 percent. After five years in 2005, it was 33 percent, and in 2011, it was 35 percent. One of the major causes of this decline in agriculture is the relocation of a large number of agriculture-dependent manpower to other sectors, especially to foreign employment. 84 percent of those who go abroad are between the ages of 15 - 44. According to the 2011 census report, among the 1.9 million who migrated to work abroad, 85 percent were from rural areas where agriculture is the predominant occupation.
Hence, agriculture is suffering heavily from such migration. Low returns from agriculture and high uncertainties associated with it are the main causes of the rural people’s detraction from it. The Agriculture Prospective Plan (APP) adopted in 1995 was considered a national pride then, but now after 18 years, economists are calling it a total failure, as reported in a recent seminar. APP has failed to address such issues, and the government’s deaf ear to its recommendations has further entrenched its failure.
It is not only the agricultural sector that is disappointing; industries too are in deep water. Industries of Nepal have never contributed highly to the national economy. Excluding the golden era of garment and carpet industries, which flourished only due to the American and European quota system, no traditional industry has worked well. If we seriously examine our technological and demographic situation, it will be obvious that no traditional industry can ever work well in Nepal, as we are a rabbit-nation trapped between a tiger and bull. On one side is the roaring tiger of China, a strong competitor to USA in terms of technology. With the largest labor force in the world, China floods Nepali markets with its cheap goods. On the other side is the Indian bull, with the second largest labor force and steadily improving technology.
The most populated areas of India adjoin Nepal at the open border between the two nations. Hence, our industries cannot produce competitive goods unless they have governmental protection, or resort to swindling activities such as fake VAT bills, fake excise rates for the import of raw materials, or illegal hooking of electricity. We often read about such activities in newspapers nowadays. Possibly, the only industries that have a future in Nepal are semi-skilled agro-based industries such as tea, high altitude coffee, trout fish, herbs, and tourism.
In the past few years, the service sector has shown tremendous growth as compared to other sectors. For example, in 2007 the annual growth rate of service sector was 7.3 percent, when agriculture and industry had growth rates of 5.8 percent and 1.6 percent respectively. Now in 2011, service sector has contributed to 52 percent of the total GDP, and has exhibited a growth rate of 5.1 percent, the highest among various sectors. This boom in service sector is mainly due to mushrooming growth of financial institutes like banks and finance companies.
According to Nepal Rastra Bank, there are about 200 banks and financial companies, along with about 26,500 cooperatives with more than 3,000 branches, in the country.
Financial sector is now facing fatal challenges from different directions. On the one hand, it is facing large withdrawals of personal deposits due to the governments’ tightening scrutiny on the sources of income (sine the government itself is being pressurized by IMF to prevent money laundering). On the other hand is the outburst of ‘loan scandals’ associated with superficially valued land and apartments used as collateral at banks.
The recent arrest of Mr. Sudhir Basnet, the chairman of Oriental Saving and Cooperative who had heavily invested in different apartment projects, has brought to surface the rotting corporate culture of the country. Mr. Basnet is accused of abusing about Rs.18 billion from customers and using the money to purchase land for personal use. Among the customers swindled are 10,000 depositors of his own cooperative.
Bursting bubble of land price and corporate scandals are harbingers of an impending avalanche in the country.
Land and apartment are regularly used as collateral for loans, but with the collapse of land price last year, the use of sharply devaluated land as collateral has now emerged as a prominent financial scandal. Not just a businessman like Basnet, but the banks that sanctioned such loans and the regulatory body of NRB are equally responsible for this fiasco. Further, Basnet’s case is just one of many from a Pandora’s Box, several such previously hidden corporate scandals are now coming to light.
The bursting bubble of land price, apartment culture, and corporate scandals are harbingers of an impending avalanche in the country. Financial institutions are trembling, and so is the overall business environment. With the sluggishness in business, markets, shops, malls and restaurants (also extended to the whole advertisement industry), the avalanche is already knocking at our doorstep. Media and newspaper industries that rely on advertisements are barely surviving. The days are not far when the whole country will be suffocating from an economic collapse, whether it is in agriculture, industry, or service sector.
The author is Associate Professor of Statistics at Tribhuvan University
vrsatyal@gmail.com
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