The key challenge lies in how the Nepali private sector transitions from rent-seeking behaviour, often facilitated by cartels, to effectively competing with global firms.
Over the past year, Nepal's economic landscape has been inundated with headlines portraying a deepening crisis. Whether it is the balance of payment (BoP) deficit, a positive shift in the BoP, fluctuating foreign exchange reserves, or even international geopolitical events like Iran's missile launch towards Israel, the narrative seems to consistently portray a crisis-like situation. It is crucial to contextualise these events and avoid sensationalising every development as a crisis, thus promoting a more nuanced understanding of Nepal's economic realities.
Business leaders, analysts, and media outlets have consistently viewed every event through a crisis lens. This tendency may have stemmed from a broader issue: a lack of interest in thoroughly analysing data and understanding the nuanced landscape of both positive developments and challenges. We can attain a more balanced perspective and better navigate Nepal's economic landscape by fostering a culture of data-driven analysis.
Despite enduring political challenges and a lack of significant economic reforms, Nepal has seen remarkable economic growth. The country's GDP has witnessed a substantial expansion, reaching $44 billion in 2024, up from $10 billion in 2007. Similarly, the market capitalisation of the Nepal Stock Exchange soared from $650 million to an impressive $25 billion during the period. Additionally, remittances surpassed the $10 billion mark in 2023, with studies indicating that informal remittances may match this amount. These achievements highlight Nepal's resilience and potential for further economic advancement.
Nepal's economic potential stems from its population of 30 million, poised to harness a demographic dividend.
In its 2023 publication, "Introspecting Change”, the Nepal Economic Forum highlighted significant transformations within the country. These include the transition from scheduled power cuts to electricity surplus, the widespread adoption of mobile networks and the Internet, and the transformative impact of digitalisation on people's lives. Moreover, there has been notable progress in expanding road networks and increasing flight frequencies. Despite these considerable advancements, it appears that we fail to fully acknowledge and appreciate the magnitude of these changes.
Nepal's economic potential stems from its population of 30 million, poised to harness a demographic dividend. Its strategic geographical location between the rapidly growing economies of China and India presents numerous economic opportunities. The future growth trajectory of Nepal is anticipated to be centred around the services sector. Additionally, as the hydropower industry matures and the country fully exploits its tourism potential, further avenues for economic expansion will unfold.
The key challenge lies in how the Nepali private sector transitions from rent-seeking behaviour, often facilitated by cartels, to effectively competing with global firms. As Nepal prepares to graduate from its least developed country status in 2026, there is a pressing need to prioritise reforms and investments. The economy and business sector will inevitably take centre stage in this transition. While political complexities persist globally, it is evident that political challenges have been a longstanding issue for Nepal over the past seven and a half decades. Despite these hurdles, those who excel often do so against the backdrop of adversity.
Transforming Nepal, generating domestic employment and driving economic growth does not necessarily demand a multitude of large-scale investments. A handful of strategic investments can kick-start the process.
Nepal's current situation resembles India in the 1990s, marked by political instability and domestic businesses shielded by protectionist policies, hindering economic progress. However, when India liberalised its economy, allowing Indians to invest abroad and compete globally, transformative changes occurred in the country. Global firms entered India, and Indian companies expanded to international markets. Nepal stands to experience a similar trajectory, with its economy poised to grow as Nepali firms venture beyond national borders, bringing back profits from their global ventures. This trend has the potential to spur significant economic development in Nepal.
The ecosystem in Kathmandu is poised for transformation. Traditionally, embassies in the city have primarily focused on consular services and development programs. However, a shift is underway, with embassies evolving into facilitators for investors and promoters of bilateral businesses. As a result, the relevance of various bilateral mechanisms, such as chambers and associations, may diminish. Businesses will increasingly engage in transactions without relying on these institutions, which often operate based on political connections and patronage.
In four years, Nepal will witness another round of elections which will likely result in a shift in political dynamics. As the older generation of politicians becomes less relevant, a new wave of educated and youthful individuals will likely enter politics. If parliamentarians like Sumana Shrestha can challenge the status quo and pose questions previously unasked, envision the impact when a sizable contingent of similarly minded individuals occupy parliament. This influx of fresh perspectives holds promise for driving meaningful change and fostering a more dynamic political landscape in the country.
The Nepali diaspora is expanding rapidly and seeking greater engagement with the homeland. We are witnessing a surge in investments from abroad, although on a smaller scale, and a growing number of visitors to the country. Projections indicate that by 2030, Australia, Canada, the UK, and the US will collectively host over a million Nepalis. Many Nepalis are now opting to work in countries where they can send back higher remittances compared to traditional destinations like Malaysia and Gulf countries. Japan, with nearly 200,000 Nepali residents, is also witnessing a steady increase in Nepali migrants. Moreover, the second-generation of migrant workers are remitting more money than their predecessors, and the growing ratio of skilled workers to unskilled ones is expected to further boost per-capita remittances.
Transforming Nepal, generating domestic employment and driving economic growth does not necessarily demand a multitude of large-scale investments. A handful of strategic investments can kick-start the process. These investments should focus on critical sectors like infrastructure, hospitality or services. However, realising this vision demands a shift – from a trader or commission agent mindset to an investor mindset, prioritising long-term gains over short-term profits. Furthermore, fostering a robust human capital base through investment in human resources and talent development is crucial. This transformation necessitates a revamped private sector characterised by integrity, transparency and ethical values, which, in turn, will curtail funding to corrupt politicians and drive societal correction.
(Shakya is the Chairperson of Nepal Economic Forum and founder CEO of Beed Management, Kathmandu-based management consulting firm working in Asia and Africa.)
