Russia-Ukraine War and Its Impact on the Economy of Nepal

INTRODUCTION

1. Background of the Study

The Russia-Ukraine conflict can be traced back to the collapse of the Soviet Union in

1991, which resulted in the emergence of Ukraine as an independent nation. The initial

tensions between the two countries arose due to disputes over the ownership of Crimea, a

peninsula in the Black Sea that was historically part of Russia but was transferred to Ukraine

in 1954. The conflict escalated in 2014, following the ousting of the pro-Russian Ukrainian

President Viktor Yanukovych in February of that year. This event led to a series of protests

and a subsequent referendum in Crimea, where the majority of the population voted in favor

of seceding from Ukraine and joining Russia. The annexation of Crimea by Russia in March

2014 was met with condemnation from the international community, leading to economic

sanctions being imposed on Russia by the West. The conflict further escalated with the

outbreak of fighting in eastern Ukraine between Ukrainian government forces and Russian-

backed separatists. The ongoing conflict has resulted in thousands of deaths and displacement

of civilians and has had significant geopolitical and economic ramifications.

 The recent escalation of the Russia-Ukraine conflict, which began with the

annexation of Crimea in 2014, reached a critical point on February 24th, 2022, when Russia

launched a full-scale invasion of the Ukrainian mainland. The conflict has led to a severe

humanitarian crisis in the region and has had far-reaching consequences for the global

economy and security. As Ukraine and Russia are major exporters of wheat, barley, corn,

cooking oil, and petroleum, disruptions to the flow of these goods have compounded other

supply chain and climate challenges, driving up food and gas prices, causing shortages, and

pushing millions of people into hunger. The involvement of NATO in the crisis and major

sanctions over the Russian Federation has led to a shakeup in global relationships and

brought the world powers to the brink of a full-blown global conflict. This 21st-century war

in Europe is pushing the world toward a potentially profound realignment, rattling prominent

global players such as the European Union and the United Nations, and forcing countries to

take sides in new ways that have led to escalating tensions and momentous diplomatic shifts.

The ongoing conflict continues to have significant impacts on the world stage, including in

countries like Nepal that have direct and indirect ties with Russia and Ukraine.
 The ongoing conflict between Russia and Ukraine has had significant adverse effects

on Nepal's economy. The disruptions in the global supply chain of food and petroleum have

led to inflation and financial difficulties in Nepal, which heavily relies on imports for basic

necessities such as food and energy. The conflict has also caused a decline in foreign

investment and tourism in Nepal, creating further economic challenges for the country. In

addition to these challenges, the conflict has also created geopolitical tensions in the region,

as Nepal shares a border with both India and China, two countries that have taken different

positions in the conflict. This has led to further uncertainty for Nepal's economy, which is

already grappling with the effects of the global pandemic.

2. Statement of the Problem

 The ongoing war between Russia and Ukraine has brought about significant

challenges for Nepal's economy. The global supply chain disruptions, particularly for food

and petroleum, have led to inflation and financial hardship. The conflict has also resulted in a

decline in foreign investment in Nepal, worsening economic difficulties. Nepal's proximity to

India and China has created geopolitical tensions, as the two nations have opposing stances

on the matter, further adding to the uncertainty.

The far-reaching macroeconomic and geopolitical implications of the Russia-Ukraine

conflict have been widely acknowledged. However, little attention has been paid to the

impact of the war on Nepal's agriculture and tourism sectors, which are integral components

of the country's economy. In recent months, there has been a sharp rise in global food, fuel,

and fertilizer prices, which has had a profound effect on Nepal's agri-food systems. For

instance, the real prices of palm oil and wheat increased by 56% and 100%, respectively,

between June 2021 and April 2022 (Diao et al., 2022). Consequently, the effects of the war

on the agri-food system have had a significant impact on household food security and

poverty levels in Nepal. The changing global prices are a cause for concern, as Nepal's food

security and poverty status are likely to be further affected by the ongoing conflict.
 The ongoing Russia-Ukraine war has had a significant impact on the tourism industry,

which contributes to Nepal's economic prosperity by generating significant revenue and

employment opportunities. According to the Nepal Tours and Travel Association (NTTA),

approximately 4,000 to 5,000 tourists from Russia visited Nepal in both 2019 and 2020.

Additionally, in 2019, 283 Russians and 103 Ukrainians purchased peak climbing permits

through the Nepal Mountaineering Association (NMA). Given the number of tourists from

these countries and others who are working to recover from the economic effects of the war,

the tourism industry has been severely affected.

In addition to assessing the major impacts of the war in Nepalese economy, this study also

seeks to answer some specific research questions. The broad and specific research questions

are as follows,

1) What are the major impacts of the Russia-Ukraine War in Nepal?

2) What are the specific impacts of the Russia – Ukraine War in the agriculture sector in

Nepal?

3) What are the specific impacts of Russia – Ukraine War in the Tourism Sector in Nepal?

4) What are the comprehensive mitigation strategies that can be employed to reduce the

impacts?

3. Objectives of the Study

The study aims to conduct a critical analysis of how the Russia-Ukraine conflict

has affected the Nepalese economy. To achieve this goal, first, this study aims to present

the broad macro-economic effects of the war on the economy. In addition, the study also
 aims to assess impacts on two sectors: 1) Agriculture, 2) Trade and Tourism. The

objectives of the study are as follows

1) To assess the broad impacts of the Russia-Ukraine conflict on the agriculture sector,

focusing on the food security and poverty.

2) To assess the impacts of the war on Trade and Tourism sector

3) To identify short- and long-term mitigation strategies that can be employed to reduce the

impact of the conflict on Nepal's economy.

4. Significance of the Study

Agriculture is a key sector in Nepal, employing over 60% of the labor force and

contributing a third of the GDP. The country's diverse topography enables the cultivation of

various crops, some of which are exported. Agriculture also plays a critical role in ensuring

food security for the population. Assessing the impacts of the Russia-Ukraine war on the

agriculture sector helps policy makers and stakeholders to take necessary steps to minimize

the effects.

Tourism is also a significant sector in Nepal, contributing around 7.9% to the GDP and

providing employment opportunities. Nepal's unique geography, cultural heritage sites, and

wildlife attract tourists from all over the world, particularly for trekking and mountaineering.

The sector also generates foreign exchange earnings, and the government has implemented

policies to promote tourism, such as developing new destinations and infrastructure. The

findings of the study could be used to inform policymakers and stakeholders in the tourism

industry in Nepal, enabling them to make informed decisions regarding future investments

and policies in the sector. The study would provide insights into the resilience of Nepal's
tourism industry in the face of external shocks and could be used as a benchmark for other

countries facing similar challenges.

5. Limitations of the Study

Although this research paper is an attempt to analyze the impact of the Russia Ukraine

war on Nepal's economy, especially in agriculture, food s security, poverty, and tourism, it

has some limitations that should be considered. The study mainly relies on secondary sources

such as journals, articles available on the internet and library, and previous research

conducted on similar issues and other pieces of literature. Besides, there are limited

secondary sources available on the internet that measure the impacts of the Russia-Ukraine

war on the aforementioned sectors. Acknowledging the limited sources of information that

can be relied upon, the robustness of the findings from the paper might be lesser. The

research does not involve any experimentation with the control and manipulation of

dependent, independent, and extraneous variables to determine the potential relationships

among variables of interest. The study is therefore more focused more on content analysis of

existing data.
6. Research Methodology

This study aims to conduct a comprehensive analysis of the impact of the Russia-Ukraine

war on the Nepalese economy. It adopts a methodology of descriptive qualitative analysis to

identify and analyze the problems associated with the war's effects and explore possible

solutions to address the situation. In addition to utilizing secondary sources, such as news

articles, national and international journals, research papers, and analytical publications, this

study seeks to collect primary data through direct surveys using structured and semi-

structured questionnaires. However, the availability of the primary data in the final report is

contingent upon the response rate. It is hoped that the study's findings will help policymakers

and other stakeholders understand the impact of the Russia-Ukraine war on Nepal's economy

and provide insights into ways to mitigate its effects.

7. Research Design

The research methodology of this study is primarily focused on using qualitative analysis

to analyze the data. The study will primarily rely on secondary sources such as articles,

reports, books, and other published works to collect data. However, the study also aims to

collect primary data through direct surveys using structured and semi-structured

questionnaires. It should be noted that the availability of findings from the primary data in

the final report is dependent on the response rate. Additionally, it is important to highlight

that the research methodology is limited to qualitative and descriptive analysis, and no

statistical parametric methods will be employed in the analysis of the data, be it primary or

secondary.
8. Nature and Sources of Data

Following are the sources of secondary data used in the research paper.

(a) Library. Various books related to the Russia-Ukraine war are used to

come up with the analysis of the researcher. There is paucity of the latest published

books and data sources in library.

(b) Previous Research Work. Very few pervious research works on similar

topics have been found hence, it has been attempted to bring the related and useful

content available for the purpose of the research as much as possible.

(c) Internet. Various articles and publications from web sources are used as

major source of qualitative and descriptive data pertinent to the research topic.

(d) Primary data: The study aims to collect primary data using structured and semi-structured

questionnaire to elicit information on impacts of the war on micro-economic level.