Dr. Bishnu Dev Pant
Institute for Integrated Development Studies (IIDS)

Mandikhatar,P.O. Box 2254, Kathmandu Tel. # 977-1-4378831/1006, Fax # 977-1-4378809 Email: info@iids.org.np; Website: www.iids.org.np

September, 2011

Economic Development in Nepal

Nepal lies between India and China It cannot remain unaffected from the developments in these countries Planned development started in 1956 with the first five year plan Substantive development achieved during last five decades Improvements in social sector very impressive

Overall Economic Performance

Economic performance modest, but still lags behind other countries of the region

Three distinct phases of economic growth
1961- 1980: a phase of slow growth 1981- 2000: phase of relatively high growth 2000- present: phase of slow growth Highest growth rate of about 6% in 2007/08 Economic reforms initiated in 1990

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Key achievements
• •

Poverty reduction substantial: from 42% in 1995/96 to 31% in 2003/04 to about 25% in 2009/10 Inequality increased from 0.34 to 0.41 during the same period (Gini coefficient)

Inclusiveness of Economic Growth
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Economic growth rates vary across development and ecological regions Variations in poverty incidence by geography and ethnicity Benefits of economic growth not uniformly distributed
Constraints to inclusive growth include
• • • • • • •

lack of productive employment opportunities unequal access to opportunities inadequate social safety nets unequal access to opportunities weak human capabilities uneven playing field limited access to infrastructure and productive assets

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Migration offers new source of employment Geographic, ethnic and linguistic diversity contributes to exclusion

From Poverty to Inclusive Growth

Household category Landless framers Marginal farmers Small farmers Medium farmers

Total Households number 287100 670000 648000 1131560

Size of land ownership (ha) 0-0.1 0.1-0.3 0.3-0.5 0.5-3.0

Highly fragmented land holding 1.13 ha (1981) 0.96 ha (1991) 0.50 ha (2010) Fragmented land holding contributing to lower agricultural productivity Solution? • Land distribution to landless • Setting up community farming

Large farmers
Extra large farmers




From Poverty to Inclusive Growth…contd.

Access to public and social sources
- Fertility rate has dropped to 2.9 children from 6.2 children in 1970

- More access to health services - More access to education and and women

empowerment to girls

- Legalization of abortion, but teenage abortions creating criticisms - 80% infants vaccinated in 2008 compared to 10% in 1980, but infant mortality still high - Health expenditure 6% of GDP, more needed

- Health services at the grass root level needs strengthening - Needs to reduce gap between urban and rural areas

From Poverty to Inclusive Growth…contd.

Transportation infrastructure not adequately developed
• • • •

Road network density low Only 43% people have access to all weather roads Lowest coverage of road networks in South Asia

Need more investment in transportation infrastructure

Massive out-migration due to lack of opportunities in the country
• • • • •

65% of migrant workers between 15 and 29 years Most migrant workers unskilled Remittance income almost 25% of GDP Migration of young workers has negative impact on economy, specially in agriculture sector

Migration not a desirable solution in the long run

From Poverty to Inclusive Growth… Contd.

Rapid urbanization during the last decade
• • •

Mainly caused by Maoist conflict and less opportunities in rural areas Classic “urban giantism” problem in Kathmandu valley Push Factors: Rural poverty and poor Public Service Delivery Urban bias is creating slums in cities and hinders fight against poverty

Need to improve infrastructure and facilities in rural sectors to discourage rural-urban migration

Globalization has not helped Nepal in improving the economy
• • • •

Cheaper competition from China and India have destroyed Nepalese industries Lack of infrastructure to compete in the world market Very vulnerable to risks posed by liberalization Harder for countries like Nepal to benefit from globalization

Poverty Reduction and Inclusive Growth in People’s Republic of China

Poverty reduction in china succeeded due to reforms during agricultural revolution by Mao TseTung and industrial revolution by Deng Xiaoping

Deng’s extensive reform policies
• • • •

Contributed to unprecedented prosperity and modernity During his regime (1978-1998), per capita GDP quadrupled 9.3 percent GDP growth rate Poverty declined phenomenally.

Reduced gap between rich and poor due to
• • •

Implementation of pro-poor policies Efficient public management system Regional equity

“Great western development strategy” pursued in 2000
• • •

Reduce inequality between developed eastern region and underdeveloped western and central regions Urban and industrial China are shifting inland Millions of rural Chinese are still left behind

China’s Development Assistance to Nepal

Transport Infrastructure
• • •

• • •

October 1961: US$ 9.8 million to construct the Arniko highway 1969: construction of the 13 KM road between Kathmandu and Bhaktapur November 1972: Rs 300 million loan to construct Narayanghat—Gorkha road, trolley bus service between Kathmandu and Bhaktapur, and construction of Pokhara—Surkhet highway 1984: construction of Pokhara—Baglung sector of Pokhara—Mustang road 2002: Construction of 18 KM long Rasuwa—Syafrubesi road linking to Tibet February 2011: a grant for widening Kathmandu’s Ring Road

• • •

helped facilitate business and trade within the national context facilitated in increasing the trade between the regions helped uplift many people out of poverty with opportunities for trade, movement, and access to markets

China’s Development Assistance to Nepal…contd.

Industry and Other Infrastructure
• • •

• •

1972: loan for a textile mill and expansion of Harisiddhi Brick and Tile Factory 1973: established the Hetauda Cotton Mill June 1976: committed to establishing the Hetauda Textile mill 1980: agreed to construct the Lumbini Sugar Mill and Bhrikuti Paper Mill, construction of Bansbari Leather and Shoe Factory 1987: commitment to fund the construction of the International Convention Hall 1997: provided a grant of Rs 400 million to construct the SAF Hall and other sports infrastructures for the SAF games 2002: a grant of Rs 260 million to expand the capacity of Nepal Television

• • • •

helped Nepalese industries grow and expand helped Hetauda become a major industrial hub in the country building and fostering culture and sports in the country growing sporting culture provides jobs to thousands

China’s Development Assistance to Nepal…contd.

Social Sector

• • •

1996: grant worth Rs 8.1 million to B. P. Koirala Cancer Hospital 1997: an additional Rs 20 million 1998: an additional Rs 10.1 million 2006: grant of Rs 10 million for the Melamchi drinking water project

• • • •

projects have provided jobs to many helped improve the lives of many others assistance is lacking when compared to other sectors need more support for healthcare, education, jobs and a decent standard of life

China’s Development Assistance to Nepal…contd.


July 1976: US$ 4 million grant to construct a dam in the Seti River in Pokhara 2006: grants worth Rs 3 million to Agricultural Research and Development Fund, Rs 6 million to Horticulture Department, Rs 6 million for seed promotion, Rs 20 million for development of agriculture in the Karnali region, Rs 40 million for agricultural extension, and Rs 60 million for development of livestock

needs more logistic and technical support to improve Nepalese agriculture and productivity of its farmers such support from China has been lacking

China’s Development Assistance to Nepal…contd.

• • •

2008: loan of Rs 2 billion for Trishuli A hydropower project 2009: additional 1.5 billion 2011: soft loan for Upper Trishuli 3A hydropower project

• • •

irregular supply of power to run the factories and the mills assistance in Nepalese hydropower has been limited to cash assistance Nepal needs more technical and logistic support

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promoting Nepal as a tourist destination assistance is lacking

China’s Development Assistance to Nepal…contd.
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China has started providing loan to finance development projects in Nepal since 2000 Encouraged Chinese investors and business people to invest in Nepal Recently, diversifying its development assistance to other sectors including hydroelectricity, industry, health, agriculture and very recently in tourism as well China has recently opened its market to a number of Nepalese agricultural and industrial products This gesture is expected to reduce the trade imbalance between Nepal and China The assistances have contributed in reducing poverty in Nepal Helped to raise the standard of living of Nepali people

Lessons for Nepal From Chinese Experience
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2011 Nepal: very similar to China in 1978 in terms of economic and social characteristics
Economic development efforts in Nepal have focused largely on urban development and growth Eastern and Central development regions are decades ahead in terms of development when compared to other regions

Nepal can learn from China’s “go west policy”

to reduce gaps between eastern and western regions of Nepal

Nepal can learn from China’s pro-poor policies

to reduce the economic and social disparities between the rich and poor people of Nepal

Modernizing the agriculture and farming sector
• • • • •

Agriculture still contributes around 34 percent of the GDP Employs almost 75 percent of the labor force Nepal should follow China’s lead and reform agriculture

Should provide technical support to farmers, health care to rural population, improve irrigation facilities Introduce scientific farming techniques including drip irrigation and storage facilities to farmers

Lessons for Nepal from Chinese Experience…contd.

Nepal suffers from fragmentation of landholding • GON may consider setting up a system where large scale farmers and investors can lease the unused lands • This can increase agricultural productivity and efficiency due to economies of scale Lack of proper storage and cold storage facilities • Nepal can learn from the Chinese experiences in this regard • This will help farmers get appropriate prices for their products Construction and improvements of rural and agricultural roads. • Invest heavily on rural roads • Connect the rural supply with the urban demand market • Farmers become more productive and richer

Lessons for Nepal from Chinese Experience…contd.
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Similar to the early twenty-first century China, Nepal today suffers from poverty and other developmental ills. Much advancement and progress has been made in terms of health and education However, much of rural population lags behind in both Nepal can learn from Chinese experience in improving the health and education sectors There is a need to have socially committed government like China

Nepal should follow the Chinese developmental blueprint
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• •

Most of the problems, their causes, and potential solutions in Nepal closely match that of early twenty-first century China’s. Agriculture, rural infrastructure, education of women and children, health care, and public service delivery are some of the core areas that need reforms. Creating jobs in Nepal to retain the youths Rescuing and educating the children who are prone to being trapped in poverty


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