Review

We were never trained to think global
Sujeev Shakya, known for his Arthabeed columns in the Nepali Times, is a businessman and entrepreneur. Currently heading Beed Management, his new book, Unleashing Nepal: Past, Present and the Future of the Economy, speaks about Nepal's economic history and the challenges in development. He also writes about his vision for a new Nepal. Amish Raj Mulmi spoke to him about the key economic problems that beset Nepal, and the solutions for them.

Q: Why write a book on the Nepali economy?
Shakya: Nothing has been written on the Nepali economy that can be read by the common people - there have been either donor-funded reports or those written by foreigners. Even when I started writing my column for Nepali Times, I wanted to write in a way that people understand. That's the reason why I wrote this book.

Q: Why does Nepal remain one of the poorest countries of the world?
Shakya: Nepal remains poor because we have squandered all the opportunities. When Nepal got democracy in 1950, the whole world was being reconstructed. If you look at any other country in Asia, everybody was poor. Everybody had this opportunity to rebuild themselves. But we continuously wasted these opportunities, including after the restoration of democracy in 1990. Also, there are some historical reasons why we never developed. During Nepal's 240 years of monarchial history, the rulers were never interested in the welfare of the people. What they did was create systems like the jagir system, the birta system, etc, for their own welfare.

Q: What are the biggest barriers to economic development in Nepal as of today?
Shakya: I think the biggest barrier to development is the mindset of the people. Financial resources, national and international, will always be available if there is commitment. What we need to do is to change the mindset that believes that we are a small, poor country to one that believes that we have the 40th largest population in the world with a large young population.

Q: How do you define changing the mindset?
Shakya: It is about becoming optimistic towards the future, about understanding that we have potential that can be harnessed. It's about ambition. It's not about starting a business and becoming the president of an association. We have to look at what is big, and think big. We have to get that ambition out, because we have never been ambitious, which is also a result of our past. We have a rent-seeking behaviour which is why Nepalis have never been entrepreneurial.

Q: What have been the major political and social interventions that have impacted the Nepali economy?
Shakya: The first political event that impacted the Nepali economy was the 1950 democracy, when the Rana regime passed on. Kamal Mani Dixit had said at the time, "Sachhai nai Nepal banne bhayo aba ta (Nepal will finally develop)". But we squandered the opportunity. The whole world was building up after the Second World War. Aid and investments had started flowing in. If you look at growth trends of several countries - Singapore, Thailand, Malaysia - all of them grew in the 60's. We got into a political mess soon after 1950, and then in 1960, King Mahendra took over and started experimenting with a Nehruvian mixed economy - which only brought confused results. We didn't get anywhere, and then King Birendra came in the 70's and didn't do much for the economy. Then we get to 1990, where democracy was restored once again. Reforms began, but we squandered the opportunity again.

Socially, we were never trained to think global. We've always relied on our dogmatic beliefs. We've clung to our past in how we conduct our social functions. We never went in to embrace English as a language. We never looked at a financial calendar that's understood by the rest of the world. Instead, we clung to a calendar that started in the middle of a month and ended in the middle of a month. We just moved away from the development of thoughts and of ideas.

Q: You've written that apart from the political instability, the private sector has also failed the Nepali economy. Why do you say so?
Shakya: In Nepal, the private sector and the development agencies are equally responsible for the missed chances. The private sector has always looked at increasing its margins. It never looked at creating value in a business. The ambitions of the business class were limited to becoming the president of an association rather than becoming a global leader or expanding its business in the region, which is unfortunate. A hungry private sector will drive a country to growth and development. Look at India, where the politics is the same, but the hunger of the private sector has changed, which in turn has changed the economic landscape in the last ten years.

Q: How do we improve our economic productivity and human capital productivity?
Shakya: I think we need to work on our human capital. It is about making people understand that a job is not a jagir; a job is linked to productivity and performance. If the same people can produce world-class videos, films and music, then the same people can be trained to create world-class products and services and market them in a world-class way. It's about how we can enhance and enrich the human capital in Nepal.

Our education is also limited to paper degrees. We have to understand that apart from the degree, the skills are what matter the most, especially soft skills: understanding communications, presentations, etiquette, understanding the diversity of Nepal and its natural resource competencies, and Nepal's potential itself.

Q: Have we made a transition from an agriculture-based economy to a service-oriented economy?
Shakya: We are making that transition, and agriculture will be an integral part of our growth. We have to link agriculture with new growth models. For instance, a commodities market will help agricultural products get a better price. We have to develop models on which we can garner and leverage economies of scale as well as keep an ownership model that is inclusive. For instance, you create cooperatives that own huge tracts of land. Such different models of partnership will be important to also bring about an element of land reform without losing out on the economies of scale.

Q: How do you perceive our reforms programme vis--vis India and China?
Shakya: If you look at Nepali reforms, it began even before India's. But we just left it behind, because we never went into the depths. For us, bikas has always been an imported word. We always said reforms were imposed upon us by the World Bank and the IMF, but we never realized that we should reform because it is important for us. The private sector here wasn't pro-reform as well. The private sector was built around patronage, protectionism, and a rent-seeking mentality.

I don't think we are too late in implementing reforms. We should not forget Nepal lost a lot during the 10 years of conflict. But if we look at some sub-Saharan countries that underwent conflict, I think Nepal is well-placed above them. It doesn't take much time for countries to make that leap.

Q: We've spoken about Nepal's hydroelectricity potential immensely, but it never seems to look good for the sector. Is the reason purely political?
Shakya: After politics, discussing hydropower has become our favourite pastime. We just love talking about it, but who is actually doing something about it? How many developers who are sitting on licenses are keen to come out with their projects? NEA itself is just interested in sitting back and waiting for a donor to provide aid so that they can build a project like Kali Gandaki where the time period and the cost is never monitored. I remember, when Shailaja Acharya was the Water Resources Minister 10 years back, she categorically said that no plants above 10 MW could be built. This is the issue. There were a lot of NGOs who kept saying small is beautiful etc. What have they done? There are a lot of people who are responsible for this hydropower mess.

Q: 2010 will see the official permission for foreign banks to enter Nepal. But our capital markets are still under-developed. How do we reform them?
Shakya: It is a two-pronged issue. One is that the government must realise that capital markets and financial markets are equally important. If you look at India, capital markets grew after SEBI (the regulator)'s stature had been raised. The Securities Board has to be made more effective, it shouldn't just be a division within the ministry; it has to be like the Nepal Rastra Bank - an independent body. The other is that we need to create a financial services commission which will regulate the commodities market and financial instruments that we can bring in. It is also extremely important to bring in legislation and policies to capitalise on the investment currently locked in non-productive assets like land. Also, private sector bodies need to tell the government about the policies they require. For instance, what should the government's policy be on e-commerce or on m-commerce?

Q: You've always been a critic of the pegged exchange rate between Nepal and India. Why is that so?
Shakya: I am not as much against the peg as much as against the way the peg has been determined. We will, at one point of time in the future, move towards a common South Asian currency. My only issue is with how this peg is being reviewed, and who has given this peg. I keep on asking my economist friends, why 1.6? Why is the rate not 1.3? A peg at 1.3 will raise our GDP by 30 percent. What are the determinants of this exchange rate - this is what I am questioning.

Q: Your new book discusses ways to alleviate poverty and creating wealth. Can you explain the easiest way to do that?
Shakya: There's no easy way to do so, but what I emphasise is a capitalist welfare-state. We have to believe in entrepreneurship. Poverty can only be alleviated by creating wealth, and enterprises are the only way to get out of this quagmire of poverty be it through working in those enterprise or owning small and micro enterprises. But the mindset that making money and wealth creation are okay has to be acceptable.

Q: India and China are set to become the world's growth centres. How can Nepal, apart from exporting to these countries, benefit from the two giants?
Shakya: In my book, I write about Nepal's new economic boundaries: the 300 million people that live in North and North-East India. There are 10 cities in these areas which are only an hour away from Kathmandu by flight. It's a similar situation with China. Also, companies will find it comparatively advantageous to set up businesses in Nepal to cater to these markets.

Q: But militant labour in Nepal has put off companies that wanted to invest here.
Shakya: We have to understand that this pseudo-militant labour mindset is an impediment. Political players have to make their labour cadre understand that if there is no enterprise, there is no labour, and therefore, no unions. The private sector also needs to work hand-in-hand and apply good labour practices. How many private companies can come out and say that they follow good labour practices?

Q: The last year-and-a-half has seen a severe crisis in global capitalism. Does that mean that a free market economy is not suitable for Nepal?
Shakya: I understand that capitalism has been tested in the past one-and-a-half years, but if you look at the failure of socialistic models, they have been far more intense than the failure of capitalistic enterprises. Look at the South-East Asian countries which have embraced a capitalistic model. They've done great. We also have to work on the human dimensions of capitalism. We have to bring in the human element in capitalism. Legislation cannot regulate human behaviour. For Nepal, it is important that we do not ape the evils of capitalism. Therefore, it is a good time to inculcate the human element in capitalism and to ensure that we embrace a free market system while being aware of the disparities and inequalities.

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Beed Management Nepal Economic Forum Arthabeed Sujeev Shakya