On Thursday, March 22nd, I organized a Google Hangout session with Chandan Sapkota, a researcher at South Asia Watch on Trade, Economics and Environment (SAWTEE). Over Google Hangout with a few other people as audience, we talked about several economic issues pertaining to Nepal.

Here's a summary of what we discussed in our Google Hangout session.

How do you define Nepal economically at current?
In terms of social sectors, Nepal has done really well. Poverty has gone down and we have able to achieve some of UN's Millennium Development Goals (MDG). We are actually doing good on reducing poverty and improving maternal health. However on a macro- economic level, Nepal could do much better.

How can we address brain drain properly? How can we leverage the human capital that has left Nepal and bring it back home?
One way to address brain drain is to provide the infrastructure that young people want. Most young people want to live in city areas and need a social life. Thus we need to provide them the amenities that they value. Second there are too much bureaucratic hassles and people who want to start a company (who actually want to help create jobs) have to pay bribe otherwise wait long to register a company. Also while the cost of capital for starting a business in Nepal is low, there are other upfront costs that an entrepreneur has to bear (load shedding, building permit etc). Also while it could take days to register a business, to register an NGO it could be done in mere hours.
A few people are coming back because of limited opportunities abroad due to global recession. And there are organizations in Nepal who are helping people launch startups. Biruwa Ventures is one of them. They provide office space, electricity, coffee and other supplies at their facility.

Are foreign remittances helping or hurting the country? If the remitted money is invested in domestic industries, wouldn't it help our economy significantly?
This is a question which is hard to answer in a yes/no format. Foreign remittance is helping the economy otherwise our economy would collapse. Nepal's budget (=expenditure) is Rs 385 billion (which is like US$ 5.34 billion at USD1=NRs72 exchange rate). With imports close to Rs 397 billion and exports of around Rs 64 billion, and the wide trade deficit is financed by remittances, which is close to 23% of GDP (US$ 4 billion). Yes if the remitted money is invested in domestic industries, it will help the economy significantly.

For economic growth and to decrease the trade deficit, what items can we export more or look to export?
Nepal has come up with a list of 19 products which has export potential. Currently Nepal exports a lot of low value added products such as lentil, paper, cardamom etc. In fact we need to focus more on high value added products (industrial goods) such as steel, carpet etc.

What are your thoughts on foreign aid to Nepal? Isn't foreign direct investment significantly better than foreign aid?
Foreign aid definitely comes with implications. Governments do not give money away for free. Budget for foreign aid is sanctioned by foreign government and the aid agencies have to spend it within the given timeframe. Else the budget is reduced next budgetary cycle. Thus the foreign country has reason to give money away to another country of strategic interest to them.
Foreign direct investment is definitely better than foreign aid. But it's a challenge in Nepal to attract foreign direct investment. Several East Asian countries such as India, Bangladesh, Philippines, Thailand grew their economy by setting up special economic zones. We can empower regions if not individuals. Nepal can do really well if we set up special economic zones.

What factors could entice outside investors to put Nepal in their investment portfolio?
First of all Nepal needs to have the infrastructure. The country also should be able to provide the investor a good rate of return on their investment. Because a predictable rate of return can't be guaranteed, investors are not drawn to Nepal.

We did Visit Nepal 2011, Visit Lumbini 2012, shouldn't we also do Invest Nepal 2014 or Invest Nepal 2015?
Yes it is good to promote tourism with Visit Nepal and Visit Lumbini. But we need to look into what types of tourists are we attracting. Are we attracting tourists that spent a lot of money in our local restaurants or are we attracting people who can more of bargain hunters?
In fact Nepal has declared 2012/2013 to be Nepal Investment Year. Most importantly a country needs to take care of the prerequisites first such as infrastructure, governance etc before declaring an investment year. Thailand had a successful investment year in 2008-2009 because they already had the prerequisites in place.

We delved into other interesting topics in our conversation and the participants definitely got great insight into understanding Nepal's economy. Frankly one Google Hangout session is not enough just to understand the surface of Nepal's economy. So we agreed that in the future we will do another Google Hangout and discuss relevant economic topics.


http://www.parakhi.com/blogs/2012/03/23/google-hangout-with-chandan-sapkota-researcher-at-sawtee

That's really good and healthy discussion. Its really sad import is more than export for sure investment in things like silver/carpet/hydro electricity is needed just so that import is equal to export.

Most of our imports is petroleum products, vehicles and gold. If we could build hydroelectric power plants to suffice domestic demand for energy, we could slowly reduce cooking gas and petroleum imports by giving tax breaks on the imports of electric cooking stoves and electric vehicles. We could also have the Nepali Government only use Nepali made automobiles. It would also be wise to place economic incentives to start manufacturing household appliances in Nepal for domestic consumption because that would also take away from imports.

I think the biggest problem in Nepal is the Maoist supported labor unions. They place irreconciliable demands and close down large factories at whim. Sala harule Surya Nepal Garments ta banda garaye. China and Vietnam have made such great progress in manufacturing because there are no labor unions there but they do have a minimum wage. Unless we can start exporting or reduce the import of high value products there will always be people leaving in droves in search of greener pastures abroad.