Saturday, January 15, 2011

Nepal, South Asia, and Developing Countries Compared

Nepal’s real GDP growth is expected to be 3.7% and 4% in 2011 and 2012, respectively. Exports growth will initially decline to 5.6% and then rise to 7.3% in 2012. Meanwhile, imports growth will decline to 6.3% and then increase to 6.9% in 2012. Both exports and imports (as a share of GDP) are expected to decline in 2012. Exports are expected to be 11% of GDP and 9.9% of GDP in 2011 and 2012, respectively. The figures for imports for the same period are 26.1% and 23.7%.

That said, how does Nepal’s existing economic performance and forecasts compare with the South Asian region, neighboring countries, and developing countries. Below are some of the comparative charts. All data are sourced on 2010-01-14 from Global Economic Prospects 2011 website. The data for 2011 and 2012 are projections. Nepal’s standing among the web of bars is indicated by an arrow (just ensuring that you don’t get lost looking for Nepal!). SA, DEV, WLD, PAK, NPL, LKA, BGD, CHN, IND stand for South Asia, Developing Countries, World, Pakistan, Nepal, Sri Lanka, Bangladesh, China, and India, respectively. All of these are bar charts. I was too lazy to come up with something simpler to understand the data! :-)

First, Nepal’s real GDP growth rate is the second lowest in the region and is expected will remain that way in 2012, well below the level reached in 2008. Blame the political impasse, power outages, supply bottlenecks, high and sticky inflation, labor disputes, and low business and consumer sentiment, among others. South Asia’s growth will be robust, thanks largely to the bustling economic activities in India (and to some extent Bangladesh). As a whole, developing countries will have higher growth rate than the world average (which has a negative real growth rate in 2009).

Second, Nepal’s exports (share of GDP) will continue to decline, while that of developing countries, China, and India will continue to grow or at least remain steady. Pakistan has one of the lowest exports (share of GDP) in the South Asian region. Blame the political impasse, uncompetitive export-oriented sector, power outages, supply bottlenecks, high and sticky inflation, labor disputes, and low business and consumer sentiment, among others

Third, Nepal’s imports (share of GDP) are expected to be higher than exports, but will slightly decrease.Still, Nepal’s imports (share of GDP) are higher higher than most all the countries in the region (except for China’s, which is expected to increase imports in 2012). The world and developing countries average of imports are higher than that of Nepal. In 2009, imports was the highest in Nepal than in all the countries and regions looked in this post. Thanks to remittances, declining domestic production, and a slight appreciation of Nepali currency vis-à-vis dollar (due to high inflation rate).

Fourth, total investment (share of GDP) in Nepal is higher than in world average, Pakistan, Sri Lanka, and Bangladesh. But, why is GDP growth rate and industrial production low? It might be because Nepal has a greater change in stocks (share of GDP) than others countries that have low total investment than Nepal’s [Note: Fixed investment + Change in stocks = Total investment]. But, the high total investment and low growth and industrial production indicate low productivity and uncompetitive economic structure. Total investment in India, China, developing countries average, and South Asia is higher than in Nepal.

Fifth, Nepal’s GDP per capita (current US$) is the lowest and will be the lowest in 2012 among the regions and countries compared in this blog post. Real GDP per capita was US$ 431.1 in 2009 and is expected to reach US$ 581.9 and US$ 661.1 in 2011 and 2012, respectively. This is a growth of 1.8% and 2.1% in 2011 and 2012, respectively. In 2012, the average real GDP per capita of South Asia average, world average, developing countries average  is expected to be US$ 1,754.4,  US$ 10,143, and US$ 4,145.9, respectively. Meanwhile, in 2012, real GDP per capita of India, Bangladesh, Pakistan, Sri Lanka and China is expected to be US$ 1,980.8, US$ 773, US$ 1,163.9, US$ 3,167.7, and US$ 5,231.6, respectively. Nepal has a long way to go to catch up with these countries and regions.

Talent scarcity and growth

A new report (Global Talent Risk-Seven Responses 2011) published by World Economic Forum (WEF) and The Boston Consulting Group (BCG) urges increased labor migration to meet demands for economic growth. Talent scarcity could be a threat to sustained economic growth, especially in the knowledge-based economies. The report concludes that:

  • Demand will be biggest for highly educated professionals, technicians and managers. Professionals will be in particularly high demand in trade, transport and communications industries in developing nations.
  • In the next two decades demand for professionals in manufacturing will peak at more than 10% in developing countries, exceeding 4% across all countries sampled (labour demand growth rates are compounded annually).
  • Healthcare research and development alone will generate an enormous demand for skilled labour worldwide.
  • Employees without critical knowledge and technical skills will be left behind.

Severn responses to global talent risk:

  • Introduce strategic workforce planning.
  • Ease migration.
  • Foster brain circulation.
  • Increase employability.
  • Develop a talent “trellis”.
  • Encourage temporary and virtual mobility.
  • Extend the pool (tap into the skill set of women, older professionals, the disadvantaged and immigrants).