Friday, September 9, 2011

Remittance 2.0 in Nepal

Trailokya Raj Aryal digs into an old book and finds an uncanny similarity during the Rana regime and the present day. It relates to how people depend on remittances, spend an import induced consumption filled lifestyle, and stagnate the economy.

Remittance 1.0

The signing of Versailles Treaty in 1919 officially ended the First World War, and some 200,000 Nepali soldiers who went to fight for the British Empire returned home with money and foreign ways. As Sardar Bhim Bahadur Pandey explains in the first volume of his brilliantly written book, “Tyas Bakhatko Nepa: Ranakalin Akhiri Teen Dashak” (Nepal at that time: The last 3 decades of Rana rule), suddenly impoverished villages of Nepal’s hilly region were awash with cash, almost 130 million Indian currency, equivalent to 13 billion rupees at the time of writing the book some 25 years ago, and 68. 41 billion Rs in today’s prices.

With nowhere to invest their money on, many soldiers invested on real estate, and some spent it all on merry-making. Their use of foreign products impressed the simple-minded villagers who until then had not even imagined those things existed, and their tales of faraway lands, customs and battlefields, not to mention the social prestige accorded to them made many young men dream of going abroad to work.  Similarly, the taste for foreign goods naturally resulted in an increase in imports, a trend encouraged by the Rana oligarchy as it led to an increase in customs revenue, which in turn killed the local industries as they could not compete with the cheaper and finer imports from abroad. Had the money been spent on Nepal’s industrialization and had the ways been devised to save the cottage industry, late Mr Pande argued, Nepali villages would have been no less wealthy than the Swiss villages. Alas, Nepal’s industrialization was doomed even before it started, marking the beginning of the age of Remittance 1.0 in which our able-bodied young men went abroad, sent or brought money home and then spent most of that money on sustaining the costly habit of foreign goods. The country gained nothing.

Remittance 2.0

One would expect that the economic blunder of the Rana regime to be corrected after more than 60 years since we bade adieu to the oligarchy, but no leaders, irrespective of the regime (democratic, Panchayat and the post-Panchayat) did anything about it, and call it our sheer misfortune, the leaders of New Nepal too do not seem bothered by it. Just like an upgraded computer virus, Remittance 2.0 is now affecting the country in a scale far bigger and deadlier than its predecessor.

If the figures released by the Ministry of Labor and Transport Management are to be believed, more than 42,000 of our youths went abroad to work in countries other than India, in the month of Shrawan (July17-August 17) alone. With thousands of youths going abroad for work each month, the flow of remittance has also increased and has become the mainstay of our economy with Nepal receiving with an estimated $ 3.5 billion in 2010 sent by some two million Nepali workers abroad.

However, instead of it going to productive sectors, a significant chunk of it is being spent on imports and real estate, just like in the year 1920 and as such our manufacturing capacity is going down each day. One would expect that the inflow of money would lead to industrialization which in turn would make it possible for the youths to find employment in their own country, but exactly the opposite is happening. What the economists call the Dutch disease effect, ie, reliance on one sector leading to decline in manufacture sector, is clearly visible in Nepal’s case. 

What’s more amazing is, at a time when we are witnessing a mass exodus of youths in search of employment abroad, the militant labor unions affiliated with various political parties are closing down whatever industries we have with their unreasonable demands, the recent example being the closure of Surya Garments. And at a time when other countries are negotiating trade terms and signing free trade agreements with each other, we are left requesting foreign governments to increase the quota of Nepali workers, rather than making investors, both domestic and foreign, feel secure enough to invest in Nepal.

Check this and this (and the links within) for a detailed look at remittances. Here are two cools charts (this and this) depicting district-wise remittance distribution and the results shown by NLSS III. Here is former finance secretary Rameshore Prasad Khanal arguing how migration is leading to low fertility rate in Nepal and could stall population growth rate.

Chart source: NepalStats