Rio+20: Climate Change and Nepal

The figure below compares CO₂ emissions, projected annual temperature change and projected change in hot days/warm nights (2045-2065).

As expected, emission levels are very low in Nepal. But, annual temperature change between 2045-2065 (relative to the control period 1961-2000) is projected to be higher than in even Bangladesh, China, India and the USA. Hot days and warm nights are expected to increase by 2.5 days and 8 days respectively between 2045-2065 (relative to the control period 1961-2000).

Data source is here. The definition of CO2 emissions per unit of GDP, CO2 emissions per capita, and the projected temperature and annual hot days/warm nights is as follows:

• Carbon dioxide (CO₂) emissions per units of GDP are carbon dioxide emissions in kilograms per $1,000 of GDP in 2005 purchasing power parity (PPP) terms. PPP GDP is gross domestic product converted to international dollars using PPP rates. An international dollar has the same purchasing power over GDP that a U.S. dollar has in the United States.
• Carbon dioxide (CO₂) emissions per capita are carbon dioxide emissions divided by midyear population.
• Projected annual temperature change is the projected change in annual temperature in the years 2045-2065, relative to the control period 1961-2000.  The range reflects the 10th and 90th percentiles of results from nine general circulation models (GCMs) at a standardized 2-degree grid, employing the A2 storyline and scenario family. Values are aggregated at the country level.
• Projected change in annual hot days/warm nights are the projected changes in the annual incidence of "hot days" and "warm nights" in the years 2045-2065, relative to the control period 1961-2000.  Hot days and warm nights are those that exceed the 90th percentile of maximum temperatures and those that exceeded the 90th percentile in minimum temperatures, respectively, in the control period. These indicators are useful to understand potentially critical thresholds related to heat stress in different sectors such as agriculture and energy.  The range reflects the 10th and 90th percentiles of results from nine general circulation models (GCMs), employing the A2 storyline and scenario family. Values are then calculated at the country level from 2-degree gridded data.

---

Rio+20 and Nepal

High-in come countries, with one sixth of the world’s population, are responsible for nearly two thirds of the greenhouse gases in the atmosphere. Methane and nitrous oxide produced by the agricultural sector account for about 10 percent of anthropogenic warming. Most of it comes from the guts of cattle and sheep. Globally, agriculture and land-use change and forestry contribute 14 percent and 17 percent of CO₂ emissions, respectively. Read more here.

Though Nepal’s emission levels are very low, irrespective of the unit of measurement, it is disproportionately affected by the vagaries of climate change/weather. The low contribution of enablers of climate change and its high impact on economy and livelihoods call for a balanced approach to meet growth and development needs while keeping low its impact on environment. As of now, there is a tradeoff between these two and the challenge for policy makers is to find a suitable point (say country-specific Pareto optimal point for sustainable development) based on a slew of factors such as endowment, institutional capabilities, livelihood options, infrastructure necessities (including roads, ICT, irrigation, energy) and others. The impact of climate change will alter comparative advantage on agriculture trade (and also of the industrial sector that depends on agriculture sector for raw materials), reduce livelihood options, increase or decrease the average number of warm or cold days and nights, endanger communities living in mountain and low-lying areas and impact their livelihood options, engender distress migration and may induce conflict, among others. Against this backdrop, the Rio+20 (United Nations Conference on Sustainable Development) is a crucial platform for countries like Nepal to voice their concern and seek options to balance growth (jobs enriching) and environment necessities.

Nepal will propose focusing on the following key areas of sustainable development:

• Food security and sustainable agriculture
• Water and sanitation
• Energy
• Sustainable cities
• Natural disaster
• Green job and social inclusion
• Mountain ecosystem

Nepal expects Rio+20 to:

• Renew commitment of Member States for preserving the Rio principles
• Foster implementable consensus for fulfilling the implementation gaps in the Rio declaration and other associated commitments
• Address new and emerging challenges in a fair and equitable manner based on the principle of common but differentiated responsibilities (CBDR)

Specifically, it wants developed countries to fulfill ODA commitment, ease transfer of technology, waive debt, ease trade barriers, and enhance capacity of LDCs. It expects an agreement on the Mountain Agenda adopted in 1992. It expects focus on green economy, especially support for harnessing its hydro-generation potential. It expects the Rio+20 Conference to “fully integrate the IPoA into its outcome document and underline renewed and scaled-up global commitment to achieve sustainable development in the LDCs.”

Read an earlier piece on Rio+20 Summit here.

District-wise household size, population growth rate, migrant population and remittance inflows

Here is an interesting infographic that shows district-wise household size, population growth rate, absentee (migrant) population and remittance inflows. The relationship between absentee population and remittance inflows is pretty clear. Also, notice that the poorest regions have larger household size and relatively high population growth rate.

Readings related to this infographic:

• Latest population estimate of Nepal (26.6 million)

A total of 23 districts in hilly region saw negative population growth rate while Kathmandu saw 60 percent growth in population. The urban population constitutes about 17 percent of the total population. Kathmandu district has the largest population followed by Morang. Manang constitutes the lowest population. Population density of Nepal is estimated 181 per sq.kms. Kathmandu district has the highest density (4408) and Manang (3) has the least. Kathmandu has recorded the highest decadal population growth (60.93 %) compared to all Nepal (14.99 %) and lowest in Manang (-31.92 %). Sex ratio is estimated to be 94.41 (male per hundred female) in the current census as compared to 99.80 in the previous census 2001.

• Costs and benefits of remittances in Nepal

- About 48% of migrants originate from Terai, 45% from the Hills, and 7% from the Mountain.
- Over 30 percent of household income in the Western region is accounted by remittances. In Syangja, Kaski, and Tanahu, it is 25.5%, 28.2% and 34% respectively. About 43.4 percent of household income in Argakhashi came from remittances. It was 7% in Jumla.
- Jhapa (16.8), Morang (13.2), Chitawan (10), Nawalparasi (11.8), Solukhumbu (10.7) got remittances over NRs 10 billion. Agarkhachi and Jumla got 7.5 and 0.4 billion respectively.

- Migrant destinations differ by their place of origin. A large number of migrants from Far-Western and Mid-Western (and Western) regions go to India; those from Western and and Eastern regions go to the Gulf; and those from Western and Eastern regions go to Malaysia.
- Ethnically, the probability of migration, in descending order, is above average for Muslims/others (mainly to the Gulf), Hill Dalits (mainly to India), Hill Janajatis (mainly to the Gulf), and Brahman/Chhetri (to India, the Gulf and Malaysia).
- Western Hills and Eastern Terai receive more remittance. The Western Hills send the largest number of migrants (20%). For Eastern Terai the number is 17%.

- Per capita receipt of remittances generally increases with recipients’ household wealth (skilled and educated migrants send more).

- In 2008, most of the returnees were from India, followed by the Gulf and Malaysia.
- About 37% of the returnees would “very likely” go back abroad soon. About 34% would “very unlikely” go back soon.
- Most returnees would return to either agriculture (48%) or stay inactive (20%--employment wise) or daily wage workers (10%). These are the ones who are “very likely” to migrate again.

For more on these, read here: http://goo.gl/tQSNO and http://goo.gl/qYisW

FDI, approved industries and employment in Nepal, 1989/90-2010/11

Here is a chart that shows total FDI inflows to Nepal, number of industries/firms and employment generation. Also, it shows the share of investment and employment of top ten FDI origin countries, and India’s agriculture investment share in total Indian FDI inflows.

Total FDI inflows from approved industries in 2010/11 was Rs 10.05 billion and approved industries/firms were 209 (total employment target was 10,887). Of this India’s share in foreign investment was 69.72 percent and share in total employment was 30.07 percent. Meanwhile, China’s share in foreign investment was 11.81 percent and share in total employment was 28.16 percent.

The total FDI approved in agriculture was Rs 367.12 million with employment target of 1337. The highest FDI approved was in manufacturing at Rs 6.134 billion, followed by tourism at Rs 1.184 billion. Of total Indian investment, share in agriculture was 1.55 percent in 2010/11, 81.73 percent in 2008/09 and 21.49 percent in 2007/08.

In the figure above, you can clearly see the surge in FDI immediately after liberalization of the economy in the early 1990s. It declined for the next two years and then increased for two years. The onset of Maoist insurgency and its gradual intensification led to decline in FDI up until 200/01, which it increased and then the total FDI inflows have been erratic up until 2004/05. Both FDI and employment generation are in upward trend since then. That said, the dent in 2008/09 might be because of the impact of global financial and economic crises.

If you are wondering about how Nepal stands wrt FDI inflows to regional nations, then the figures look disappointing. FDI inflows to Nepal in 2010 was just $38.99 million. In contrast, India’s was $24.64 billion. The latest (2011/12) FDI inflows to India  was a record FDI of $46.8 billion.

So, what are the main constraints to FDI inflows to Nepal? Some of them are:

• Political instability/strikes
• Lack of appropriability of returns to investment
• Militant trade unions
• Inadequate supply of infrastructure (power and road network)
• Policy inconsistency
• Increasing cost of doing business

For solutions, read this. (The hope is that the newly formed Nepal Investment Board will encourage investors to come to Nepal. Btw, does anyone have any idea about NIB’s website?)

• Political stability (if it can be achieved!)
• Taming labor militancy and smoothening industrial relations
• Policy consistency on key issues related to investment regime and sectoral support
• End of syndicates, which foster uncompetitive practices and charge high fares
• Credit at low interest rate to key sectors where we enjoy comparative advantage consistent with our land, labor and capital resource endowment
• Emergency measures to supply power for at least two shifts in manufacturing plants
• Fast track endorsement of investment plans and lowering cost of doing business in Nepal
• Enactment of SEZ bill
• Industrial security

[Update 2012-07-06: FDI from approved industries has been updated.]

Will flat cash incentives for exports work in Nepal?

The FNCCI, following a strong lobby by GAN, has asked the government to extend at least two percent cash incentives to all exports, irrespective of value addition and destination. Currently, the government offers two percent of total export revenue as cash incentive if there is 30-50 percent value addition, three percent for 50-80 percent value addition and four percent for over 80 percent value addition.

The main purpose of cash incentives scheme is to increase exports and reduce trade deficit. Just by giving cash incentives won’t achieve this because the cash incentives received by exporters will hardly be reflected on the price of final exported items. Cash incentives are given after goods are exported and they do not necessarily boost price competitiveness. As of now it is a misplaced export incentive with too much bureaucratic hassles to claim cash (plus incongruous with other policies’ emphasis on domestic value addition together with employment generation).

Quick comments:

• Cash incentives won’t be directly reflected on the price of final exported items. Hence, it won’t directly boost price competitiveness. It might just compensate the lost revenue due to high cost of production arising from exogenous factors to the firm/sector in question (e.g. load-shedding and cost of diesel, strikes, bandha).
• Conditioning cash incentives on value addition is one hook for not letting the scheme be inefficient. It should be further linked to employment generation as well, i.e. offer such incentives to those strategic sectors that have both high value addition and high employment generation. See this presentation for more on this.
• Cash incentives or other export promotion measures should be designed keeping in mind the factors/determinants that boost competitiveness of manufacturing sector: government forces (education policies, energy policies, economic, trade, labor, financial and tax policies, science and technology policies, manufacturing and infrastructure policies); capabilities (innovation, technology, process, infrastructure); market forces (demographic, macroeconoimc environment); and resources (human, materials, energy, financial).
• Fundamentally, export incentive packages that increase productive capacity and address binding constraints to exports growth work more often than simply doling out cash based on certain value addition criterion. The same amount of money can be used to construct roads up to manufacturing plants or to provide credit and concessional loans to emerging entrepreneurs or to subsidize insurance premium during transportation of goods to the nearest port in India or to construct the much needed special economic zones. These measures will help enhance our exports and add to productive capacities more than the cash incentives.
• Cash incentives as of now is unlikely to alter Nepal’s export destinations and composition of export basket.
• Competitiveness of Nepali export items is going down. The main reasons are: lack of adequate supply of infrastructure, political instability/strikes, labor problems, lack of innovation by private sector, and government’s inability to implement key reforms enshrined in major policy documents. The state of trade facilitation in Nepal is pathetic, ranking 124 out of 132 countries. Nepal has the fifth worst logistics efficiency in the world. Supply-side constrains have eroded competitiveness to a great extent. Cash incentives for exports won’t directly address these problems. If these issues are resolved (by both government and private sector), then you won’t need cash incentives to boost competitiveness  (if it can!) and exports and to reduce trade deficit.

Infographic: The two sides of food crisis – food shortage vs. food wastage

Created by: PublicHealthDegree.com

More here

Improved highways and performance of firms

Saugato Dutta finds that firms along the Golden Quadrilateral, a major highway project in India, reported decreased transportation obstacles to production, reduced average stock of input inventories (by about a week's worth of production), and a higher probability of having switched the supplier who provided them with their primary input. Firms in cities where road quality did not improve displayed no significant changes.

Here is the abstract of the paper:

---

India's Golden Quadrilateral Program, a major highway project, aimed at improving the quality and width of existing highways connecting the four largest cities in India. It affected the quality of highways available to firms in cities that lay along the routes of the four upgraded highways, while leaving the quality of highways available to firms in other cities unaffected. This feature of the project allows for a difference-in-difference estimation strategy, where status on and off the improved highways, and distance from them, are used as treatment variables. This strategy is implemented using data from the 2002 and 2005 rounds of the World Bank Enterprise Surveys for India. Firms in cities affected by the Golden Quadrilateral highway project reduced their average stock of input inventories by between 6 and 12 days’ worth of production. Firms in cities where road quality did not improve showed no significant changes. The reduction in stocks of input inventories also varied inversely with the distance between the city in which a firm was located and the nearest city on an improved highway. Firms on the Golden Quadrilateral were also more likely to have switched the supplier who provided them with their primary input, suggesting that they saw reason to re-optimize their choice of supplier after the arrival of better highways. Consistent with these findings, firms on the improved highways reported decreased transportation obstacles to production, while firms in control cities reported no such change.

---

Two oil survey/exploration companies pulling out of Nepal

Texana Resources Company and Cairn Energy are stopping survey work citing “force majeure”, which “frees a party from fulfilling an obligation in the event of circumstances going beyond its control.” The reason given by the two companies: bureaucratic hurdles and lack of cooperation from the government.

---

The Houston-based Texana flashed its plans on June 1 while Cairn, a Scottish oil and gas company, did so on June 8. Officials at the Department of Mines and Geology confirmed that the two companies had announced their plans to stop work. This is not the first time that Texana and Cairn have invoked force majeure. They have halted work in the past citing volatile political and security situation.

Both have already spent millions of dollars in Nepal on preliminary surveys and were now all set for a 'seismic operation,’ which determines whether the surveyed areas contain commercially viable quantities of oil. To date, Texana has spent US$3 million and Cairn US$20 million in the country. The two companies pay an annual fee of US$ 50,000 per 'block’ to the Nepal government. They have also deposited US$ 400,000 each as bank guarantees.

Six years later, Cairn received a licence to explore five other blocks--Block 1 (Dhangadhi), Block 2 (Karnali), Block 4 (Lumbini), Block 6 (Birgunj) and Block 7 (Malangawa).

But trouble started brewing in December 2011 when Texana applied to the Department of Mines to transfer its rights and obligations to the Canada-based Patriot Petroleum Corp. Texana and Patriot had signed a sales and purchase agreement under which Texana would assign to Patriot all its interests under a petroleum agreement for exploration of Block 3 (Nepalgunj) and Block 5 (Chitwan).

Clause 64 of the Nepal government and Texana agreement allows the US-based company to transfer its project to any other company, and the government has to endorse it within 60 days of request. Till date, the Department of Mines has not approved Texana’s application.

Cairn had asked the department to amend its work plan one-and-a-half-years ago in order to address a request for a new work plan, which is yet to be endorsed. “Our decision to declare force majeure is primarily based on the government's delay in endorsing our work plan amendment,” said Bharat Gyawali, the local representative of Cairn.

---

I smell corruption here! Btw, in 2010, FDI inflows to Nepal was just $38.99 million.