The launch of Nepal Economic, Agriculture and Trade Activity (NEAT) comes at a very important time. Improvement in the lives of all Nepalis will not happen unless and until the nation comes together to address the many economic challenges this country faces. The NEAT program strives to bring different sectors of the development community – the Government, private sector, and donors – together to improve the business environment, strengthen fiscal and trade policy, encourage competitiveness and exports in a number of agricultural commodities, enhance food security, and increase access to financial services. NEAT’s ultimate objectives are to strengthen the foundation for rapid, sustained and inclusive economic growth, increase food security, and reduce poverty. A tall order, to say the least, but I believe that NEAT can help in all these areas.
Every day when passing by the Foreign Ministry, I cannot help but notice the long line of young Nepalis queuing up for passports in pursuit of jobs in the Gulf States, India, or elsewhere. It is a picture that troubles me. Not only does the nation lose the productive capacity and intellectual energy of its youth, but I worry about an economy built on remittances and custom revenues. In the long run this is neither desirable nor sustainable. Nepal can, and I believe should, be pursuing a different future. One where the youth of this nation can have the option of productive employment in their own country and one where the economy is driven by a private sector that is confident and dynamic.
While Nepal’s balance of payments is positive, the country’s trade deficit is negative and growing (it stands at Rupees 314.7 billion currently). Trends for Foreign Direct Investment are also not encouraging. Gross fixed investment which has remained flat since as far back as 2004, averages about 21 percent of the GDP, which is lower than the average for comparable Asian countries. Equally problematic, most of the investment goes toward replacing depreciated capital or toward asset creation, in areas such as real estate, and not toward “productive” investment in new businesses or factories. Worker productivity is an issue as well.
We can start to shift some of these less than positive indicators through increased productive foreign direct investment. However, the business environment must improve first to make the possibility of increased FDI a reality. According to the World Bank, Nepal is the second-most difficult country in the region to conduct business, ranking better than just one country – Afghanistan; THAT is a very sobering assessment.
I do not accept, however, that Nepal needs to be defined by the challenges of labor unrest, power shortages or policies that discourage rather than incentivize private sector investment and growth. I believe instead that Nepal, working with its international partners, can usher in a new era of economic empowerment.
We know that economic growth that comes from increasing agricultural productivity is nearly three times more effective in raising the income of the poorest than increases in manufacturing or service productivity.
And we know what we have to do to increase agricultural productivity: we have to improve access to education, expand the use of better crop varieties, increase access to irrigation and fertilizer, develop infrastructure that connects the rural poor to urban markets, and create opportunities for farmers to add value to the commodities and cash crops they produce.
We need to help encourage trade and investment that can lead to lasting economic growth and diversification over time. To do that, we must focus on strengthening private markets, make it easier for entrepreneurs to do business, and develop effective public services and institutions.
At the end of the day, our goal, and more importantly, the Government’s goal, should be to transform foreign assistance into foreign investment.
Conditions necessary for the private sector to flourish have to come from and be led by the Government. That means reducing red tape and regulatory inconsistencies and, fighting corruption and the bribe-seeking that can poison entrepreneurial activity.
At the same time, donors, including the US government, have to commit more seriously to evaluating our own programs, making sure our efforts really do build local capacity.
This shared commitment to responsible governance and accountability will help create an enabling environment for broader, truly transformative and truly empowering economic growth.
And make no mistake, that type of transformative growth is possible. Let me cite one example.
50 years ago, South Korea was a country on the brink: It was poorer than two thirds of the countries in sub-Saharan Africa and its people had an average life expectancy of 54 years. But by investing in agriculture, and adopting an aggressive, export-led growth strategy, South Korea became one of the world's fastest growing economies and remained so for forty years.
Today it has joined the club of rich industrial countries, is the world's eighth largest exporter, and its citizens outlive those in the United States. On top of that, South Korea, once a major recipient of aid, now provides aid to developing nations.
If we prioritize agricultural investment, design policies that encourage broader economic growth, and take seriously the concept of mutual accountability, we can, I believe, move Nepal forward on a path to lasting, empowering economic growth.
The U.S. Government working through the United States Agency for International Development remains committed to work with the Government of Nepal and the private sector to create new opportunities and ensure that sound macroeconomic and trade policies are in place to help the local economy flourish. NEAT will be central to our effort. It will work to build capacity, encourage judicious policy reform, stimulate agricultural exports particularly in high value crops, add value to Nepal’s production, and help reduce poverty. I hope that you will join us in being part of Nepal's economic transformation and building a better future for the nation's young men and women. It will be well worth the effort.
This is the excerpt of the Statement delivered at the lancing of Nepal Economic, Agriculture and Trade Activity ( NEAT). DeLisi is the U.S. Ambassador to Nepal.