Two days of protest did not destroy Nepal. Years of bad governance, lack of job opportunities, and rising income inequality, did.
The loss of such young lives is devastating. This in Nepal’s context, where our youth regularly dies in terrible working conditions outside the country, to the point where we became almost desensitized to it. The young people that lost their lives were protesting to change that, they rose up to protect the youths losing their lives daily outside the country. These deaths cannot go in vain. This terrible loss and the crisis are now Nepal’s opportunity to implement the long-term changes that can lead to sustainable and strong economic growth and create adequate opportunities for our youth to reach their full potential and thrive in Nepal.
The changes will be very difficult. The social and economic consequences will be felt across all sectors. As any successful change effort, we require two things. First, political will, where leaders will not only announce and direct change, but also implement the necessary policy changes to take us forward. Second, investment in financial and human resources. Both will be critical to success.
Social and political unrest negatively impacts economies by reducing GDP and market performance, driven by increased uncertainty and decreased business confidence and investor sentiment. Specific factors like socio-economic motives, property damage and weak institutions exacerbate these effects.
According to the World Bank Enterprise Survey 2023, 41% of all enterprises surveyed in Nepal reported political instability as a major barrier to their growth. Political instability is associated with policy uncertainty. Prof. Nick Bloom at Stanford University in the United States has pointed out that policy uncertainty negatively impacts economic growth and job creation.
Income inequality in Nepal is a persistent challenge. Gini coefficient, a measure of inequality, hovered above 0.5 in the last decade, due to widening gap between the rich and poor, and significant disparities between urban and rural areas. While Nepal’s economy has grown but it has not significantly reduced income inequality, leading to increased concentration of wealth among a small portion of the population and contributing to outward migration for better opportunities.
When I worked at the International Labor Organization’s Research Department in Geneva, Switzerland, I looked at the countries in the Middle East before and after the Arab Spring. In 2011, Arab Spring shook the region and led to the downfall of regimes and brought other regimes close to collapse. Examining the economic determinants of the unrest, we found that youth unemployment rate, along with income inequality and food price inflation, were the most critical determinants of social unrest and political upheavals. Nepal’s inability to create jobs and provide economic opportunities for its young population is not good news for any political party that is looking to hold a stable government.
This is not just Nepal’s challenge. In recent months, Bangladesh and Indonesia have seen their youth react to persistent economic disparities and lack of opportunities. Even in this group, Nepal stands out. Gen Z toppled the government after a nation-wide protest that swept the country. It should not come as a surprise that younger generation took to the streets to vent their frustration, what is surprising is how effective they were in forcing a ‘course correction’. No one expected that this scale of change would come this quickly. Everyone hopes it will lead to lasting and effective change.
Nepal’s main development challenge is a chronic lack of job creation. One look at the departure terminal of the Tribhuvan International Airport in Kathmandu tells the entire story of our collective failure in creating employment opportunities. We have failed to uphold the most basic aspect of our social contract: shared access to economic progress through creation of decent work opportunities.
Successive governments in the past decade have failed to address Nepal’s ‘lack of jobs’ challenge. Political parties in the past have made tall promises every election cycle, but none have tackled jobs challenge with the intensity and focus that is needed. Unless we tackle our jobs challenge like we are at war with a stubborn enemy, I am afraid not much will change.
According to the most recent estimates for Nepal, unemployment rate is at 11.36% and the share of youth not in employment, education, or training (NEET) is 35.4%. This NEET rate is very high and does not bode well for Nepal. NEET rates for other countries in developing Asia are: Bangladesh (28.8%), Cambodia (11.4%), India (30.7%), Indonesia (22.5%), and Philippines (17.5%).
According to the International Labor Organization (ILO), high rates of youth unemployment rate and NEET rate are associated with increased risk of social unrest and political upheavals. Young people without productive employment when they want to work is similar to ‘dried leaves that will burn with a small spark.’ In case of Nepal, the ban on social media sites under KP Sharma Oli government proved to be the spark that lit the fire.
Even for many who are employed in Nepal, they might be relatively poor. In fact, average monthly earnings of employees is around Rs 17,000. Since this is the average earning, it means that half of all employed in Nepal make less than Rs 17,000 per month. Imagine that for a second. In today’s Nepal Rs 17,000 per month is barely above the poverty line.
Nepal’s private sector is creating some well-paid jobs and high productivity. Most of these jobs are in the IT industry, banking and finance, and health services. These jobs are not nearly enough to absorb the many workers who remain ‘underutilized’ and in ‘marginal employment’. This is the reality for many women and workers in rural areas where unpaid work and subsistence agriculture is more common. Latest estimate suggests that about 85% of all employment in the country is informal.
Given the chronic lack of job creation, there is a tendency to romanticize entrepreneurship among young people. E-Sewa and Pathao are great examples and there are many others that have emerged recently. Many young people will start their business and become entrepreneurs. But most Nepali youth will not do so. For most people, having access to good job opportunities, whether in public or private sector, is the road out of poverty. To strengthen Gen Z’s faith in our political and economic system, we will need to generate strong economic growth – around 7-8% per year – and adequate job opportunities.
One thing that is clear from the experience of other countries is that unless we develop Nepal’s industrial sector, our five-year plans on job creation will always come short. No country in Asia – from Japan, Singapore to China – became developed without a solid manufacturing and industrial base.
However, given the recent economic history of Asia, it is no longer enough to focus just on manufacturing. Many service sectors today are the most dynamic sectors. Some service sectors, such as IT or financial services, have a higher productivity than manufacturing. Nepal’s jobs challenge will not be solved in one year. But, what is important is to lay the ground work to address this challenge. Even seemingly small and marginal changes will yield benefits.
In the near term, the interim government should focus on rebuilding Nepal, while investing in financial and human capital. Investment may be challenging to attract. This, not only due to the recent protests and their fallout, but also because Nepal’s financial and investment reputation has been damaged by recent inclusion of Nepal in the Financial Action Task Force (FATF) grey list. In this sense, the recent protests demonstrate the country's willingness to step into a new era where corruption will be curtailed and investment will be less risky, but Nepal must make good on this promising future. This may be a long-term process, requiring improvements in digital data systems, strengthening technical capacity and financial regulations.
A more immediate, urgent, crisis will unfortunately be seen in the tourism sector. The following three months are the high-season for tourism in terms of revenue, across various regions (whole country) and various sectors (shopping, restaurants, lodging etc). The images of tourists stranded at the airport and hotels have already impacted bookings but may also have a long-term impact on Nepal’s image. This is where support will be required immediately to reassure tourists that Nepal remains a safe and inviting destination for foreigners.
Infrastructure is a sector where investment may be required immediately, to restore the loss of historical, public and private real estate and transportation links. Bringing in necessary funds in this sector will be critical, but it also presents two opportunities – bringing home some of the construction expertise (from the Middle East) and providing them with jobs, as well as an opportunity to invest in resilient future-proof infrastructure. Attracting investors in this time may be tricky, as the risk-averse ones may need time to be reassured about the safety and profitability of their investments. However, within the overall global economic downturn it is also an opportunity to pivot from a Nepal known as “donor darling” to a real “investment darling.”
(These are Dr Khatiwada’s private opinion as a Nepali citizen. His views do not represent his organization.)
