Sunday, February 1, 2015
Flawed narrative on remittance
The following article was published in Republica on February 2, 2015. The direct link to Republica is here.
Economic development in Nepal has never been inclusive. There is still
a disparity based on geographical difference, ethnic groups and rural-urban
divide. Minorities and marginalized groups continue to suffer under poverty. As
a result, social exclusion and economic poverty are still strongly correlated.
Seventy percent of the ‘untouchables’ and 60% of the indigenous population are
poor. Over 42% of households in the mountains are poor while the figure is only
23.4% in the plains. Only 4% of households in Kathmandu valley are poor. The
figure for urban areas outside the valley is 33%.
Poverty and lack of economic opportunities has meant that Nepal is
losing its working-age population to overseas work. Around 65% of Nepalis who
leave Nepal every day as migrant workers are 29-years old or younger. The other
35% are between 29 and 44 years of age. So, the Nepalis who leave are at the
prime of their life. As a result, many Nepali villages in the hills and
mountains have virtually lost all their working-age population to the Middle
East and other migrant destinations. That demography of 15 to 44-year olds is
the target demography of almost all the development programming in Nepal. When
that target population is missing from most program locations, it becomes
difficult for development organizations to carry out their mandate and programs.
The trend for migration does not seem to be slowing down. Therefore, international
and national development organizations in Nepal have a real problem in their
hands in the coming decade.
This exodus, of mainly working age males, has not been all for the
negative. In the absence of males, women in such locations have shouldered more
responsibilities. Remittance income has supported them in this role. Their
ability to venture into new responsibilities have been made easier because of remittance
income which has been increasing each passing year. According to the World
Bank, Nepal was the third largest recipient of remittances in 2013 with $5.4
billion. The 2011 Census showed that 25.4% or 1.4 million Nepali households had
at least one member of the household living abroad. With the guaranteed
financial support from remittance income, those left behind—mainly the women—have
become more participatory in community work and decision making. For many, the
absence of males has been an opportunity to participate in economic and social
work which they would not have had a chance to engage in otherwise.
Nepal’s remittance story is sad. It did not arise because excellent
Nepali workers wanted to go global to take advantage of lucrative opportunities
overseas. It arose out of inequality and uneven level of development across
Nepal. The Maoists exploited this inequality and uneven economic development to
launch their revolution. The Maoist conflict has now ended, but the issues
still remain. For example: despite having similar geography, demography and
climate, the mid- and far-western terai are much less developed than the
eastern terai. Jhapa, Morang and Sunsari in eastern terai are among the top
five contributors of revenue to the coffers of Nepal government. But,
Kanchanpur, Kailali, Banke and all other districts in mid- and far-western
terai are decades behind in development.
The eastern districts also rank very high on human development indices.
Residents of Jhapa and Sunsari are also disproportionately represented in the
Nepali civil service. Similarly, hilly districts in eastern, western and
central Nepal are much more developed than those in the mid- and far-west. Among
the hilly districts, Palpa and Syangja are disproportionately represented in
Nepali civil service. Kaski and Kathmandu are much more developed than similar
hilly districts in mid- and far-west. It would not be a stretch to say that
there has been a systematic exclusion of mid- and far-west Nepal from the
development process. The Maoist conflict successfully exploited that exclusion
but did not actually solve it.
There are many in Nepal who believe that the remittance economy has
helped to narrow the development gap between the haves and the have-nots. They
believe that the poor have been able to go overseas for work, and the
remittance income they send home has helped their household enter the coveted
middle-class. But, there is a story of exclusion and exploitation within that
story. Manpower agencies and brokers charge a much higher rate from workers
than advertised. The government has set a maximum fee of Rs 60,000 that agents
can charge for sending a migrant worker to Malaysia and Rs 80,000 for Korea.
However, agents in Jhapa last year were charging Rs 260,000 as fees for
Malaysia and Rs 700,000 for Korea. This practice of extorting higher fees than what
is allowed by the government results in exclusion of the poor from an
opportunity to go to these lucrative destinations.
As a result, the poor either don’t go to these lucrative destinations
or end up taking huge loans to fund their trip. The high rates make the trip affordable
to only the middle-class Nepalis who can afford to pay such high fees. This
exclusion based on affordability hurts the poor two ways. First, they are
unable to go and work in places like Malaysia and Korea that have better
working conditions and pay higher wages. Second, the problem of affordability
forces the poor to choose locations such as the Middle Eastern countries or
India where labor practices are sketchy and wages aren’t great. They are able
to sustain a livelihood and be able to make their families slightly better off,
but they will always lag behind the middle-class.
Nepal’s remittance story is not inclusive, and does not do much for the
poor Nepalis. Nepal’s poor need a different narrative.
Labels: inclusive growth, migration, remittance, unemployment
Monday, August 29, 2011
Links for August 29, 2011
.
The BIG NEWS: Baburam Bhattarai becomes the 35th (and the most educated) Prime Minister of Nepal. Here is his short profile.
1. Half of households have one member abroad
2.Banks deposit growth rate slows down
32.25 percent in 2008/09
12.9 percent in 2009/10
10 percent in 2010/11
3. Strike cripples life in 9 eastern districts
4. Protesting Mustang folks warn of barring tourist entry
5. Preparation for Dashain; NRB ups note circulation by 40pc
6. Only 10 companies hold 56 percent of Nepal stock exchange's total market capitalization
Company// Share in total market capitalization(%)
Nepal Telecom// 19.43
Standard Chartered Bank// 8.95
Nabil Bank// 7.85
Nepal Investment Bank // 3.83
Himalayan Bank// 3.56
Nepal SBI Bank// 3.26
Everest Bank// 2.81
Bank of Kathmandu// 2.40
Butwal Power// 2.32
Chilime Hydropower// 1.85
7. NOC hikes diesel, kerosene price by Rs. 1.50 per litre
8. Buddha Air tops domestic carrier operations
32.05 percent in 2009
19.82 percent in 2010
4.98 percent in 2011
9. Nepalese Internet ...some numbers
*65,000 subscribers at the end of 2009/10
*52,527 subscribers at the end of 2010/11
*Between 2009/10 and 2010/11, number of dial-up users lowered by 33 percent
*Between 2009/10 and 2010/11, number of wireless users increased by more than 70 percent
*Between 2009/10 and 2010/11, wireless users increased by 10,000
*Worldlink is the leading internet provider with 19,858 subscribers
*Broadlink is second with 11,792 subscribers
*Mercantile Communication has 9,445 users
*Subisu Cablenet has 5,276 users
*Web Surfer has 958 users
*Internet penetration of the country has reached 10. 89 percent as of mid-June 2011
*But, nearly 98 percent the total users are GPRS users
The BIG NEWS: Baburam Bhattarai becomes the 35th (and the most educated) Prime Minister of Nepal. Here is his short profile.
1. Half of households have one member abroad
...52.8 per cent of the total households have at least one member away from home...indicating the startling rise in loss of human capital in the country
...32 per cent families have members away in foreign countries...55 per cent of the total households receive remittance from the members abroad
...Over 354,000 Nepalis left the country last fiscal year to work in foreign destinations...and...that has created dearth in agricultural and industrial labour back home
...Nepal earns about Rs 210 billion from remittance coming in from abroad annually...but...79 per cent of total remittance is spent on daily consumption...and...only a meagre 2.4 per cent of the remittance contributes to capital formationAlthough there are people in Nepal that praise remittance for its role in reducing poverty and inequality (both of which have NOT been proven empirically by any studies), there are some aspects of this heavy role of remittance that do not bode well for the country in the long run, especially because:
...empirical evidences also show that the development process of the economy that is dependent on remittance is relatively slower by about 1.5 percent
2.Banks deposit growth rate slows down
...average deposit growth rate slowed down by more than two times compared to a fiscal year agoDeposits in the commercial banks grew by:
32.25 percent in 2008/09
12.9 percent in 2009/10
10 percent in 2010/11
Deposits with Janata Bank saw surging by 300 percent...Rastriya Banijya Bank has the largest deposit base with Rs 74 billion...Nepal Investment Bank has Rs 50 billion deposits
...saving and credit cooperatives were found to be mobilising deposits worth Rs 122 billion
3. Strike cripples life in 9 eastern districts
...the demand is to make Taplejung, Panchthar, Ilam, Jhapa, Morang, Sunsari, Dhankuta, Sankhuwasabha and Terhathum districts...into the Federal autonomous Limbuwan state
4. Protesting Mustang folks warn of barring tourist entry
...unless the government allocates 60 percent of the tourist royalty for the development of the region
Upper Mustang has not received its share as provisioned by the Local Self Governance Act for the last 16 years...despite the government of Nepal collecting...Rs 770 million in revenue annually through tourism from Upper Mustang since 1993...The government only provides ...a nominal Rs 70 million to the district. As a result, the region still lacks electricity, roads, schools and hospitals. Food shortage is a perennial problem as the topography of Upper Mustang is unfavourable for crops.
2,162 tourists visited Upper Mustang in 2010, up by 30.3 percent compared to the previous year
5. Preparation for Dashain; NRB ups note circulation by 40pc
...Last Dashain saw use of notes worth Rs 20 billion...According to NRB, it is sending clean notes worth around Rs 28 billion for this year’s Dashain
6. Only 10 companies hold 56 percent of Nepal stock exchange's total market capitalization
Company// Share in total market capitalization(%)
Nepal Telecom// 19.43
Standard Chartered Bank// 8.95
Nabil Bank// 7.85
Nepal Investment Bank // 3.83
Himalayan Bank// 3.56
Nepal SBI Bank// 3.26
Everest Bank// 2.81
Bank of Kathmandu// 2.40
Butwal Power// 2.32
Chilime Hydropower// 1.85
7. NOC hikes diesel, kerosene price by Rs. 1.50 per litre
The price of the diesel and kerosene has now reached Rs. 75 per litre from Rs. 73.50 per litre....the price of petrol is constant at Rs. 102 per litre which was increased from Rs. 97 some two months ago
8. Buddha Air tops domestic carrier operations
...in the first half of 2011 with a market share of more than 40 percent
The airline recorded an increment of 21.73 percent in passenger carriage. Except for Buddha Air and Sita Air, all the domestic carriers posted a negative growth in their passenger movement in the first six months.
Buddha’s nearest competitor Yeti Airlines saw its passenger movement dip by 1.55 percent. However, the airline is still the second largest carrier in domestic aviation with 224,062 passengers flying it in the first half of 2011.
...domestic airlines carried 761,043 passengers in the first six months, up 36,160 from last year...Rate of Growth in Passenger Movement in first-half of the year:
32.05 percent in 2009
19.82 percent in 2010
4.98 percent in 2011
9. Nepalese Internet ...some numbers
*65,000 subscribers at the end of 2009/10
*52,527 subscribers at the end of 2010/11
*Between 2009/10 and 2010/11, number of dial-up users lowered by 33 percent
*Between 2009/10 and 2010/11, number of wireless users increased by more than 70 percent
*Between 2009/10 and 2010/11, wireless users increased by 10,000
*Worldlink is the leading internet provider with 19,858 subscribers
*Broadlink is second with 11,792 subscribers
*Mercantile Communication has 9,445 users
*Subisu Cablenet has 5,276 users
*Web Surfer has 958 users
*Internet penetration of the country has reached 10. 89 percent as of mid-June 2011
*But, nearly 98 percent the total users are GPRS users
Labels: airlines, banks, cooperatives, dashain, internet, migration, mustang, NRB, petroleum, remittance, share market, shutdown
Tuesday, August 23, 2011
Links for August 23, 2011
.
1. Government to expand micro-enterprise programs
2. Department of Revenue Investigation (DRI)moves court against three firms for evading income tax, VAT and excise duty.
3. Government to ban use of plastics bags from next week
4. Over 45,000 Nepalis left for foreign jobs within a month
5. Inter-bank lending on the rise
6. Deposits in co-ops more than doubled last fiscal year
7. Banks see sharp fall in PE ratios
8. Reform process in Rastriya Banijya Bank(RBB)and Agriculture Development Bank Limited(ADBL)take back seat
9. A bizarre project in Nepal, At Buddha’s birthplace: A Chinese development proposal causes disbelief
1. Government to expand micro-enterprise programs
Cottage Industry Development Committee (CIDC) will implement the programs in Tanahun, Baglung, Syangja, Solukhumbu, Illam, Taplejung, Rukum, Dhankuta, Darchula and Bajhang.
Federation of Nepal Cottage and Small Industries (FNCSI) will execute it in Morang, Siraha, Saptari, Dhanusha, Bara, Makawanpur, Palpa, Kailali, Nawalparasi and Kanchanpur.
2. Department of Revenue Investigation (DRI)moves court against three firms for evading income tax, VAT and excise duty.
Bishal Chemical Industries, Samyam Enterprises and Bishal Jarda Factory...together evaded Rs 290 million in VAT, excise duty and income tax.
...as existing laws imposes 200 percent penalty for such evasion, the department has slapped penalty of Rs 580 million for the three firms.
3. Government to ban use of plastics bags from next week
Minister for Environment, Sunil Kumar Manandhar said the government was going to ban the use of plastic bags of less than 20 micron in the country to be effective from the next week.
The offenders will be fined between Rs. 500 to Rs. 50,000
4. Over 45,000 Nepalis left for foreign jobs within a month
...number of Nepalis leaving the country for overseas jobs increased by 52.15 percent, to 45,165 from mid-July to mid-August compared to the figure of the same period last year...A total of 29,685 Nepalis had gone abroad for jobs during that period last year.
Among last month's migrant workers, the number of male and female migrants was 43,163 and 2,002 respectively.
Qatar remained top host for Nepali job seekers, accepting 15,702 workers compared to other countries Malaysia (9671), Saudi Arabia (8538), United Arab Emirate (6873) and Kuwait (2088)
5. Inter-bank lending on the rise
6. Deposits in co-ops more than doubled last fiscal year
Cooperatives are holding deposits of Rs 150 billion as of the last fiscal year, up from Rs 70 billion a year ago, according to the Department of Cooperatives.
Their lending grew to Rs 105 billion last year from Rs 43.46 billion in the previous year.
Saving and credit cooperatives are the biggest receivers of public deposits. As of mid-March, such cooperatives held Rs 97.49 billion, while total deposits in all types of cooperatives stood at Rs 130 billion.
There are a total of 22,646 cooperatives in the country, of which 10,558 are saving and credit, 4,096 multipurpose, 3,144 agriculture, 1,748 dairy and 1,379 consumer. Likewise, there are 371 cooperatives in electricity production, 161 in vegetable and fruits production, 104 in tea production, 67 in coffee production, 61 in health sector, 51 in honey production, 73 in herbal production and 833 in other categories.
DoC statistics show that 2,922 new cooperatives were registered last year.
7. Banks see sharp fall in PE ratios
Price to earning ratio (PE ratio)...one of the major investment indicators of the stock market...is calculated by dividing share price by per share earning.
Stock analysts say an average PE ratio of 15 is justifiable for commercial banks.
...the PE ratio came down sharply over the last year along with the freefall in the stock market.
Currently, Nepal Investment Bank, Agriculture Development Bank, Nepal Bangladesh Bank and Lumbini Bank have PE ratios less than 10.
A majority of the 17 banks that published financial results of the last fiscal year saw their PE ratio standing between 10 and 20. This is a sharp fall compared to the previous year when the ratio was above 20. Last year, Machhapuchhre Bank’s PE ratio was as high as 56.90 followed by Global Bank with 52.48. Now, Global’s ratio has come down to 13.85. The Standard Chartered’s ratio came down to 25.92 from 42.23. Other banks witnessing PE ratio above 20 are DCBL Bank and Citizens Bank International.
8. Reform process in Rastriya Banijya Bank(RBB)and Agriculture Development Bank Limited(ADBL)take back seat
Daily operations of these banks have been affected for the last few weeks due to strikes called by the trade union affiliated to the Nepali Congress (NC)
In both banks, reforms measures have been carried out with foreign aid. RBB is under the reform process as per the World Bank-sponsored Financial Sector Reform Programme, while Asian Development Bank has aided the reforms in ADBL.
Although the financial sector reform programme will end in December, RBB will still remain as a sick bank with negative net worth of billions of rupees.
The central bank has also failed to appoint a CEO in Nepal Bank Limited for the last four years even after five attempts. Currently, NRB’s own management team is running the oldest bank of the country.
9. A bizarre project in Nepal, At Buddha’s birthplace: A Chinese development proposal causes disbelief
Labels: ADBL, cooperatives, evasion, interbank lending, microfinance, migration, RBB, remittance, stock market, VAT
Wednesday, July 27, 2011
Links for July 27, 2011
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Migrant workers return from Malaysia with no money---Nepalnews
I have written in the past about Nepalese workers being promised a certain wage and not receiving it after landing in the destination country. Our newspapers keep writing about such types of mental and physical abuses that Nepalese workers face in the Middle East and other countries. This case from Malaysia is just one more story. I wonder when our government is going to act and make sure our workers are not exploited.
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Republica's Editorial urges NRB to respond to merger calls---Republica
The editorial argues in favor of mergers to protect the failing BFIs. Although it makes sense to try and save the BFIs from going belly up, personally, I am against mergers. These BFIs sprouted up due to private investors trying to make quick bucks and huge profits. If they fail, they should exit the market just like any other business entity in a capitalist market. Simple. My arguments are here.
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Nepal Tourism Year being promoted in Washington DC---Republica
It is a good idea. DC gets a lot of tourists. If only a fraction of those become attracted with the advertisement and pay a visit to Nepal, it will be good for our tourism industry.
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Real estate market poor---Republica
In 2009/10, the government earned Rs 6 billion in revenue from real estate deals. In 2010/11, it earned only Rs 3.21 billion. This is way off target of Rs 6.3 billion that the government had announced it would earn.
Dealers have been cutting rates by as much as 30 percent in the last year, but sales have still fallen by over 50 percent compared to last year. In Kathmandu, sales dropped by 53 percent. In Bhaktapur and Lalitpur, sales dropped by 52 percent.
Reckless loans by BFIs is a major cause for the asset bubble of Nepal for the last few years. I predict that this bubble will burst by 2015. Remittance money cannot keep this bubble floating forever.
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Far-west students demand a university---Nepalnews
I have not been to the far-west of Nepal. But, it is true that the region does not have a single university. This is a shame.
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19 died in Tanahun district last year due to Tuberculosis---Nepalnews
TB has a cure. TB medicine is available for free in Nepal at any government health posts and hospitals. Yet, 19 people died last year in a single district due to TB. This is a shame. This shows that something is wrong with the Nepalese information system and public service delivery system.
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NRB governor urges NRNs to invest in Nepal---Himalayan Times
Dr Yubraj Khatiwada urged NRNs to invest in Nepal through Hydropower Development and Investment Company.
Migrant workers return from Malaysia with no money---Nepalnews
I have written in the past about Nepalese workers being promised a certain wage and not receiving it after landing in the destination country. Our newspapers keep writing about such types of mental and physical abuses that Nepalese workers face in the Middle East and other countries. This case from Malaysia is just one more story. I wonder when our government is going to act and make sure our workers are not exploited.
-------------------------------------------------------------------
Republica's Editorial urges NRB to respond to merger calls---Republica
The editorial argues in favor of mergers to protect the failing BFIs. Although it makes sense to try and save the BFIs from going belly up, personally, I am against mergers. These BFIs sprouted up due to private investors trying to make quick bucks and huge profits. If they fail, they should exit the market just like any other business entity in a capitalist market. Simple. My arguments are here.
-------------------------------------------------------------------------
Nepal Tourism Year being promoted in Washington DC---Republica
It is a good idea. DC gets a lot of tourists. If only a fraction of those become attracted with the advertisement and pay a visit to Nepal, it will be good for our tourism industry.
Real estate market poor---Republica
In 2009/10, the government earned Rs 6 billion in revenue from real estate deals. In 2010/11, it earned only Rs 3.21 billion. This is way off target of Rs 6.3 billion that the government had announced it would earn.
Dealers have been cutting rates by as much as 30 percent in the last year, but sales have still fallen by over 50 percent compared to last year. In Kathmandu, sales dropped by 53 percent. In Bhaktapur and Lalitpur, sales dropped by 52 percent.
Reckless loans by BFIs is a major cause for the asset bubble of Nepal for the last few years. I predict that this bubble will burst by 2015. Remittance money cannot keep this bubble floating forever.
-----------------------------------------------------------------
Far-west students demand a university---Nepalnews
I have not been to the far-west of Nepal. But, it is true that the region does not have a single university. This is a shame.
-----------------------------------------------------------------
19 died in Tanahun district last year due to Tuberculosis---Nepalnews
TB has a cure. TB medicine is available for free in Nepal at any government health posts and hospitals. Yet, 19 people died last year in a single district due to TB. This is a shame. This shows that something is wrong with the Nepalese information system and public service delivery system.
-------------------------------------------------------------------
NRB governor urges NRNs to invest in Nepal---Himalayan Times
Dr Yubraj Khatiwada urged NRNs to invest in Nepal through Hydropower Development and Investment Company.
Labels: central bank of nepal, mergers, migration, nepal tourism year, real estate, remittance, TB, tuberculosis
Tuesday, July 12, 2011
Socio-economic impact of remittance
My latest article in Republica is on socioeconomic impact of remittance in Nepal. It is co-authored by Dr Vikas Raj Satyal, an ex-colleague from IIDS and Chair of the Statistics Department at Amrit Science Campus.
We have been going overseas for work ever since the British recruited us after the Anglo-Nepal war of 1814-1816. First, we were recruited in the British Army in India, then in the Indian Army after the British left India in 1947. However, the floodgates really opened after the democracy in 1990. The democracy, and the subsequent opening up of the Nepali economy and labor market, has meant that we have been going overseas, in droves every year, either for work or studies or both.
Nepal Rastra Bank has estimated that only 3 percent of Nepalis use banks to send money home. Similarly, the living standard survey discovered that only 0.8 percent of workers outside Nepal use other institutional channels. Last year, remittance received from official channels was about Rs 210 billion, which was 22 percent of the total GDP. However, this ratio is much higher if we include unofficial transactions. So, to say that remittance has become a significant player in our economy is an understatement.
Given this huge impact, it becomes imperative for economists and policymakers to assess what kind of socio-economic impact remittances have caused in Nepal. Some common consternation that experts have with remittance in Nepal is its impacts such as brain drain, general shortage of labor, trade imbalance, increasing inflation, impact on poverty, increasing fraud and rent-seeking in emigration procedures.
Obviously, the most significant impact is on the labor force. The trend of last few years shows that around 65 percent of those going overseas are between the ages of 15 and 29, and the rest are between the ages of 30 and 44. Those who have left the country have left behind a void in the labor market. However, growing sectors like education and banking require high skills and higher knowledge—both of which our youths lack. Therefore, despite such mass exodus of labor, around 13 percent of youths—between 15 and 24 years of age—in Nepal today still find themselves unemployed. Our failure to give them jobs means they will, eventually, leave the country, just like others.
But, going overseas for work is a process that has increased the inequality in Nepali society. The poor cannot afford to apply and go to lucrative destinations. Instead, they settle for jobs in India because it requires no visa and cost of reaching there is low. For them, even the acquisition of official emigration documents, such as a passport, is sometimes an insurmountable hurdle. Therefore, those who go to lucrative areas are already in the lower- to upper-middle class.
Given this context, it is difficult to swallow the claims of Nepali policymakers who are in praise of the remittance economy because they feel it reduces poverty. Let us look at the numbers. Workers from India send Rs 18,400 per year on average. Those in the Middle East and other countries send around Rs 80,000 per year on average. These numbers suggest that remittance income might help a lower-middle class family enter upper-middle class, or an upper-middle class family become rich. But, that is not what “reducing poverty” means. Remittance is not helping a poor family enter middle-class.
Also, there is a lack of empirical evidence to support the role of remittance on our economic growth. Instead, the product moment correlation shows a high positive correlation of remittance with consumption, imports and CPI. This means, remittance contributes to our gluttony, high imports, and high inflation. In remittance heavy economies, remittances do not serve as investments but rather as social insurance to help family members finance everyday purchases. Consumption does not cause economic growth. Consumption coupled with savings and investment does. And, the latter two are missing in today’s Nepali economy.
A cross sectional study of 111 countries showed empirical evidence of remittance fostering rent-seeking behaviour and corruption. Institutional quality, even after controlling for potential reverse causality, was found to be declining as a result of remittance. Creation of rent-seeking and corruption can be observed via various channels and brokers who send workers overseas. Often, poor and under-educated workers are cheated by middlemen and manpower agencies. Our newspapers have reported about workers receiving much lower wages than promised. And, news of abuse of Nepali workers in the Middle East has become a regular feature.
Households that receive remittance income also experience the “spoil effect”. It means that easy availability of remittance money sent from abroad creates distortion in the work efficiency and working mentality of the recipient members. A study in Kosovo showed that remittance made the youths reluctant toward seeking higher education and reduced their incentives to work. Similar results have been observed in remittance heavy economies like the Philippines, Egypt and Somalia. Are such spoil effects present in Nepali society? Do we risk losing our youths to poor education and poor skills?
On the face of constant hurdles and abuses that migrant laborers face from day one, even our policymakers understand that the talk of economic growth through remittance is nothing but a mirage. So, what have they done to reduce our dependency on remittance income? Not much. Instead, in 2010, our government initiated plans to train our workers according to the demand in source countries. It initiated negotiations with foreign governments to expand our overseas job markets. Also, the Department of Foreign Employment has formed teams to inspect and monitor the institutes that provide orientations and vocational trainings to workers seeking overseas employment.
These are not the actions of a government that is seeking to reduce remittance’s impact on Nepali economy. These are the actions of a government that has no idea how to create jobs at home. These are the actions of a government that does not know how to stop our labor force in its prime from going overseas to make someone else’s country better off.
This opinion piece was published in Republica on July 12, 2011.
We have been going overseas for work ever since the British recruited us after the Anglo-Nepal war of 1814-1816. First, we were recruited in the British Army in India, then in the Indian Army after the British left India in 1947. However, the floodgates really opened after the democracy in 1990. The democracy, and the subsequent opening up of the Nepali economy and labor market, has meant that we have been going overseas, in droves every year, either for work or studies or both.
Nepal Rastra Bank has estimated that only 3 percent of Nepalis use banks to send money home. Similarly, the living standard survey discovered that only 0.8 percent of workers outside Nepal use other institutional channels. Last year, remittance received from official channels was about Rs 210 billion, which was 22 percent of the total GDP. However, this ratio is much higher if we include unofficial transactions. So, to say that remittance has become a significant player in our economy is an understatement.
Given this huge impact, it becomes imperative for economists and policymakers to assess what kind of socio-economic impact remittances have caused in Nepal. Some common consternation that experts have with remittance in Nepal is its impacts such as brain drain, general shortage of labor, trade imbalance, increasing inflation, impact on poverty, increasing fraud and rent-seeking in emigration procedures.
Obviously, the most significant impact is on the labor force. The trend of last few years shows that around 65 percent of those going overseas are between the ages of 15 and 29, and the rest are between the ages of 30 and 44. Those who have left the country have left behind a void in the labor market. However, growing sectors like education and banking require high skills and higher knowledge—both of which our youths lack. Therefore, despite such mass exodus of labor, around 13 percent of youths—between 15 and 24 years of age—in Nepal today still find themselves unemployed. Our failure to give them jobs means they will, eventually, leave the country, just like others.
But, going overseas for work is a process that has increased the inequality in Nepali society. The poor cannot afford to apply and go to lucrative destinations. Instead, they settle for jobs in India because it requires no visa and cost of reaching there is low. For them, even the acquisition of official emigration documents, such as a passport, is sometimes an insurmountable hurdle. Therefore, those who go to lucrative areas are already in the lower- to upper-middle class.
Given this context, it is difficult to swallow the claims of Nepali policymakers who are in praise of the remittance economy because they feel it reduces poverty. Let us look at the numbers. Workers from India send Rs 18,400 per year on average. Those in the Middle East and other countries send around Rs 80,000 per year on average. These numbers suggest that remittance income might help a lower-middle class family enter upper-middle class, or an upper-middle class family become rich. But, that is not what “reducing poverty” means. Remittance is not helping a poor family enter middle-class.
Also, there is a lack of empirical evidence to support the role of remittance on our economic growth. Instead, the product moment correlation shows a high positive correlation of remittance with consumption, imports and CPI. This means, remittance contributes to our gluttony, high imports, and high inflation. In remittance heavy economies, remittances do not serve as investments but rather as social insurance to help family members finance everyday purchases. Consumption does not cause economic growth. Consumption coupled with savings and investment does. And, the latter two are missing in today’s Nepali economy.
A cross sectional study of 111 countries showed empirical evidence of remittance fostering rent-seeking behaviour and corruption. Institutional quality, even after controlling for potential reverse causality, was found to be declining as a result of remittance. Creation of rent-seeking and corruption can be observed via various channels and brokers who send workers overseas. Often, poor and under-educated workers are cheated by middlemen and manpower agencies. Our newspapers have reported about workers receiving much lower wages than promised. And, news of abuse of Nepali workers in the Middle East has become a regular feature.
Households that receive remittance income also experience the “spoil effect”. It means that easy availability of remittance money sent from abroad creates distortion in the work efficiency and working mentality of the recipient members. A study in Kosovo showed that remittance made the youths reluctant toward seeking higher education and reduced their incentives to work. Similar results have been observed in remittance heavy economies like the Philippines, Egypt and Somalia. Are such spoil effects present in Nepali society? Do we risk losing our youths to poor education and poor skills?
On the face of constant hurdles and abuses that migrant laborers face from day one, even our policymakers understand that the talk of economic growth through remittance is nothing but a mirage. So, what have they done to reduce our dependency on remittance income? Not much. Instead, in 2010, our government initiated plans to train our workers according to the demand in source countries. It initiated negotiations with foreign governments to expand our overseas job markets. Also, the Department of Foreign Employment has formed teams to inspect and monitor the institutes that provide orientations and vocational trainings to workers seeking overseas employment.
These are not the actions of a government that is seeking to reduce remittance’s impact on Nepali economy. These are the actions of a government that has no idea how to create jobs at home. These are the actions of a government that does not know how to stop our labor force in its prime from going overseas to make someone else’s country better off.
This opinion piece was published in Republica on July 12, 2011.
Labels: Nepalese Economy, remittance
Thursday, June 30, 2011
Tackling Nepal's Unemployment Problem
The exact unemployment rate in Nepal has always been debatable. Some agencies report it to be around 20 percent while others report it to be around 40 percent. So, the unemployment rate of Nepal depends on who you ask. What is not debatable is the fact that solutions that have been tried have always been a blanketed approach to reduce unemployment throughout the nation. What our policymakers have to realize is the fact that blanketed approaches don’t usually work.
There are three kinds of unemployment: structural, frictional, and cyclical. Frictional unemployment occurs when people move from one place to another or when they quit one job to find another. Cyclical unemployment occurs when people lose their jobs due to business-cycle fluctuations. It increases when an economy is in a decline. Structural unemployment occurs when the labor force lacks the necessary skills and training to make itself useful in the new way of doing things.
In Nepal, people from low-opportunity areas have always moved to areas where jobs are aplenty. Also, a dearth of jobs means quitting one to find another has not been a luxury available to Nepali workers. So, frictional unemployment isn’t really a big issue for us. Also, the Nepali economy has been growing steadily at around 3 percent a year. We are not in a recession, and thus, we should not worry too much about cyclical unemployment.
Financial sector in Nepal is flying high. Despite what we believe, private education in Nepal has become an industry in itself. It has been growing rapidly all over the country. The construction sector is also booming. But, manufacturing industry is in the dumps, and agricultural production is in decline. This has resulted in an increase in net unemployment because the declining effects far outweigh the positive effects. Manufacturing and agricultural labor force in Nepal lacks the necessary training and skills to succeed in construction, education or financial sectors. This lack of transferable skills among the labor from different sectors has resulted in growing structural unemployment in Nepal.
Growth in financial and banking sector has resulted in lots of jobs. Education and housing industry boom has given jobs to thousands. Manufacturing industry, which depends on huge amounts of energy for production, has become severely handicapped due to load-shedding and lack of alternative energy options. Competition from other countries along with lower returns has all but destroyed the agricultural industry which, according to the latest National Labor Force Survey, still employs around 51 percent of the labor force. In comparison, the construction and financial industries, which are booming, each employ only about 1 percent of the labor force.
The solution, currently in use and promoted by our government, has been to send these low-skilled laborers abroad for jobs. While remittance money from overseas workers has been helping us in the short-run to fulfill our consumption desires, it is not a viable option in the long-run. Studies in many nations have shown, repeatedly, that remittance does not create jobs and has no contribution in reducing inequality. Our policymakers seem oblivious to this fact, seeing how they have been going about their business of signing agreements with other nations to send our labor force overseas for jobs.
What, then, is the solution? We know that agriculture can no longer remain our number one industry. As in all other nations that have developed before us, other sectors are bound to surpass agriculture as our leading contributor to GDP. However, we should not give up on agriculture right away because it still employs the largest share of our labor force. We should design programs to reform agriculture; provide technical support to farmers; provide healthcare; improve irrigation facilities; introduce scientific farming techniques, for example, drip irrigation; and provide storage facilities to farmers. Agriculture in Nepal cannot sustain itself without government intervention and reforms. The industry is too huge to sustain itself via individual efforts from farmers.
More importantly, youth unemployment in Nepal is at an all-time high. We are losing our labor force during its prime and most productive years to some other country due to lack of a better opportunity here at home. It is a shame. Most youths going overseas for jobs are rural youths involved in agriculture. These youths leave Nepal because they lack the necessary skills and education to become employed in other sectors in Nepal. The best way to stop this mass exodus is to initiate a nationwide program to educate and employ the youths. We should encourage our youths to finish school, and go to college. If they cannot afford to do so, the government needs to step-up and provide then with benefits, subsidies and, if need be, free education all the way until they finish college. Only then can we have educated youths capable of finding employment within the nation’s boundaries.
Why does our government mimic failed European tax policies but not their successful and free college education policies? Our leaders, time and again, claim to turn Nepal into Singapore. Here’s my response to these leaders: if you can get our education system to mimic that of Sri Lanka, I’ll never ask you for a Singapore.
Along with education subsidies for youths, providing businesses with incentives, such as tax breaks and subsidies, to relocate will help balance the unemployment figures nationally. Despite what we see in Kathmandu, where people from all over the country are flowing in for jobs, most of Nepal’s labor force is uncomfortable when it comes to moving and relocating for jobs. The government, via designed programs, should encourage the jobless to relocate to where the jobs are. People with little or no education should be provided with vocational training.
Finally, since most youths who go overseas for jobs are engaged in construction jobs, we should provide such jobs at home while ensuring, at the same time, that we are also sending more of them to schools and colleges. Our roads and highways are crumbling and are also in need of widening; bridges are falling apart; and there aren’t enough roads and bridges to smoothen the trade flow. So, the best way to tackle Nepali unemployment is to engage in a highway construction effort in a scale that this country has never seen before. We have the necessary labor to do the job. All we need is the necessary capital. I am sure the guys at IMF, ADB, World Bank, India and China will be happy to help out.
This opinion piece was published in The Republica on March 22, 2011.
Labels: central bank of nepal, migration, remittance, structural unemployment, unemployment
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