Federalism and growth
The Asian Development Bank’s latest Nepal Macroeconomic Update is reflective of the fears surrounding the implementation of federalism and operationalization of the three tiers of government. It projects the national economy to grow by 5.5 percent in 2018/19, well below the government target of 8 percent, but still respectable considering an average of 4.3 percent growth over the past one decade.
Boosting growth this year will be expectation of political stability, as well as normal monsoon and implementation of mega-infrastructure projects, says the report. But it then points out limited capacity of sub-national government units and complications in implementation of federalism as the biggest obstacles to growth. “Slow progress in requisite legislation and deployment of staff, the need for further clarification of mandates and responsibilities of the three tiers of government, and inconsistencies in revenue mobilization regarding fees and taxes at local levels” could all hinder smooth operationalization of fiscal federalism.
Clearly, for Nepal to prosper there should be a high level of coordination between the three tiers of government, and a level of agreement on resource mobilization and spending. Yet what we see is the opposite. Local units complain that even though they have been saddled with many responsibilities, the center has been miserly about giving them the needed money and manpower. Likewise, the seven provincial governments are unhappy that between them ‘the center and the local units have appropriated all vital powers’ and the province-level governments as such have been made redundant. The federal government for its part says these are birth pangs of federalism and things will be sorted out in due course.
In other words, there is currently little trust between the different tiers, which in turn is crimping their growth prospects. If the ruling coalition under Prime Minister KP Sharma Oli is serious about honoring its promise of all-round prosperity, it will have to start trusting the lower tiers more, and not hesitate to delegate vital powers and resources. In a federal system, the center acts not so much as guardians of lower tiers but more as facilitators of their aspirations for development. Yes, there is room for abuse of such delegated powers. But then the old unitary dispensation was hardly a model of economic rectitude. The onus is on the all-powerful federal government to honor the letter and spirit of federalism.
#metoo, unsafe too
As the world marks the first anniversary of the #metoo campaign this month, the topic of sexual harassment of women could not be more relevant for Nepal. In a recent APEX poll, 93 of the 100 Nepali women who were surveyed reported having experienced some form of sexual harassment. The finding was hardly a surprise. Even though there have been efforts to ‘empower’ Nepali women since the 2006 political changes, including by ensuring their greater representation in vital decision-making bodies, ours is still a predominantly patriarchal society where the dice continues to be heavily loaded in favor of men.
The built-in social bias against ‘weaker and less capable’ women can often lead to horrendous consequences. Incidents of rapes in Nepal have rocketed: there have been more rapes in the past two months than in the previous two years, combined.
It would be hard to call Nepal an equal country so long as its women and girls continue to feel unsafe in public space. True, there are some legal measures for their protection. For instance, someone convicted of sexual harassment at workplace can be jailed for up to six months and/or fined Rs 50,000. Yet most women who have been harassed at work remain quiet fearing stigmatization and curtailment of their career prospects. That would not be the case if sex offense was taken more seriously and sexual offenders were seen to be harshly punished.
So there is little for Nepali women to cheer on the first anniversary of the #metoo movement. They continue to be constantly abused at home. Heckled by rowdy men out on the street. And sexually harassed at workplace. And yet, there is also a ray of hope. The whole country has rallied around the bereaved parents of Nirmala Pant, the 13-year-old girl who was brutally raped and murdered on July 26, and whose killers are still at large. Awareness of sexual crimes has increased and, increasingly, so has the realization among women that keeping quiet is not the only option. As a result, more and more women are coming out with their personal stories of harassment and discrimination. Starting of these difficult conversations is a rare silver-lining in an otherwise gloomy climate of fear and anger.
Trees for airport
Minister for Culture, Tourism and Civil Aviation Rabindra Adhikari has been repeatedly saying that the environmental fears over the Nijgadh International Airport are overblown. It is true that the airport, as envisioned, will cover over 8,000 hectares, which will make it the biggest in South Asia in area. It is also true that an estimated 2.4 million trees will have to be felled. But as Adhikari points out, the media and the broader public is missing a crucial catch.
In the first phase, only 2,500 hectares will be used, and as such just around 760,000 trees will have to go. As envisioned, after the first phase the airport will be able to handle 15 million passengers a year; after the second phase, in another five years, it will accommodate 30 million; and 60 million after the third phase, in five more years. If the airport does not get expected traffic after the first or the second phase, then it may not be expanded.
But the larger goal is to establish Nijgadh as a transit hub with easy access to 27 major Asian cities. If things go as planned, say the project’s backers, the airport could be a game-changer for Nepal, laying a firm foundation for national prosperity and development. But is the environmental cost of bringing down 760,000 trees in the first phase worth it, not to think of the two latter phases? Has the government done enough homework on the likely damage to the rich flora and fauna, as well as to human settlements nearby, after destroying the last remaining patch of dense forest in the Tarai belt? And was there really no option to Nijgadh?
The country without a doubt needs a second international airport to relieve the pressure on the overburdened TIA, and the government says expanding Bhairahawa or Pokhara airport was not an option. So perhaps Nijgadh is really irreplaceable. If so, the developers will have to be extremely careful about inflicting minimal ecological damage, in a country already beset by climate change-induced natural disasters. Perhaps it is also worth reevaluating Nijgadh’s role as a ‘transit hub’ after the development of passenger aircraft capable of flying 20 hours non-stop. While the ecological damages certainly have to be minimized, it would also be a tragedy to build another Hambantota, often dubbed “the world’s emptiest international airport.”
Hydro shares for locals
The provision of mandatory shares for affected locals in hydro projects introduced the concept of equity investment in rural communities. As a result there is a frenzy of sorts—and often one gets a sense that buying shares is akin to winning a lottery. Until recently long queues were often seen outside banks facilitating the purchase of shares. While the introduction of automated process of late has eased the process somewhat, the questions about risks and returns—whether or not applicants understand market risks—remains. Do these shares actually offer value for money in the long run? How do poorer and marginalized households manage funds required to buy these shares? What can government and developers do to ensure that locals—who have very little financial literacy—are not exposed to market risks that can wipe out their entire savings?
A new comprehensive study conducted by the International Financial Cooperation (IFC), a private sector arm of the World Bank Group, seeks to answer some of these questions.
Nepal has taken an innovative approach in tackling complex issues in project development, particularly benefits sharing and ensuring cooperation of affected-locals. This idea of offering local shares gives locals a sense of ownership and thus prevents any potential disruption to the projects. As Nepal government seeks to develop over 10,000 MW of hydropower in the next decade, IFC estimates that the value of local equity alone could be around half a billion dollar.
That is a significant amount of capital to be raised from poorer, rural and marginalized households. This could in turn have serious implications on households’ debts levels in rural communities. As the IFC study and other anecdotal reporting suggest, households have disposed of assets or borrowed money at high interest rates to invest in these seemingly ‘lucrative projects’. But the internal rate of return for these projects remains uncertain as delays and costs overruns hit the initial estimate.
Take for example the Upper Tamakoshi, hailed as a model project built with domestic capital. The initial project cost was estimated to be around Rs. 35 billion ($ 330 million approximately). But according to revised estimates, the final price tag could nearly double—costing over Rs. 60 billion. Then there is the issue of falling price of the shares. Since 2014, the value of hydro shares has fallen by almost one-third. Even so the share-buying frenzy for hydropower companies continues unabated. This is clearly irrational and shows the failure of communicating market risks to prospective investors.
While allocating local shares offer a unique way to share the benefits of development with communities, particularly the vulnerable ones, protecting them from market risks—as well as creating a sustainable financing mechanism—is critical if this innovative policy is to have the desired result.
The IFC study is timely and its recommendations, particularly for creating a dedicated fund to enable access to finance in favorable terms, makes real sense; locals, who meet certain eligibility criteria, can be given concessional loans with the provision of shares as collateral. The study further recommends a mix modality of grant and loans in the case of mega projects—where the dividends can be used for servicing the loans. The government also seems to be taking some steps to put in place additional safeguards.
The Ministry of Energy is in the process of formulating a new guideline whereby the public can buy shares during IPO by making just a 10 percent down payment, and linking the rest of payment to the progress in project implementation.
In promoting local shares, one also needs to be mindful of the license period for hydropower plants—at the end of which the entire ownership is transferred to the government. Some projects may not pay off enough dividends to cover the interest plus inflation within that period. For households with cash to spare, this may be a fair gamble. But for poorer households, won’t the money be better spent elsewhere?
