Sabrina Singh, in her column for The Kathmandu Post, discusses how incorporation of legal perspectives in Nepal’s prevailing investment policies and strategies may help the concerned authorities to make these documents and associated logistics more conducive by allowing the state and investors enough rooms for discuss and settle tangible and binding legal effects of investment policies.
The Nepal Institute for Policy Research (NIPoRe) is happy to have Dr. Arbind Kumar Mishra on board for the institute’s Advisory Board. Dr. Mishra is a former member of Nepal’s National Planning Commission (NPC). Besides, he also held significant academic responsibilities in the past, including working as the Chief of the he Institute of Engineering(IOE), Tribhuvan University. Learn more about Dr. Mishra.
NRC0007 – Development of Rights : Should human rights be part of Nepal’s economic development strategy?
Development of Rights: Should human rights be part of Nepal’s economic development strategy?
Human rights and economic development are both considered worthy — but different — aspirations. In today’s Nepal, development is certainly a top priority for leaders and policymakers, but should human rights be part of this conversation? This commentary makes the case that it should. It first introduces the seeming tensions between human rights and economic development, and explains the concerns of skeptics. It then lays out reasons for a marriage between human rights and development on both pragmatic and theoretical grounds.
Reconstruction and development are top priorities in post-conflict Nepal. More recently, the country seems keen on growth that is investment-led and with lower trade deficits. Nepal’s best-case scenario, moving forward, would be graduating into middle-income country status by 2030.
Should human rights be part of this economic conversation? The instinctual reply might be: why? Human rights are a set of basic (supposedly) inalienable, universal rights that attach to every individual on the basis of simply being human. Compared to this aspirational standard, economic growth seems to require a more technical and pragmatic approach. Some may say that human rights can constrain, rather than enhance, economic growth. For example, increasing social spending in fulfilling every individual’s right to food or shelter may take resources away from investing in productive sectors. But this hypothetical scenario is just that – hypothetical. Whether such an irreconcilable difference exists, in practice, between human rights and development is a question for evidence-based and context-dependent decision-making.
Skeptics: “Development First, Then Human Rights”
There are other concerns with including human rights in the development agenda that come from well-meaning skeptics who do not see an irreconcilable difference between the two, but who nevertheless have concerns. The primary concerns boil down to: development first, then human rights. First, consider the dire economic condition of our country – Nepal’s growth rate of per capita income has been the lowest in South Asia, averaging just 2 percent during 1970-2014; thousands of youth feel compelled to migrate abroad to work. The deadly earthquake in 2015 was another major setback in our growth trajectory; the slow implementation of federalism poses yet another challenge. In such a situation, it may be more strategic to focus our time, resources and political will toward increasing productivity, employment and investment at home, rather than on abstract and aspirational notions of human rights and human dignity. Second, investing in human rights is too expensive and impractical, especially for a poor country like Nepal. Realization of all human rights would include unprecedented increase in government spending and unrealistic expectation in the government’s ability to implement laws and policies. Third, the traditional champions of human rights are Western states or the global elite. They not only fail to adhere to such moral standards themselves but are also waning in geopolitical and economic importance. It would be hypocritical and futile to ‘impose’ human rights from the Western world. And, lastly, human rights are often politicized issues and we should keep politicization out of economic development decisions. So, in sum: development first, then human rights.
Intersections of Rights and Development
However, designing economic growth strategies with an eye toward human rights will add value to the economic trajectory of Nepal. At a minimum, when it comes to certain issues, human rights and economic development have clear intersections. Gender equality is an example. Gender equality and non-discrimination not only improve human rights of women and other marginalized gender identities, they also have a net positive outcome for productivity, economic diversification, and GDP growth. An anecdotal example is increasing a woman’s right to own land – it enhances human rights while facilitating small business activity and access to finance.
Second, human rights include socio-economic rights, and a right to development. Socio-economic rights are right to shelter, food, water, and health. Although not the most well-known among human rights, these are the rights that are essential to living and they also increase human capital and productivity. Civil and political rights like freedom of association can also have a positive and significant effect on economic growth. Moreover, Nepal expresses consistent policy commitments to the Sustainable Development Goals (SDGs), most impressively reducing poverty by half in the past 15 years (but with 6 more million individuals still below the poverty line). Many of the pillars of the SDGs are concurrent claims to human rights, for example eradicating hunger or securing decent work. A commitment to human rights is as much of a practical governance challenge to Nepal as a commitment to the SDGs or, say, increasing Foreign Direct Investment (FDI) as part of private sector enhancement.
Commitments From Major Players and Nepal’s Constitution
Third, the biggest players of the global private sector themselves have recognized that human rights have economic consequences and pledged commitments to respect them. Today, many investors and corporations require human rights due diligence before investing in a country. In addition to private investors, major development and aid partners care about human rights, often trying to integrate human rights into their funding policies and programs.
Lastly, today’s Nepal rests on the values of inclusion, participation and equity as enshrined in our Constitution. It proclaims a right to live with dignity, freedom and equality; specific rights include the right to health care, food, and housing. Using the Constitution as a guiding principle, our development trajectory should also focus on these values. This means a marriage between the basic spirit of human rights and that of economic development.
Rights and development are not irreconcilable. Basic human rights can act as a floor, not a ceiling, for economic development. Although a difficult balancing task, I think it is an investment worth making. Human rights, after all, is about adding the ‘human’ back into development.
- Danish Institute for Human Rights. (2017, March 7). Human Rights and Economic Growth. Retrieved from https://www.humanrights.dk/publications/human-rights-economic-growth
- National Planning Commission, Government of Nepal, & Asian Development Bank. (2016). Envisioning Nepal 2030. Retrieved from https://www.npc.gov.np/images/category/Envisioning_Nepal_2030_Proceeding.pdf
- OHCHR. (2019, August 13). Corporate Human Rights Due Diligence – Identifying and Leveraging Emerging Practice. Retrieved from https://www.ohchr.org/EN/Issues/Business/Pages/CorporateHRDueDiligence.aspx
- OHCHR. (Undated). Empowerment, Inclusion, Equality: Accelerating Sustainable Development with Human Rights. Retrieved from https://www.ohchr.org/Documents/Issues/MDGs/Post2015/EIEPamphlet.pdf
- UN Women. (2019, August 13). Facts and Figures: Economic Empowerment. Retrieved from https://www.unwomen.org/en/what-we-do/economic-empowerment/facts-and-figures#notes
- World Bank. (2017, May). Climbing Higher: Towards a Middle-Income Nepal. Retrieved from https://www.worldbank.org/en/region/sar/publication/climbing-higher-toward-a-middle-income-country
- World Bank & Organisation for Economic Development and Cooperation. (2013). Integrating Human Rights Into Development. Retrieved from https://openknowledge.worldbank.org/bitstream/handle/10986/12800/9780821396216.pdf
Key Aspects of India-Nepal Logistics Summit 2019
Last month (on July 28th), for the very first time, India-Nepal Logistics Summit was held in Kathmandu, Nepal. Co-organized by Federation of Nepalese Chamber of Commerce & Industries (FNCCI) – the custodian and largest private sector organization in Nepal, the Summit was an expression of the need felt by Nepal’s business community to integrate logistically local businesses into the global supply chain. The theme of the Summit was ‘Transforming Logistics Landscape’. While the Summit is a progressive step forward, it is too quick to judge if merely holding such an event will transform the country’s logistics landscape. This commentary first examines Nepal’s existing logistics landscape and its place in the world by referring to the highly comprehensive Logistics Performance Index. Since the Summit is between India and Nepal, a further examination is also made on the existing state of trade-related logistics between the two countries.
The India Nepal Logistics Summit was jointly organized by FNCCI and Maritime Gateway, a media house based in Hyderabad, India. While the Summit was inaugurated by the Nepali Prime Minister, Mr. KP Sharma Oli, absence of his Indian counterpart – Mr. Narendra Modi – demonstrated that the event was an expression of Nepali rather than the Indian aspiration to improve its logistics landscape. Further, PM Modi’s written statement fell short of directly referring to the Summit by name and rather had a generic tone to it. It wrote, ‘India will always stand by Nepal in its quest for all-round growth. Emphasis will be on completion of connectivity projects outlined in the past.’
“Transforming Logistics Landscape”
The theme of the Summit was ‘Transforming Logistics Landscape’. Before commenting on the theme itself, it will be necessary to closely look at Nepal’s current logistics landscape first. To that end, there may not be a better reference than the Logistics Performance Index (LPI) that ranks 164 countries based on six comprehensive indicators. The LPI states that the logistics pertains to ‘how efficiently supply chains connect firms to markets.’ For Nepal, it would mean how well-connected Nepali firms are with the global supply chain and the markets abroad.
Now, let us explore the phrase used for this year’s theme word-by-word. The “Logistics landscape” comprises of the entire gambit of physical infrastructure, human capacity at the custom points, transportation endowment as well as agreements that are in place with the transit countries. While, “transformation” is defined by most dictionaries as extensive changes in the current scenario. To really transform Nepal’s logistical landscape, billions of dollars investment and an all-encompassing national plan would be required as ‘logistics is not just about connecting infrastructure but encompasses regulation of services, sustainability, and resilience, or trade facilitation.’
Figure I: The six indicators on which the LPI rankings are based (Competing to Connect 2018)
Figure II: Nepal’s comparative rankings in the LPI (Data: World Bank)
Figure II compares Nepal performance in logistics with India, China, Germany, the South Asian and East Asian region, and finally low-income countries. These comparisons help in providing a perspective on where Nepal stands in terms of its logistics landscape.
The first column titled LPI is the aggregated scores, which is the weighted average of the country scores on the six key dimensions based on which the ranks are determined. In 2018, Nepal ranked 121 out of 167 countries that were ranked, while India stood at 42 and China at 27. South Asia, on the whole does not fare too well and is almost at par with Nepal on almost all the indicators. I have also compared South Asia with the most economically vibrant region in Asia, i.e. Southeast Asia. All countries and regions are then juxtaposed with Germany, which ranks 1st in the LPI and scores close to 5 on all indicators (a score of 5 denotes best possible performance in any given indicator).
Nepal-India Logistics Landscape
For very obvious reasons, India warrants special mentions when discussing Nepal’s logistics landscape. The economist Paul Collier observes that neighbors matter more when a country is landlocked. While comparing two landlocked countries, he writes- ‘Why is Uganda poor when Switzerland is rich? It is indeed partly that Switzerland’s access to the sea depends upon German and Italian infrastructure, whereas Uganda’s access to the sea depends upon Kenyan infrastructure.’ In 2018, while Germany ranked first in the LPI, while Kenya ranked 63. As an extension to this logic, the extent of access Nepal gets to the world depends on India’s performance in general infrastructure and how well the former negotiates to get access to the Indian infrastructure.
“If you are coastal, you serve the world; if you are landlocked, you serve your neighbors,” Colliers further contends. He also suggests, no matter how far or near a landlocked country is situated from the closest shore of the neighbor; the cost of exporting is usually very high. The coastal country’s expenditure on transport infrastructure determines the transport cost for a landlocked country. “If you are landlocked with poor transport links to the coast that are beyond your control, it is very difficult to integrate into global markets for any product that requires a lot of transport, so forget manufacturing- which to date has been the most reliable driver of rapid development”. This means, if the coastal neighbor has extremely efficient transportation system, it is favorable for its landlocked neighboring country.
Maybe it is too quick to judge if such Summits will ‘Transform Logistics Landscape’. Some points to consider why:
The Summit is clearly an expression of Nepal’s needs rather than India’s in terms of wanting to improve its logistics landscape. Hence, there is a clear asymmetry in terms of interests expressed between Nepal and India. Take for instance, from the Indian side the highest-ranking official was the Indian Ambassador to Nepal, accompanied by the Special Secretary (Logistics), Ministry of Commerce and Industry. This asymmetry necessitates Nepal to continually take initiation even when India may not proportionally reciprocate.
While the speakers and representatives from both the countries did focus on the need to improve connectivity, there was no mention of what potentially could be traded. What can Nepal possibly export is another discussion that has also come to be associated with the China-Nepal railway projects. With billions of dollars in investment, while China would inundate Nepali market with its exports, but how would Nepal take advantage of its access to Chinese markets in terms of exports? If the costs of exporting these goods come at a prohibitive cost, it hardly makes economic sense to go ahead with such projects. The discussion about improving Nepal’s industrial productivity should go hand in hand with improving its logistics infrastructure. The implication is, if trade is limited, investors will hardly find it attractive to finance in logistics infrastructure.
- On the whole, the Summit is a positive initiative. It indicates that Nepali entities other than the Government are willing to take initiative and bring the government on board eventually. Although, it needs to be considered that logistics is closely tied with the general infrastructure of a country, more than just improvement of physical connectivity. Meaning, without the Nepal Government spearheading it, there is less scope for wide-spread improvement in the logistics landscape, as the task would entail involvement of numerous ministries, central and the provincial governments.
- While it is laudable that organizers such as the FNCCI did initiate this important Summit, it was hard to come across any coherent plan that integrates Nepal and India’s logistics landscape- neither reflected in the presentations made by the speakers from the Indian side nor FNCCI or Government authorities. What one can find after reading these presentations and other provided documents is, they are all based on individual opinions (which does not amount to much in terms of making things happen on the ground). Nothing substantial or concrete were brought on the table, especially in terms of G2G collaboration between India and Nepal.
- Arvis, J., Ojala, L., Wiederer, C., Shepherd, B., Raj, A., Dairabayeva, K., & Kiiski, T. (2018). Connecting to compete 2018 : Trade logistics in the global economy. ().World Bank, Washington, DC. Retrieved from http://documents.worldbank.org/curated/en/576061531492034646/pdf/128355-WP-P164390-PUBLIC-LPIfullreportwithcover.pdf
- Collier, P. (2008). The bottom billion: Why the poorest countries are failing and what can be done about it. New York: Oxford University Press.
- World Bank. (2019, Aug 08). Logistics Performance Index. Retrieved from https://lpi.worldbank.org/
Contributor’s Note: All the presentations, key messages, other program and proceedings can be found here.
In this interview, Kaushal Raj Sapkota talks about his passion for photography and important aspects of his recently concluded photo exhibition in Kathmandu, Nepal. With the theme of “On the move”, Mr. Sapkota and two of his colleagues – one each from France and Nepal – showcased photos from their trips in Asia, Europe and North America.
Proposed Social Organization Act and Silent NGOs
The existence of non-partisan and active civil society representatives – individuals, loose networks and formal institutions – are crucial for maintaining a democratic society and also maintaining basic norms and values within. This commentary discusses evolving civil society landscape across countries in the Asia-Pacific region and outlines recent policy debates in Nepal that are likely to affect works and impacts of local NGOs and civil society. Also, it explores existing linkages between non-government institutions and their amicable relationship with politics in Nepal.
Last month, the 11th ISTR Asia-Pacific Regional Conference brought together over 150 civil society researchers from the Asia-Pacific Region. The theme of the conference was shifting regimes and their implications for civil society organizations in the Asia Pacific region. While many of the countries in this enormous region of the world are home to a vibrant civil society or third sector, engaged in a wide range of activities from social services, to advocacy, to budding social entrepreneurship. Yet in many countries in Asia, governments are expanding their oversight and/or control over the activities of advocacy groups and organizations engaged in independent services and support through tighter regulatory controls and scrutiny. Since 2013, over 180 restrictive initiatives have been initiated in 82 countries tracked by the International Center for Not for Profit Law (ICNL), Nepal being one of them. The Asia Pacific region alone has 27 countries that have faced restrictive legal initiatives. These initiatives range from severe restrictions like constraining the right to assembly to more softer – limiting access to foreign funding. This phenomenon is evident in countries as diverse as India, China, Malaysia, Thailand, and Vietnam.
As I reflect back on the conference and look at some of the bills under discussion and some recent incidents, I reckon Nepali state is taking proactive actions to shrink the civic space. Be it the proposed media council bill, proposed Guthi Bill – that’s now retracted, proposed bill to amend university acts, or proposed social organization act in the name of making NGOs and INGOs transparent – all these have one thing in common – they aim to maintain a tight grip on the civic space in one or the other form. No wonder, Civicus, an international citizen alliance that tracks threats to civil society categorizes Nepal as a country where the civic space is obstructed.
Proposed Social Organization Act and Ambiguities
Existing Nepali NGOs are already facing onerous process in renewing their registration every year. The mandatory renewal process requires these citizen-led organizations to have clearance letters from the ward office and district development committee before initiating the process at the District Administration Office. Furthermore, NGOs receiving assistance from foreign entities are mandated to take permission from Social Welfare Council.
Nepali government is drafting a new Social Organization Act, 2075, an umbrella law which would regulate nearly every form of association. This law would replace Association Registration Act, 2034, National Directorate Act, 2018 and Social Welfare Act, 2049. This draft law is being reviewed and redrafted by multiple ministries. There are several issues in the bill that is under discussion.
First, the draft clearly envisions NGOs as service providers that would operate within a certain geographical area engaged in one type of activities. For instance, the draft law proposes organization to identify its work only in one category among thirteen functional categories of their work. It is practically impossible to demarcate the boundaries of the proposed functional categories. For instance, raising awareness is one category and the second category is the advocacy and promotion of rights. The proposed bill is geared towards discouraging NGOs to engage in more than one functional area with the provision of additional fees for those declaring more than one functional area of their work.
Second, the bill envisions a central registrar’s office for the registration, operation and to regulate organizations that operate nationwide or have working area in more than two provinces, professional associations, INGOs, and NGOs that register in Nepal but want to operate internationally. This proposed body is somehow identical to existing Social Welfare Council. In the meantime, it also envisions provincial and local registrar’s office for organizations operating province wide or more than two local levels. Furthermore, proposed bill is ambiguous in determining the standard process for the renewal process. It gives power to the local level in determining the requirements for the renewal of such organizations. While the idea of empowering the local level is encouraging, yet, having a clear standard nationwide for organization renewal would avoid confusion among organizations.
As I look at the proposed bill, it is clear that NGOs and other associations envisioned by the proposed bill are clearly seen as the service delivery agents – often from the neoliberal perspective. In Nepali public rhetoric, NGOs are understood as the service delivery agents, predominantly fueled by foreign aid. The fact that NGOs receive foreign aid is then used to delegitimize these organizations as “dollar harvesters”.
NGO & Politics: An Amicable Relationship
Varying statistics project different images of Nepali NGOs, Social Welfare Council Database suggests over 50,000 NGOs have registered in Nepal, while the president of NGO Federation of Nepal estimates active Nepali NGOs to be somewhere around 8,000. At any number, the associational revolution in Nepal and the influence of these citizen-led organizations cannot be ignored. Despite the strong organizational capacity, Nepali NGOs have not been as vocal in expressing their dissent as the civic space shrinks.
Guthis and media personnel came out on the street, former vice-rectors of the universities expressed their grave concerns through public forums. Interestingly, Nepali NGOs – often understood as the de facto civil society have not demonstrated a strong willpower or resistance to the ongoing encroachments from the state.
Theoretically speaking, NGOs are often understood as apolitical actors operating between the power of state and market forces. However, growing body of evidence suggests otherwise like a recent study doubts the political neutrality of Nepali NGOs.
In a candid conversation with this author, current president of NGO Federation of Nepal claimed 70% of the elected representatives at the local level have come from the NGO background. On one hand, the civil society organizations should take pride in their ability to groom leaders at the local level, in the meantime, it also suggests the politicization of the civic space that is ideally supposed to be free from politics.
Some examples can illustrate how the civic space is no more a neutral space and how the civil society organizations operated as the incubation center for the politicians. Ghanashyam Pandey, is the current mayor of Tulsipur sub-metropolitan city from former UML and Dilli Chaudhary is the member of parliament of province number five from Nepali Congress. Despite their ideological differences, they have one thing in common, both of them were affiliated with NGOs and led NGOs before jumping in as politician. While Chaudhary led Backward Society Education (BASE) that worked for empowerment of Tharus in mid-western Nepal, Pandey led the Federation of Community Forestry Users Group Nepal (FECOFUN). These two may sound anecdotal examples, yet, the amicable relationship between the leaders of NGOs and state might potentially explain the looming silence around the encroachment by the state.
- Civicus. (2019, July 31). Updates on Nepal. Retrieved from https://monitor.civicus.org/country/nepal/
- International Center for Not-for-Profit Law (ICNL). (2019, Jul 31). Civic Freedom Monitor. Retrieved from https://nipore.org/libra-and-the-future-of-nepals-financial-system/
- KC, Dipendra (2018, August 03). Between Rhetoric and Action: Do NGOs Go Where They Are Needed?. Retrieved from https://doi.org/10.1007/s11266-018-0024-9
- Nepal Government. (2075 BS). Act for Amendment of Education Related Nepali Acts, 2075. Retried from http://na.parliament.gov.np/uploads/attachments/gdxaosxecwrfh2yc.pdf
- Nepal Government. (2075 BS). Social Organization Act, 2075. Retrieved from http://bit.ly/2SMRy8o
Publisher’s Note: The Contributor co-chaired the 11th ISTR Asia-Pacific Regional Conference held in Bangkok, Thailand
Framing Nepal’s relations with China and India: balance or diversify?
Scholars and political leaders, be it within or out of the government, have used various terms to describe the policies Nepal should adopt vis-à-vis China and India. From the evergreen ‘balance’ to short-lived ‘equi-distance’ to now buzz word ‘equi-proximity’ have been put forth. In essence, all these words convey that Nepal should maintain equal relations with both our giant neighbors. This commentary explains why these concepts (about balance) are problematic and Nepal needs a new ‘frame’ to describe our relations with China and India.
Balance: What do we mean?
In the context of Nepali foreign policy, ‘balance’ is a term that is most frequently used by decision-makers, academicians, journalists and the general public. I once talked to a former Prime Minister and asked him about his views on Nepal’s relations with China and India. His brief response was – “China and India are major powers. We need to have balanced relations with both”. It is so commonly used that many do not even feel the need to explain the term. The need for balance is pronounced even more after the India-imposed blockade along the Southern border in 2015. However, what do they refer to by ‘balance’?
First, most Nepali understand ‘balance’ at a strategic level. They feel that India has undue influence in Nepal and frequently applies bullying tactics to meet its interests. India has extensive access/influence over major political, business, security stakeholders, including academicians. To those, ‘balance’ means seeking the help of another big neighbor, China, as a counterweight to ‘excessive’ Indian influence. In doing so, it will increase the leverage of Nepalese domestic actors and hence reduce Indian high-handedness. This is ironic at best and counterproductive at the worst. Inviting a third country to ‘intervene’ to lower interference from another country simply leads to higher, not lower, interference cumulatively.
Second, ‘balance’ typically refers to a trading relationship. The ratio of Nepal’s export to import is 1:14.8 in the first 11 months of the fiscal year 2075/76. This means, for every dollar of export, we import 15 USD worth of goods. The vast proportion of such trade imbalance is with India. During this period, Nepal exported goods worth NPR 56.59 billion to India and imported goods worth NPR. 841.7 billion. While the export-import ratio is the same [it’s primarily because Nepal’s trade with India accounted for 65%]. It is the absolute amount of trade deficit that is concerning to many Nepalese. Many Nepali understand, and correctly, that this over-dependence on India provides enabling environment for extensive Indian influence. Hence, trade with other countries, especially China, should be increased to reduce such over-dependence. A similar case can be made for investment (China has become the largest investor in Nepal in recent years) or aid. However, the irony is that Nepal’s export-import ratio with China is 1:95. Hence, increased trade with China has furthered the trade deficit, not created ‘balance’.
Third, and related to the second, is ‘balance’ in terms of Nepal’s connectivity. Given the geographic location of Nepal, as of now, our access to the rest of the world is mostly through India and Indian ports. Therefore, India virtually has a monopoly over Nepal’s connectivity and supply of petroleum products. Hence, opening trading and connectivity links though China is understood as a ‘balance’. This intensified after the 2015 Indian blockade and resulted in multiple agreements of trade, transit, and connectivity between Nepal and China. In saying that, the connectivity with China will not come cheap.
Is Balance Possible?
The relation between any two countries is guided by the interests of the thus involved countries. Therefore, the relation between any two pairs of the country is never the same. Nepal has its dynamics concerning India and China.
Geographically, the Southern neighbor is easily accessible. Even the infrastructure along the Southern border is better than along the Himalayas. In line with geography, the population of Nepal is also concentrated along the Southern plain. Culturally, India and Nepal largely share the same civilizational roots, religion, linguistic origins, and social values. Nepal has a ‘roti-beti’ [bread and marriage] relations with India. The close socio-cultural ties along with open-border mean the movement of people across the border is thick. Varanasi was/is a major educational/religious center for the Nepalis and so is Pashupatinath and others for Indians.
Even in economic terms, Nepal trades five times more with India than with China. If we include the trade via India as well, the ratio will be even higher. Hundreds of thousands of Nepali workers migrate to India for work and education. A similar number of Indians enter Nepal for work and investment opportunities. A significant proportion of Nepalis can speak or understand Hindi/Bhojpuri and watch Indian TV channels.
Even in technical terms, Nepal’s resources are too limited to engage in a ‘balancing’ game or make any major impact on the overall balance of power in the region. Neither is our diplomatic practices sophisticated enough to handle the risks associated with having to balance the two powers.
Both China and India have their interests in Nepal and Nepal has different interests in engaging with the two neighbors. Nepal should engage with them based on the actual premise of the relations, and not compare one to the other. When we frame our foreign policy as ‘balance’, we are weighing the importance/influence of those two countries. The interests of those two powers are different; the socio-cultural, economic, strategic context of Nepal’s relations with the two powers is different. Then, why should we put the relations between those two neighbors on the same scale and try to ‘balance’ them out?
Also, it is equally important in diplomacy how the other partner understands the policy or framing. India is wary of increasing Chinese presence/influence in the South Asian Region. In such a context, India likely understands Nepali ‘balance’ as an attempt to tilt away from India towards China. Hence, it is likely to resist such policies using every means available. This will provide fuel to further skepticism of Nepalis among Indian policy-makers. Increase in distrust with a major partner is not something that is in Nepal’s interest.
Diversification, not balance!
While balance may not be possible or desirable, all three understandings of ‘balance’ are relevant. Nepal cannot simply be passive and accept Indian domination as a ‘revenge of geography’. The common point in all three understandings of ‘balance’ is the need for diversification: diversify engagement of neighbors (and other major powers), trade/aid/investment or connectivity. They are not about reducing/increasing the influence of one neighbor vis-à-vis another but not being over-dependent on anyone so that Nepal retains diplomatic independence as required by the constitution of Nepal. Today, we have trade over-dependence on India. Soon, we might have investment over-dependence on China. Neither of them is healthy for Nepalese diplomacy even though some might suggest that creates balance between China and India.
Unlike in ‘balancing’, which is a zero-sum game, Nepal need not work towards reducing the role or significance of one neighbor against the other if it follows ‘diversification’. Instead, it can improve its trade and strategic relations with other members, as diversification is not a zero-sum game, while keeping the relations with others at the same level.
‘Balancing’ is a term loaded with strategic (and military) connotation, meaning chances of mistrust are higher. Meanwhile, ‘diversification’ has an economic connotation where cooperation is easier to achieve compared to strategic issues. Also, the ‘diversification’ is less threatening to the interest of dominant power than ‘balancing’. This could make India less skeptical about Nepalese intentions. While both may not have major differences in policies, the impact of the change in framing could make it easier for the implementation of the policy and therefore the impact of such framing should not be underestimated.
- Investment Promotion Board (2019), Reports, retrieved from: http://www.ibn.gov.np/
- Ministry of Finance (2019), Development Cooperation Report, retrieved from: https://mof.gov.np/uploads/document/file/20171231154547.pdf
- Ministry of Foreign Affairs (2019), Publications, retrieved from: https://mofa.gov.np/media-centre/publications/
- Ministry of Health and Population (2019), The Constitution of Nepal, retrieved from: https://www.mohp.gov.np/downloads/Constitution%20of%20Nepal%202072_full_english.pdf
- Ministry of Industry, Commerce and Supplies (2019), Transit Treaties Agreements of Nepal, retrieved from: https://www.moc.gov.np/downloadfile/Compendium%20of%20Transit%20Treaties%20and%20Agreements%20of%20Nepal%20Since%201950_1546239430.pdf
- The Kathmandu Post (20th August 2018), Kathmandu-Kerung Railway: Project to cost Rs. 257 bn, retrieved from: https://kathmandupost.com/national/2018/08/20/project-to-cost-rs257-billion
- Trade and Export Promotion Center (2019), Foreign Trade Balance of Nepal, retrieved from: https://www.tepc.gov.np/projects/tepc/assets/upload/fck_upload/First%20Eleven%20Months%202075_76_tables.pdf
Libra and the Future of Nepal’s Financial System
Last month, after years of rumors and user speculations, Facebook finally announced the company’s plan to launch Libra – a new cryptocurrency – early next year. Though we are yet to understand Libra’s detailed arrangement, economists and policymakers have already begun discussing the potential impacts that this new digital currency may bring to the existing global financial system and on few selected major economies. This commentary discusses potential impacts of Libra on Nepal’s financial system. It focuses on four major areas that Libra is likely to have considerable effects on – transfer of remittances, impacts on the “unbanked” population, disruption of existing payment gateways and most importantly questions regarding government regulation of cryptocurrencies.
Last month, on June 18, Facebook, along with 27 founding members coming from six distinct sectors announced their plans to launch a new cryptocurrency to be called Libra early next year. Unlike traditional currencies, Libra will not be backed by central banks. However, contrasting other existing cryptocurrencies, Libra will be supported by a reserve of assets and currency’s value will be determined by a currency basket to be finalized by the Libra Associations members. This announcement has prompted a heated debate among economists, central bankers, policy makers and the techpreneurs about the future of cryptocurrency and how Libra will affect the overall global financial system.
This is What We Know About Libra
While making the announcement, Libra Association has also released a 12-page long White Paper highlighting key aspects of this to-be launched new currency. As per the document, Libra aims to be one of the simple global financial currencies and establish a global financial infrastructure that enables the Association to empower billions of people. It is built on a secure blockchain system that also allows Libra to scale up if needed. Moreover, the currency is backed by a reserve of assets that will ultimately define the value of this currency. Also, an independent non-profit association based in Switzerland will govern the Libra ecosystem.
As trust is a key factor for overall success of this new currency, the Libra Association has tried its best to have as many founding members as possible from sectors that have close links with the global financial system. Following are the founding members of the Association (in alphabetical order) and the latter aims to add about 72 more members before going public early next year:
- Blockchain: Anchorage, Bison Trails, Coinbase, Inc., and Xapo Holdings Limited
- Nonprofit, multilateral organizations and academic institutions: Creative Destruction Lab, Kiva, Mercy Corps, and Women’s World Banking
- Payments: Mastercard, Mercado Pago, PayPal, PayU (Naspers’ fintech arm), Stripe, and Visa
- Technology and marketplaces: Booking Holdings, eBay, Facebook/Calibra, Farfetch, Lyft, Spotify AB, and Uber Technologies, Inc.
- Telecommunications: Iliad and Vodafone Group
- Venture Capital: Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, and Union Square Ventures
On the operational side, Libra will be based on Libra Blockchain that is constructed by taking into consideration three core requirements of a modern digital global currency: scalability, security and flexibility. In terms of a currency reserve, Libra will be fully backup up by the Libra Reserve that will further be supported by a competitive network of exchanges buying and selling the currency coins.
As soon as the news of Libra came into public, there has been hot debates among economists, policymakers, central bankers and the techpreneurs regarding the safe regulation of this new currency, people’s trust on this system and how it will affect existing global financial system.
Though there are some good aspects of Facebook, based on the platform’s past controversies, many critics have cast their doubts over Libra’s hidden goal. Writing for the Project Syndicate, Columbia Law Professor Katharina Pistor has asked global stakeholders to halt Libra before it gets launched next year.
Furthermore, economists Joseph E. Stiglitz and Kausik Basu have raised the issues of online crimes; including those related to compromising user privacy and money laundering; and inflation respectively. Also, the former Deputy Governor of the Reserve Bank of Australia, Stephen Grenville, panics the possibility of Libra causing more severe future capital-market volatility.
To add more, Financial Times’ chief economics commentator – Martin Wolf – fears that Libra may give birth to the existence of a single bank dominated global financial system. In the same line, cryptocurrency critic David Gerard argues that Libra is based on ideological concepts that hardly work in the real world.
Amid all these skepticisms, there are few individual critics and selected institutions that view Libra a desired disruption and they believe it will help global financial system more inclusive and less costly. The Banker, a London-based financial affairs magazine, has published an editorial saying that Libra, despite few shortcomings, will bring in more businesses for all stakeholders involved in the financial sector. Similarly, other critics praise Libra for it’s potential to reinvent the traditional costly ways of cross-border transfer of remittances worldwide and in particular, for Africa, the new currency may help the region to bring in more people into the formal financial system and also reduce the costs of remittance transfers into the region.
Libra and Nepal’s Financial System
Considering growing penetration rates of mobile phones (134.31%) and internet (61.83%), I believe there should be enough debates on Libra and all possible ways it may disrupt Nepal’s existing financial system before last month’s announcement becomes a reality in 2020. However, I do not see that much of debates happening lately – be it among the Nepal Government stakeholders and/or among the key private-sector players, including major banks and financial institutions (BFIs), investors and the techpreneurs.
To stir needed debates in this regard, from what is available so far, I can think of Libra affecting Nepal’s financial sectors in the following four areas:
- Transfer of Remittances: According to the most recent Migration and Development Brief, Nepal, with $8.1 billion remittances inflows into the country in 2018, ranks 19th worldwide and fourth in South Asia in terms of the amount of remittances it has received in that year alone. In regards to the remittances and percentage of GDP (28%), Nepal ranks in fifth place worldwide after Tonga, Kyrgyz Republic, Tajikistan and Haiti. As Libra plans to minimize the costs relating to the cross-border transfer of remittances, concerned stakeholders in Nepal should analyze how this new invention may affect one of the key pillars of Nepali economy.
- Impacts on the “Unbanked” Population: As per Nepal’s Central Bank, as of mid-May 2019, the country has 176 BFIs – 28 commercial banks, 32 development banks, 24 finance companies, 91 Microfinance institutions and one infrastructure development bank. Altogether, they have 8,319 branches across the country. Despite these developments, a large percentage of Nepali population remains unbanked. A 2014 report has highlighted disappointing facts related to Nepalis’ access to finance. As per the report, 18% of Nepali adults are fully excluded from existing formal and informal financial products and services. Moreover, 21% of local adults use informal channels while managing their finances. In the light of these evidence, key government and private stakeholders should organize frequent and intensive debates on the possible impacts Libra might bring to “unbanked” Nepalis and economy’s BFIs. While doing so, these stakeholders should also plan their actions to minimize potential risks from Libra when it goes into implementation in 2020.
- Disruption of Payment Gateways: To enhance people’s easy access to available financial products and services, in recent years, Nepali techpreneurs have come up with intermediary payment gateways. In addition to such services developed and owned by BFIs; E-sewa, iPay and Khalti are three of the most promising such platforms owned by Nepal’s techpreneurs. As Libra’s current plans are expected to disrupt payment gateways around the globe, Nepali techpreneurs working in this sector should also be cautious enough to minimize the damage that Libra may cause to their platforms.
- Regulation of Cryptocurrency: As of now, the International Monetary Fund (IMF) is yet to make an institutional position on Libra. However, the Fund has clearly stated its position on cryptocurrency earlier stating it would support government set-up cryptocurrencies. Bitcoins and similar cryptocurrencies are currently banned in Nepal. As the global financial system keeps on evolving and the IMF, the key regulator of global financial system, also encouraging central banks to adapt to changing circumstances, the concerned authorities in Nepal should also think of timely updating country’s existing financial system to catch up with the rapidly evolving global financial system.
- Basu, K. (2019, June 27). Why Policymakers Should Fear Libra. Project Syndicate. Retrieved from https://www.project-syndicate.org/commentary/facebook-libra-inflation-control-problem-by-kaushik-basu-2019-06
- Caplen, B. (2019, June 25). Editor’s Blog – Fear not, Facebook’s Libra is good for banks. The Banker. Retrieved from https://www.thebanker.com/Editor-s-Blog/Fear-not-Facebook-s-Libra-is-good-for-banks
- Conlin, B. (2018, July 19). 7 Unexpected Ways Facebook Is Good for You. Business News Daily. Retrieved from https://www.businessnewsdaily.com/2534-facebook-benefits.html
- Dana, J. (2019, July 05). Libra shows global remittance ripe for change. Asia Times. Retrieved from https://www.asiatimes.com/2019/07/article/libra-shows-global-remittance-ripe-for-change/
- Gerard, D. (2019, June 24). Facebook’s New Currency Has Big Claims and Bad Ideas. Foreign Policy. Retrieved from https://foreignpolicy.com/2019/06/24/971554-facebook-bitcoin-libra-crypto-bad
- Grenville, S. (2019, July 01). The Coming Libra Panics. Project Syndicate. Retrieved from https://www.project-syndicate.org/commentary/libra-capital-flows-fuel-panic-by-stephen-grenville-2019-07
- Hackett, R., Roberts, J.J., and Wieczner, J. (2019, June 17). Facebook’s Cryptocurrency Ambitions Provoke Heated Debate – The Ledger. Furtune. Retrieved from https://fortune.com/2019/06/17/facebook-cryptocurrency-project-libra/
- Inman, P. (2018, November 14). IMF says governments could set up their own cryptocurrencies. The Guardian. Retrieved from https://www.theguardian.com/business/2018/nov/14/imf-says-governments-could-set-up-their-own-cryptocurrencies
- Libra Association (2019, June 18). Founding Members. Retrieved from https://libra.org/en-US/association/#founding_members
- Libra Association (2019, June 18). Libra White Paper. Retrieved from https://libra.org/en-US/white-paper/
- Libra Association (2019, June 18). The Reserve. Retrieved from https://libra.org/en-US/about-currency-reserve/#the_reserve
- Masuku, A. (2019, July 07). Will Facebook’s digital money Libra be good for Africa?. BBC News. Retrieved from https://www.bbc.com/news/world-africa-48882301
- Noonan, L. and Megaw, N. (2019, June 18). Will Facebook’s Libra currency shake up financial services?. Financial Times. Retrieved from https://www.ft.com/content/5c0dbb2c-91eb-11e9-b7ea-60e35ef678d2
- NRB. (2017, August 13). Central Bank Circular on Bitcoin and Related Businesses in Nepal. Retrieved from https://nrb.org.np/fxm/notices/BitcoinNotice.pdf
- NRB. (2019). Current Macroeconomic and Financial Situation of Nepal (Based on Ten Months’ Data of 2018/19. Retrieved from https://www.nrb.org.np/ofg/current_macroeconomic/CMEs%20Ten%20Months%20English%202075-76-Final.pdf
- NTA. (2019, May). MIS Report Chaitra, 2075 (15 March, 2019 – 13 April, 2019). Retrieved from https://nta.gov.np/wp-content/uploads/MIS-Chaitra-2075.pdf
- Pistor, K. (2019, June 20). Facebook’s Libra Must Be Stopped. Project Syndicate. Retrieved from https://www.project-syndicate.org/commentary/facebook-libra-must-be-stopped-by-katharina-pistor-2019-06
- Stiglitz, J.E. (2019, July 02). Thumbs Down to Facebook’s Cryptocurrency. Project Syndicate. Retrieved from https://www.project-syndicate.org/commentary/facebook-libra-facilitates-crime-money-laundering-by-joseph-e-stiglitz-2019-07
- The World Bank. (2019, April). Migration and Remittances: Recent Developments and Outlook (Migration and Development Brief 31). Retrieved from https://www.knomad.org/sites/default/files/2019-04/Migrationanddevelopmentbrief31.pdf
- UNCDF. (2014). Nepal FinScope Consumer Survey 2014. Retrieved from http://www.finmark.org.za/wp-content/uploads/2015/08/BROCH_FS_Nepal_2014.pdf
- Wolf, M. (2019, June 25). Facebook enters dangerous waters with Libra cryptocurrency. Financial Times. Retrieved from https://www.ft.com/content/07c05fba-b1c4-11e7-a398-73d59db9e399
- Yadav, N. (2019, February 05). 15 Years of Facebook, 15 Years of Controversy: A Timeline of Events. First Post. Retrieved from https://www.firstpost.com/tech/news-analysis/15-years-of-facebook-15-years-of-controversy-a-timeline-of-events-6028641.html
Nepal’s Leverage as a Founding Member of AIIB
Following the decision in May 2019 to co-finance $90 million in the Upper Trisuli I Hydropower Project, the Asian Infrastructure Investment Bank (AIIB) started its official engagements with Nepal. The country has found yet another avenue to seek loans to fund its infrastructural financing needs. Despite much excitement about Nepal being a founding member of AIIB, how effectively it will be able to leverage the new China-led Multilateral Development Bank (MDB) to finance its massive infrastructure needs is up for discussion. This depends on concerted efforts put in to understand the newly-formed MDB by the recipient countries such as Nepal that hold minuscule voting rights in the institution. To that end, this commentary will identify Nepal’s place in AIIB, its governance structure, other approved projects, shareholder and voting powers, its collaboration with other major MDBs, Nepal’s shares and voting rights, and the recently approved project for Nepal.
Nepal enjoys the status of being one of the founding members of the Asian Infrastructure Investment Bank (AIIB), which it does not with any other Multilateral Development Banks (MDBs) that have engaged with the country for many decades. Although, by the virtue of merely being a founding member of the newly-formed MDB hardly amounts to anything substantial unless Nepali policymakers closely acquaint themselves with it – especially on operational and administrative issues. It is laudable that over the years Nepali policymakers and political leaders have intensified efforts in wooing donors and investors, but it is also equally critical to understand them- their motivations, development philosophies, and the nature of engagement with other recipient nations.
The AIIB’s Board of Directors approved a loan of up to $90 million for the 216-megawatt Upper Trisuli 1 Hydropower Project. The project is expected to cost $647.4 million, and the rest of it will be co-financed by Asian Development Bank (ADB), International Finance Corporation (IFC) and a Korean Consortium. Given that AIIB has made multiple lending in its member countries (see Annex III), it is reasonable to believe that there is more scope in terms of future financing beyond the Upper Trisuli 1 Hydropower Project. Plus, investments in Nepal’s hydropower project is almost always desirable, given that the poor performance of the energy sector is widely recognized as a major constraint to economic growth.
The Asian Infrastructure Investment Bank
The AIIB was launched in October 2014 and boasted 97 approved members in April 2019. The AIIB owes its origins to the demand emanating from Asia’s massive infrastructure gap on the one hand, and the steady economic and political clout wielded by the People’s Republic of China (PRC). As a China-initiated MDB, the AIIB symbolises China’s increased ambition and role in the global affairs – especially those pertaining to the infrastructure development. To the surprise of many, European countries including the UK, Germany, France and Italy became members of the institution. Their decision may have been informed as they foresaw the inevitable influence that a China-led MDB would command in the close future in the global development arena.
AIIB comprises of regional and non-regional members. The following contributor generated map identifies AIIB’s regional and non-regional members:
Shareholders and voting rights
The AIIB’s authorized capital stock is US$100 billion, which is divided into shares valued at USD100, 000 each (Articles of Agreement). Meaning, each share is equivalent to USD100, 000. Regional members will hold 75% of total subscribed capital stock, while non-regional members will hold the rest. Nepal’s two neighboring countries China and India are the largest shareholders with 30.34% and 8.54% respectively of the total shares issued, while holding 26.06% and 7.51% voting rights (Articles of Agreement). Nepal holds a share of 0.08 percent (809 share units) and 0.33% voting rights. For a comparative perspective, take these numbers: China, India, and Russia hold 300,398, 86,267, 67,956 votes respectively (AIIB).
Nepal in AIIB
Nepal became one of the 57 prospective founding members of the AIIB by signing the Article of Agreement on 29 June 2015.
Although, what does it really mean for Nepal in terms of decision making in AIIB? Does it mean it is now in a better position to leverage more loans? It should be noted that a meager 600 votes are allotted to each founding member. In total, Nepal has been allocated 3839 votes- of 809 votes are based on the share purchases (worth USD80.9 million), basic votes of 2430 provided to each member, and 600 for being a founding member.
An American politician Michael Enzi remarked, “If you are not at the table, you are on the menu.” Despite the status that comes with being a founding member, it is unlikely that countries like Nepal (with negligible voting rights) will have an influence on major decisions at the institution. Hence, how Nepal fares in this institution may depend on the country’s concerted effort at understanding how the institution functions. While the Board of Governors consist a member from Nepal, they will at least be cognizant of the major decisions taken at the annual meetings. The following are the reasons why Government of Nepal needs to be ‘on top of things’ when it comes to any issue pertaining to AIIB:
- To be legally on the safe side: To clearly understand the legal implications of being a member and a borrower. There may be conditions attached to specific projects that Nepal would rather be better off avoiding.
- To avoid unnecessary politicization of infrastructure projects in Nepal: Once the Government of Nepal is well versed with the nitty-gritties associated with the MDB, it will be able to run more accurate and effective public discourses on the projects financed by AIIB. This will help avoid politicization of projects by opposing political parties. There has been disappointing wrangling among succeeding governments in Nepal recently with regard to awarding hydropower projects to its two mighty neighbors. Engaging in such public discourses will also encourage transparency and invite lesser political interventions.
- Financial opportunities beyond Upper Trisuli I Hydropower Project: It may be useful to study the publicly available data on the 40 or so approved projects costing USD 8.03 billion by AIIB and identify the type of projects that possibly matches with Nepal’s infrastructural needs. Projects that are often financed are related with water resource management, energy, transport, telecom, landslide and disaster mitigation projects etc. Plus, it is also useful to be on the lookout for possible co-financiers because AIIB has not undertaken projects that require too big a financing. Detailed information is available on proposed and profiled projects (find link here). It is useful to note that AIIB has financed projects in the same country multiple times (Refer to Annex III). Indicating, that there may be a possibility of getting multiple projects financed in the country.
AIIB in Nepal
As it is typical of AIIB-financed projects, they are co-lending in Nepal too. As a new agency, it is understandable that they would seek to avoid major risks that come with lending considerable sums of money to nations like Nepal.
The total project cost of the Upper Trisuli I Hydropower Project is USD647.4 million, of which USD90 million will be loaned by AIIB. Not limited to just co-financing with other MDBs such as the ADB, IFC and a Korean Consortium in Nepal, AIIB will also adhere to the IFC’s Policy on Environmental and Social Sustainability (IFC Policy) and Performance Standards on Environmental and Social Sustainability (IFC PSs) (2012). Designated as Category A by AIIB, “The project is likely to have significant adverse environmental and social impacts that are irreversible, cumulative, diverse or unprecedented” (AIIB 2019).
- Smoother operations for an MBD in Nepal. The two largest shareholders in AIIB are China and India. This will likely deter adventurism by either party in the development sector in Nepal, as it happened recently with Budhi Gandaki Hydropower Project.
- Scope for growth: Recently, AIIB raised USD2.5 billion through its debut global stock in a matter of just a week time. This exhibits its immense capacity to raise finances and consequently potential for growth. Today, its authorized capital stock is less than that of the World Bank and Asian Development Bank and is not at par with such MDBs that have an institutional experience- in terms of research, network, and reputation- of more than 50 years. Nonetheless, AIIB will continue growing in terms of its financing capacity, and as mentioned earlier Nepal should be on the lookout for more funding shortly.
- With further diversification of MDBs in Nepal, it would foster competitiveness among them, especially with the entry of an institution led by emerging countries. While it is premature to exactly understand the implication of AIIB’s entry into Nepal, the Bank’s infrastructure-driven-economic-development model will indeed propel Nepal’s infrastructure forward on the whole.
- ADB. (2019, March 21 ). ADB and AIIB Presidents Discuss Strategic and Operational Issues. Retrieved from ADB : https://www.adb.org/news/adb-and-aiib-presidents-discuss-strategic-and-operational-issues
- AIIB. (2015, June 29). 50 Countries Sign the Articles of Agreement for the Asian Infrastructure Investment Bank. Retrieved from AIIB: https://www.aiib.org/en/news-events/news/2015/20150629_001.html
- AIIB. (2016, January 16). AIIB Turns 3, Reflects on Startup Growth. Retrieved from AIIB : https://www.aiib.org/en/news-events/news/2019/20190116_001.html
- AIIB. (2018). The green imperative: developing interconnected low-carbon power networks in AsiaThe EIU. Retrieved from AIIB: https://www.aiib.org/en/news-events/asian-infrastructure-finance/articles/a03-green-imperative.html
- AIIB. (2019, June 10). AIIB Approves First Investment in Nepal. Retrieved from AIIB : https://www.aiib.org/en/news-events/news/2019/20190610_001.html
- AIIB. (2019). Introduction . Retrieved from https://www.aiib.org/en/about-aiib/index.html
- Reuters, Agence France-Presse. (2015). China to hold 30 per cent stake in AIIB and 26 per cent voting rights. Retrieved from South China Morning Post: https://www.scmp.com/news/china/policies-politics/article/1829095/founding-nations-attend-signing-ceremony-china-led
In an excellent comparative study of governance structures of major MDBs, Johns Hopins Professor Natalie Lichtenstein concludes, “AIIB follows multilateral development banks (MDBs) such as the World Bank, Asian Development Bank, European Bank for Reconstruction and Development and Inter-American Development Bank in its governance structure (Board of Governors, Board of Directors and President)”.
For the extended organogram, visit AIIB
Important note: The Board of Directors consists of 12 Directors, and under each Director’s purview exists a constituency comprising a number of member countries. For instance, under the Director represented by the Philippines, the countries Bangladesh, Malaysia, Maldives, Nepal, and Thailand have been clustered (Article of Agreement).
AIIB on social, labor and environmental guidelines
For parties who are skeptical of a China-led MDB complying with international social, labour and environmental standards, it should be consoling that AIIB has explicitly laid down legally binding guidelines to observe international standards (see AIIB Environmental and Social Framework). Furthermore, most of the approved projects AIIB is financing are co-financed by other MDBs such the World Bank, ADB, JICA, and the governments of recipient countries. There are very few stand-alone projects that the AIIB has undertaken (look at figure 03). Take for instance, as of now, AIIB and ADB have co-financed 5 projects: Bangladesh, Georgia, India, and Pakistan, and Myanmar. Further, in March 2019, AIIB and ADB also signed a Cofinancing Framework Agreement, ‘that will guide overall co-financing arrangements between the two institutions going forward, including regular meetings to discuss co-financing matters’ (ADB, 2019). Meaning, it can be expected that there will be collaboration between the AIIB and ADB wherever there is a convergence of strategic interests.
Hence, it is unlikely that AIIB financed projects will flout international standards on labor, environmental and social concerns given the multi-institutional collaboration they usually undertake. AIIB is also committed to a green imperative that aims at ‘Developing interconnected low-carbon power networks in Asia’, which demonstrates their commitment to environment and the climate (AIIB, 2018).
AIIB Approved Projects in 2018 and 2019
|Nepal||May 21, 2019||Energy||Upper Trisuli I Hydropower Project||90.0||ADB, IFC, Korea Consortium|
|Sri Lanka||April 04, 2019||Urban housing||Colombo Urban Regeneration Project||200.0||Government of Sri Lanka and Private Partner|
|Sri Lanka||April 04, 2019 energy||Other||Reduction of Landslide Vulnerability by Mitigation Measures (RLVMM) Project||80.0||Government of Sri Lanka|
|Lao PDR||April 04, 2019||Transport||National Road 13 Improvement and Maintenance Project||40.0||Government of Laos, NDF and IDA|
|Bangladesh||Mar 26, 2019||Energy||Power System Upgrade and Expansion Project||120.0||Government of Bangladesh and Power Grid Corporation of Bangladesh
|India||Dec 07, 2018||Water||Andhra Pradesh Urban Water Supply and Septage Management Improvement Project||400.00||Government of Andhra Pradesh, Andhra Pradesh Urban Finance Infrastructure and Development Corporation|
|Indonesia||Dec 07, 2018||Multi-sector||Mandalika Urban and Tourism Infrastructure Project||248.39||Government of Indonesia|
|Turkey||Sep 28, 2018||Finance||TSKB Sustainable Energy and Infrastructure On-lending Facility||200.0||Sole finance by AIIB|
|Egypt||Sep 28, 2018||Water||Sustainable Rural Sanitation Services Program||300.0||World Bank|
|India||Sep 28, 2018||Transport||Andhra Pradesh Rural Roads Project||455.0||Government of Andhra Pradesh|
|Indonesia||June 24, 2018||Water||Strategic Irrigation Modernization and Urgent Rehabilitation Project||250.0||World Bank|
|Turkey||June 24, 2018||Energy||Tuz Golu Gar Storage Expansion Project||600.0||World Bank, Islamic Development Bank, BOTAS and commercial loans
|India||June 24, 2018||Finance||National Investment and Infrastructure Fund||100.0||World Bank, Islamic Development Bank, BOTAS and commercial loans
|India||April 11, 2018||Transport||Madhya Pradesh Rural Connectivity Project||140.0||World Bank|
|Bangladesh||Feb 09, 2018||Energy||Bangladesh Bhola IPP||60.0||Sole finance by AIIB|
Table 1: AIIB Approved Projects in 2018 and 2019 (Source: AIIB)
Quad and Nepal: To Join Or Not?
Foreign Minister Pradeep Gyawali’s discussion of Nepal’s potential participation in US-led Quad has ignited a debate in Nepal. The US invited Nepal to play a ‘central role’ in the Quad. FM Gyawali has denied that Nepal gave a positive nod to the US offer, and that Nepal practices the principle of non-alignment. However, a debate has raged on regarding Nepal’s potential role in Quad and its impact on Nepal-China relations especially in the context of Nepal’s involvement in BRI.
What is Quad?
Quad is an informal dialogue forum involving India, Japan, the US, and Australia. It is a strategic partnership, and not an alliance, that involves the four major maritime democratic powers of the Indo-Pacific region. It’s aims to keep free, open and inclusive Indo-Pacific, and preserve and promote the rules-based order in the region. In a recent meeting between the senior officials of the Quad in Bangkok on 31st May 2019, discussions were also held on encouraging transparent, principle-based investment on quality infrastructure, a not-so-subtle reference to the processes of China-led AIIB.
The initial concept of the Quad was laid out in the exploratory meeting in Manila, in 2007, at the proposal of Japan’s Prime Minister Shinzo Abe, who advocated ‘value-based’ foreign policy. The discussions cooled off after 2008. With the increasing competition between China and the US and the launch of Belt and Road Initiative by China, the Quad has come to the fore again in connection to the US’s Indo-Pacific strategy.
Indian PM Modi, during the ShangriLa Dialogue, said that Indo-Pacific is a natural region. The selection of Mr. S. Jaishankar, who was involved in initial discussions and the current revival of the Quad, as the Foreign Minister of India has also helped the cause of the Quad.
The participating states claim that it is not targeted against any country. However, it should be noted that all four countries share major concerns regarding the rise of China and its role in the Indo-Pacific. A report by (the) Congressional Research Service also indicates that the Quad was a response to China’s increasing economic, military and diplomatic strength. A senior defense analyst analysis at RAND writes that the Quad can be an effective forum to push against Beijing’s excessiveness. Given the geo-strategic location of Nepal vis-à-vis China, it is not difficult to understand the American invitation. Japanese foreign minister Taro Kono also suggested that Nepal join the Quad during his visit to Nepal in January 2019.
Whether Quad is strategic or value-based, it is clear that it has an eye on the rise of China, and most Chinese see it as American attempt to contain Chinese activities in Indo-Pacific and provide an alternative to China’s Belt and Road Initiative.
Nepal’s foreign policy practice
The Article 51 (m) of the Nepalese constitution states that Nepal is to conduct independent foreign policy based on the Charter of the UN and non-alignment among others. This is to say that Nepal should not ally with one country against the other.
Since coming to power in 2018, Prime Minister KP Oli has shown great interest in Nepalese foreign policy. He has continued to promote strong links with China and visited several countries, trying to raise Nepalese profile. With the end of political instability and transition, Nepal has made some assertive moves in foreign policy.
In this context, the Foreign Minister Pradeep Gyawali visited the US and met with US Secretary of State Michael Pompeo at the latter’s invitation on 18th December 2018. This was the first meeting at the foreign ministerial level between the two countries in 16 years. During the meeting, Mr. Pompeo invited Nepal to join the Quad, and play a central role in a free, open and prosperous Indo-Pacific. They also discussed Nepal’s $500 million Millennium Challenge Corporation compact that Nepal signed in 2017. It aims at boosting Nepal’s investment in electricity and transportation infrastructure.
Nepal is one of the least developed countries with a GDP per capita of about $1000. In 2018, Nepal ranked 109 out of 140 economies in the Global Competitiveness Index with a ranking of 117 in infrastructure. This gives a clear indication of the need to develop infrastructure in Nepal if Nepal is to make any significant and sustained economic development. In order to mitigate the infrastructure bottleneck, ESCAP estimates that Nepal needs to spend 8-12% of GDP in infrastructure. That amounts to $2-3 billion a year. With the internal revenue of roughly $10 billion and the current expenditure of more than $8 billion, Nepal has huge infrastructure investment gap. Nepal needs external resources to bridge that gap.
Yet, some analysts have raised concerns regarding Nepal’s participation in the Quad. Some have pointed at the strategic nature of the Quad and argued that Nepal should not and cannot participate in any ‘alliance’. Others have raised that Nepal’s participation in a rival grouping to Belt and Road Initiative (to which Nepal is a signatory) could raise concerns in China. It is understandable given the massive interest in China and Nepal to improve connectivity between the two. However, both of these are misguided concerns.
First, while Nepal has a lot to gain from BRI, the country should not put all (its) eggs in one basket. Instead, it is in Nepal’s interest to have a healthy competition among the major powers for their influence in Nepal/the country. This will increase Nepal’s leverage and leadership as well as keep the powers on their toes.
Second, Quad and other multilateral cooperation mechanisms are not exclusive. Nepal can draw lessons from India in this respect. Despite being a major part of Quad, India is also actively promoting cooperation with China and Russia at the same time. Hence, China promoted BRI and the US-promoted Quad need not necessarily be mutually exclusive. Rather, ‘connectivity’ is the common theme on both.
Third, it is judicious of the government to say that Nepal will not be a part of any strategic alliance, but the Quad is not an alliance. Hence, Nepal being an active member of the Non-Aligned Movement or the guiding principle of Nepalese foreign policy as mentioned in the constitution is not incompatible with potential Nepalese participation in the Quad.
Therefore, the debate should be whether Nepal should join the Quad based on the potential benefits and costs, not if Nepal can join the Quad.
Implications for Nepal
There was no mention of the topic of Quad at the Press Briefing note of the Nepali Foreign Minister on the USA visit. Given the concerns of critics, the hesitancy of MOFA to include the topic in the press release is understandable. However, this reflects the face of Nepalese foreign policy-making mechanism. First, this shows the lack of confidence among Nepalese decision-makers regarding how external stakeholders will react to Nepal’s potential participation on the Quad despite Nepal being a sovereign country.
Second, the plans to discuss or participate in the initiative (FM Gyawali insists that Nepal has not committed to participate yet) was not discussed enough with various domestic and international stakeholders. Some stakeholders such as China were not taken into confidence in advance.
Third, it shows that Nepalese foreign policy-making is still tactical than principled. If not, FM Gyawali would have confidently mentioned after the meeting with Mr. Pompeo that Nepal discussed the Quad based on Nepal’s strategic interest and open regionalism.
The fact that Nepal has been invited to join the Quad is an indication of Nepal’s geostrategic location and hints at the increased global profile of Nepal. This represents a foreign policy success for Nepal, though a minor one. It’s too early to analyze the benefits and costs of joining the Quad, especially because the Quad itself is taking shape, but it’s a good sign for Nepal. It offers the potential for much-needed investment in infrastructure and diversifies the source of investment.
To avoid potential negative impacts, Nepal should take a principled stand and abide by the constitution and the policy of ‘amity with all, enmity with none’. We should make sure we are not pressed into taking ‘sides’. Nepal should also strengthen its institutional capacity so that the undue influence of external powers brought about by increased investment in infrastructure can be negated. Additionally, transparent and robust discussion nationally on any foreign policy issue would help raise awareness and bring all stakeholders on the same page. That way, next time the FM discusses some proposals from a foreign country, he will be less hesitant to discuss that in public.
- Bharadwaj, N. (nd). Nepal and Indo-Pacific Strategy. The Rising Nepal. Retrieved from http://therisingnepal.org.np/news/28342
- Chanlett-Avery, E. and Vaughn, B. (7th January 2008). Emerging Trends in the Security Architecture of the Asia. Congressional Research Service. Retrieved from https://fas.org/sgp/crs/row/RL34312.pdf
- Fouse, D. (21st March 2007). Japan’s ‘Values-Oriented Diplomacy’. The New York Times. Retrieved from https://www.nytimes.com/2007/03/21/opinion/21iht-edfouse.4978402.html
- Grossman, D. (19th October 2018). The Quad is not Enough. Foreign Policy. Retrieved from https://www.rand.org/blog/2018/10/the-quad-needs-broadening-to-balance-china-and-nows.html
- Jun, A. (15th November 2018). Quad offers no substitute for BRI in Indo-Pacific. The Global Times. Retrieved from http://www.globaltimes.cn/content/1127645.shtml
- Millennium Challenge Corporation (nd). Nepal Compact. Retrieved from https://www.mcc.gov/where-we-work/program/nepal-compact
- Ministry of External Affairs, India (1st June 2018). Prime Minister’s Keynote Address at Shangri La Dialogue. Retrieved from https://www.mea.gov.in/Speeches-Statements.htm?dtl/29943/Prime+Ministers+Keynote+Address+at+Shangri+La+Dialogue+June+01+2018
- Ministry of Finance, Nepal (2019). Estimated expense report (Byaya Anuman Bibaran) 2019-20. Retrieved from https://mof.gov.np/en/archive-documents/budget-details–red-book-28.html?lang=
- Ministry of Foreign Affairs, Nepal (23rd December 2018). Press Briefing Note on USA visit by Hon. Foreign Minister. Retrieved from https://mofa.gov.np/press-briefing-note-on-the-usa-visit-by-hon-foreign-minister/
- Roy, S. (5th June 2019). S Jaishankar keeps EU, UN under his charge, MoS gets West Asia. The Indian Express. Retrieved from https://indianexpress.com/article/india/s-jaishankar-keeps-eu-un-under-his-charge-mos-gets-west-asia-5765490/
- Schwab, K. (2018). Global Competitiveness Report 2018. World Economic Forum. Retrieved from http://www3.weforum.org/docs/GCR2018/05FullReport/TheGlobalCompetitivenessReport2018.pdf
- The Constitution of Nepal 2015. Retrieved from https://www.mohp.gov.np/downloads/Constitution%20of%20Nepal%202072_full_english.pdf
- United Nations ESCAP (nd). Nepal National Study: Infrastructure Financing Strategies for Sustainable Development. Retrieved from https://www.unescap.org/sites/default/files/2-Nepal%20National%20Study.pdf
- US Department of State (31st May 2019). US-Australia-India-Japan Consultations (“the Quad”). Retrieved from https://www.state.gov/u-s-australia-india-japan-consultations-the-quad/