The need for huge investment to reduce the infrastructure deficit in Nepal is well-known. ‘Infrastructure financing’ has become a dominant narrative in country’s development agenda as the country is takes a gamut of initiatives to… More
It has been one year since twin earthquakes measuring 7.8 and 7.3 in Richter scale hit Nepal and took nearly 9000 lives. In the aftermath, 21,000 people were injured and more than 200,000 houses were destroyed. Millions of others were forced to live under open sky amidst regular aftershocks for weeks. It was a worst natural disaster in Nepal in eighty years.
Despite the paucity of disaster preparedness, Nepal’s immediate rescue and relief effort was laudable. The government was quick to mobilise all public service personnel and security forces. Logistical support provided by neighbouring countries and international agencies expedited the process.
Another highlight of the rescue and relief operations was the voluntary participation of the community to help other affected members. With their help, thousands of temporary shelters sprang up, and medical assistance was able to reach large numbers of the injured. Dead bodies were recovered efficiently, allowing for families to cremate those they had lost in line with their religious beliefs. The efficiency of the initial clean up prevented the spread of disease despite the fact that large numbers of people in affected districts were homeless and had no access to proper sanitation.
However, when it came to post-earthquake reconstruction, the early success story crumbled. To date, there has been little effort towards rebuilding damaged properties, beyond clearing rubble and providing petty contracts to renovate a handful of heritage sites in Kathmandu. The government promised affected families cash to rebuild their houses but it took them nine months to actually hand over the $150 USD. Overall, the government has disbursed less than126 million which constitute mere two percent of estimated reconstruction budget of 6.7 billion.
Aside from political disruption that the country experienced after the earthquake as a result of the promulgation of the new constitution, a major reason for lacklustre performance has been the exclusion of the affected communities from the reconstruction and rebuilding process. The vision of the reconstruction (if any) has been a government-led top-down approach with no space for community participation at any stage in the process.
The Post-Disaster Need Assessment (PDNA) that the government carried out immediately after the earthquakes acknowledged the potential role of the community on the post-disaster reconstruction and recovery, the hastily prepared document did not elaborate the framework within which those affected could voice their concerns. It is surprising to see the absence of community involvement in a country where social engagement is so deeply rooted and have produced some exemplary results in e.g. environmental management.
But why is the participatory approach in post-disaster reconstruction so important, especially in developing countries?
First and foremost, the affected communities have a better understanding of their own needs and can provide valuable insight into the local conditions. Such knowledge is crucial in collecting data and setting priorities in rebuilding process. This is particularly important in dealing with the vulnerable groups like women, children, disabled etc. The inclusion of these groups in design and implementation process is necessary to ensure the plan meets the targeted needs as effectively as possible.
Second, communities are more likely to develop a sense of ownership over the outcome of the process if they are involved. They can bring indigenous ideas and solutions which are sensitive towards local traditions and customs as well as are more likely to suit the local context. Their participation, therefore, not only raises the probability of immediate success but also ensures sustainability.
Last but not the least, community participation opens another avenue for government-community partnership which strengthens the credibility towards the government’s current and future actions. Moreover, the community can keep an eye on the working of government authorities to make sure their actions match their promise. This significantly enhances accountability and reduces potential fraud and corruption.
Having said that, community participation in post-disaster reconstruction is not always straightforward despite its merits. The conflict among different community interest groups can potentially hamper a cohesive designing and planning process. Similarly, confusion about the roles and responsibilities among government bodies and community groups may complicate communication and coordination when it comes to implementing the plan. Such cases could lead to uncertainty and delay in decision-making and, at worse, derail the whole reconstruction process.
These problems are likely to be more severe in case of Nepal which doesn’t currently have elected representatives at local level. In the absence of accountable local government, any effort to decentralise the reconstruction would be vulnerable to hijacking by local elites who affiliate themselves with political parties or local businessmen. In such scenario, attempts at community inclusion can be counterproductive and actually make things worse by excluding the real victims from the process.
Fortunately, there are a number case studies from around the world – both good and bad – which offer a range participatory approaches to reconstruction that Nepal can take inspiration from. In Indonesia, after the December 2004 tsunami, “community-led approaches created better housing construction compare to contractor based approach in terms of quality, accountability and beneficiaries satisfaction”. In contrast, the lack of community consultation in Pakistan following the 2005 earthquake resulted in conflicts based on local land-traditions which has gridlocked the reconstruction of city of Balakot.
Hence, it should be clear to Nepal’s PDR planners that meaningful community participation (beyond using locals as mere construction labour) is essential for smooth and swift reconstruction of public and private properties regardless of the location. It would be incredibly disingenuous for Nepal Reconstruction Authority (NRA), a newly created government body to lead the reconstruction, not to acknowledge the vitality of inclusion of affected community into process.
The NRA can start with setting-up a two-way communication platform where affected people across different communities can share their needs and provide feedback on the plans and policies. It should also identify community leaders or groups which have wider support and can represent voice of all vulnerable groups in the absence of locally elected government. These leaders or groups can work as primary touchpoints for government for further consultation and communication. For earthquake-prone Nepal, such participatory model can work as a useful template to use in future disasters as well.
( This article forms part of LSE South Asia Blog’s Nepal Earthquake Anniversary series, first published here.)
One concerning aspect of China’s rising prominence is its troublesome relations with its neighbours. It has fought both real and legal battles on territorial and ideological grounds on several fronts including in India, Vietnam and on the Korean peninsula in the past, and currently is causing controversy with its maritime expansion. But one break in this pattern is the country’s long-standing relationship with Nepal.
Although the two countries share pre-historic ties that date back to the seventh century, modern-day Sino–Nepal relations began with an exchange of diplomatic missions in 1955 and the signing of the treaty of peace and friendship in 1960.
China prioritises relations with Nepal due to its geo-strategic location, lying between India and China’s autonomous region of Tibet. Chinese interest in Nepal has been stoked by national security concerns related to the free Tibet movements. The two countries share 1400 kilometres of remote and relatively unguarded borders. This has provided a safe passage for refugees fleeing Tibet to go to India or Nepal since China’s reclamation of the territory in 1959.
Nepal hosts around 20,000 Tibetan refugees in different camps around the country. The most concerning issue for China is the continuing anti-Chinese protests by Tibetan refugees in Kathmandu, who are joined by free Tibet activists from Dharamsala in India — home to the majority of the exiled Tibetan population. The porous border between India and Nepal has placed Kathmandu as a vantage point for the free-Tibet movement to conduct their operations with relative ease.
Thanks to successful Chinese diplomacy, Nepal steadfastly maintains a ‘One China’ policy by curbing all kinds of anti-China protest. Nepal maintains vigilance over the Tibetan community as exemplified by the ultra-high security arrangement in Kathmandu at the outset of the Beijing Olympics Games in 2008.
It is no coincidence that Chinese aid, including in the security sector, is flowing into Nepal at a rapid rate. China is constructing a training centre for Nepal’s Armed Police Force, a paramilitary force created to combat Maoist rebellions 15 years ago. It also invites high-ranking members of the Nepalese army to do various courses in its military academy. Keeping anti-Chinese activism in check has thus remained the focal point of Chinese foreign policy in Nepal.
Recently, other aspects of the relationship are also burgeoning. On the economic front, the two countries are making strides. Trade is rising and China is now the second largest trading partner of Nepal after India. The number of Chinese tourists visiting Nepal has increased 15 fold since 2003, giving a much needed impetus to the sluggish Nepalese economy.
China recently became the largest foreign investor in Nepal, a position long held by regional rival India. China is investing heavily in infrastructure projects, including in the two largest hydropower projects in Nepal. The two countries have agreed to develop a cross-border transmission line, the construction of an international airport in Nepal’s second largest city of Pokhara, and the extension of the Qinghai–Tibet rail network through the Himalayas to the border town of Lasha and on to the capital Kathmandu.
These infrastructure projects are part of China’s long-term plan to connect to broader South Asia as a part of its Silk Road Economic Belt policy. The projects, if successful, would have huge strategic and economic implications for Chinese relations with Nepal as well as its other South Asian neighbours. And they would provide land-locked Nepal with an alternative route to connect to the outer world without having to rely solely on India.
In return, Nepal played a catalytic role in giving China observatory status in the South Asian Association for Regional Cooperation (SAARC), an apex body of eight South Asian countries including India and Pakistan. Nepal also strongly advocated for granting China full membership of the association given its repeated and explicit desire to play a more influential role in the region through SAARC.
The weakest link in China–Nepal relations has been a minimal connection among the general public in the two countries, with bilateral exchanges largely limited to the official level. Not only are the people on either side of the Himalayas largely oblivious about each other’s language and culture, they often stumble over the geographic location.
Still, both governments have been making attempts to change that scenario in recent years. A branch of the Confucius Institute, a not-for-profit organisation under China’s Ministry of Education, has been set-up in Kathmandu to promote Chinese language and culture. The institute runs regular language classes teaching Mandarin and also organises cultural events across the country.
Increasingly large numbers of students from both countries are travelling under various cultural and educational exchange programs. Many Nepalese students head to Chinese universities on their own for higher education in medicine and engineering.
The Nepalese public are generally positive about their country’s relationship with China. This is due in part to China’s impressive economic success and modernisation in recent decades, and more importantly, the perception that China employs a ‘cooperation without intervention’ policy. This policy in particular has enabled China to accumulate considerable soft power in Nepal.
Considering the often-tense relations China shares with most of the neighbours, having at least one trouble-free relationship in its backyard must be a gratifying success for Chinese diplomacy.
South Asia’s economic potential has long been constrained by low levels of economic integration. Despite being closely linked geographically, culturally and historically, intra-regional trade is very low. A major problem has, of course, been political difficulties within and between South Asian countries. But an important, and overlooked, barrier to greater economic integration is the poor quality and inadequate investment in infrastructure in the region. The newly established Asian Infrastructure Investment Bank (AIIB) can play a pivotal role in fixing this problem.
For a long time, infrastructure bottlenecks have been recognised as a barrier to regional trade and economic integration. Access to infrastructure in South Asian countries is limited and the quality of available infrastructure is also poor. In Bangladesh, for example, only 39 per cent of the rural population has access to road transportation. India has the second largest road and rail network in the world, but half of these roads are not paved and cannot be used in all seasons. Despite huge potential in electricity generation, people in the region consume less than 655 kilowatts per capita in intermittent electricity supply in 2012, which is less than one fifth of that in East Asia.
The situation for cross-border infrastructure is even less encouraging. A telephone call from Nepal to India is more expensive than calling to the United States or Europe. Cargo trucks waiting 3–5 days at the border for clearance from customs is normal. Despite sharing a nearly 3000 kilometre-long land border, shipping between India and Pakistan has to go via Dubai. As a result, the cost of trading across borders in South Asia is prohibitively high.
According to the World Bank, South Asia has nearly US$2.6 trillion in shared GDP. While overall trade flows are growing, intra-regional trade among countries is still less than 5 per cent of total trade. This is far less than that within ASEAN (25 per cent) or NAFTA (58 per cent).
Despite this, investment in in-country and cross-border infrastructure has been inadequate over the years. This has created a huge infrastructure investment gap in the region with supply trailing far below demand.
It is estimated that South Asian countries need to invest around 7.6 per cent of GDP in infrastructure per year if they are to achieve economic growth of 7.5 per cent. This amounts to an annual capital investment of US$88 billion in new investment and in maintaining existing capital stock. Currently, actual average investment in infrastructure is around US$28 billion per annum — the lowest in the world, excepting sub-Saharan Africa.
The South Asian Association for Regional Cooperation (SAARC) — which is comprised of Afghanistan, Bhutan, Bangladesh, India, Pakistan, Maldives, Nepal and Sri Lanka — made an attempt to narrow the investment gap recently. For a decade, SAARC negotiated a free-trade agreement called the South Asian Free Trade Agreement (SAFTA). Coming into effect in 2006, SAFTA aims to facilitate the ‘development of communication systems and transport infrastructure’ to facilitate intra-regional trade. Still, the pace of infrastructural reform envisioned by the agreement has been slow.
Other similar initiatives include the establishment of the South Asian Development Fund (SADF) in 1996. Later reworked as the SAARC Development Fund (SDF), its aim is to act as an umbrella funding mechanism for all regional development projects, including infrastructure. But with capital of only US$300 million, the SDF has been unable to go beyond funding some social projects. The idea of setting-up a South Asian Development Bank (SDB), led by India, has also been proposed to provide low-cost funding to member countries for infrastructure projects. But this idea has never taken-off.
There have been some unilateral efforts to improve infrastructure. India, for example, has pledged to invest US$138 billion in railways alone in the next five years. It has also been experimenting with the creation of a ‘National Investment in Infrastructure Fund’.
On the bilateral front, projects like the Central Asia–South Asia Electricity Transmission Project, the Nepal–India Regional Trade and Transport Project, and the Bangladesh–Bhutan–India–Nepal (BBIN) initiatives are currently underway with support from multilateral organisations like the World Bank and the Asian Development Bank (ADB). Still, there are no major cross-country highway or railway projects currently underway.
With this backdrop, the creation of the AIIB has come at the right time. The bank was established with an explicit objective to provide financing for developmental infrastructure like roads, railways, sea and airports, and power generation plants to facilitate greater economic integration in the Asia Pacific.
Although US$100 billion in paid-up capital may not look like much in comparison to the investment demand, the AIIB can play a key role in complementing the work of traditional multilateral lenders like the ADB and the International Finance Corporation.
The AIIB is also expected to have a longer term investment horizon, recognising the fact that returns to infrastructure spending in developing countries can be slow and sometimes low. If the AIIB can also shorten the loan assessment and approval procedures, South Asia could see an investment boom.
The involvement of the AIIB in South Asia will be welcome news for the region. Six out of the eight countries in South Asia (the exceptions are Afghanistan and Bhutan) are founding members of the Bank. India, which was recently elected as a member of the board of the bank, is also likely to prefer the AIIB — with its multi-nation oversight — rather than a situation where China acts alone in what India considers its backyard. With mutual trust and support, the AIIB can help South Asia realise its shared dream of greater economic prosperity.
( This article was first published on East Asia Forum here.)
The term “middle-income trap” has gained prominence among academics and policymakers in recent years. The term refers to the phenomenon in which economies stop growing before they become rich. The heightened interest in the issue is understandable, given half of the countries in the world are middle-income countries and the majority of them are likely to be stuck there for a long time, if not forever.
Many countries in Asia are invariably facing the risk of falling into the trap; Thailand is one of them.
By and large, Thailand has had a successful economic history. It grew at a sustained annual rate of 7 percent for nearly 35 years starting in the early 1960s. As a result, per capita income increased 30-fold, from less than $100 in 1962 to over $3,000 in 1996. This growth steered the country into its current middle-income status. However, since the Asian financial crisis in 1997, Thailand has been struggling to maintain a decent economic performance. The growth rate has been highly volatile — swinging from 0.8 percent in 2011 to 7.3 percent in 2012 and back to 2.8 percent in 2013. GDP growth has averaged around 4 percent, which pales in comparison with other middle-income and East Asian countries.
At the heart of Thailand’s economic trouble lie perennial political and governance failures. Thailand is going through a turbulent political period. Political control has been constantly shifting hands between opposing powers supported by different interest groups in Thai society. The two military coups d’états in 2006 and 2014 have seriously undermined democratic institutions and practices.
In order to wither potential threats to their power, incumbent rulers on either side tend to implement policies that benefit their own support groups—businessmen and urban elites for the current military rulers and rural farmers and students for the ousted Pheu Thai Party. This myopic view toward governance has resulted in massively inefficient allocation of resources and has created distortions in the economy. Thailand has been unable to take a long-term view of the economy and to identify a future growth trajectory. As a consequence, the country is failing to keep up with the continuously expanding global technology frontier, which is the key to economic growth in modern times.
In the past, catch-up growth was the key to Thailand’s success. The country started far behind the global technology frontier and learnt from others to improve efficiency. Additionally, early economic reforms released a huge surplus of low-cost labor as the economy transited from labor-intensive agro-based primary industries to the capital-driven, export-oriented manufacturing sector. This helped Thailand to attract large amounts of FDI in sectors like electronics and automobiles, which not only boosted exports but also integrated Thailand into the global value chain.
However, over the years, the early benefits of high factor endowment and increased productivity have reached the natural limit. Wages are rising and the country is losing competitiveness to its low-cost Asian neighbors.
In the absence of advanced technological know-how, Thailand can neither compete with high-tech, high-value goods and service producers nor with the low-cost manufactures. Unlike the countries that managed to move on to high-income status, even in its heyday, Thailand didn’t invest in the R&D efforts necessary to foster domestic innovation. Its expenditure in R&D as a percentage of GDP stands very low — 0.39 as of 2011. Today, Thailand has the symptoms of the middle-income trap, including low growth and a middle per-capita income range.
So what can the Thai government do?
Given the difficult political scenario in the country, building an R&D ecosystem, which has been neglected for far too long, is the best way forward. Investing in R&D would help Thailand to operate closer to the global technological frontier and compete farther up the value chain. The model was successfully tried in South Korea, where a government-led innovation ecosystem spurred the type of growth that can sustain itself for a long period.
Creation of a national R&D ecosystem requires investment in improving the quality of tertiary education, creating specialized research centers and facilities, and linking research with businesses and industries. It also requires more scholarships and teaching facilities to train youths in subjects like mathematics, science, and engineering. Additionally, the government should initiate the founding of advanced research facilities along the model of the Korea Advanced Institute of Sciences (KAIST), which played a vital role in Korean industrialization in the 1970s and 1980s. Finally, business and industries should encouraged to commercialize research output.
More investment in education and R&D would create win-win benefits for both of the conflicting political powers and their support networks, and thus would most likely survive any future political change. On the one hand, students will have access to high-quality education, modern research facilities, and more importantly, opportunities for upward socio-economic mobility. On the other hand, businesses will have access to modern technology and know-how that enables them to offer new products and services and to enhance their competitiveness in global market.
However, investing in R&D to spur domestic innovation and technological advancement is a necessary but not sufficient condition for Thailand’s economy to grow in long run. Other complementary policy measures would include openness to further integration into the global value chain, fewer market distortions, financial development, tackling corruption and inequality, and inclusive governance and institutions, among others.
Moreover, the reform process might be slow and some sections of the society may benefit later than others. Farmers, for example, might not see the immediate benefits in the reform and thus may not readily support it.
Thailand can avoid the middle-income trap by promoting a domestic R&D ecosystem. However, the success is contingent upon the political willingness to initiate the long-term structural changes necessary for creating a knowledge-based and modern economy.
(This article was first published on thediplomat.com here.) Continue reading “Can Thailand Avoid the Middle-Income Trap?”