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Nepal’s Journey Towards a Digitalised Economy

With emerging technologies and innovations paving way for considerable economic, social and political benefits, most developed and emerging economies around the world have been working hard to join the league of world’s most digitalized economies.
As a result, countries like Nepal aiming to become a digitalized economy have become a commonplace phenomenon as well. However concerned authorities and policy makers in Nepal first need to properly assess whether the country’s connectivity status, existing policies, and available human and institutional capitals are sufficient to achieve outcomes from all proposed plans, including those put forth for Nepal’s smart cities initiative that aims to create smart cities across the country by establishing many new and also through upgrading and merging old cities.

Earlier in July this year, researchers at Tufts University’s Fletcher School, in partnership with MasterCard Inc., unveiled the Digital Evolution Index 2017 (DEI) that ranked 60 countries based on 170 indicators in four key drivers of digital evolution namely, supply conditions, demand conditions, institutional environment, and innovation and change. For the first time, the study also incorporated digital trust measure while comparing country performances. The ranked countries comprise emerging and developed economies and those standing in between. Top five positions in the study are occupied by European economies – Norway, Sweden, Switzerland, Denmark and Finland. Of the Asian economies considered for the analysis, Singapore outperforms other regional economies and comes in sixth position while Bangladesh comes last in the entire ranking.

Overall, with only minor exceptions, major findings in this study follow trends outlined in the European Commission’s Digital Economy and Society Index 2017 (DESI), Huawei’s Global Connectivity Index 2017 (GCI), World Economic Forum’s Networked Readiness Index 2016 (NRI) and United Nations’ ICT Development Index 2016(ICTDI). Though Nepal was not included in the first three rankings, country’s global position among other economies can easily be assessed from its position in the latter rankings. Nepal ranks 118 out of 139 countries and 142 out of 175 countries in NRI and ICTDI respectively. Despite huge potential, Nepal’s poor performance in these studies can mainly be attributed to inadequate policy framework, poor infrastructure, scare trained human capital and insufficient investment in innovation and change.

For readers’ convenience, Nepal’s current status and challenges to the country’s journey towards a digitalized economy can be well studied by employing four drivers of digital evolution as highlighted by DEI.

Supply Conditions

Issues like quality, coverage, security and access to communication infrastructures; citizens’ access to finance and available payment options; and quality of transportation facilities and logistics performance fall under this category of drivers. Available evidences show Nepal does better in some of these drivers but lags behind in many others.

As per the June 2017 Management Information System Report (MIS) of Nepal Telecommunications Authority, there are 34,913,320 subscribers of voice telephone services. Of them, mobile phone (GSM and CDMA) connections account for 95.12% of total subscriptions. In addition, over the period, there has been significant rise in mobile phone subscribers – while fixed-line and other connections grew at 3.24% and 3.2% respectively, growth rate for mobile phone users grew by 125.34%. According to the World Bank, mobile phone subscriptions in Asia grew at an average rate of 22% between 2000 and 2015 and Nepal’s growth rate during the same period stood at 67%, highest in the region. In terms of internet connectivity, Nepal’s current internet penetration rate stands at 58.31%. With plans to connect the country’s internet users with Chinese internet in August 2017, it is likely that current penetration rate will surge in coming years, mostly in the hilly and mountainous areas.

According to the most recent data from Nepal Rastra Bank (NRB), till mid July 2016, there were 28, 67, 41 and 42 commercial banks, development banks, finance companies and micro-finance institutions respectively. In addition, there were 1869, 1378, 852 and 175 branches of each category of these banking and financial institutions (BFIs). To put into a perspective, 6,562 Nepalis rely on a branch of BFIs for their formal financial transactions. Despite these developments, only 61% of the citizens have access to formal financial services. 21% of Nepalis still resort to informal channels only and 18% people are yet to be brought into formal financial structures. In terms of payment options, barely 33% of total transactions take place through digital means. Besides eSewa, there are no other reliable digital platforms in the country that allow people to make secure transactions online. As a result, there exists many opportunities for public and private sector stakeholders in Nepal to improve country’s performance in these areas.
Nepal’s highways are often called ‘Highways of Death’. Existing transport syndicates, supported by local politicians and corrupt bureaucrats, have resulted in poorly maintained highways and even worse quality of public vehicles in the country. As a result, on average, six Nepalis die each day in road accidents. The country also performs very poorly in logistics performance. Nepal ranks 124 out of 160 countries in World Bank’s Logistics Performance Index Global Ranking 2016.

Demand Conditions

The consumers’ ability and willingness to spend, gender digital divide; degree of financial inclusion and use of digital money; and device prevalence and density, technology, internet and mobile connection uptake and digital consumption matter a lot for generating significant demands for a digital economy.

Nepal’s current GDP per capital stands at $730. Over the past 45 years, the country saw an average growth rate of 2% in this measure, lowest in South Asia. Similarly, close to a quarter of country’s 26 million populations still live below the poverty line. In terms of minimising gender digital divide; Nepal stands out among low-income nations. In Facebook Internet.Org’s Inclusive Internet Index 2017, prepared by The Economist’s Intelligence Unit, Nepal ranks in 56 among 75 countries and performs well in individual indicators including in availability, relevance and readiness. However, despite substantial phone and internet penetration rates, poor access to formal financial services, inadequate regulatory policies and privacy issues still hinder citizens from using digital gateways for online payments.

Institutional Environment

Regulatory policies, legal frameworks, bureaucracy, government digital ecosystem and public-private partnership fall under this driver of digital evolution.
Nepal Telecommunication Act 1997, Long-term Policy of Information and Communication Sector 2003, Broadband Policy 2015 and National Information and Communication Technology Policy 2015 govern Nepal’s ICT sector. Similarly, Public Offence Act 2004 and Electronic Transaction, and Digital Signature Act 2004 look after ICT sector’s legal issues in the country. Moreover, there are two ministries and one department – Ministry of Science and Technology, Ministry of Information and Communications, and Department of Information Technology – that regulate most ICT related works in Nepal. Notwithstanding these policies, legal and institutional frameworks, the country’s overall performance is still questionable due to poor planning and coordination, implementation fallacies, rampant corruption and rent-seeking behaviors of involved public and private stakeholders.

Innovation and Change

Research and development (R&D) investments, start-up capacity, ability to attract and retain talent, reach of innovation and use of social network among others make up this driver of digital evolution.

Nepal allocates roughly 0.3% of total budget for financing all R&D works and we are yet to unveil a policy for guiding works of start-ups, the Ministry of Industry has recently developed a draft of the policy. To make situations worse, Nepal’s current employee retention rate is marred by huge gap between needs and priorities of modern generation Nepalis, discrepancy between job descriptions and actual tasks assigned to individual employee, and poor mutual trust among employees and employers. Finally, though the social media users in Nepal are on rise, most of them use available social media platforms for unproductive works and there exist large gender, age and education level gaps among the users.

Jaya Jung Mahat, an alumnus of the Lee Kuan Yew School of Public Policy at the National University of Singapore, is a Kathmandu-based public policy researcher. He writes extensively on issues that connect economics, politics and innovation. He can be reached at jjmahat@gmail.com

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