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Political Economy of Conflict

Nepal is passing through a turbulent time in its economic and political history with Nepalis roiling under the trauma of conflict, natural disaster and in recent days, the impact of the economic blockade. The Government of Nepal organised a conference of development partners in 2015 with the slogan of Build Back Better to mobilise support for reconstruction and rehabilitation. However, rebuilding of damaged infrastructures, residential buildings, schools and other public properties were inordinately delayed due to lack of prompt response from the government, while the lack of basic supplies due to an almost five month long border obstruction caused another setback to the crippling economy, affecting the normal life of the people. The germinating seed of conflict seen in Rolpa and Rukum almost two decades back is now shifting to the southern plains along with the promulgation of the new constitution.

Nepal’s economic performance over the last two decades have been dwindling due to growing political instability and uncertainties, resulting in the erosion of confidence of political institutions and their honchos. Nepal’s aspiration of achieving a high and sustainable growth with the adoption of market based policies has been made victim of this political strife. Monarchy was abolished and the country saw many changes in the seat of government over the last decade and the subsequent governments inability to deliver on the promises made when they took to seats of authority. Prime Ministers and ministers in the diktats of their inauguration assured many good things including economic transformation and better service to the people. But, these soon turned into fiasco as most of them rather indulged in nepotism, favouritism and self-serving prophecy, rather than their commitment to the people. This has created a sense of mistrust and loss of confidence over the whole political establishment. Wealth amassed by the political leaders and their cronies are used in elections and in capturing lucrative positions creating another vicious cycle of wealth, prosperity and legitimate power.
Nepal has lost two decades in managing conflict and political upheavals that has caused tremendous damage to the economy. Finally, a new constitution has been promulgated last year amidst fierce opposition from certain segments of people still pushing the political settlement into oblivion. There is growing anger and frustration among the youth as employment opportunities are truncated and they are forced to migrate to other countries in search of livelihoods. The foremost challenge for the government is to create better employment opportunities for the young work force and put their skill, knowledge and resources to productive use to help build a better Nepal. This requires a comprehensive policy for reshaping the economy in its big leap forward.

In economic terms, the road to prosperity inherently needs proper mobilisation of capital (both human and financial) and improvement in technology and innovation. Nepal currently has almost 57 percent of the population within the age group of 15-59, and can harness the demographic dividend if proper policy for skill development, education and training are adopted. The life span of the people is increasing and the number of aging population will be rising over the next decade thus requiring short to medium term interventions for achieving sustained growth.

Besides, government should focus on building a business enabling environment for investment through adoption of policy measures for enhancing total factor productivity (TFP), remodeling shoddy infrastructures and obsolete capital equipment. Promotion of competition, protection of intellectual property rights, reducing the burden of paper work and procedural hassles in doing business should be a priority action for the government in order to prod the private sector towards more investment in the productive sectors of the economy.

Nepal’s financial market is well developed with the introduction of an open and liberal policy in the banking sector since the mid-eighties. Today almost 70 percent of the capital market comprises of banking and financial sectors. But, the small and micro businesses are not in the radar of those financial institutions and depend upon traditional money lenders at higher rate of interest. Large scale employment could be generated at the small and micro enterprise levels if these are supported with incentive measures including easy access to finance. The Industrial Policy of the Government of Nepal mentioned the creation of various types of funding mechanism for specific entrepreneurs like women, marginalised communities and poorest of the poor. But, those measures are yet to be realised on the ground. There is also need of upgrading technology and introducing innovation in order to enhance productivity of agriculture and manufacturing sectors, particularly small and micro enterprises.

The next but equally important factor that forms the bedrock of economic prosperity is the quality of governance and institutions. The efficiency and effectiveness of governmental institutions has a large effect on its ability to carry out reform tasks. Government institutions and bureaucracy should be able to deliver that services effectively commensurate to the lofty goals mentioned in their terms of references. This requires a proper human resource management plan along with selection, recruitment, transfer and retention policies ensuring that well trained persons are positioned in the right place. Control of corruption, promotion of transparency and rule of law are important factors in regaining the confidence of investors and entrepreneurs who are prime movers in terms of creating employment and source of revenue for the government.

Nepal has entered into the federal structure with the promulgation of a new constitution. This provides opportunities to people to explore and utilise the best potentials available in each of those spatial areas called the provinces. Still government at the center occupies prominent role in shaping the policies that support the overall development of the country by sharing the skills, resources and potentials engrained in the provinces. However, this would require resolving the political crisis and misgivings among people at the first instance and then further attempts to harness the development potential of the country for achieving high, sustainable and inclusive growth of the economy.



Purushottam Ojha is a former Commerce Secretary. He is now consultant at the World Bank.

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