Nepal's Greatest Export and its Thriving Remittance Economy

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Mention Nepal and the unacquainted masses will immediately conjure up breathless images of the snow-capped rooftop of the world - Mt. Everest together with Edmund Hillary and Sherpa Tenzing Norgay in their sublime 1953 summit, arguably one of but not the greatest Nepali export. The spectacular Himalayan landscape, eco-and adventure tourism opportunities and diverse, exotic cultures of Nepal represent considerable potential for a vibrant travel and leisure industry, but growth in this industry has been stifled, in recent years, by political insecurity and poor infrastructure. Despite these problems, in 2012 the number of international tourists visiting Nepal was 598,204, a 10% increase on the previous year. The tourism sector contributed nearly 3% of national GDP in 2012 and is the second biggest foreign income earner after remittances.

It’s no longer a stretch of the imagination and its an established fact that the Nepali people themselves are the country’s greatest export, especially when one considers that out of a population of approximately 27 million, nearly 2 million are absentee or migrant workers living abroad. Remittance, the transfer of foreign earnings (saved salaries and wages) by an absent worker to his or her home country, has become the mainstay of the Nepalese economy especially in the past decade. According to MPI Data Hub “Migration facts, stats and maps,” remittance received increased to $3,507 million in 2010 from $111 million in 2000.

Remittance is one of the fastest growing sectors in the Nepali economy and is estimated to be equivalent to 25-30% of GDP

Nepal's gross domestic product for 2012 was estimated at over $17.921 billion (adjusted to Nominal GDP). In 2010, agriculture accounted for 36%, services comprise 48%, and industry 15% of Nepal's GDP.  While agriculture and industry are contracting, the contribution by the service sector is increasing. Agriculture employs 76% of the workforce, services 18% and manufacturing/craft-based industry 6%. Remittance is one of the fastest growing sectors in the Nepali economy and is estimated to be equivalent to 25–30% of GDP with the figure pegged at 23% in 2013. This is significant in any impoverished country and particularly in the case of Nepal which was ranked in the 157^th place on the Human Development Index (HDI - in 2013) and is one of the least developed nations in the entire world.

According to Singh (2013), Nepal is among the top five remittance countries globally with Tajikistan, Tonga, Lesotho and Moldova ranking above Nepal. Humble remittance beginnings can be traced back to the early 19th century when a sizeable Nepali population were conscripted into the British army and subsequently served with the allied powers during successive World Wars. Nepal receives approximately $50 million a year through its highly acclaimed Gurkha soldiers who serve in the Indian and British armies. With the advent of the private security contractors (PSC) industry, captured in a previous posting entitled Gargantuan Gurkhas – Nepal’s Unsung Heroes! (http://barrygreville-eyres.blogspot.com/), remittance from this source alone is largely unknown, but substantial nevertheless. This is particularly the case when one considers that several thousand Nepali PSCs have been contracted to provide base protection and other security services in Iraq and Afghanistan for well over a decade. A wholly Nepali Gurkha company in Afghanistan has currently over 700 former soldiers serving on its payroll alone. This data discrepancy confirms the immense challenge that the Nepali government has with regard to poor or undocumented labor migration information as its ‘official’ record has it that in 2010 there were only 472 migrant workers in Afghanistan.

Formal remittance or money transfer avenues but there are clear indications that inflows of remittance via 'informal channels' are equally problematic

  

Malaysia (146,938) and the Gulf countries (Qatar - 26,993, Saudi Arabia - 46,047, Bahrain – 16,673 and UAE - 21,346) accounted for 90% of Nepali migrant workers in 2010. Unprecedented migration commenced with the construction boom in the emerging economies in Asia and Gulf countries in the 1980s, providing the ideal opportunity for “young, energetic and dashing Nepalese to venture out for foreign employment and substantially higher income opportunities – all in the quest for a respectable and prestigious life.” Shumshere contends that this has led to “political and economic empowerment of people including women, offering an alternative to land-based and agrarian wealth. Around 83% of the total population lives in rural areas, meaning that not only is Nepal primarily an agrarian economy, but that population pressure on land and natural resources is also rather severe. It’s for this very reason that at least one individual from each household is engaged in employment abroad. Therefore, remittance has become an important source of household income for a large section of the country’s population. For low income people, remittance is the most important and often the only means of survival.

The rate of unemployment and underemployment in Nepal, which approaches half of the working-age population, is another key factor in the remittance economy. According to the Nepali Department of Foreign Employment the number of Nepali labor working abroad has been increasing through the years and in 2012 stood at 530,250. Nepal sends 1% skilled and 29% semi-skilled workers to about 108 destinations. The remaining 70% of workers are unskilled. This shows there is a high demand for unskilled labor abroad. Thus many citizens move to other countries in search of work. Favored destinations, not mentioned previously, include India, the United States, Thailand, the United Kingdom, Japan, Brunei Darussalam, Australia, and Canada.

A long-standing economic agreement underpins a close relationship with India. Nepal receives substantial foreign aid from India, Japan, the UK, the US, the EU, China, Switzerland, and Scandinavian countries. Poverty is acute; per-capita income is around $1,000. The distribution of wealth among the Nepalese is consistent with that in many developed and developing countries: the highest 10% of households control 39% of the national wealth and the lowest 10% control only 2.6%.

The proportion of poor Nepali people has declined substantially in recent years. The % of people living below the international poverty line (people earning less than US$1.25 per day) has halved in only seven years. At this measure of poverty the % of poor people declined from 53% in 2003/2004 to 25% in 2010/2011. With a higher poverty line of US$2 per-capita per day, poverty declined by one quarter to 57%.  However, the income distribution remains grossly uneven. In a recent survey, Nepal has performed extremely well in reducing poverty along with Rwanda and Bangladesh as the percentage of poor dropped to 44% of the population in 2011 from 65% in 2006 –4% points per year, which means that Nepal has made significant improvement in sectors like nutrition, child mortality, and electricity supply. Its argued that if the progress of reducing poverty continues at this rate, then it's predicted that Nepal will halve the current poverty rate and eradicate it within the next 20 years.

For low income Nepalese remittance is the most important means of survival

Nepal has close ties with both of its neighbors, India and China. In accordance with a long-standing treaty, Indian and Nepalese citizens may travel to each other's countries without a passport or visa. Nepalese citizens may work in India without legal restriction. The Indian Army maintains seven Gurkha regiments consisting of Gurkha troops recruited mostly from Nepal.

In conclusion, Nepal’s astounding growth in remittances is not without its “issues” or very real dangers. Singh cautions that “no matter how much remittance increases every year, the threat to the Nepalese economy because overt dependence on remittance from migrant labor may not be sustainable in the long term.” Retention of Nepal’s greatest export, its productive workforce, should become a policy imperative otherwise domestic productivity will continue to decline and the country could face a human resource crisis in the near future. Domestic and international workforce planning need to be encapsulated into a broad-based, labor policy framework that is able to address current and emerging challenges in a proactive fashion.

Some of the key findings and issues flagged by Singh include:

·         The increasing trend of migration and problems faced by migrants abroad, socio-cultural and exploitation also means there is serious problem with migration governance and a lack of government responsiveness towards creating job opportunities in Nepal;

·         Though migrant labor has led to high inflows of remitted income, it has not impacted the economy in a positive way. Slow economic growth coupled with high import-based consumption is still a problem in the country;

·         The flow of remittance through informal channels has also been a hindrance to economic development. This has encouraged money laundering.

References:

Dr Ashok Shumshere J.B.R. 2010 The Himalayan Times. Remittance Economy

Ajita Singh. 2012. Remittance and Nepalese Economy: Some Issues.