Sujeev Shakya is best known as Nepal’s CEO, or “chief eternal optimist”. A decade after Unleashing Nepal, in which he outlined the economic potential of the country, Shakya’s new book, Unleashing The Vajra breaks down Nepal’s dynamic past as a civilization between India and China, and the opportunities Nepal can provide in the 21st century as a bridge between the two economic giants. In an interview with Scroll.in, Shakya highlighted what it will take for Nepal to leverage its position between the Asian giants, and how it can emerge as a hub for economic interactions between them. Excerpts from the interview:
I find your thesis that “the shift of the [Indian] capital from Kolkata” to New Delhi changed India’s relationship with the Himalayan kingdoms – Nepal, Bhutan and the erstwhile Sikkim – fascinating. Could you elaborate on this? Do you think India’s neighbourhood policy would work better if Kolkata became a nucleus for its Look East policy?
For the Himalayan kingdoms, Kolkata was the port they used to travel out of the subcontinent. The rice-eating Himalayan folks had more in common with the rice-eating Bengali majority community of the region. People saw it as an extension of their own cultures. Those from Bengal who moved to Darjeeling during the summer months, when the capital moved to the hill-station, extended their own links in the eastern parts of Nepal. Let us not forget that during British India, once a Nepali stepped out of Nepal, they were travelling within the same empire till Malaysia.
Nepali Shah and Rana rulers had also bought a lot of prime land in Kolkata and therefore Nepalis were seen from the perspective of being rich and connected to the aristocracy. In Delhi, however, Nepalis are seen more as doing menial jobs, especially as chowkidars and durwans, with Nepalis from western Nepal who were not directly connected to Kathmandu till as late as 1996 going to north India to work. Delhi therefore developed this way of looking down on Nepalis, and also groups them with their own people from the Northeast.
I have always insisted that Delhi does not understand the neighbourhood from a people-to-people perspective. If India is to pursue its Act East policy aggressively, they will have to move the centre of coordination to Kolkata, as it is Bengal that shares a border with the countries.
The argument that Nepal could emerge as a link-state between India and China is gaining ground. Could you tell us how that would work? Do you think it would be possible for Nepal to emerge as a Chinese manufacturing hub for northern Indian markets?
Yes, many north Indian markets are closer to Nepal than to many manufacturing centres in India. But trilateral cooperation will not necessarily be about manufacturing units like garments, but about three major opportunities to leverage between China and India:
First, large scale projects like the production of electric vehicles, for which Chinese components can be used to manufacture in Nepal using abundant electricity generated by hydropower plants for the Indian market. Such projects could emerge as trilateral joint ventures.
Second, with communication platforms changing because of technology, the new information and communication highway will be the base of AI (artificial intelligence), machine learning, blockchain, and other platforms. Nepal can use its position as a link state for these. Further, with e-commerce pushing ahead, Nepal can again leverage its link position for the backend needs of efficient logistic solutions.
Third, with China and India having the highest numbers of outbound tourists and tourism itself moving from product to experience, the rise of Buddhist tourism will push for innovative products and services that can link the three.
The Chinese renminbi is rising, and you hint that it could very well unseat the US dollar as the global currency for business. But Nepal’s historical peg with the Indian rupee remains untouched. With increasing economic interaction with China, do you think the NPR-to-INR fixed exchange rate needs to make way for a market-determined exchange rate?
The current era is very close to the mid-1970s, when the British pound lost its importance and the US dollar became the global currency. Today, many countries trade with China in the Chinese renminbi. China’s investment is to get people to buy their machines, products and services, and pay them back in RMB.
On 1 October 2016, the RMB became the first emerging market currency to be included in the IMF’s special drawing rights basket – the basket of currencies used by the IMF in East Asia. In Myanmar, Cambodia and Laos, it is not surprising to find shops displaying prices in RMB apart from the local currency and the US dollar. Even in Nepal, we find Chinese tourists paying RMB prices through their digital wallets in Thamel restaurants and hotels owned by the Chinese.
The concept of currency is changing from paper money to more digital platforms like crypto-currency. The RMB has adapted very well to innovation on payments through digital wallets, apps and online integrated services, and they have the opportunity to lead these new platforms. With Nepal getting $8 billion in remittances, the diversification of trade and transit with China, and the increase in Chinese tourist spending in Nepal, perhaps the exchange rate regime needs to be looked into floating it to a currency basket rather than keeping it fixed with the Indian rupee.
Ten years ago, the Bangladesh taka was cheaper than the Nepali rupee, but it is now at par with the Indian rupee, owing to economic growth in Bangladesh as well as its currency management through monetary policies. As Nepalis, we will have to take that risk sometime. Doing this will also give us a sense of economic freedom until South Asia decides on a Euro-style common currency.
In your book you identify cartelisation and the Nepali private sector’s protectionist tendencies as the Nepali economy’s biggest barriers to growth. But do you find the same tendencies among the younger generation of entrepreneurs, especially in new economy sectors?
I am accused of generalising that all Nepali businesses are part of cartels, but the reality is that there are only a few exceptions. The private sector has this tendency of rent-seeking on positions, rather than pushing entrepreneurship, which I attribute to the trading mindset, which is all about arbitrage in duties and taxes, and nothing to do with comparative advantage.
While new generation entrepreneurs are considerably different from the previous generation, they are yet to shed their quest for identity through different business associations (which I say are cartels in disguise). The private sector in Nepal has not yet understood that you need to build your business, and not limit your aspirations to becoming office-bearers of different associations.
Similarly, with the Nepali media dominated by private institutions, and many such media outlets backed by political parties and leaders, the private sector in Nepal feels that media visibility is important to ensure the right connections with government folks. They therefore engage in deep ties with the media outlets, and media appearances then become a measure to gauge one’s success.
However, there is a new breed of entrepreneurs, especially those who have studied and worked outside, who are coming back and creating a new set of culture norms.
We know that there are exciting Nepali startups like Tootle, Doko Recyclers, and Foodmandu solving problems within the traditional economy. What will it take for a unicorn to emerge from Nepal?
I think we will see a Nepali unicorn emerge in the next decade. Currently the component of export of services has risen to 37% of total exports; Nepali tech firms are selling products and services outside. If we look at the architecture of Tootle or Foodmandu, they were innovative, but perhaps the Nepal market is too limiting for them.
It will be key to allow foreign angel investors of all sizes to come and push the start-up ecosystem away from the minimum FDI threshold of USD 500,000 imposed by the government, which was at the behest of private sector super-cartels to protect their firms. Many of these startups in Nepal could come into being only because of FDI.
Further, it is important for Nepal to change its laws to allow Nepali firms to invest abroad, which is still prohibited. Once Nepali firms can compete on the global stage, it will bring in a global mindset. Raising capital will not be an issue then, nor will funding new ideas, products and services.