Lee Kwan-Yew transformed Singapore from a fishing village at its separation from Malaysia in 1960, into one of the richest and most advanced countries in the world, in his lifetime. I hope Prime Minister K. P. Sharma Oli will make Lee his role model, not the greedy and failed Third World leaders, because his health is poor and he does not have children.
Mr. Oli has become prime minister at an extremely difficult time. The treasury is empty, his predecessor has announced new welfare measures without costing them, financial discipline is non-existent, revenue collection is below the target, and the seven states have been asking for resources left and right. This situation could have been avoided.
For instance, some, including me, had called for financial discipline, as well as fewer states from as soon as the federalist agenda came to the fore. Actually, when I was in the Home Ministry, I had drastically reduced doling out of public money from the ministry and reduced the fake claims drastically. When I was head of the Budget Division of the Ministry of Finance, I had introduced new measures to improve financial discipline with support from the government and the National Planning Commission. But susequently, the the Nepali Congress, the UML, the Maoists and other parties destroyed the financial decision.
Federalism, done right, is beneficial, and I have supported it all along. It generates competition among states and makes unity in diversity possible. But it is also incredibly expensive, requiring political and administrative structures and people, and their expenses at multiple levels. We cannot rely on foreign aid forever, especially as the people in developed countries are demanding a reduction in their foreign aid budget. For instance, now Britain gives out 0.7 percent of its GDP as foreign aid, but there is growing pressure on the government to reduce it substantially.
Therefore, I had repeatedly warned about the expenses, citing the expenses of the United States, United Kingdom, and India and argued in favor of four states in the federal framework to make them financially sustainable. But politicians were more interested in expanding their paid employment opportunities than in making the country and the states financially sustainable.
In this tight financial situation, Mr. Oli has two options. One, he can spend the next 3-5 years criticizing his predecessors for lack of growth, depletion of the treasury, and for increasing welfare expenses. He could announce new welfare programs the country cannot sustain for cheap popularity, as his predecessor Sher Bahadur Did just before he resigned. For it, Mr. Oli will have tax people to death, make the country bankrup, and lose power next time. It should be noted that, even the rich Western countries, including Britain, have been substantially slashing their welfare programs because they had become unsustainable.
Two, Mr. Oli can make Lee Kwan-Yew as his role model, focus on long-term economic prosperity, and win power for him/his party for many years to come. Obviously, Mr. Oli can do better than Mr. Lee, who had children, and one of them, Lee Hsien Loong, is now prime minister of Singapore. He has no imperative to engage in political or economic corruption because his health is poor and he does not have children to promote or enrich. It is a great opportunity for him to go down in history as one of the greatest prime ministers of Nepal.
He had pronounced several programs — about gas supply, railway, ship, tuin, etc — when he was prime minister 19 months back. They were all good programs but the problem with them was that they were haphazard. Investment and growth require a pragmatic philosophy, a workable model, a deliberate program, and plenty of discipline.
A mixed economic philosophy, which allows the public and private sectors to flourish in sectors where they do best, will be best suited to Nepal. The state alone cannot transform the economy. If it could, China and Vietnam would not have done everything to promote domestic and foreign private investment. As for the growth model, there are several of them, but let me mention two of them: Balanced growth model and Unbalanced growth model.
In the first model, you sprinkle resources across sectors without regard to comparative advantage, productivity, and multiplier effect. This model is politically more popular because all sectors feel that they have been given priority, but the results are often disappointing. Because this model is populist, most non-communist developing countries have followed this model and remained largely poor.
The second model calls for higher priority in investment in sectors in which your country enjoys comparative advantage vis-a-vis other countries and in which productivity and multiplier effect are high to build the investment and growth momentum. Such sectors then pull the other sectors. Most advanced or fast-growing countries have followed this route.
For instance, among communist countries, the Soviet Union went for planned development of heavy industry and heavy power plants to transform its economy. The result was so good that other countries also followed the planned development model. China and Vietnam took a different path. They gave top priority to agriculture until the sector hit its limit before graduating to industry and services.
Among non-communist countries, France, Denmark, New Zealand and Netherlands gave high priority to their agriculture before diversifying to other sectors. Britain and Japan took a different path. They focused more on industry: They imported raw materials from other countries and exported high-value finished products.
For a fast growth, Nepal needs to follow the second model and accord higher priority to tourism and hydropower. In tourism, it enjoys enormous comparative advantage. No other country has 8 tallest mountains out of 14 in the world. Very few other countries are culturally and naturally as rich as Nepal. Goh Chok Tong, the former prime minister of Singapore, had advised Prime Minister Girija Koirala that Nepal should focus on tourism.
In hydropower, Nepal has the second highest potential, just after Brazil. Hydropower can substitute fossil fuel as the source of energy, help expand irrigation facilities, acclerate invest and production, reduce turn-around time, and increase increase per person production and trigger further investment at high levels. When he was foreign minister, Abdullah Ahmad Bidwai, the former prime minister of Malaysia, had told his Nepali counterpart, Prakash Chandra Lohani, to use water resources wisely to make Nepal rich.
These two sectors will pull other sectors of Nepal along. If you do not believe me, look at Maldives and Bhutan. High-end tourism has made Maldives already a middle-income country. Similarly, the high-end tourism and the Chukha and Tala Hydropower Projects have catapulted once poor Bhutan to an unprecedented level of prosperity.
Focusing on agriculture and land reform is politically popular in Nepal. We should invest in this sector up to a point to make the poor’s life bearable. But subsistence agriculture will not transform Nepal’s economy. The transformation will come from creating employment opportunities in agricultural industry, manufacturing, construction, and services. As the country develops, see how the share of agriculture’s gross value addition gradually declines:
Sectoral Contribution to Global GDP
|Agriculture (% of Gross Value Added – GVA)||12.3||9.1||9.3a|
|Industry (% of GVA)||30.6||25.8||24.2a|
|Services and other activity (% of GVA)||57.2||65.1||66.6a|
Note: a. 2015 (Source: UN’s World Statistics Pocket Book 2017, p. 210)
Based on the above analysis, here are the priorities for Prime Minister KP Oli to pursue if he wants to be the Lee Kwan-Yew of Nepal:
- Give the highest priority to sectors like hydropower and tourism where Nepal enjoys comparative advantage due to its resources endowment.
- Promote agricultural industry to add value to agriculutal products. This will push up agricultural production as well.
- Develop main transport corridors while letting the local levels do the local transport infrastructure.
- Improve and increase road and rail connectivity with the neighboring countries.
- Incentivize high-value and low-volume products and services such as information technology and finance and banking.
- Focus resources and attention on high-priority projects, monitor and evaluate them regularly, and reward/punish the best/worst performers.
- Create a private-investment friendly environment (even the communist China had to do it for progress).
- Deliver corruption-free, efficient and effective government.
- Maintain close and balanced relations with the immediate neighbors and friendly and cooperative relations with development partners. Stop whining about our country being small and weak because it is a mid-sized country with proud history.
I hope Prime Minister KP Oli will consider these priorities and become Lee Kwan-Yew of Nepal. He has the opportunity to become a statesman, and hopefully, he will take it.