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Nepal’s Squandered Potential

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By Dr. Manoj Shahi *

We all have heard the often quoted remark that Nepal is blessed with wonderful natural resources and in particular the country’s hydro and tourism potential are without comparison.  However, I have hardly come across an article that tries to quantify for the layman what this potential really is and therefore what is it that we are losing as a country by not getting it to deliver for our country?  So I thought I would make an effort here.  Let me start with the tourism industry.

Tourism potential

In 2011 it is estimated that 736,215 foreign nationals visited Nepal and they stayed on average 13.12 days and spent USD525 per stay. Comparing this statistic with that for the world and India, each foreign visitor in Nepal spends only half of what he/she spends globally and one fourth what he/she spends in India. In 2011, tourism receipts were USD1, 030 billion globally from 983 million international travelers.  Similar numbers for India was USD 17.52 billion from 6.29 million foreign travelers.  What this tells us is that the average tourist who comes to Nepal  either does not have the same purchasing power as those who travel globally or go to India or the average costs in Nepal are so low that the average tourist ends up spending less than what he or she spends globally or in India.  The answer probably lies somewhere in between because while our general living costs are high the hotel rates are relatively low compared to other countries and the country is also known for attracting an abundance of what we call “backpacking” tourists.

Of the foreigners who visited Nepal in 2011, Indians accounted for 20% and Chinese 8.4%. Nepal was able to capture roughly 1% (147,037) of the 14.21 million Indian nationals who left for foreign destinations and about 0.01% (61,917) of the estimated 70 million Chinese nationals that went abroad.  While there is a large gap between Chinese and Indian tourists visiting Nepal which is expected given the cultural affinity Indians have with Nepal, what is clear is that we have not even scratched the surface of the potential these numbers suggest.    The number of Chinese tourists going abroad is expected to reach about 100 million by 2020 which is in excess of three times the population of Nepal.  If the past statistics are any indications, this may happen sooner rather than later. Similar, the number of Indians going abroad will probably grow more rapidly than the expected growth of outbound travelers in China. Whatever the scenario, it is clear that the number of Indians and Chinese going abroad which is already large will exhibit significant growth in the future. I do not think it would be far fetched to assume that Nepal cannot achieve a target of attracting 1 million Indian and an equivalent number of Chinese tourists to visit Nepal per year provided we have the resources to do so.  These two million tourists from our neighboring countries would spend almost 1 billion USD using the average spending per tourist for 2011.  If we could get them to spend the 2011 world average of 1,048 USD per visitor then the Nepalese economy would receive 2.1 billion USD.  At the high end, if each tourist would spend the average they spent in India in 2011, then the total spending of these two million tourists would be more than 5.6 billion USD.  The potential of course is much higher since I have not counted other countries in this calculation and there is no reason whey we should limit ourselves to these numbers with respect to foreign visitors.  Singapore, Thailand, Malaysia had 9.1, 15.8 and 24.6 million visitors in 2010.  While Malaysia’s numbers is largely influenced by inbound labor the numbers they have achieved are very significant.  Furthermore, tourism is an industry the impact of which is felt by the majority of the population in the country. Tourists have to be fed, put-up and taken around which impacts the entire production and service value chain of the country from farmers, transporters, hoteliers, guides and even civil servants.  If you want to reduce poverty in Nepal significantly, this is the industry to put a focus on.

Hydropower potential

Now let me turn to other industry that we keep hearing about – the hydropower industry.  It is a fact that we have the rivers to produce significant amount of clean energy in the form of hydro electricity.  It is also a fact that we have a reachable neighbor in the South that is also hungry for energy.  We have been croaking about hydropower and the “hydro dollars” for decades and the most we have to show for it is an addition of about 80MW in new capacity since 2002 from a potential realizable capacity in excess of 40,000 MW.  So let us find out how much we are losing per year by not developing 1MW of hydro-electricity.  Let us assume for this exercise that our capacity utilization of running a plant is the same as that of NEA which was 51.5% based on 2010/2011annual report (Generation of 2115 GWh of electricity from 468.79 MW of capacity).  If turbines were 100% efficient and they could be operated 24 hours 365 days a year, each MW capacity would produce 8.76 million kilowatt hours of electricity.  However we know turbines are not 100% efficient, and if plants are run-of-the-river type, they cannot be run at 100% capacity all the times.  In addition, plants have to be shut down once in a while for routine maintenance and some times due to emergencies.  Thus the capacity utilization rate of each MW is much lower. Based on NEA’s 51.5% capacity utilization rate, each MW in Nepal would generate 4.521 million KWh of electricity. At 7.3 rupees per KWh (the current rate applicable for a household with a 15 ampere meter), each MW produces revenue equivalent to 3.29 crores or USD 370,000.  1,000 MW therefore would generate 370 million USD, 10,000 MW, 3.70 billion USD and 20,000 MW 7.4 billion USD.  These are not hypothetical but realizable revenue potential that is at Nepal’s doorstep.

Now let me digress and touch on some of the direct and indirect benefits of being able to meet all of the Nepal’s electricity demand?  First it could entirely replace our LPG consumption since this is primarily used for cooking and electricity stoves would be a much better and greener alternative in Nepal’s case.  In 2010/11, Nepal imported 159,286 metric tons of LPG which at Rs. 95,537 per metric ton (approximate current price at Barauni) means an annual import savings of 15.2 billion rupees or USD171 million.  Similarly it would replace most of the diesel being used for generating electricity in the country.  Let us assume this to be one third the country’s consumption. This comes out to be 136,799 kiloliters and at 82.67 rupees per liter (the current price at Raxaul) import savings would be in the tune of 11.3 billion rupees or 127 million USD.  Next we could have most of our public buses running on electricity, which would add additional savings on the petroleum product bills.  Further, it could substantially reduce the use of traditional means of energy such as wood, etc. used in the ordinary household saving the destruction of our natural forests.  Other direct benefits would be an increase in capacity utilization of our manufacturing industry which directly leads to more labor and more consumption which has its own feedback into the economy.  Reduction in diesel and LPG and other petroleum products means lower air pollution and water pollution implying greater labor productivity due to a healthier work force and obviously lower medical bills for the country.  Lower pollution also means better environmental conditions which have direct impact on our tourism industry the subject of our discussion earlier. I could go on but it should be clear that the direct and indirect benefits for the country of developing its hydro power potential is immense and not all of it easy to quantify.

Now let us get back to calculating the total annual potential that we could be generating from these two industries.  Taking the mid scenario of 2 million tourists at the world average spending rate and 10,000 MW of electricity of which 80% could be exported; the lost opportunity for Nepal is the potential annual export revenue of 5.06 billion USD.  This number comes out to be 28.9% of Nepal’s provisional 2011/12 GDP and 152% of 2010/11 government expenditure; but let us dream on and ask what if were able to attract 10 million tourists and harness our full potential of 40,000MW?  At 2011 rates we are taking about 10.5 billion USD from tourism and almost 14.8 billion USD from hydro electricity inclusive of domestic consumption for a total of 25.3 billion USD per year.  This is 1.45 times the 2011/12 provisional GDP and 7.62 times the 2010/11 government expenditure. We have not even considered the multiplier effects.  But what is potential if we do not make use of it and get it to deliver for the country?

With a pro-active and visionary government, Nepal could embark on a strategic initiative to take advantage of these huge economic potentials that are ours for the taking but alas these might just be pipe dreams for us Nepalese.  We need some bold steps not baby steps especially on the development of the transportation and energy infrastructure along the lines of my earlier article regarding a common minimum infrastructure agenda.   Finally, with such potential Nepal need not be a poor country and need not be dependent on foreign assistance.  It is our successive government’s inaction and incompetence and our self-serving myopic political process that has been keeping Nepal and its average citizen poor and the country dependent on others. If we want, we can have rising income levels, better education, better healthcare, better ancillary infrastructure (water and sewage), affordable homes and better and equal opportunity to all but we need to make that investment and get our hands on that so far elusive potential that everyone talks about but nothing really seems to happen.

Note: The sources for the statistics used in this article are the 2011/12 Economic Survey of Nepal, Tourism Statistics from the Government of India, NEA’s annual reports, NOC’s web site and media websites.

* The writer is former chairman of Rastriya Baniya Bank and can be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it.

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