March 19, 2008 / 12:15 AM / in 12 years

After war, Nepali business awaits a peace dividend

KATHMANDU (Reuters) - For Nepali businessman Shashi Kanta Agarwal, it was not just being shot that was scary. It was a threatening phone call later that symbolized how hard it was to do business in one of the world’s poorest nations.

Dinanath Sharma, senior leader of Nepal Communist Party Maoist talks to Reuters in Kathmandu March 5, 2008. A strike this year in the Terai region, Nepal's economic heartland, cut half a percentage point off growth. Protests by ethnic Madheshis demanding autonomy brought Kathmandu to a standstill, cutting off fuel supplies from India. Many Nepalis blame the economic mess on political limbo. Most businesses and investors are waiting until the April elections. REUTERS/Gopal Chitrakar

“After shooting at me I got a call — ‘This time you went to hospital, the next time you’ll be dead’,” said Agarwal, still nursing a bullet wound in his thigh from a February attack.

The attack was brazen. Two men on a motorcycle without helmets or masks to hide their faces drove up mid-morning on a busy street in the capital and pumped two shots through the side windows of his car before speeding off.

Agarwal says the attack came from a criminal gang trying to extort him, a problem that has mushroomed in Nepal since the end of decade-long civil war in 2006 that had brought hopes of a “peace dividend” to the Himalayan nation.

“Many people have been kidnapped, others extorted. Security is a big threat to us. It’s worse day by day,” Agarwal, managing director of the Maliram Shivakumar group and one of Nepal’s leading businessmen, said.

“I think several of my colleagues, in Japan, India, had plans to invest. But they have pushed back their plans.”

Landlocked Nepal, with a GDP per capita of under $300, is hoping an April election, the first in nine years, will bring in a pristine constitution, as well as political stability and economic growth to match its booming neighbors India and China.

But extortion and kidnapping of businessmen, which had been a specialty of Maoist insurgents in their war against Nepal’s monarchy, have spread to include criminal groups from as far afield as India and Indonesia, Nepali businessmen say.

For Nepalis in business, insecurity is now worse than during the war and symptomatic of Nepal’s economic pain as it tries to embrace modernity. Insecurity has combined with political protests and government neglect to discourage investors.

“The Maoists showed the way. If you have a gun in Nepal, you get your own way,” said Kunda Dixit, editor of the Nepali Times.

“Now everyone is waiting for the election. The election has become synonymous with peace and they want whoever comes to power to deal with the economy, with insecurity and extortion.”

Agarwal, who has eight factories in Nepal, producing a host of products from soap to dry batteries and sugar, is the kind of businessman many say Nepal needs to boost a stagnant economy.

Poverty and unemployment were among the causes of a Maoist insurgency in the 1990s. But insecurity, along with weak economic reforms, street protests and power cuts, have all conspired to rob Nepal of strong growth since peace was declared.

“Here we are, sandwiched between India and China, and we can’t take advantage of it,” said Agarwal, who expressed frustration that even the isolated Himalayan kingdom of Bhutan was growing at around 10 percent.

In March, businessmen even took to the streets to protest another shooting of a colleague. Nepal’s Chamber of Commerce and Industry said hundreds of cases of extortion have been registered with its members.

Businessmen now regularly change mobile numbers every three days or so for security reasons.

“We are telling the government give us security, an atmosphere for industry, but it hasn’t happened,” said Chandi Raj Dhakal, head of the Federation of Nepalese Chambers of Commerce and Industry.


The government says Nepal may grow by around 4 percent this year. Analysts say it will be nearer 3 percent — essentially stagnant given a rising population.

The economy has grown under 3 percent for the last seven years, but more than a year of peace has seen little improvement.

“There has been no peace dividend,” said Shankar Sharma, former vice-chairman of the Nepal’s National Planning Commission.

It need not be like that, many Nepalis say.

The country’s tourism sector is a source of growth and Nepal has huge hydroelectric power potential to tap into the economic locomotives of energy-hungry China or India. It also has an open border with India and its trillion-dollar economy.

But despite Nepal’s hydroelectric potential, industry suffers at least eight hours of power cuts a day. The U.S. government has called Nepal “one of the most electricity-starved nations in the world” and businesses say it is one of their main costs.

Many hydroelectric projects have been slow to get off the ground, in part because Nepal is traditionally wary of India, the main source of Nepal’s foreign investment interest, controlling its natural resources.

The country is still hugely dependent on donor aid and remittances rather than industry and services growth.

“There is a hue and cry about a sell-out with each hydroelectric project,” Finance Minister Ram Sharan Mahat said. “It should sell like a hot potato.”

Mahat said a strike this year in the Terai region, Nepal’s economic heartland, cut half a percentage point off growth. Protests by ethnic Madheshis demanding autonomy brought Kathmandu to a standstill, cutting off fuel supplies from India.

Many Nepalis blame the economic mess on political limbo. Most businesses and investors are waiting until the April elections.

The vote will probably lead to a coalition government, but many hope it will allow a credible leader to emerge with popular backing.

When it came to the election, Agarwal, sitting in his plush office over a cup of tea in the historic heart of Kathmandu, was optimistic.

“We’ve got hydro power, our land is so fertile. But we haven’t got a political leader who can exploit this.”

Editing by Simon Denyer and Megan Goldin

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