Embassy of the United States Kathmandu, Nepal

January 26, 2012

‘Building a New Nepal: The Role of Development in Economic Growth in Nepal’
Speech by Ambassador Scott H. DeLisi

As prepared for delivery 

Introduction

Good afternoon.  I am delighted to be here today at this meeting of Entrepreneurs for Nepal and I want to thank you all for giving me the opportunity to speak to you today. 

Shortly after I arrived here in 2010, I gave a speech at Tribhuvan University that outlined the overarching goals of U.S. policy regarding Nepal.  I noted that our primary objective was to work in partnership with the government and people of Nepal to build a peaceful, stable, democratic and prosperous nation in which respect for and protection of human rights was a core value for all.   I observed at that time that I thought our goals coincided well with those of most Nepalis, and I think that is still true today.  These shared values and objectives provide the framework upon which our day-to-day policy engagement is based. 

A second speech, which I delivered last year before the Society of Economic Journalists for Nepal, addressed the potential for trade and investment to transform Nepal’s economy and boost Nepal further along the path to prosperity.  I emphasized, however, that, without the right policy environment and committed political leadership, this potential would be hard, if not impossible, to realize. 

Today I am before you making yet another speech and, as you might imagine, it builds upon these other addresses and focuses on another critical aspect of our policy with Nepal —our development assistance and the role it plays in fostering economic growth in Nepal, while also advancing the vision we share of Nepal as a peaceful, stable, democratic and prosperous nation.   

I would like to use this occasion to explore further with you the relationship between development assistance and economic growth.  I will look at our successes—and we’ve had many – but also address some of the reasons why our development efforts may not have had as much long-term and sustainable impact as we’d like.    

As I begin, I worry that perhaps this audience, as a group of young entrepreneurs, may think that the issues of development really don’t touch you but, if so, let me urge you to consider this issue more carefully. 

As entrepreneurs focused on business, you would be absolutely right in telling me that you are the ones creating jobs and kick-starting the economy, and I’d agree.  Our development assistance is not intended to do what the private sector does best, and I know that a vibrant private sector, making informed choices reflecting Nepal’s opportunities and market realities, is the vehicle that will create the jobs of the future and drive the nation’s economic growth.

But how can that private sector be successful if there has not been a committed effort to develop the nation?  Could you compete successfully today if there had not been revolutions in education and health care in this nation in the past 60 years?  Could you compete effectively without the infrastructure development that is essential to compete in a world where telecommunications, the worldwide web, and global interconnectivity are critical elements for success?  In this economy, in which agriculture is still a major factor, can you generate economic growth, create jobs, and make profits in agro-industries if agricultural development policies fail?

Development may not create the jobs, but it is an essential precursor, a condition precedent, to building the enabling environment, developing the capacity, and nurturing the human resources that are essential to private sector-led economic growth.  And that is a reality whether you live in Nepal or Zambia or Mongolia, or South Korea.  But, for development policy to contribute meaningfully to economic growth, it must not focus on just the traditional set of development goals.   

Instead, it must also be linked, intellectually and programmatically, to a broader vision of the nation’s economic growth.  If it is not, its impact is vitiated and development assistance ends up being little more than a panacea that benefits a few targeted groups but does not advance broader national interests.   

 So in a lot of ways, Entrepreneurs for Nepal is probably just about the best group I could be talking to about this issue.  Your future success depends, to a significant degree, on whether the government and donors, working together, can help direct development policy to build the right economic environment and produce the right kind of lasting and sustainable outcomes, that will permit you to build a better future for this nation.  We’re in this together and we need to get it right.

I have already said that it is essential that development policy be linked to a broad vision for economic growth to be fully successful, and therein lies the greatest challenge today.  For some sixteen years this nation has been consumed, with first an insurgency, and then the post-insurgency political drama that still is ongoing.  At the national level, despite progress and some degree of policy direction and leadership in various sectors, there is no coherent or broad vision of how political and social reform, development policy, and economic transformation tie together.  Even in so far as there are national development plans or other planning documents that seek to address these issues, implementation is weak or non-existent as one plan replaces another.  Meanwhile, there is little progress.  

Nor, at least from my perspective, does there appear to be the necessary cohesion in thinking about how to knit together issues regarding health, food security, agricultural growth, land ownership, environment, education, gender equality, youth empowerment, and trade -- to name just a few -- into a cohesive strategy for national development.  Developing and advancing that strategy is the task of the political leadership, and I believe that the next generation of national policy makers will, of necessity, need to focus more on these concerns than the political issues of the day if Nepal is to achieve its true potential.

Development as Part of U.S. Policy

In order to have a meaningful discussion about how to make development assistance an enabler and driver for broad economic growth, we need to begin with a shared baseline on the role development assistance has played over the decades since Nepal opened itself to the world beyond its borders.  It is not my place, of course, to assess the impact of the assistance from other development partners, but I can offer a perspective on the US government’s sixty years of development work in Nepal. 

Looking back over the years and recognizing all we have achieved, I will confess to feeling puzzled, and  frustrated at times, when young people on my Facebook page complain that Nepal has made virtually no development progress over the years or that donor money only benefits the elites, or flows to NGOs who are not really delivering services.  These accusations are bandied about with casual indifference for the real accomplishments of the past decades and with little effort made to look at development achievements or the realities of how donor support is delivered. 

The reality, as I see it, is that our six decades of partnership with the Government of Nepal have not only been a pillar of our bilateral relationship, but our programs have, I believe, contributed significantly to Nepal’s socioeconomic development. 

Malaria was essentially eradicated in the Terai and vast expanses of land opened for agricultural development.  That was an outgrowth of our partnership. 

Countless Nepali mothers know today that they can give birth safely and that their babies will not only survive but thrive.  Although there is still much to be done, Nepal has decreased the death rate of mothers during or shortly after pregnancy by almost half between 1996 and 2006, and we have seen a similar achievement in reducing the death rate of children under five.  That too is an element of our partnership and marks a tremendous development achievement.  

Today more Nepali children than ever before have nutritious food that promotes their healthy development.  Women are being given basic literacy training and other skills that have strengthened their role in society.  Young people are being provided with marketable job skills and our private sector partners are employing them.  Nepali farmers with whom we have worked have increased their productivity and their household incomes.   The list goes on and on. 

In this joint development effort with the Government of Nepal we have shown our long-term commitment to  partnership by making significant investments in Nepal’s future.  Last year we committed approximately $80 million (RS 6.4 billion) through bilateral development programs, largely via partnership with USAID.  We expect to make a similar financial commitment to Nepal’s development this year.  

This assistance is targeted on key priority areas, including maternal and child health; agriculture; vocational education; anti-trafficking; and democracy and governance. 

Our program also includes a multi-year, $30 million USAID program in global climate change, which helps Nepal, the 4^th most-vulnerable country in the world to climate change, reduce its economic, environmental and humanitarian impact.  This is of increasing importance because Nepal’s economy and energy base are dependent on its natural resources and vulnerable to climate change. 

Then there is the additional $ 6-8 million (or another Rs. 500-600 million) spent last year alone on Disaster Risk Reduction activities.  There is additional funding soon to be forthcoming as part of the Millennium Challenge Corporation program we have initiated with the Government of Nepal, and yet more funds that I hope we will be able to soon commit to directly support the peace process. 

Our development partnership is robust and reflects a significant financial commitment by my government – which, dollar for dollar, is near the top among all of Nepal’s donors.  To those who claim we are wasting our money, or that our efforts have no impact, I tell you that you are wrong.  Dead wrong.  I have seen at first hand the impact of these programs.  I know that the money is well spent.  We look with pride to the progress in maternal and child health, where this nation’s leadership in meeting its Millennium Development Goals has been recognized internationally.  I share the joy of the farmers whose lives have been changed by programs that have allowed them to increase their annual incomes by 200, 300 or even 400 percent through education, better seeds, better agricultural practices and more market-oriented crop selections. 

We see the results of investing in people and see the correlation between our efforts to build human capacity and economic growth within targeted communities.  We know that our projects, in the sectors in which we work, are effective.  They make a difference for the nation and, equally importantly, they make a difference in the lives of the citizens of this nation who are touched by them. 

We have a very successful program, that I’ve talked about before, called Education for Income Generation (EIG) that is targeted toward individuals in need.  We’ve trained approximately 70,000 young people through this program, and 84% of the graduates of its vocational education component are now profitably employed.  An example is Chandrika KC, who took out a 10,000-rupee loan after graduating from our training to open a beauty parlor.  In just four months she had paid back the loan and now earns between 8-9,000 rupees a month—enough for her to run her household and educate her children.   

Graduates of the agricultural component of this program have increased their incomes by an average of 134%.  Deva Oli of Salyan District is one of 30,000 literacy graduates in this program.  Armed with what she has learned and read about agricultural methods and high-value crops, this year she has doubled the amount of land she is cultivating and has earned NRs. 100,000.

These are great stories, and I could offer you many more.  I am indeed very proud of our accomplishments in partnership with the government of Nepal, and I am delighted with all we have achieved in the communities targeted by these projects. 

Project-based Aid is Not Enough:  The Need for Policy Reform and Vision

Projects end, however, and, when they do, the question is whether the hard-earned gains will be sustained.  Will the next generation benefit?  What comes next?  How do we take the lessons learned from a flood recovery project in Bara District and use it to make life better for a farmer in Kailali?  These are the questions with which we must come to terms.  Development partners, including USAID, take these issues seriously and make sustainability an extremely high priority through capacity building and enabling of the government, civil society and the private sector.  Fundamentally, as a responsible donor and partner, we need to continually ask ourselves how we can make our development assistance more effective -- whether in terms of building human capacity, fostering broad agricultural development, or building more effective trade relationships for Nepal.

And, in answering that question, we have to recognize that our projects, as good as they may be, are not, by themselves, enough.  The positive impact of the projects needs to be complemented by a policy engagement with the Government of Nepal that recognizes that development assistance must be linked to a policy vision that uses the assistance as a catalyst for broader economic growth. 

As noted earlier, I recognize that over the past dozen years, as the nation has been consumed by the insurgency, and now the peace process and constitution drafting, it has been understandably hard to get a sustained governmental focus on policy issues such as this.  Nor has the effort been helped by the rapid succession of governments in the past two years alone. 

However, as one of Nepal’s largest donors and a deeply committed partner to the vision of a prosperous and stable democratic state, I think we do our American taxpayers and our Nepali friends both a disservice if we do not insist today on a more focused and engaged dialogue with the government.  We need the government to weigh the policy choices before it to ensure that development assistance can have a greater and more sustained impact on the nation’s future and on economic growth.  

Let me give you an example. 

USAID has a program called NEAT, which stands for Nepal Economic, Agriculture, and Trade Program, and which is aimed at promoting economic growth.  As part of its agriculture component, NEAT has been advising the Government on appropriate reform of a number of its policies, including on fertilizer policy.  As you probably know, year after year, Nepal faces an acute fertilizer shortage in the cultivation season. The fertilizer supply system needs to be systematized in order to optimize agriculture production. Currently, the Government of Nepal set-aside budget for fertilizer can meet only 15% of total demand.

NEAT, in partnership with the GON and the World Bank, is analyzing the supply and demand equation for fertilizer in Nepal, the import costs, distribution options and the merits and disadvantages of fertilizer subsidies.   There are many adjustments needed in fertilizer policy and regulation in order for the market to work properly and to encourage growth in the agricultural sector.  

So while we have this highly promising program aimed at increasing agricultural productivity and agricultural incomes (on which 70% of the Nepali workforce relies), a short-sighted fertilizer policy will continue to constrain agricultural growth and depress agricultural incomes. 

And it’s not just in regard to fertilizer that there are issues.  Policies affecting seeds, contract farming, exchange rates and labor must also be reformed in the interest of encouraging large-scale, broad-based, climate-smart improvement in agriculture. 

With a population that is 85% rural, Nepal needs to have an honest, open dialogue now on how to transform its agricultural production.  Nepali political leaders, and the citizens they represent, have to discuss, debate, and, above all decide, what agriculture in Nepal will look like in the future.  In general, how can Nepal make the agricultural markets work better?  How can the fertilizer supply system be made more efficient?  How can Nepal establish a market-based, efficient seed production and supply system?  How can Nepal establish an extension system that delivers appropriate agriculture services and knowledge to all farmers?  Should land policy and land tenure be reformed?  How can the government better facilitate access to market the produce grown in remote areas?  Should food be exported or held for domestic consumption?

Once Nepal and its leaders make these policy choices and articulate them to donors, we can target and adapt our assistance more effectively.  Until Nepal and its leaders make those decisions, however, we’re tinkering at the margins, coming up with modestly helpful interventions that may help a few hundred or a few thousand people here and there, but that fall far short of transforming and overcoming the constraints of subsistence agriculture that have kept so many so poor for so long. 

What about energy?  The percent of households with access to electricity almost doubled from 2004 to 2010, increasing from about 37 percent to 70 percent.  So is electricity in Nepal a success story, something that is working well?   I think you know the answer­­.  The simple fact that a household has access to electricity doesn’t mean much when power is cut 14, 16, or even 18 hours a day.   

I have heard for almost three decades about Nepal’s 40,000-plus megawatts of easily accessed hydro power capacity and of the potential for 83,000 MW or more of capacity overall.  The country, however, in those three decades has developed merely 705 MW of electric generation capacity. 

As a development partner, wanting to see the economy grow, imagine the frustration when successive governments have failed for years to address this critical development and growth factor.  Unless and until the government makes strategically considered policy choices to produce the energy that that will fuel economic growth our efforts on the development front will not have the support they need to be broadly successful. 

I keep coming back to the same set of concerns.  Nepal must determine its policy goals and objectives for economic growth and then implement them across the board in a strategic and cohesive manner.  Donors will seek to respond to the government’s priorities, but we need to know what they are. 

So what is the answer?  It is, in part, a matter of the government working in partnership with donors to ensure that development and economic growth are complementary – opposite sides of the same coin.  The other day someone on my Facebook page left a post about calling for “Trade not Aid.”  My response was that, at this point in Nepal’s history, both are needed.

Development is a crucial building block to economic growth, and it can be made all the more effective if the government commits itself to policies that permit and assist stakeholders across the country to build on successful development models in sectors such as agriculture, health, environment and biodiversity protection.

Donors cannot do it alone, however.  They need the government to be a serious and focused partner determined to make development the catalyst for growth it can be.  To date, although some ministries seek to play that role, the government as a whole has not provided the leadership and coordination for an effective government-wide effort.  I think that needs to change.

At the end of the day, we have to realize that efforts to encourage economic growth, without meaningful development, are likely doomed to failure.  If the nation’s development lags and leaves large segments of society outside the social and economic mainstream, economic growth will be, at best, uneven and inequitable and a divisive rather than a unifying force within society.  The two must go hand in hand.

A Different Vision of the Future

Finally, as Nepal seeks to encourage both development and growth, I would argue that there needs to be a fundamental change in mindset; in self-perception.  And I think that PM Bhattarai recently made a critical point in that regard.  We all know, of course, that Nepal is a small country in comparison to its two big neighbors.  For too long, however, Nepal has let that sense of being a small island surrounded by two mighty oceans constrain its vision and belief in what’s possible.    

It doesn’t have to be that way.  Nepal’s geographic location can be an asset, rather than a liability, and l was happy to hear Prime Minister Bhattarai recently recast Nepal’s position in the region as a bridge, leading to new destinations, rather than as the proverbial yam, waiting to get squashed between the two neighboring boulders. 

I strongly believe that is the right vision.  Now is the time for Nepalis and their government to have the discussion about the kind of economy they want to have—whether to expand into a bridge or remain a yam.  And then you all must decide what policies will take you towards the destination you choose.   You and your government have the options before you, as you have had for some time.  Now is the time to choose, to define policies and direction, and to shape a true vision for Nepal’s economic future. 

Let me add that, in addition to changing the way Nepalis see their own potential, and in addition to developing a cohesive vision of development and economic growth policies, the nation will need to make some other tough choices that will go far to define the values and nature of the “new Nepal” we always talk about. 

Countering the pernicious influence of those whose wealth and power allow them to put their personal interests ahead of the public good is essential if people are to have faith that the government is committed to advancing the welfare of all, and not just a privileged few.  That will be hard but it must be done.  Cracking down on corruption and nepotism is also hard.  Cutting off the vested interests in state monopolies is hard.  Raising prices on fuel is hard.  But all these are necessary steps, albeit often painful ones, that will end current market distortions and help pave the way for sustainable economic growth.

The USG Role for the Future

The US government, meanwhile, will continue to play its role not only as a major development partner but also as a partner committed to development policies that will foster greater and more dynamic economic growth.  Whether talking to the government or to my own team in the Embassy, the message is the same:   development and economic growth policies must be strategically linked to spark the dynamic growth we seek and that the nation needs.    

For our part, we are making that effort to think strategically both in our ongoing programs and in the new activities we are initiating.  For example, the decision to bring the Peace Corps back to Nepal is important in itself and a clear signal of our ongoing commitment to bolster our already strong development partnership. It is, however, even more beneficial if we carefully consider, from a policy perspective, the focus of our volunteers’ deployment.    It is not an accident, that the Peace Corps volunteers will initially work in the key developmental sectors of agriculture and health, but the result of carefully considered engagement with the government.  We recognize that this will have a strong multiplier effect on the impact of our already existing programs in these sectors and provide, as we say in America, additional bang for the buck.    

We will be similarly strategic as we focus new resources – which I hope to announce soon -- to complement the government’s efforts to conclude the peace process and build for the future.  We hope to offer programs that deliver development opportunities to war-affected communities, and not just ex-combatants, while simultaneously helping to create an atmosphere conducive to broader economic growth overall.  We hope that this approach will, through its development component, directly benefit those most touched by the conflict while all citizens can benefit from efforts to create an environment that enables growth.

We will also partner with the government of Nepal to use the very important opportunity provided by Nepal’s participation in a Millennium Challenge Corporation Threshold program to strengthen the strategic policy dialogue and enhance the linkages between development and economic growth. 

Through MCC Threshold Programs, the U.S. Government, in partnership with the recipient country, supports targeted policy and institutional reforms in crucial areas that constrain economic growth.    For example, in Timor-Leste, another Asian post-conflict country, the MCC threshold program aims to reduce corruption by building a network of functioning and effective anti-corruption institutions and actors.  In Albania MCC Threshold Programs helped the government reform its public administration system and improve judicial capacity.  In Jordan, an MCC Threshold Program helped the government overhaul its customs administration, in Guyana it helped streamline business registration procedures, and in Kenya MCC worked with the government to improve its public procurement protocols.  In all cases it looked to identify constraints to growth and then find ways, including significant policy reform, to overcome them so that the potential for a more dynamic economy became a reality.

This is an exciting opportunity for Nepal, and the MCC will soon be sending a team here to identify with the government a few key areas in which strategic reform can help catapult Nepal beyond the constraints that keep it from stretching into the bridge between two of the largest economies in the world. 

For our part, we have tried to conceptualize a continuum of engagement that reflects the inseparable links between peace, development, and economic growth.  However, we need the government’s active partnership, clear vision, and bold leadership to get the maximum effect from this strategy.  With such a partnership, the future holds great promise; without it, our efforts in all three areas will inevitably be less than they could be.

In conclusion, let me just say once again that we believe that our development assistance activities are an integral part of economic growth strategies for Nepal but, to be successful, we will all need to work together in defining and shaping the policy vision of the new Nepal. 

For too long, we have let ourselves be distracted by the conflict, or discouraged by the difficulty of sustaining policy dialogue from one government to another.  For too long we have also been complicit in successive governments failing to offer their development partners a vision to guide our engagement. 

That must change if we hope to see the more comprehensive development progress that people expect and the greater economic growth that the nation needs.   The United States will do our part.  I hope that the government will do so as well and that you, as the business men and women of Nepal’s future, will also do yours.  Raise your voices, share your vision, and together let’s define a path forward that will foster development, peace and economic growth that will fuel the future for the coming generations.

Namaste!