Nepali Times
The economics of politics


not places with free press where citizens are allowed to vote.

The week Nepalis were left without a government brought news of the biggest foreign investment in the country. Australia's Snowy Mountains Engineering Corporation announced it would begin constructing the $860 million West Seti hydro-electric project in 2004 and start running it four years later.

The company has been working on the 750 MW project in the far-western development region since 1996. So we shouldn't read too much into the fact that a prime minister representing the western extreme of the country has been succeeded by someone from the same region. (Actually, this is the second time Lokendra Bahadur Chand has succeeded Sher Bahadur Deuba in nearly six years.)

The timing of Snowy Mountain's announcement is propitious for pondering the money-politics link from a different perspective. Chand's hands are full. Worse, they are tied by perceptions of illegality at home and lack of enthusiasm abroad. His room for manoeuvre in the mortified mainstream may be severely circumscribed. The Maoists, freshly certified as one of the wealthiest rebel movements in Asia, might continue to see greater advantage in keeping their war machine running.

Commercial considerations can confer political legitimacy. An affluent agglomeration of Nepalis seems dead against reviving the politics that existed before 10.45 PM on 4 October. The business community was the first organised group to welcome the palace's intervention. If you followed the pronouncements of key captains of commerce over the past few months, you probably sensed their desperation for change. Reeling from industrial insecurity and unrest, prominent entrepreneurs began warning politicians not to count on their patronage in the next elections.

One industrialist threatened to publish explosive diaries that would rattle the political establishment. His threat, repeated over several newspaper interviews, carried clear traces of revulsion with how leading politicians
had become successful merchants as well.

His refrain: For people trying to make a living off the forces of demand and supply, the character of the government of the day "oligarchic, partyless or multiparty" hardly matters.

Similar sentiments were buried in the Belgian government's decision to go ahead with its contract to deliver 5,500 automatic rifles to Nepal despite our political convulsions. The controversy, which peaked when Deuba was forced to camp in Brussels on his last foreign trip as premier, was over whether Nepal is in a state of civil war. Several Belgian politicians, including Magda Aelvoet, the deputy premier who later quit the government, argued that the arms sale violated both Belgian law and a European Union code of conduct that prohibits weapons shipments to governments involved in warfare or civil strife. Prime Minister Guy Verhofstadt and his allies characterised our conflict as one between an elected government and rebels bent on subverting democracy. Deeper down, though, the dispute had economic roots exacerbated by Belgium's regional divide. The multi-million-euro arms contract has been awarded to Fabrique Nationale Herstal, headquartered near Liege in the Walloon area. French-speaking Belgians accused their Flemish colleagues of trying to sabotage the fragile Walloon economy.

How foreign investors view Nepal's two giant neighbours could clarify our understanding of the economics of our politics. In the past 10 years, India has attracted an estimated $30 billion in foreign investment, split evenly between direct and institutional investment in equity markets. China has raised over $300 billion in foreign direct
investment alone.

India attracts foreign investment of $30 per capita, compared to China's $497. With 150 million subscribers, China has the world's largest cell phone market, compared to India's six million. There are a million Internet connections in India as against 30 million in China. (And we thought everybody was listening in to everybody else up north.) You could insist that China began liberalising its economy a full decade before India did. For that argument to hold, though, you'd have to be reasonably confident that, by 2012, India would be where China is today. Are you?

If not, here's the next question: What helped China overtake the United States to reach the top of AT Kearney's Foreign Direct Investment Confidence Index (Nepali Times #115, The World Paper)? Robust economic growth? Entry into the World Trade Organisation? Beijing's successful bid for the 2008 Olympics? All three. But before all that, a relatively stable political environment, according to foreign investors. (Translation: Tibet and Tiananmen Square are just quaint attractions in the world's fastest-growing market for both inbound and outbound travel.)

A plethora of parties, a strong legal system, English education and a free press don't necessarily create a congenial investment climate. This should worry Nepal's politicians more than our economists.

(11 JAN 2013 - 17 JAN 2013)