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Without a Bridge to Cross: Where Infrastructure Fails Markets

July 29, 2017

 

The 2016 US election brought talk of changing free trade agreements to work better for the country. To get costs down from domestic manufacturing it requires a stable infrastructure to get access to raw materials and manufacture them before shipping off to consumers. Without the strong infrastructure including roads, bridges, and increasingly internet access, today’s economy would shrivel.

 

But what does that look like when producers want to sell but the infrastructure can’t handle it?

 

Nepal’s Challenge

 

Nepal is hardly a global player in manufacturing. Agriculture and tourism are its biggest industries and many families rely on sustenance farming, growing just enough for themselves and a some extra to sell to the community. But for emerging agriculture in Nepal international trade is a major problem for farmers in this landlocked country.

Nepal is a developing country ranking 107th in GDP, surrounded by China to the north, the 2nd largest world economy and India to the south, the 7th largest. Roads are slowly improving and large infrastructure investment projects are promising to make travel easier and safer. But roads are generally slow, winding, and bumpy, making it dangerous to cargo and passengers.

 

Herein lies the problem. For a country like Nepal to become a player in global trade, even on a regional level, let alone with the US or Europe, it needs the infrastructure to get its goods out of the country to earn prices beyond a basic livelihood. When you can sell a pound of goods in Nepal for $0.80 but fetch $2.00 selling it to consumers abroad, poor infrastructure blocks those Nepali producers from opportunities afforded to its neighbors. For farmers investing in new and interesting crops, the world is not getting a glimmer of what can be offered.

Check out last week’s article on black cardamom to see how farmers are motivated to move from subsistence to profit.

Investment, Promises, and Stagnation

 

Fixing these problems is an enormous endeavor. Big projects are in the works, including highways that resemble those in the developed world. This would change the game all over the country. But many of these projects are conducted in fits and starts, where funding is short or missing due to false promises, kickbacks, corruption, or bad accounting.

 

Investment has increased from both China and India for several reasons. China and India both have cultural ties to Nepal, but India has about 500 thousand nationals living in Nepal, in a country of only 30 million. With much of the world looking to India for cheaper labor, it has its sights on Nepal. Indian businesses have important investments in Nepal with much of it tied to manufacturing and tourism.

 

There is a link with China through Tibetan culture, which requires a balancing act for the Nepal government, since many Nepalis in the north of the country, and in the capital are refugee families from the violence of the Tibetan Rebellion of 1959, a tension that still simmers today. China’s interest is focused on transportation to help Chinese private enterprise in Nepal by building transportation routes along its border. Between Nepal and China there are only a handful of border crossings, and many are inadequate for significant travel, and susceptible to landslides wiping out the roads each year during the monsoon.

 

An example of China’s desire to create transportation routes includes one recent clash where China is building roads in a disputed territory of Bhutan which eventually leads to a narrow 20-mile strip of Indian territory in between Nepal and Bangladesh. China’s goals to gain access to the rest of Asia partially lies on the Nepal border and other points along China’s long southern boundary.

 

Last March, Chinese companies pledged $8.3 billion in investments in Nepal; multitudes higher than Indian investments, a fact that didn’t do unnoticed among Nepalis. China’s interests in Nepal stem from investment opportunities with cheap labor and a surprisingly high English proficiency, a requirement for Nepal’s schools.

 

Risking the Future

 

So where does this leave Nepal’s farmers, the largest sector of employment? Sandwiched between two behemoths, Nepal has a lot to gain but little control over enticing incentives offered to politicians looking to gain favor from its powerful neighbors. As young people move into cities, reluctant to do the difficult manual labor of their parent’s generation, Nepal is largely beholden to the whims of these foreign powers.

 

The southern areas of Nepal are covered in farms supported increasingly more by NGOs using market systems, exchanging the handouts of the past for more self-supporting mechanisms. In the north of the country Nepal contains the highest mountain peaks in the world, including Mount Everest. This explains the limited border crossing into China, with three active and three more planned in coming years along the 768 mile border. Farmers in the northern sections have a lot to lose in coming years as their populations dwindle. Not only is the culture at risk as youths value modern conveniences, but farming in general has been pushed aside by young adults working abroad.

 

As the population dwindles, representative government loses more power for each remaining resident, even as the politics pushes toward increasing representation across the country. Nepal is facing a long-established reality that modernity leaves rural areas drained of skilled labor and innovation.

 

Another major problem includes challenges at the border. After the Nepal earthquake in 2015, there was a costly border dispute that interrupted imports at a tragically desperate time. The dispute was complicated because it wasn’t just Nepal versus India, but groups within Nepal pushing to be heard and willing to use civil disobedience and disruption to get it. This week security concerns in India forced miles-long backups at a major border while Indian officials inspected vehicles in a checkpoint. India’s right to protect its border notwithstanding, the continued challenges for Nepal trade means continued dismay for Nepal’s farmers trying to get better profits for their labor.

 

For Americans, there is increasingly concern about an infrastructure that’s enabled the country to economically thrive. With anxieties over increased taxes, talk of the public value of bridges and roads are largely taken for granted. In Nepal, farmers hold a different view of the world. One where annual monsoons wash out roads that must be continually rebuilt since the investment in making roads more permanent is out of the question in areas where the population has less power from decreasing residents. The cost for those roads is directly placed on the residents in those areas, not the government or a far-off wealthy company and that benefits from up-charging poor farmer’s end-user products. With little business experience, the prices families charge is not built into the products. 

 

Every cultural and economic revolution has its winners and losers that we read about in the history books. But during that revolution there are casualties that are worth paying attention to. Changing labor and resources, modes of transportation, and who gets to pick the winners and losers has powerful and impacting consequences for the people involved. Do you live out your days on the land built by your grandparents or move near your children in the city where politicians place their focus? Do you continue living a hard life doing manual labor for minimal income, or do you find a new way to earn money? The farmers of Himalayan Nepal are now forced to make those choices since the consequences of inaction are arriving faster than ever.

If you enjoyed learning about this topic please help support our mission to create economic development in Himalayan Nepal with a financial contribution.

 

Aythos is a Washington, DC-based nonprofit organization with IRS 501(c)(3) exemption status.

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