“Government has realised the importance of facilitating young entrepreneurs”
Udaya Shamser Rana
Minister of State for Finance
“Need to take a leap from the jagir mentality to entrepreneurship”
Dr Swarnim Wagle
National Planning Commission
When I first heard the theme of this conclave, not knowing the actual number of startups and their contributions to the country’s GDP and how many people they employ, my first thought was maybe this is relatively premature to talk about the startup ecosystem in the case of Nepal. One hears a lot about startup ventures in the Silicon Valley in the United States and countries like Israel which itself is called a “startup nation” now.
Recently, I was privileged to join our Prime Minister on his state visit to India. We stopped by Hyderabad and the Prime Minister and the whole Nepali delegation were taken to ‘T-HUB’ which is a nice building where 200 startups are housed. It was quite new for the government delegates to take a look at what goes on in the place like the T-HUB where startups are located on a desk each, sitting next to each other, bustling with ideas making the place an energetic workplace. I didn’t realize that we too had a shimmering startup ecosystem in Nepal.
What makes me happy today is we are now in a position to talk about Nepali startups. I think, the ecosystem is taking hold and slowly expanding. The reason the discourse is very important is we have wrapped up the big political issues and politicos and major political parties now talk about the country’s economic leap. Everyone is talking about the economic ambitions for 2030 when we expect Nepal to become a vibrant middle-income country where the majority of citizens will be enterprise-friendly and know the value of entrepreneurship, wealth and job creation, so on and so forth.
It has been a very uplifting experience to actually listen to what the panelists had to say. After listening to the discussion, three things stood out for me. Some of the hurdles in getting the startups going in Nepal are the cultural obstacles in a country like Nepal. Aayushi quite explicitly expressed herself on this issue. Nepalis are fond of the word jagir (job). Everyone loves jagirs that are stable and predictable occupations where you don’t have to do much and still receive a steady stream of income all through your life. This mindset prevails not only in the government service, but also in the private sector because we basically are risk-averse. This is a sharp contrast to what startup ethos actually demands and requires. So, we need to take a leap from the mentality of jagir to entrepreneurship.
People from certain ethnic groups like Thakalis and Newars have done very well in Nepal in terms of entrepreneurship. Historically, they have been known to be risk takers. They start businesses, fail and start over again. So, they share some spirit of startups. Nonetheless, they are buffeted by family networks and security that comes with a community that specializes in a set of vocations. Now, we have to make that leap departing from the notion of a safe, risk-averse pursuit of vocations to risk-taking entrepreneurship, not only accepting and learning but also rewarding the failures. This is what it takes and the rewards can be really high at a point of time when you succeed.
The second set of issues discussed by the panelists highlighted on what the government can do to address legal and regulatory problems. No doubt that there is a lot the government can do. Many vibrant startups elsewhere say that they don’t need much support from the government and it will be helpful for them if it stays away from what they do. In his famous book “India Grows at Night”, the author Gurcharan Das says, “India grows at night because during daytime, the babus are messing up the economy, erecting hurdles for entrepreneurs.” India has been growing on the back of a dynamic vibrant private sector in the nighttime, when the babus(government officials) are sleeping.
In Nepal, much can be done to support aspiring young entrepreneurs in terms of easing processes in company registration and licensing, and availability of credit, among others. Basically, one could follow the lifecycle of a typical firm as portrayed in the Doing Business indicators, for example, from the time a company is registered to the time it completes its mission and looks towards exiting the market. So, the lifecycle of the business firms would apply to startups as well, although you would expect the spontaneity in startups. The panelists were right that many of the government departments and even the central bank are probably not equipped to handle some of these new concepts. Thus, we need to make some improvements here.
The third set of issues in the panel discussion was on finance and how our banking system is still orthodox and conservative. It is partly because of the regulatory system and the macro-prudential regulations as stated in our banking laws that have dictated in terms of the risks BFIs can take while investing into new sectors. This is an area where we need to be piloting, experimenting and opening up space for more innovative firms, banking companies and other financial institutions to aid the country’s startup ecosystem.
NPC & Vision 2030
Doing all these things is very important because lots of political agenda are already settled and we are moving towards ramping up our economic ambitions for 2030 for which Nepal needs a vibrant private sector. This is where the National Planning Commission has been trying to craft elements of long-term economic vision for Nepal. We are also keeping in mind the ethos that came out here in the discussions as we write the Vision 2030 document which we want to be broadly owned throughout the country.
The next set of issues focused on the big shifts happening in the Nepali society and economy right now. This is where the startup discourse gels very well. The first big shift is our young demography. Nepal is a surprisingly young country where the median age is just 21 at present. Even by 2025, the median age of Nepalis will still be around 25-26. It is important because median age is already aging in all developed countries. Nepal will not start to become a country with aging population until 2028, and by 2054 we will become an aged society. So, there is still a big window for us that countries like Japan or many European nations have already closed. As countries leapfrog into their next stage of development, the young demographic set that is coming as the workforce has to be tapped to make that leap. Fortunately in Nepal’s case, we have wasted a decade or two, but still the window is left where the startup discourse can also benefit from our demographic pattern of transitioning.
Connectivity is the second big shift Nepal is going through. The number of telephone subscribers totaled just 71,560 when we had the political change in 1990. Today, there are 28 million cell phone subscribers in the country. I have met with women from the dalit Sardar community in Sunsari and saw them becoming extremely enfranchised with the use of technology. They carry smartphones and communicate with their agents in Kathmandu to sell their products in the European markets. Similarly, the mobile phone penetration has empowered people who are otherwise quite disenfranchised in Humla and northern parts of Gorkha. But it is not just the cell phone penetration. Rural roads, access to remote areas and cross-border connections both on the Chinese and Indian sides are the trends that we must accept and build upon as we envision a more prosperous Nepal.
The process of structural transformation is the third major shift which is quite atypical. People are coming out of the agriculture sector in Nepal. Share of agriculture in the economy is less than a third now, but people are not being absorbed in the manufacturing sector. Actually, the contribution of the manufacturing sector to the country’s GDP has fallen to five percent from about 10 percent over the last 20 years. Even the service sector is not as productive as expected. There are a lot of petty and wholesale trading activities going on and people are being absorbed in the lower end of the service sector. So this atypical process of structural transformation that Nepal has been observing has to be recognised as we plan for a different kind of strategy for 2030.
The fourth big phenomenon is the wide migratory flow. People from rural areas are going to the Gulf nations and destinations like Malaysia and South Korea, whereas the United States, Europe and Australia have become prime destinations for the urban youths. This also jives well with the discourse of the startup ecosystem where this could be one forum to attract our talent back. We have seen this happen in countries such as
Korea and India in the past. After a country reaches a threshold, people who might have left the country in earlier decades for whatever reasons tend to come back.
The fifth one is the way we organise our polity. In Nepal’s context, it is the shift from the unitary to the federal system of governance that will mark a major institutional rupture and has to be recognised. In the meantime, it opens up opportunities for all the new private entities and even startups in the ways we serve our citizens. As we envision a dynamic and prosperous Nepali society by 2030, a vibrant startup ecosystem propelled by the youths would be extremely important. But they would need to leverage on the linkages on the vast connectivity that they have formed with each other, members of Nepali Diaspora and foreign sources of talent and capital that are willing to come here because our market is open and there are emerging opportunities Nepal poses being a lower-middle income country. Lots of our foreign friends here would agree that Nepal is a highly livable place and this can be a major draw for many of the western companies to offshore part of their operations and locate businesses here. There is a lot to be done in terms of revamping of the government’s structure, economic reforms, implementation bottlenecks that need to be relieved and redressed. But as long as the broad agenda for reform and destination is clear, we will eventually get there with collaboration and cooperation from across different segments of society.