Nepal’s main development challenge is a chronic lack of job creation. One look at the departure terminal of the Tribhuvan International Airport in Kathmandu tells the entire story of our collective failure in creating employment opportunities. As a society, we have failed to fulfil the most fundamental aspect of our social contract: shared access to economic progress by generating decent work opportunities.
Successive governments in the past decade have failed to address Nepal’s ‘lack of jobs’ challenge. Political parties have made tall promises every election cycle, but none have tackled this challenge with the intensity and focus that is needed. Will the new decade be any different? Let’s hope it will be different. However, unless current and future governments tackle our jobs challenge like we are at war with a stubborn enemy, much won’t change.
Goal 8 of the United Nations Sustainable Development Goals aims to promote inclusive and sustainable economic growth, employment, and decent work for all. Economic growth is paired with jobs because poverty eradication is only possible through stable and well-paid jobs.
Nepali society benefits when more people become productive and contribute to the country’s growth. As the UN pointed out when SDGs were announced, productive employment and decent work are key building blocks of a fair globalisation and poverty reduction.
So, what does decent work mean? According to the International Labor Organization (ILO), it is a work that is productive and delivers a fair income, security in the workplace and social protection, better prospects for personal development and social integration. Equal access to women and men is important under this definition. Lack of decent work leads to an erosion of the basic social contract and underlying democratic societies. Lack of work for our young people will lead to social unrest and the downfall of political regimes. Therefore, it would be wise for Nepal’s ruling parties to address our jobs challenge as if their very survival depends on it.
To understand the magnitude of this challenge, let’s look at the headline employment indicators. First, the labour force participation rate in Nepal is only 39.9%. This means that out of all the people who can work – also known as the working age population, typically between the ages of 15 and 64 – only 39.9% are participating in the labour market. For comparison, this rate is 58.3% in Bangladesh, 76.4% in Cambodia, 50.5% in India, 65.9% in Indonesia, 52.7% in Pakistan, and 72.9% in Vietnam.
What are all the Nepalis of the working age population who are not participating in the labour market doing? Some are in university, some are abroad, but many are simply not working and also not looking for jobs. Even in Muslim countries like Bangladesh, Indonesia, and Pakistan, labour force participation rates are higher than in Nepal. This is important because typically in Islamic societies fewer women join the labour force.
Lower rate of participation for women is a bad sign. In Nepal, only about 27% of women of working age are participating in the labour market. In Bangladesh, 36.5% women of working age participate in the labour market, and 52.1% in Indonesia.
Not everyone who participates in the labour market is gainfully employed. Indeed, if we look at the unemployment rate, the picture becomes clearer. According to the most recent estimates for Nepal, unemployment rate is at 11.36% and the share of youth not in employment, education, or training (NEET) is 35.4%. This NEET rate is very high and does not bode well for Nepal. NEET rates for other countries in developing Asia are: Bangladesh (28.8%), Cambodia (11.4%), India (30.7%), Indonesia (22.5%), and the Philippines (17.5%).
According to the International Labor Organization (ILO), high youth unemployment and NEET rates are associated with increased risk of social unrest and political upheavals. Young people without productive employment are similar to ‘dried leaves that will burn with a small spark.’
While working at the ILO’s Research Department in Geneva, I looked at the countries in the Middle East before and after the ‘Arab Spring’. In 2011, ‘Arab Spring’ shook the region and led to the downfall of regimes and brought other regimes close to collapse. Examining the economic determinants of the unrest, I found that the youth unemployment rate, along with income inequality and food price inflation, were the most critical determinants of social unrest and political upheavals. Nepal’s inability to create jobs and provide economic opportunities for its young population is not good news for any political party that is looking to hold a stable government.
Even for many who are employed in Nepal, they might be relatively poor. In fact, the average monthly earnings of employees is around Rs 17,000. Since this is the average earning, it means that half of all employed in Nepal make less than Rs 17,000 per month. In today’s Nepal, Rs 17,000 per month is barely above the poverty line.
One indicator of the quality of jobs prevalent in an economy is ‘wage and salaried employment’. These types of jobs tend to be decent as defined by the ILO. In Nepal, less than one-fifth (19.8%) are wage and salaried employment. Compare this to other countries in developing Asia: Indonesia (48.8%), Pakistan (61.2%) and Viet Nam (41.2%).
Nepal’s private sector is creating some high productivity and well-paid jobs. Most of these jobs are in the IT industry, banking and finance, and health services. These jobs are not nearly enough to absorb the many workers who remain underutilised and in marginal employment. This is the reality for many women and workers in rural areas where unpaid work and subsistence agriculture is more common. In fact, informal and subsistence economic activities dominate Nepal’s labour market.
If we go outside Kathmandu Valley and look at Nepal’s track record in job creation, we begin to understand why large numbers of young people leave Nepal to work in the Gulf countries and in Malaysia. Malaysia is a category in itself because it attracts one of the largest shares of Nepali migrants.
Latest estimate suggests that about 85% of all employment in the country is informal. Informal work is not decent work. Most of the workers who hold jobs in this sector are one crisis away from slipping into poverty. Informal workers do not have access to income protection schemes or social protection measures and cannot access finance easily.
Given the chronic lack of job creation, there is a tendency to romanticise ‘entrepreneurship’ among young people. eSewa and Pathao are great examples and there are many others that have emerged recently. Many young people will start their business and become entrepreneurs. But most Nepali youth will not do so. For most people, having access to good job opportunities, whether in the public or private sector, is the road out of poverty.
As we look ahead to 2080, it is important to keep in mind that it is not the government who creates jobs, at least not enough jobs. But it can put in place the right set of policies to encourage private sector growth and job creation.
There are several things that the current government led by Pushpa Kamal Dahal can do to promote job creation: (i) policies to promote commercialisation of agriculture; (ii) incentives for firms in manufacturing to engage in joint-venture with foreign firms; (iii) fiscal incentives for firms in manufacturing and agribusiness sector to promote growth; (iv) encourage business creation and private sector growth in all seven provinces with clear fiscal incentives tied to job creation; and (v) promotion of new growth sectors related to environmental sustainability and climate change.
There are many other policy measures that could be taken on the demand side. One thing that is clear from the experience of other countries is that unless we develop Nepal’s industrial sector, our five-year plans on job creation will always come short. No country in Asia – from Japan, Singapore to China – became developed without a solid manufacturing and industrial base.
However, given the recent economic history of Asia, it is no longer enough to focus just on manufacturing. In traditional models of development, the manufacturing sector was considered the sector with the highest productivity and therefore a country’s economic success hinged on the competitiveness of manufacturing. Services were perceived as low-productivity and not susceptible to technological advances. However, many service sectors today are the most dynamic sectors. Some service sectors, such as IT or financial services, have a higher productivity than manufacturing.
On the supply side, to promote better job-matching, the country needs to invest in the following: (i) better quality of primary and secondary education, which provide the foundation for higher education and TVET programs; (ii) partnerships between TVET institutions, universities and private sector in all seven provinces of Nepal; (iii) promotion of degrees and programs in agribusiness; (iv) promote programs in STEM (science, technology, engineering and mathematics) fields; (v) invite foreign universities to establish ‘satellite campuses’ in Nepal by providing fiscal incentives.
As with the demand side, there are several other supply side interventions. One thing to keep in mind in the clear goal of the supply side policy is to improve the quality of education and training in Nepal. If the quality of human capital is good, FDI inflow will also increase.
Nepal’s jobs challenge will not be solved in one year. It will certainly not be solved within the current premiership of Pushpa Kamal Dahal. But, the government has to lay the groundwork to address this challenge. Even seemingly small and marginal changes will yield benefits. The current administration can pick one or two areas of focus. Just saying ‘my administration will create employment opportunities’ is not enough for Prime Minister Dahal. How will his administration create jobs? What will he do? What is the game plan? I encourage him and his finance minister Dr Prakash Sharan Mahat to adopt policies and programs to promote job creation. They need to work on this issue as if they are fighting a battle.
Nepal’s modern-day soldiers are toiling in the heat of the Middle Eastern deserts and jungles of Malaysia. It is high time our government fought their battle for access to jobs at home. We can win this battle only with stubborn resolve and perseverance. 2080 can be the decade when Nepal finally turns a corner and creates adequate employment opportunities. I hope the current government and future governments of Nepal stay focused to win this war within this decade.
(Dr Khatiwada is a Senior Economist with the Asian Development Bank)