The subtle wounds of Nepal’s remittance boom

Remittances have been responsible for poverty reduction, increase in foreign exchange reserves, and dependency.

Some argue remittances mean more to Nepalese society than just the cash flow [Kyle Knight/ Al Jazeera]

Solukhumbu, Nepal  During a community meeting in an unlit concrete building perched on a mountain terrace, Dom Kulung stands to address the small crowd.

He points at a fellow 20-something man and instructs earnestly: “Once we are educated here, if we leave, we must return with the intent to develop our community.”

The message is received well enough with nods. But then Kulung twists the logic a bit: “We don’t need money. We cannot just send money back from Malaysia or India or Gulf countries. That isn’t solving the problem. Money is not enough.”

Some in the crowd appear puzzled – others relieved.

Cheskam is among the most remote communities in Nepal – one of the world’s poorest countries – several days walking from the nearest road. Residents in this area traditionally made a living by farming or walking three days to Mount Everest for seasonal work as porters on mountaineering expeditions.

But in the past decade, those traditional sources of income have been eclipsed by an opportunity to make good money fast, by travelling abroad to work.

The money from remittances is an enormous cushion for Nepal - until something bad or unexpected happens.

by - Chandan Sapkota, economist

Nearly 1,500 Nepalis migrate abroad for work each day. At least 2.2 million Nepalis work abroad – and that figure is believed to be an undercount as many more cross the open border with India regularly.

Last year they sent back about $4bn, nearly a quarter of the country’s gross domestic product.

While the outflow of labour and inflow of money has had undeniable impact, some analysts warn of the toll such changes are taking on the country’s economy – both at the household level and for the country as a whole.

“You can’t find an aspect of any Nepal citizen’s life these days that is not touched by remittances,” said Chandan Sapkota, an economist with the Asian Development Bank in the capital Kathmandu.

Remittances have been responsible for poverty reduction, increase in foreign exchange reserves, and the expansion of banks and financial institutions.”

But, he warned: “The money from remittances is an enormous cushion for Nepal – until something bad or unexpected happens.”

‘Double-edged sword’

A 2011 World Bank report called this cushion the “vicious policy cycle of large remittance” in Nepal, and warned that “no country has ever succeeded in sustaining growth and job creation on remittance alone”.

Jagannath Adhikari, a poverty and economic development analyst, called remittances and migration “a double-edged sword for Nepal,” pointing to a 2011 report he authored on the impact of labour out-migration on rural Nepal.

Facing meagre employment options and a weak economy, young men from rural Nepal migrate by the thousands per day to work abroad [Kyle Knight/ Al Jazeera]

“There are real dangers in over-dependence on labour migration and remittances,” said Adhikari. “But the adverse impacts or the possible dangers are not that obvious and thus are not discussed.”

Yurendra Basnett, a research fellow at the London-based Overseas Development Institute (ODI), said “The current state of mass migrant out-flow is a reflection of the complete collapse of Nepal’s economy.”

The majority of Nepali labour migrants who travel through official channels go to Malaysia, or Gulf countries such as Qatar and the United Arab Emirates, to work in factories or on construction sites.

While watchdogs such as Amnesty International and Human Rights Watch have highlighted abhorrent working conditions there, other observers say the roots of abuse lie at home in Nepal.

“The underbelly of the remittance success story is that there are few people drawing lines between the horrible conditions these workers can face in their destinations and the conditions at home,” said Basnett.

Basnett, who is an economist, argued that: “The people migrating into these conditions are acting as rational actors – yes there is coercion and manipulation in some cases, but ultimately we have to connect the lack of opportunities at home to the horrid conditions abroad.”

Despite poor work conditions abroad, the number of Nepalese seeking to migrate is holding steady.

‘Dutch disease’

“The money coming in from work being done outside the country has led to an explosion in consumer demand – so much so that the domestic markets cannot provide everything the buyers want. So we see imports increasing,” said Sapkota.

Sapkota has warned of the potential onset of “Dutch disease” as a result of remittances in Nepal, a situation where a substantial spike in revenue from a single industry can have adverse impacts on the rest of the economy.

“A lot of this money coming into the country is being earned outside the country, and being spent on products that were manufactured outside the country – not really contributing to Nepal, per se, much at all,” he said.

A terraced farm in Solukhumbu district, home of Mount Everest, which received tens of millions of dollars of remittance money last year [Kyle Knight/ Al Jazeera]

The evidence of the negative impact of a remittance boom, Sapkota said, is obvious throughout the country.

“Remittances have driven up tax revenue to the point where the government has operated at a surplus despite lagging behind in the basic infrastructure developments – such as roads and electricity – that would encourage investment in Nepal in the first place,” he said, pointing to increased tax revenues from imported goods, which are purchased with remittance income.

According to Adhikari, Nepal’s reliance on remittance money has had a range of dangerous effects.

“Dependence on remittances and confidence that the in-flow will remain so high means that if there is a shock in terms of decline in that money, the country’s economy will have no way to cope,” he explained, also pointing to productive labour Nepal lost with so many people working abroad.

Basnett put the blame squarely on the “rent-seeking elite class running the country”.

“There is a lot of apathy when it comes to updating Nepal’s economic policies because the people in charge are making a lot of money off of how things are running now by extracting resources that they haven’t directly earned,” he said, adding Nepal’s economic policies have not been updated since 1992.

He called migration a “safety valve” for decision-makers. “Remittances that come back feed into the system through taxes and by temporarily pacifying the people on the receiving end of the money.”

Beyond returns

But others argue remittances mean more to Nepalese society than just the cash that flows in.

“So much more comes back from migrant labour than just money,” said Drupad Choudhury, programme manager for the International Centre for Integrated Mountain Development (ICIMOD) in Kathmandu. “Remittances are flows of more than just cash – they bring information, ideas, and trends, and all of these things can influence life here in Nepal.”

For example, an experimental project was recently launched to examine whether remittance in-flows could influence building codes in Kathmandu. Nepal’s sprawling capital carries the highest seismic risk in the world and a major earthquake would kill hundreds of thousands, in part because of explosive population growth and a remittance-fueled ungoverned construction boom.

But the implications could go beyond material impact as well.

“Because migrant workers come from such a range of backgrounds – class, ethnicity, geography, and so on – and then return home having seen the world, having earned some money, my hope is that this flow will fundamentally change political vision,” said Basnett.

“A farmer who a generation ago would have had his political views shaped by interactions in his own rural district, and maybe a few trips outside to other parts of Nepal, now has exposure to Kathmandu, to the abuses of the migration system, to an understanding of what rich countries are like. And that will all inform what he thinks of Nepal’s leaders and the demands he makes on them,” he said.

But until policy changes improve the domestic investment environment, migrant labourers and the money they earn and send home will continue to operate according to what Sapkota calls “a scheme of sweet pain”.

“The system as it is today is sweet for the government time and time again and painful for the people who are doing the work,” he said.

Source: Al Jazeera