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SpirE-Journal 2015 Q2

Nepal earthquake: Can a shattered economy be rebuilt?

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Nepal earthquake: Can a shattered economy be rebuilt?

On the morning of 24 April, 2015 a powerful earthquake of magnitude 7.8 on the Richter scale rocked Nepal. With 8 million people affected and more than 4,000 feared dead, the estimated cost of reconstruction is more than USD5 billion. The scale of devastation is bound to have an economic impact on one of the poorest countries in the world, affecting industries as diverse as tourism, energy, agriculture and infrastructure. What will it take to get Nepal back on track?

The level of devastation

The damage wrought by the earthquake was felt across the breadth ot this small country. It damaged buildings in the capital city of Kathmandu. As a result of the many aftershocks, buildings and temples collapsed, with roads splitting wide open due to cracks.

Heritage sites such as Kathmandu’s Dharahara Tower (known as Bhimsen tower) – a 19th century structure with nine floors – collapsed, with at least 50 people stuck in the rubble. Dozens of historical buildings, monuments and temples – all United Nations Educational, Scientific and Cultural Organization (UNESCO) recognized sites in the Kathmandu valley – suffered significant damage or were destroyed.

The earthquake also triggered a deadly avalanche across the Mount Everest base camp, trapping climbers on the upper slopes and killling at least 17 people. The timing of the earthquake could not have been worse, striking in the middle of Nepal’s spring season – a period when most climbers attempt to scale mountains.

Industries in the line of fire

Nepal is one of the poorest countries in the world. Its economy is heavily dependent on remittances from overseas Nepali workers, such as the famous Gurkha paramilitaries who serve around the world – these amount to over 20 per cent of Gross Domestic Product (GDP). Agriculture employs around 70 per cent of the population. One quarter of its population live below the poverty line.

The devastation caused by the earthquake will have a profound effect on the already underdeveloped economy. This will undoubtedly increase Nepal’s dependency on foreign aid, affecting the following sectors.

Tourism

Tourism is a major source of revenue for the largely agricultural nation, with a record 800,000 foreign tourist visits in 2014. This means that tourism accounts for 8.6 per cent of Nepal’s GDP.

The tourism sector also supports more than a million Nepalese jobs, both directly and indirectly – which account for 7 per cent of the workforce.

Hydropower

The earthquake, followed by a series of aftershocks, left close to 14 hydropower plants across the country damaged, resulting in a loss of 150 Megawatts (MW) of electricity from the nation’s power grid. The Nepal Electricity Authority at present distributes 564MW of electricity – out of which 210MW is imported from India.

Moreover, two of its largest hydropower facilities are located in the hardest-hit areas – the 144MW Kaligandaki to the west of the epicenter and the 22.1MW Chilime plant north of Kathmandu – along the Langtang trekking route.

Agriculture

The earthquake’s impact on food security and agriculture livelihoods is very high. USD8 million is needed to help Nepalese farmers recover and resume preparations for rice sowing season.

Approximately 3.5 million people need food assistance. They mostly reside in the western and central regions – including Nepal’s largest cities, Kathmandu and Pokhara.

At the same time, the disaster destroyed markets and infrastructure that is vital to the agricultural sector, including roads as well as crucial irrigation and drainage canals. Many families also lost valuable food stock, crops and livestock.

Infrastructure and logistics

The cost of rebuilding homes, bridges and roads will go up to USD5 billion or more. Nepal has been struggling to improve safety and infrastructure by updating building codes over the past two decades. The recent earthquake means that they would have to start from scratch. It is estimated that 80 per cent of new buildings are still built without the appropriate engineering expertise.

Another area of concern is logistics. A coordinated response to convey supplies to people in the outer areas around Kathmandu has proved to be a daunting task, as it means transporting supplies across damaged and landslide-blocked roads. Moreover, the influx of supplies through the nation’s only international airport and smaller airports has proved difficult.

Are relief efforts enough?

In order for relief efforts to make a difference for Nepal’s path to recovery, a coordinated international disaster relief and reconstruction program is needed. The funding needs to come from donor nations and multilateral financing agencies. What efforts have been put in place so far?

Relief from multilateral agencies

Thus far, the Asian Development Bank has granted USD3 million for immediate relief and pledged USD200 million for rehabilitation. Moreover, the UN appealed for USD15 million for essential needs over the next three months after the earthquake struck. Furthermore, USAID deployed a Disaster Assistance Response Team (DART) to the region to provide close to USD10 million in emergency assistance.

Remittances from migrant workers

Many Nepali families rely more on money sent home from the 2.2 million Nepalis working overseas, mainly in service and construction jobs across Asia and the Middle East. Remittances were double Nepal’s total revenue from exports of services and goods.

Many Nepali families rely more on money sent home from the 2.2 million Nepalis working overseas

Regional cooperation

Historical rivals China and India were among the first to lend assistance, along with Pakistan. Medical and rescue teams from other countries also came in to provide relief assistance. In the longer-term, this involvement could pave the way for better regional diplomatic and economic relationships for Nepal.

On the path to reconstruction

Reconstruction costs in Nepal could hit as high as USD5 billion. As one of the least developed countries in the world, the nation relies heavily on foreign aid – which is why it is crucial that international financial assistance is put in place for long-term re-construction.

As foreign governments and development agencies continue to pledge billions of dollars to contribute to Nepal’s reconstruction, it would be essential to check corruption and bureaucratic redtape. In 2014, Nepal ranked as the world’s 126th most corrupt country out of 174 nations, which could act as an impediment to recovery. At one point in the disaster relief operation, the UN publicly decried the fact that aid supplies were being held up at the airport by bureaucrats for lack of paperwork.

According to the UN, approximately 2.8 million people are in urgent need of humanitarian aid such as protection, healthcare, food and shelter.

Nepal is also committed to train 50,000 workers to carry out reconstruction. The government’s expenditure to rebuild private homes, historical monuments, public buildings and infrastructure will add upto USD910 million. However, for those living in refugee camps, governemnt aid is insufficient. According to the UN, approximately 2.8 million people are in urgent need of humanitarian aid such as protection, healthcare, food and shelter.

Future outlook

Observers attest that the aftermath of the earthquake has left Nepal shaken but filled with resilience – the people of this ancient nation are bound to pull itself together and recover.

Apart from a massive economic impact, the earthquake is bound to affect industries such as tourism – a major source of revenue for the largely agricultural nation – as well as hydropower, as many plants were destroyed. Agriculture – which provides a living to 70 per cent of the population – will take time to rebuild, due to the damage to irrigation, granaries, power lines and rural buildings.

However there are good grounds to be optimistic. International aid has been pouring in. Nepal’s strategic geographic locations allows it to benefit from both Indian and Chinese largesse. The tourism industry can be rebuilt relatively quickly, as tourist attractions are rural and not urban.

Above all, Nepal can draw on a talent pool of thousands of migrant workers and specialists who can send remittances back home – and, if necessary, return home to fill in gaps in skills.

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