22pc of population in middle-class category

Kathmandu, June 29

Direct movement of workers from the agriculture sector to services, without an opportunity to engage in high productivity jobs in manufacturing firms, has limited the size of the country’s middle-class to less than a fourth of the population, says a latest World Bank (WB) report.

A total of 22 per cent of the Nepali population falls in the middle-class category, according to the executive summary of the WB report titled ‘Moving Up the Ladder: Poverty Reduction and Social Mobility in Nepal’ released today. This figure, derived on the basis of a survey conducted in 2010-11, marks remarkable growth compared to the size of middle-class, which stood at seven per cent of the population in 1995-96.

Yet, considering the rapid pace at which urbanisation is taking place over the years, ‘consumer advantage of cities and newly emerging towns has not translated into a productive advantage’ for growth of a strong middle-class population, says the report, which defines middle-class as a group of people who have less than 10 per cent chance of slipping back into the traps of poverty.

Nepal is the fastest urbanising country in South Asia. With this, many people of rural areas have started migrating to urban centres. But ‘the pull of a dynamic urban economy generating good jobs appears to be largely non-existent’, preventing formation of a robust middle-class, says the report.

One potential reason for disconnect between urbanisation and faster development of the middle-class, according to the report, is Nepal’s ‘atypical structural transformation’.

In a typical structural transformation, workers leave low-productivity agricultural jobs in favour of higher productivity jobs in manufacturing agglomerate in cities. They then move to take up high-skilled jobs in services sector.

Nepal’s economy too has diversified away from agriculture, with the sector’s share in the gross domestic product (GDP) now falling to 34 per cent. But as Nepal entered into industrialisation phase, the armed Maoist conflict began. At the time when conflict started in 1996, the share of industries in GDP stood at around 23 per cent. Now, that share has shrunk to around 16 per cent.

In the context of shrinking agriculture and timid industries, services have grown in prominence and account for over half of the GDP today. This is an indication that Nepal probably skipped the intermediary manufacturing phase during the transition and moved directly to services, says the report.

However, jobs taken up by many Nepalis in the services sector are categorised as low-skilled, with many dependent on construction, trade, retail and hospitality for livelihood. This means many of those employed in the services sector — though probably better off than those engaged in low-productivity agricultural jobs — also fall in the vulnerable category. So, improvement in living standards over the years has not been sufficient enough to build a more secure middle-class.

“As a result, 45 per cent of the population today constitutes a vulnerable group that is either perilously close to falling back into poverty or otherwise struggling to cement their economic security,” says the report.

With such a huge chunk of people falling in vulnerable category and another 31 per cent of the population categorised as poor — as per 2010-11 estimate of the government — many people are insecure about prospects of continued improvement in their living standards.

No wonder, a whopping 70 per cent of the population says they are ‘struggling’, meaning their ‘wellbeing is moderate but inconsistent’, while 20 per cent of the population says they are ‘suffering’, implying ‘their wellbeing is at high risk and they have poor outlook on the future’. Only 10 per cent of Nepal’s population considers themselves as ‘thriving’, meaning they have ‘strong current life situation and have positive views about the next five years’, says the WB report, referring to a Gallup World Survey.

“In this regard, building prosperity for a majority of Nepalis will entail not just safeguarding the gains already made, but also boosting productivity of the economy in a manner that will help them realise higher income levels,” says WB Senior Economist Sailesh Tiwari, who headed the team that prepared the report.

For this, Nepal urgently needs to create more and better jobs within the country because it is hard to see remittances — which has remained cornerstone for improvement in people’s living standards in the last two decades — growing further, as outflow of migrants is already starting to slow down, added Tiwari.