Nepal | September 27, 2020

Brain drain: Nepal likely to grow old before becoming rich

Rupak D Sharma
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We have until 2047 to attain rapid economic growth because development will be harder with more dependent people around

Kathmandu, June 9

On May 13, the Maldivian government published an advertisement in Nepal seeking 196 doctors, medical officers and nurses, offering monthly pay package of up to $3,826. Around one-and-a-half months before the vacancy call was made, Nepali government had signed a pact to supply ‘specified skilled workers’ to Japan.

These employment opportunities for skilled workers have emerged at a time when educated Nepalis are permanently migrating to countries like Canada and New Zealand, and those who have pursued higher education in the US and Australia do not want to return home.

Nepalis have long been prowling for better opportunities in foreign land. But until now unskilled workers were dominating this trend. Unskilled workers account for 75 per cent of around four million Nepalis who have left for labour destinations such as the Gulf and Malaysia since the decade-long insurgency began in 1996.

The government has not done much to control large-scale migration of unskilled workers, because they send home hundreds of billions of rupees — over Rs 750 billion in the last fiscal alone — every year, making labour Nepal’s largest foreign income source.

This money has helped numerous people to escape absolute poverty, enabled children to attain better education and boosted household spending. But this money has also eroded Nepal’s competitiveness, as it has fuelled consumption and imports and prompted family members of those employed abroad to work less, according to a 2017 World Bank report. This has pushed up wages and prices, including those of real estate and construction, leading to appreciation of real exchange rate.

A 10 per cent hike in remittances pushes up real exchange rate by 0.5 per cent in the long run, says the World Bank. Nepal’s real effective exchange rate jumped six and 3.3 per cent in fiscal years 2015-16 and 2016-17, respectively, before dropping 0.1 per cent in 2017-18, according to the International Monetary Fund. This has hit Nepal’s export competitiveness, thanks to higher production cost, and thus increased imports, preventing Nepal from building a robust manufacturing sector to create jobs and push exports. This undesired transformation has barred many from escaping low-productivity agricultural activities and propelled job growth in low-productivity, and mostly non-tradable services, such as beauty parlours and motorcycle workshops, where wages are marginally better than in low-productivity agricultural work.

Now, Nepal is likely to face another challenge: outmigration of skilled workers in droves, as developed and developing countries that are rapidly ageing due to declining fertility and increasing longevity have started reaching out to educated Nepalis offering lucrative salaries. The reduction in size of educated workforce could further deteriorate quality of education and healthcare services, stifle innovation, hit productivity and weaken economic growth.

“We cannot stop developed countries from providing job opportunities to skilled workers. But these developments are increasingly making it difficult to retain skilled workers,” says Hari Bhakta Sharma, executive director of Deurali-Janata Pharmaceuticals.

Outmigration is not a choice but compulsion for many in a low-income country like Nepal, as jobs are in short supply and pay scale is not very attractive. Nepal’s unemployment rate stands at 11.4 per cent and labour underutilisation rate hovers around alarming 39 per cent, according to the government’s latest Economic Survey. So, around 400,000 of around 500,000 youths, who join the labour market every year, find jobs abroad, although the number has fallen lately. Employers like Sharma fear that share of skilled workers in total outmigration may soon go up because Japan is all set to import skilled Nepalis and other countries may follow suit.

“The pull of better economic opportunities will always be there, and as the world gets more connected people will find it easier to use their skills to earn a living outside their home country,” says Sameer Khatiwada, economist at the Asian Development Bank in Manila. “But for a developing country like Nepal, which needs unskilled, less-skilled and skilled workforce to achieve eight per cent growth target, outmigration of skilled workers can be a drag on the economy and lower potential growth rate.”

Nepal needs to understand that it cannot go on exporting workers and hope to develop the country as well. This is because the demographic window of opportunity for demographic dividend, which opened in 1995, will shut down in 2047. This window opens when growth of working-age population, aged 15 to 64, surpasses growth of total population. This means after 2047 Nepal will become an aged society, where fewer working-age people will have to support greater number of elderly. This will push up public expenditure on healthcare, pensions and social protection, and may stall growth.

“We have until 2047 to attain rapid economic growth because development will be harder with more dependent people around. We cannot discount the possibility of ageing being less onerous because of technological breakthroughs, or late marriages and births, which can lengthen the [demographic] window of opportunity. However, many Nepali youths continue to emigrate as they take a dim view of the country’s future prospects. This has raised the spectre of Nepal growing old before becoming rich,” says Swarnim Wagle, former vice-chairperson of the National Planning Commission.

A version of this article appears in print on June 10, 2019 of The Himalayan Times.

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