Increased economic activities in the 1980s and 1990s due to economic globalization led to a rapid rise in demand for skilled, semiskilled and unskilled manpower. For a large number of Nepali workers, mostly semiskilled and unskilled, this external demand opened up opportunities.

They left the country owing to different push factors such as the decade-long civil war followed by Madheshi movement and protracted political instability. This migration was, however, a welcome relief for Nepal which had failed to meet the growing demand for employment. 

An overwhelming number of Nepali migrant workers are unskilled laborers, hired for low-paid manual jobs and given little protection in the countries where they work. It is estimated that approximately 3.6 million Nepalis are working as migrant workers in various countries—nearly 90 percent of them in Qatar, Malaysia, Saudi Arabia, the UAE, and Kuwait. Among them, 10 percent of migrant laborers are female. The number of Nepalis going abroad has been doubling every year since 2004/05. While 172,000 Nepalis had gone abroad in 2004/05, it has now increased to around 550,000 a year. 

At least 65 percent of households in the country receive remittance; the Central Bureau of Statistics (CBS) puts that number at 58 percent. However, the major portion of remittance is used for consumption and other non-productive sectors. Nearly 80 percent of remittance is used on consumption items; only 0.4 percent goes to business, 2.4 percent to capital formation and 0.6 percent to saving. The consumption to GDP ratio increased from 88.3 percent in 2001 to 93.3 percent in 2010 and domestic saving reduced from 11.7 to 6.5 percent during this period. 

Remittances became easy money for recipient households who have no incentive to invest for the future. Moreover, remittance recipients are the old, women and young adults who are unaware about investment opportunities. There is absence of entrepreneurial skills, financial and market knowledge even to run small scale business. This has negative impact on utilization of remittance. The symptoms of the Dutch Disease—erosion of external competitiveness, rising wage rates, decline in manufacturing, higher disposable income, shortage of labor both in agriculture and manufacturing, increased dependency on remittance and vulnerability in trade sector—have already been witnessed.

To maximize productive utilization of remittance, it is essential to divert more remittance to capital formation. This increases multiplier effects of remittance money. There is a need for financial education and basic business literacy in remittance recipient households in rural areas. Most of these households have no idea about making better use of remittance they receive. 

In most rural areas people lack access to formal financial services, but even in areas where these services are available, there is little awareness. They may also lack trust in financial institutions. Financial education can help remittance receivers recognize remittance as only a temporary source of income and acknowledge the risks of depending too much on it. 

On the other hand, the current youth migration has a deleterious impact on agriculture and manufacturing sectors whose contribution to the GDP is in steady decline. Therefore the government should identify and promote high productivity sector. Migrants and their families can be motivated to invest in productive sector if the government ensures a favorable environment. Remittance can be a source of employment at local level if local entrepreneurs are sure about the safety of their investment and have access to markets. 

There is high potential for agriculture, tourism and non-timber based enterprises in Nepal’s mountains, hills and Tarai. The government, financial institutions and developing partners have big roles to play in channeling remittance into productive sectors.

A recent study conducted by Tribhuvan University and Nepal Rastra Bank shows that production cost for food grain, livestock, vegetable and fruit is higher in Nepal as compared to India because of high labor cost and small production scale. It is the main reason behind import of food grains worth over Rs 100 billion in the last fiscal year. To make the contribution of remittance to national economy more sustainable, remittances have to be diverted into commercial agricultural and other small/medium enterprises by reducing consumption. 

It is difficult to force individuals to invest private capital in productive sector. But this is a must for sustainable development. To motivate migrant families, there is a need of incentive for remittance recipients to invest in income generating activities. The government has to provide entrepreneurial skills to remittance recipients as well as returnee migrants in coordination with NGOs and private sector. It should also discourage consumption of imported goods to encourage local industries.

Remittance has high potential to benefit families, local communities and national economy. Almost Rs 1.70 trillion has entered Nepal in remittance from 2001/02 to the 2013/14, according to NRB. However, apart from supporting poverty alleviation, this money has had little impact on national development. We need a long-term strategy, commitment, supportive policies and encouraging environment to make the most of remittance.

Published on: 10 February 2015 | Republica