Unleashing Economic Growth

Region-Based Urban Development Strategy for Nepal

KyeongAe Choe, Pushkar Pradhan

• Publisher: Asian Development Bank
• Year: 2015
• ISBN:
  9789290920229
• Edition: 1
• Topic: Economics
• Subtopic: Development Economics
• Index: Economics

The book provides an overview of the economic, political, and social environment in Nepal and the challenges confronting the country in eliciting its economic growth potential. The book provides an insightful framework of an inclusive development strategy in the context of symbiotic relationships between urban and rural areas as well as among the three eco-belts, i.e.,tarai, hills, and mountain areas. Against this backdrop, the strategy calls for prioritized and focused investments on the region's growth potential to induce maximum economic growth impact.

INTRODUCTION

Overview

Nepal² is a landlocked nation bordering the People’s Republic of China (PRC) to the north and India to the south, east, and west. Commonly divided into three ecological regions running over 800 kilometers (km) from east to west—the Himalayas (mountains) in the north, the tarai plain in the south, and hills in between—it covers an area of 147,181 square kilometers (km²). Its major river systems, the Kosi, the Narayani, and the Karnali, bisect these zones, and the country has eight of the world’s 10 highest mountains, including Mount Everest. The capital and largest city, Kathmandu, is situated in the hill region (Figure 1).

Figure 1: Nepal and Its Eco-belts

Source: NPC/ADB (2007).

Although Nepal shares no boundaries with Bangladesh, a narrow strip of land in India about 21 km wide, known as the Chicken’s Neck (Siliguri Corridor), separates the two countries. Indeed, the distance to Banglabandh, the nearest seaport in Bangladesh from eastern Nepal via Kakarbhitta-Fulbari-Banglabandh is just 54 km, compared with the 960 km separating Birganj and Kolkata, the current port used. Efforts are under way to establish a free-trade zone along the shorter route.

The tarai region—fertile, hot, humid, and generally flat—is the northern extension of India’s Gangetic plain, a major agricultural region and home to half of Nepal’s population.

Its landlocked location, rugged terrain, poor infrastructure, and long-running conflict have prevented Nepal from fully developing its economy. The PRC, India, Japan, United States, and several European nations have invested heavily in foreign aid since the 1950s. Yet, overall, 31% of Nepalese still live below the poverty line. Gross domestic product (GDP) per capita was $468 in 2008. Income disparity has widened. And economic growth has not improved markedly or been fast enough to support population growth, estimated at 2.3% a year.

A little over 42% of the working population, defined as aged 10 years and above, were economically active, according to the last census³ in 2001; among them, 65.6% were engaged in agriculture and other primary sector activities. The contribution of the nonagricultural sector to GDP has gradually increased, while key manufactured products include jute, sugar, cigarettes, beer, matches, shoes, cement, and bricks. No major industrial outputs are available for international trade. Nepal’s spectacular landscape and exotic culture have considerable potential for tourism, but growth in export industries was stifled by political events and civil conflict over the past 10 years or so.

In addition, poor roads make access to markets difficult for local producers and have significantly undermined the viability of the subsistence household economy in rural areas. Consequently, many poor farmers migrate from the hills to the tarai plain and from rural to urban areas, pushing up migration rates over the decades. Relatively weak investment in development infrastructure and environmental problems such as land degradation and natural disasters also drive migration from rural to urban areas.

Remittances from migrant workers, particularly those overseas, have emerged as the major contributor to the country’s economy. Households receiving remittances are moving to urban centers seeking better services and consumer goods, with the regional distribution pattern of urban settlement favoring the tarai plain. Urban settlement in the mountain region is light, while existing urban areas are not geographically well connected. The largest urban concentration is in the Kathmandu Valley in the hill region, at nearly 31% of the total. Many small towns are emerging in the valley, but in an unplanned and haphazard manner.

Rationale for a Region-Based Urban Development Strategy

Notwithstanding the urgency of improving the productivity of agriculture on which majority of the population subsists, and for tackling acute poverty in rural areas, urban settlements are increasingly crucial for addressing these problems as well as for the development of the entire country. Trade and tourism has been the economic base of Nepal’s urbanization. The ability of these nonagricultural sectors to harness the comparative and competitive advantages of regions and subregions will determine the strength of urban–rural links and the sustainability of both rural and urban economies. Urban areas can leapfrog their role as a reception area for unemployed farm workers displaced from the hills and mountains to a labor-intensive agribusiness market offering employment. The management and planning of urban development, presently almost nonexistent, can also play a key role in this process, helping to determine and promote market towns and improve links between urban areas and their hinterlands.

The region-based urban development approach seeks to transform the subsistence economy into a commercial economy by promoting certain specialized productive activities. Urban areas are centers of demand for products from rural and hinterland regions. So, the spatial agglomeration of production factors at potential urban centers is a potent factor in stimulating economic growth. Growth is also boosted when a region has capacity to produce goods and services for far-flung markets. Exports bring financial capital into the region, which in turn drives the expansion of infrastructure, facilities, and internal markets for its industries. The development of hinterlands, or spheres of influence to urban areas, should recognize region-specific resource potential and include the rural poor. The distance to urban services and facility locations should be reduced and travel time should be cost-effective. These are fundamental to sustainable and inclusive growth.

To accelerate economic growth and reduce spatial and social imbalances as much as possible, a “regional economic unit” will have to be the driver of change. Such a unit can integrate urban and rural economies and create complementary conditions in which the economic interactions between the hill, mountain, and tarai regions can flourish. Spreading investments thinly across many small towns has had a very marginal impact, not only on economies but in the improvements to basic services, as local governments have very limited capacity to manage implementation. Consequently, the urban areas selected for investment should be prioritized according to their economic and/or industrial potential, not just to their lack of basic infrastructure. The selection of the types of urban and regional infrastructure services should be based on the principles of (i) promoting the economic potential of the selected urban–rural regions inclusively, and (ii) harnessing the competitiveness of selected agribusiness industries for export by enhancing connectivity and improving inclusive urbanization.

The chain of production activities adds more value than the simple sum of products. By establishing supply chains and distribution networks for agricultural commodities or manufactured goods, for example, Nepal should be able to realize this value-adding process with government policies and strategic planning. This report attempts to promote such a process as part of an urban development strategy.

Objectives

The key objectives of this report are to

i.	understand urban sector development patterns in Nepal from the perspective of its regional economic growth;
ii.	analyze growth potential using quantitative and/or objective methodology to identify urban investment areas for maximizing development impacts with scarce resources; and
iii.	demonstrate an inclusive development strategy to boost both urban and rural growth.

All these objectives take account of Nepal’s landlocked location, three eco-belts, lack of technological advances, and the impact of civil disturbances that have prevented the country from fully developing its economy.

URBAN ROLES AND ISSUES IN THE CONTEXT OF ECONOMIC DEVELOPMENT

Urbanization in the Context of Economic Growth

The definition of urban in Nepal is neither adequate nor functionally articulated. Urban areas, or nagarpalika, are defined in terms of a minimum population size of 10,000 for the hill and mountain regions, and 20,000⁴ for the tarai. Other criteria, such as population density, occupational structure, and nodal function relating to urban-led rural regional development, have never been used in designating urban areas. Although urban areas are autonomous bodies based on the Local Self Governance Act (LSGA), the Ministry of Physical Planning and Works (MPPW) is responsible for policy measures, projects, and programs related to urban infrastructure development.

Within 58 areas, the urban population of Nepal is just 17% of the total, which appears inadequate for connecting vast rural areas spatially, economically, and socially. The Central Bureau of Statistics (CBS 2003b) estimates that urban population will reach 20% in 2011, 23% in 2016, and 27% by 2021. The urbanization rate, at 4.9% a year, is four times higher than the population growth rate of 1.28% (Table 1), in keeping with past censuses which showed urbanization to always be faster. Average urban population density is 970 people per km², with the nine largest cities of over 100,000 as of 2008 (Biratnagar, Birganj, Bharatpur, Butwal, Dharan, Kathmandu, Lalitpur, Mahendranagar, and Pokhara) averaging 6,000 per km². One-third of urban areas have density levels below the national urban density. Indeed, many designated urban areas actually show rural characteristics: their boundaries are significantly “over-bounded,” amalgamating contiguous village areas without the potential to acquire municipal status, such as urban functions, roads, industrial activities, and physical expansion. Densities in some newly inducted municipalities⁵ are comparable to a rural density of 136 per km².

Table 1: Urban Growth Patterns in Nepal

^* National Urban Development Institute (2008). Municipality Profile, Nepal.

^** Central Intelligence Agency (2009), The World Fact Book (estimates).

Sources: Central Bureau of Statistics (2003a); Population Monograph of Nepal, Vol. II: 142.

Urbanization has not occurred evenly throughout the country. The nine largest urban areas share 52% of the total urban population, of which five lie in the hill region, while most urban areas are very small, with populations below 50,000 (Table 2). Variation also exists in urban population among the three ecological regions. The hill region, with 27 urban areas, holds 53% of the total urban population, larger than the urban population in the tarai. But in terms of the number of urban centers over the area, the distribution of the hill urban areas is sparser than the tarai. The urban centers in the hill region on average serve a hinterland of 2,272 km² (about 48 km diameter boundary), nearly twice the area served by tarai urban centers (1,173 km² or about a 34 km diameter boundary). In the mountain region, urban centers serve 25,909 km². Thus, urban centers in the mountains and hills serve localized populations and immediate surroundings, while scattered village settlements are too far away to make use of better urban amenities.

Table 2: Distribution of Urban Areas by Ecological Regions, Nepal

Source: National Urban Development Institute (2008). Municipality Profile, Nepal.

If well-planned, rapid urbanization can be an encouraging trend—it provides employment and reduces discrimination between advantaged and disadvantaged social groups. But the process of urbanization in Nepal is different. It is not due to economic reasons, rather, it is caused by the expansion of municipal boundaries, designating new municipalities, and the high level of urban-bound migration. The availability of relatively better facilities than in rural areas draws people to municipalities.

Currently, there are three hierarchical levels of municipality: 1 metropolis (Kathmandu), 4 sub-metropolises (Biratnagar, Lalitpur, Pokhara, and Birganj), and 53 municipalities by population size, annual revenue, and some basic facilities.⁶ The Ministry of Local Development (MLD) made this classification, as mentioned in the LSGA of 1999, for governance purposes rather than for the economic strengthening of muni...