BOOK REVIEW

Book Title: Unleashing Economic Growth: Region-Based Urban Development Strategy for Nepal
Author: KyeongAe Choe and Pushkar Pradhan
Publisher: Published by Asian Development Bank
Date & Place of Publication: 2010 A.D. in Philippines
Length: 166 Pages

Introduction:
The book aims to understand the urban development pattern in Nepal from a region-based perspective,
analyze the potential of growth using various methods and finally frame a development strategy to help attain
economic growth in both urban and rural areas. The study of the topic is partially adopted from the Regional
Development Strategy prepared in 2007 by ADB. Ms.KyeongAe Choe and Mr. Pushkar Pradhan are the
authors of the book.

Central Idea of the Book:

Nepal is a landlocked nation covering an area of 147,181 sq.km. It is divided into 3 geographical
regions- Terai (in the South), Himalayan (in the North) and Hills (in the middle). Different ecological regions
pose different challenges and provide different sets of opportunities to grow. For example: Terai region brings
in an opportunity to enhance agriculture and Himalayan region in Tourism. The development of urban areas is
an indicator to a country’s economic prosperity as it is believed to have a trickledown effect on rural areas.

The development efforts started in Nepal from the 1950s with the implementation of periodic plans
and strategies. But the economic growth in Nepal has been sluggish and the urban development has not been
able to foster growth in subsistence areas. Due to the natural diversity which is a result of social, geographical
and economic variance across the nation, the challenge regarding connectivity and developing links between
ecoregions. To overcome this challenge, a systematic region-based development plan can be developed to
attain a balanced growth across the regions. Agriculture employs 2/3rd of the population while contributing
only 1/3rd to the GDP. Non-agriculture sectors on the other hand are able to contribute 2 times the agricultural
sector. Most of the people engaged in agriculture are from the rural areas while the engagement in the non-
agriculture sector indicates urban population growth. Thus, urban productivity is twice the rural productivity.

There is a huge variation in the potential of economic development among the three ecoregions. The
Terai region has a big agricultural potential and easy access to the Indian border. Nepal has clear comparative
advantages in agricultural and non-timber forest products, such as medicinal herbs, large cardamom, cut
flowers, jute products, mustard oil, as well as ginger and teas. The soil of Terai region is fertile and cultivable
which boosts agricultural activities whereas the plain land facilitates establishment of factories. The physical
infrastructure such as road connects and industrial base is also developed in Terai as compared to Hills and
Himalayas. The Hill and Mountain regions have strong tourism prospects. The natural and cultural diversity
and enrichment gives the country an advantage in the tourism industry but the growth in tourism is still
stagnant due to less accessibility and poor infrastructure. In the Terai region, labor intensive manufactured
products including leather products, jute products, hand-knit carpets, jewelry, woven carpets, shawls,
pashminas and textiles can be produced which are competitive in international markets. In the Hilly and
Himalayan regions, hydropower is a sector with maximum potential due to the numerous snow-fed rivers.
However, the usage of the available natural resources is hampered by several factors including poor
infrastructure, connectivity, lack of private investments and institutional constraints. Nepal’s urban population
has grown to 16% in 2005 from about 3.6% in 1961 and is expected to be around 24% by 2011. The Income
per Capita (PCI) has also increased to $328 in 2005 from $68 in 1961 which is an indication of economic
growth in Nepal. The urbanization is also increasing (currently at 5.6% as of 2009) which would invite rise in
employment opportunities, institutional and structural development and growth of the non-agriculture sector.

The reason for urbanization in Nepal isn’t economic structural transformation but an increase in the
municipalities and high urban migration in search of better employment. The idea of urban areas is based on
population rather than economic advancement. In Nepal, urban areas or Nagarpalikas are defined in terms of a
minimum population of 10,000 for the Hilly and Mountainous regions and 20,000 for the Terai region. There
is a lack of proper criteria such as population density, industrial infrastructure, income per capita and facilities
for the recognition of urban areas and new urban areas are added. The unmanaged urbanization has led to
settlement in flood and landslide prone areas. Though the process of urbanization has been said to have begun
in Nepal, agriculture remains the primary economic activity in most of the areas instead of industries. In the
urban areas, the problems of unemployment, slum dwellers, increasing poverty, increase in illegal activities
and crimes are prominent due to unmanaged urbanization.

Nepal’s first attempt to induce urban growth was in the 1970s. Nepal adopted a regional development
approach in which five selected regional urban areas equipped with development infrastructure and facilities
were assumed to act for growth in their surrounding regions. Since then, efforts in urban development have
shifted with the emphasis on physical development in the urban areas. In order to derive inclusive growth (both
urban and rural areas), the urban functions should be analyzed and reviewed. Economic development in the
urban areas is necessary for inclusive growth as the rural areas are affected by the development in urban areas.
To achieve economic development in the urban areas, the criteria for the definition of urban areas needs to be
changed. The lack of urban network systems such as road connect and access in the hills and mountain region
has hampered the possibility of inclusive growth. The haphazard urban growth characterized by increasing
migration of people, accounting to 30% of the total urban population, has resulted in environmental
degradation as well as social problems as the economy is not able to sustain the increasing population in urban
areas. The concept of inclusive growth must be able to minimize these conditions to reduce social vulnerability
and civil troubles.

Village Development Committee (VDC), District Development Committee (DDC) and Municipalities
are responsible for development in the local levels whereas National Planning Commission (NPC) is
accountable for forming the nation-wide strategies and implementing them at the central level. Other central
agencies like the Ministry of Physical Planning and Works and Ministry of Local Development formulate
policies and monitor urban development. The financial and technical support is provided by Town
Development Funds and Town Development Committee who supervise the activities for urban infrastructural
enhancement. In the case of Nepal, the clash of responsibilities and ideas between these agencies lead to
functional gaps which results in delayed development programs. With the intention of creating an environment
of clear and distinct roles of Municipal government, Nepal government had formulated Local Self Governance
Act (1999) which specifies the functions and responsibilities of municipal government in planning, developing
and conserving towns.

In the fiscal year 2007, only 10% of the total budget was allocated to the urban sector to improve
roadways and water supply. There still seems to be a lack of private and government investment in the urban
sector. As discussed earlier, economic development in the urban areas is attainable by infrastructure and urban
development can help to attain rural growth. Thus, investments are required to bring inclusive growth. In order
to achieve balanced growth in both urban and rural areas, the roles of urban areas should be redefined to
facilitate structural transformation (shift from subsistence economy towards better industrial economy) and to
isolate production activities into concentrated clusters. A Region-based development strategy should be
introduced through which cities/regions can stimulate economic growth in an urban area. The strategy would
involve methodological analytical tools to identify potential for economic growth. Urban center analysis would
help to analyze the typology of urban areas by functions. A 4-step analytical tool was developed to identify the
economic potential of each urban area. The steps include:
1. Describe the area/sphere of influence of the Urban Economic Region.
2. Measure the comparative advantages of each Urban Economic Region using the aggregated composite
rank (ACR) index.
3. Identify the business sectors with high potential for triggering economic growth.
4. Derive the Urban Development Infrastructure (UDI) index which determines the difference between
existing facilities and facilities needed to support development of selected products (identified in steps
2 and 3).
These steps would help to strategize and plan development of urban areas which would ultimately
help in the creation of employment and uplift living standards in the region.

As a result of the analytical tools used to understand the economic potential of the selected regions.
From a region, three urban areas with the most potential were selected. These areas were considered to be the
major business hubs for the region. For instance; the 3 urban areas with the most potential from Urban
Economic Region 1 (UER 1) were Biratnagar, Dharan and Ilam. From an overall perspective, transportation
and road infrastructure were prioritized in each region to enhance flow of commodities and economic activities
between urban and rural areas. Some of the infrastructures which were considered necessary are electricity,
market expansion (trades across borders), research and development, storages and logistics.

For the primary industry (agro-processing industry), off season vegetables generally have a strong
comparative advantage. Other potential herbs and spices have potential in Biratnagar, and ginger and coffee in
Butwal, flowers for export from Birgunj and Kathmandu, and honey and mustard products in Dhangadhi.
Other potential industries include processing medicinal herbs, NTFP, and dairy industries. For the secondary
manufacturing industry, only a few items were identified, such as jewelry making in Siddarthanagar, garments
and handloom manufacturing in Biratnagar, and carpet weaving and pashmina production in Pokhara. Tourism
combined with jewelry making or carpet weaving also has high competitive advantages. For the tertiary sector
industry, different types of tourism (ecotourism, luxury trekking, and tourism in connection with Buddha’s
birthplace) have been prioritized for most of the UERs except Biratnagar. These should be exploited by
building essential infrastructure based on feasibility studies.

The role of government becomes eminent in order to achieve the potential of each economic region.
The main objective of the analysis is to develop a path for the future from an economic, social and regional
perspective to attain inclusive growth. Nepal being an underdeveloped nation, lacks primary infrastructure,
financial resources and institutional base to manage economic growth. Development strategy should be able to
guide the investment of the government to maximize the limited financial resources. The aim of a development
plan should be to bring efficiency and increase productivity; especially in the case of a country like Nepal. The
authors present some of the key factors that the government must identify and focus on to sustain growth
across the country. Firstly, existing urban sector development needs to be reconsidered and the focus should be
on managing the scarce resources and filling the infrastructural gaps. The challenges aren’t just limited to the
economic aspect but also the social and geographical aspect. The challenge of connectivity and diversity
between regions can pose a huge threat to a region’s potential to grow. For this, the government needs to
propose diversified strategies for different regions and build connectivity between the regions. The proposed
Region-Based Urban Development Strategy includes the following principles: aiming for each UER as a target
development unit, form cluster of production to attain economies of scale, focus on forward-backward links
along the chains, prioritize connectivity between belts (UERs), enhance competitiveness in each UER by using
available natural resources efficiently, focus on products with maximum economic potential in each UER,
increase investments and emphasize on long term orientation. In a nutshell, the focus should be on investing
systematically in the selected towns of each UER rather than investing in areas of political interest. The region-
based development strategy could create economic opportunities in the regions and help to achieve urban
development which would help to attain inclusive growth.

Conclusion and Critical Reflection (Strengths and Weaknesses):

To conclude; the book offers insights on the significance of urban development to derive inclusive
growth in the country. The authors critically analyze the opportunities and challenges brought by the
geographical diversity of Nepal. Through a set of analytical and technical tools (methodologies), the authors
analyze the present condition of Nepal and provide a pathway to promote inclusive growth. In Nepal, as the
designation of urban areas is based simply on population rather than on economic growth parameters, many
urban areas lack the capacity to lead development in their nearby rural regions. Despite the increasing urban
areas, 80% of the population is still rural, and Nepal’s urban development strategy needs to make clear how
cities can function as engines of growth in the hinterlands. The government has to be clear in their directives
and policies to induce change.

The central theme of the book is inclusive growth which can be taken as an end and the strategies to
be implemented in order to achieve the growth which can be termed as means. It is a positive aspect of the
book as it incorporates all the possibilities of economic growth in the nation. The authors don’t describe the
political factor that has impacted the urban development of Nepal which can be considered one of the negative
aspects of the book. The positive and negative consequences of foreign trade are also not included in the
central theme of the book.

I completely agree with the authors and strongly believe that structural advancement is necessary to
improve the current situation of Nepal. The connectivity of regions is a major challenge for economic activities
in Nepal. The lack of industrial base and low employment opportunities have increased foreign migration due
to which the country is losing the youth population. This further slows the development process. The
government should look to increase foreign investments by creating suitable policies for the investors which
would lead to capital inflow. To do so, a conducive environment should be created for which the proposed
region-based development strategy should be adopted by the central government.

Book Rating: 4/5

Submitted By: Submitted To:

Birat Acharya (217001) Mr. Sudhir Shrestha

BBA Fall 2021 (Section A) Faculty, Nepalese Economics