Convert Disadvantages Into Advantages

I was recently in Nepal, and met many of its promising young economic journalists. None of them was gung-ho about the country’s future. Most felt that Nepal had deep structural problems that were difficult to overcome.

They cited three main problems. First, Nepal is a hilly country, making transport and agriculture very difficult. Second, it is land-locked, hampering international trade. Third, it is very poor and does not save enough for a decent investment level, and so depends heavily on foreign aid.

I argued that none of these factors represents a fundamental problem. Global experience suggests that what are traditionally regarded as a natural advantages – mineral wealth, fertile land, easy access to big markets – have counted for little in the last half century. African countries rich in gold, oil and land have withered, while barren rocks in the ocean like Singapore and Hong Kong have become the superstars of the Third world and are now richer than the former colonial master, Britain.

This shows countries can become rich regardless of what have traditionally been seen as disadvantages. With intelligent effort, seeming disadvantages can often be converted into advantages.

Consider Nepal. Yes, it is a hilly nation, so growing wheat or rice is obviously difficult. But does this really limit Nepal’s agricultural potential? Not at all.

Just look at nearby Himachal Pradesh. At independnce, this hill state was as backward as Nepal. Yet today the poverty ration in Himachal Pradesh is one of the lowest in India, far lower than in flat, fertile states like Uttar Pradesh, Bihar and West Bengal. Why? Because Himachal has converted its apparent disadvantage in agriculture into a major advantage. Its hilly territory is unsuited for cereals, so it has diversified to become India’s top horticultural state. Hills mean a cool, temperate climate. You can not grow apples and peaches in the plains, but you can in the hills. Himachal is now the chief supplier of fruit to the Gangetic plain.

It has further diversified into non-seasonal vegetables. The main potato crop in India is grown in Utter pradesh in winter, and when that huge crop comes on the market, farmers are lucky to get one rupee a kilo. But because of its cool weather Himachal Pradesh can produce potatoes in summer, when the price is six times as high. Even allowing for lower yields in the hills and sizable transport costs in moving potatoes to the plains below, potato cultivation is very profitable. Himachal is now applying the same principle to cultivating other non-seasonal vegetables.

Himachal is by no means the only such example. The Nilgiris in such India also produce fruit, potatoes and other non-seasonal vegetables. Hilly regions have an advantage in plantation crops too. Darjeeling grows the most expensive tea in he world. Hilly regions produce most of the tea in Kenya, Sri Lanka, China and Indonesia. Coffee and cardamom in India grow almost entirely in the hills.

So let nobody in Nepal claim that hills hamper agriculture. The trick lies in using your hills intelligently. As Himachal has shown, Nepal needs a paved road and telephone in every village. The first reduces transport costs, the second enables villagers to phone market centres to find which are the most profitable destinations.

Hill attract tourists, and this is one sector where Nepal has done quite well. Hills also attract rain clouds, and typically get more rain than the plains, a major agricultural advantage. This also translates into hydro-electric potential, which in Nepal totals a whopping 83,000 MW. Unfortunately, because of political hand-ups in dealing with India, Nepal has so far not harnessed its hydel potential. But successful hill nations like Switzerland, Japan and Korea have done so.

Nepal is land-locked. Now, many land locked countries are poor. Yet some others are rich. Switzerland and Austria are among the most prosperous in Europe, Botswana is one of the richest in Africa. The most prosperous nation in the ex-communist world (with a per capita income of $ 10,000) is land-locked Slovenia, and the Czech republic is not far behind. Within India, land-locked Punjab is easily the richest state.

So, while having a coastline certainly helps, it is neither a necessary nor sufficient condition for prosperity. The most important condition is your ability to turn apparent disadvantages into advantages.

Being landlocked places Nepal that much further from western markets, but also that much closer to Indian markets. Holland, one of the most efficient producers of vegetables and flowers in the world, cannot hope to export these to India, because of high transport cost, but Nepal can become the vegetable basket of India in the summer. It can become a major supplier of fruit and plantation crops too. India is one of the biggest potential markets in the world, and so multinationals are spending billions on new factories in India to gain a locational advantage. Nepal has that advantage without even trying.

Most Nepalese do not see it that way. They feel they will be over-whelmed by a giant country like India. But why? India has been beaten hollow by one country after another in East and South-east Asia over the last five decades. India is no economic superpower. It is a poor, corrupt country going nowhere fast.

Nepal has failed to beat India because it is even more corrupt and inefficient. Do not blame its hilly territory, land-locked status, or poverty. The problem lies else-where.

Even poverty can be turned from a disadvantage into an advantage. The most remarkable development of the last fifty years has been the shifting of industries from rich to poor countries to take advantage of lower wages in the latter. Now, low wages alone are not enough. A country must also provide good quality infrastructure, good communications, reasonably hassle-free systems, reasonably efficient bureaucracies, and sensible economic policies. Once a country fulfills these conditions, multinationals will flock in. The greater the initial poverty, the greater the pull of own wages.

This holds lessons not just for Nepal but for all countries, and for all regions within a country. Success does not depend on minerals, soil or location. What matters is whether a country or state has devised systems that make it possible for ordinary folk to utilise their talents. If it does, every apparent disadvantage can be converted into an advantage. If it does not, neither fertile soil nor mineral wealth will save if from disaster (as Bihar has demonstrated graphically).

What do you think?