Image: Mehmet Turgut Kirkgoz
WHEN A MACHINE stalls, the sensible response is to inspect the engine. Nepal’s policymakers, however, have spent decades polishing the rear-view mirror. They have summoned donors, staged summits and commissioned reports. What they have not done is fix the apparatus that runs the country. The bureaucracy, meant to enable economic activity, behaves like a customs house from the Ottoman Empire: slow and allergic to frictionless commerce. The fallout is predictably dismal. Vietnam, once an equally poor peer, manufactures semiconductors and exports shoes by the billion. Nepal sells electricity and labour.
The divergence did not emerge from culture or topography. It emerged from governance. Vietnam’s ruling party, though unyielding on political freedoms, has shown a consistent commitment to economic discipline. Since the launch of its doi moi reforms in 1986, it has engineered an export-driven growth model rooted in industrial parks and global supply chains, alongside serviceable infrastructure. Last year it drew $25bn in foreign investment. Nepal attracted under 0.5% of that.
Nepal flirted with liberalisation in the 1990s. It then spent the next thirty years writing constitutions and rotating ministers, as well as building an elaborate pyramid of government tiers that administer little and obstruct much. The state has become a self-replicating organism: dense with offices, thin on delivery. The bureaucracy answers to no strategy. It rewards no performance. And it punishes no failure. It regulates by neglect and implements by committee.
Vietnam has its defects. Much of its manufacturing is shallow: assembled rather than designed. Local firms make plastic moulds and cardboard boxes, not microchips. Few Vietnamese suppliers sit within Samsung’s top-tier vendor list. As wages rise and demographics tighten, the country faces diminishing returns from labour-intensive exports. Yet these limitations stem from success—growing pains of a maturing economy. Nepal by contrast is stuck in institutional childhood.
The fantasy that Nepal might replicate Vietnam’s export engine ignores a crucial precondition: Vietnam built roads, cut tariffs, restructured its ministries before factories arrived. Nepal has not done the homework. It lacks reliable logistics, stable regulation and the administrative stamina to deliver power, water or permits at industrial scale. When investors do show up, they are welcomed with ceremonial garlands and procedural delay.
Federalism, meant to democratise governance, has produced a sprawling maze. Municipalities squabble over mandates. Provinces pass policies they cannot fund. Civil servants treat public posts as property rights. What is billed as reform is frequently a well-lit distraction. One window is opened in Kathmandu’s investment office; five more are created elsewhere, each demanding signatures, fees and, occasionally, favours.
To Lam, Vietnam’s party chief, recently purged a swathe of bureaucrats to restore order and velocity to the state machine. Authoritarian tools make such surgery easier. But the principle applies more broadly: reform requires a mechanism of enforcement. Nepal’s state lacks both teeth and a spine.
The education system is no better. Public schools teach memorisation. Private schools teach emigration. Nepal produces more visa applicants than engineers. Technical and vocational education is fragmented and underfunded. Universities are treated as shelters for unemployed graduates and not as sources of research or skills. Vietnam, despite tight state control over curricula, has built stronger links between industry and training. Nepal has scarcely begun.
Entrepreneurship is hobbled by erratic policy and expensive capital. Business groups behave more like aristocratic guilds than engines of innovation. Start-ups face regulators who regard novelty as a threat. The Vietnamese state, although hardly laissez-faire, has at least invested in export readiness as well as simplified licensing and digital platforms. Nepal prefers to organise photo opportunities with foreign investors rather than build a domestic ecosystem they might actually use.
Even digitalisation—where Nepal has few ideological barriers—remains rudderless. Digital IDs, mobile wallets and online services exist in silos, vulnerable to ministerial mood swings. Without a coordinated national strategy, the digital sector remains a patchwork rather than a platform. Vietnam, for all its censorship, has bet heavily on becoming a tech hub. Nepal, with far fewer constraints, has yet to place a proper wager.
Vietnam is now contending with the difficult frontier of development: institutional maturity. Courts, banks and provincial governments must operate transparently to support innovation and sustain growth. That process is proving slow and uneven. Nepal would be fortunate to face such problems. At present it cannot guarantee land titles, enforce contracts or even build a power plant without litigation.
There is no shame in taking cues from Vietnam. Few developing countries have managed to turn a command economy into a global export platform without Western tutelage or IMF shock therapy. But to copy its outputs without adopting its inputs is to mimic the chassis of a car without installing the engine.
The machinery of state matters. It delivers electricity to factories; curriculum to classrooms; and capital to entrepreneurs. Without it economies do not accelerate. They idle and decay.
Cranking the flywheel
Nepal’s future does not depend on finding another miracle model to emulate. It depends on learning how Vietnam built the operational capacity to execute its plans, however flawed they may be. Economic strategy, however elegant in PowerPoint, needs an engine room beneath the deck.
Until Nepal overhauls the engine—rationalising governance, enforcing bureaucratic discipline and tying incentives to national priorities—every new policy will serve as yet another layer of dead weight. The machine will not move. Time will not wait. And Nepal, barring serious reform, will be left in the dust by neighbours who remembered to turn the key. ■
