ILLUSTRATION: ALBERTO MIRANDA
IF YOU want to understand how wealth works in Nepal, start with a question: where does a successful Nepali businessman put his money? Not in a mutual fund. Not in the stock market, at least not primarily. Not in bonds, which barely exist for private investors. The answer, if you pressed him, would probably be: land, a stake in a bank, government contracts and, somewhere in the house, a considerable quantity of gold.
Nepal does have a stock exchange. The Nepal Stock Exchange, known as NEPSE, now lists 286 companies with a combined market value of some 73% of the entire economy’s annual output. That sounds substantial. It is less impressive once you look inside. The exchange is owned majority by the government, the central bank and the state pension fund. The companies listed on it are overwhelmingly financial institutions and hydropower generators. There is not a single technology firm. The Chaudhary Group—Nepal’s only billion-dollar business, built on Wai Wai instant noodles and spanning 160 companies across 35 countries—does not trade on NEPSE. The really big businesses in Nepal are family-owned and not for sale to the public.
That is not unusual for a developing economy. What makes Nepal’s version of this picture worth examining is how the specific routes to wealth here—the four or five things that actually compound a fortune from one generation to the next—reveal something important about what has and has not changed in the country’s political economy, regardless of which party wins elections.
The biggest one is land. Kathmandu has grown fast, chaotically and without adequate planning for three decades. Land that was agricultural on the city’s edge in the 1990s is urban real estate today. Prices have multiplied many times over. A family that held a few ropani of land—one ropani is about 508 square metres—in what was then a quiet neighbourhood and is now a busy commercial district has, without doing anything at all, accumulated wealth that would take several lifetimes of salaried employment to replicate. Nepal has a capital gains tax on property, set at 5% for land held more than five years. It is widely regarded as inconsistently enforced, particularly on cash transactions. The upshot is that most of the land wealth that has accumulated over a generation has done so tax-free and undisclosed.
The second route is the contract economy. Nepal’s government spends large sums every year on roads, bridges, schools, hospitals and airports. The companies that win those contracts are typically connected to political networks. Cash flows in, gets reinvested into more contracts or more land and the cycle continues. The property investigation commission that prime minister Balendra Shah set up in his first days in office is probing this cycle—examining the unexplained wealth of politicians and public officials going back to 1990. The asset declarations that every minister must file publicly, and which Nepali journalists examine with relish after every government formation, tell the story: land holdings that no civil servant salary could explain, gold that seems to have multiplied, shares in banks that arrived at convenient prices.
The third route is what might be called the founders’ advantage in banking. When commercial banks were set up in the 1990s and 2000s, the families and business groups that put in the founding capital received shares at the original issue price: typically at face value. Those stakes have since multiplied through bonus shares and rights issues, and the underlying banks have paid dividends every year. A family that seeded a bank with Rs10m in 1995 holds a position worth hundreds of millions of rupees today, with real influence over who runs the institution. This is legal, and it has been one of the most reliable wealth-compounding mechanisms available to Nepal’s business class.
The fourth route is time. Nepal has no inheritance tax. Whatever a family builds passes to the next generation without any government claim on it and without any public disclosure. The trading families that dominated Kathmandu’s commercial life in the 1970s are, one generation further along, still dominant. Their networks are intact, their land is still theirs, their bank stakes keep paying dividends.
None of this means the stock exchange is irrelevant. For a schoolteacher in Pokhara or a shopkeeper in Butwal, NEPSE is the only real investment option beyond a bank savings account. The excitement around new hydropower IPOs—the queues at broker offices, the DEMAT accounts opened by returning migrants from the Gulf—reflects broadening of financial participation. But NEPSE measures the outcomes of where wealth flows after it has been created. It does not capture, say, the land deals, the contract wins, the founding stakes and the inheritance that constitute the actual process of wealth in Nepal.
Closing the gap between those two things—taxing land gains properly, making public procurement transparent, disclosing who ultimately owns bank stakes, introducing some claim on inheritance—would mean reforms so politically difficult that no government in three decades has seriously attempted them. The Shah administration’s property probe is the loudest noise any government has made about the problem. Time will tell if it becomes a catalyst for reform or another well-publicised diagnosis that ultimately changes little. ■
