Nepal in a Changing Global Order of Geoeconomics

Almost every country of the world has been, directly or indirectly affected by the rising effect of geoeconomics and Nepal can not be an exception. After the growing connectivity of Nepal with China, western countries and the USA including India have been functioning aggressively in Nepal. The increasingly fierce competition between China and India and the US to extend their respective spheres of influence in Asia has also affected Nepal severely due to its borders with India and China, who are major geopolitical and geoeconomic players.

Geoeconomics is a strategically developed part of economics. Economics is associated with the activity that creates movement of goods, increases productivity, and brings prosperity in society. If it is used to gain power and control upon ‘others’, it turns into geoeconomics, equally powerful compared to politics. In present days, it has been spreading globally like politics to gain power and control over resources. There is not yet an authoritative definition of geoeconomics that is clearly distinct from geopolitics.

After the end of the colonization era and cold war, developed countries have changed their strategy by entering through market mechanisms and powerful institutions in the internal dynamics of developing and rival countries. Geopolitics, the traditional driving force behind foreign policy and strategy, has been replaced by geoeconomics, by implementing economic and policy instruments by powerful nations – such as investment policies, commodity restrictions, and financial sanctions – to achieve political aims, thereby promoting and securing national interests. Geoeconomics not only  brings opportunities for greater prosperity, but also for greater economic competition between countries.  For example, from China’s Belt and Road Initiative to the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act and Millennium Challenge Corporation (MCC) of the US and countries around the world have taken a range of new economic policy measures to protect key domestic industries and to ensure a reliable supply of critical raw materials.

As an instrument of geoeconomics, the Belt and Road Initiative (BRI), China’s ambitious multi-trillion-dollar global infrastructure development project launched in 2013, has sought to revitalize and expand the Silk Road, connecting Asia with Europe and Africa through a network of ports and transnational railroads. Besides the decade-old Belt and Road Initiative (BRI), China has launched the Global Development Initiative (GDI), Global Security Initiative (GSI) and Global Civilisation Initiative (GCI) and asked countries including those in the immediate neighborhood to join them. Nepal formally became part of BRI on May 12, 2017 after five years of the establishment of BRI. Both Nepal and China have identified nine projects – upgrading the Rasuwagadhi-Kathmandu road, Kimathanka-Hile road construction, road construction from Dipayal to the Chinese border, Tokha-Bidur Road, Galchi-Rasuwagadhi-Kerung 400kv transmission line, Kerung-Kathmandu rail, 762MW Tamor Hydroelectricity Project, 426MW Phuket Karnali Hydroelectric Project, and Madan Bhandari Technical Institute – under the BRI.

Similarly, in September 2017, the U.S. Government’s Millennium Challenge Corporation (MCC) signed a $500 million compact with the Government of Nepal. The compact aims to maintain road quality, increase the availability and reliability of electricity, and facilitate cross-border electricity trade between Nepal and India—helping to spur investments, accelerate economic growth, and reduce poverty. Millennium Challenge Corporation has been expanding globally as a part of US geoeconomic strategy. The United States, together with its G7 partners, and the European Union have since launched analogous global investment programmes – Partnership for Global Infrastructure and Investment and Global Gateway, respectively – to engage in strategic competition with the rising power and counter its geopolitical ambitions.

As far India is concerned, it does not have such a huge global initiative on the economic agenda. It works in scattered projects in Nepal in some areas with direct project spending through its embassy in Nepal and a couple of large projects in hydropower for import purposes. However, it has the strongest economic control over  Nepal because it exports around 65%  goods and services to Nepal. Nepal is highly dependent on India as it imports almost everything from sensitive defense materials to petroleum products, medicines, foodstuffs, and other essential items from India.

Today’s leading geoeconomic instruments are trade policy, investment policy, economic and financial sanctions, financial and monetary policy, energy and commodities, aid and cyber. While some function as they have in the past (aid), others are new (cyber) or operate in a different environment (energy). China, Russia and the US are major players of geoeconomics. Beijing has repeatedly cut car imports from Japan to weaken it in east Asia and it rewards those countries that vote with it at the United Nations. The US  pressures firms and governments in third party countries to curb their imports of Chinese company Huawei 5G technology. Russia uses its energy endowment to advance strategic objectives. It shut off gas pipelines to parts of Europe in the middle of winter amid political disputes with Ukraine. As a part of geoeconomics sanctions, Nepal has also experienced a number of Indian sanctions through border blockade by restricting flow of essential goods to Nepal and China’s Nepal  border closers strategy after the Corona pandemic for many years.

Every country has, more or less, resources and capabilities for national upliftment and strategic accomplishments. For example, due to the abundance of fossil fuels in the Arab World, even the developed world hardly goes against them. Nepal also has an abundance of water for drinking and irrigation purposes and has potential of hydroelectricity to fulfill the demands of countries of South Asia region as its geoeconomic choke-point power.  These green and renewable sources are sustainable and dependable sources of natural resources compared to fossil fuels deposits of Arab world countries.

India is only one county, who is benefitting from Nepal’s water and hydropower. Entrance of   other external investors in Nepal is not possible due to unavailability of Indian markets for them. This seems to be a part of geoeconomic strategy of India to have complete control over Nepal’s water resources. As China is also fully aware of the importance of alternative energy, it also has a strong interest in Nepal’s hydropower for future requirements and is looking for a way out for it. It depends on Nepal’s policy to be geo economically powerful, if it could streamline and enhance its policies on the sale of hydroelectric power to third countries, there would be tremendous opportunities for investors from all over the world. Moreover, Nepal could benefit from becoming the cheapest transit hub of railway transport between India and China through the proposed train from Chinese border to Indian border. Full operation of both Gautam Buddha and Pokhara International Airports are strategically and economically important infrastructures for Nepal and the proposed Nijgadh International Airport could support transforming Nepal’s economy up to a considerable level. These connectivity could strategically ease Nepal’s  sufferings caused by its landlockedness. However Nepal lacks capabilities to start and capitalize these mega infrastructures, being a victim of geopolitical power play .

Lastly, it would be relevant to portray the example of Ethiopia, how it became a strategically and economically powerful nation after completion of one huge hydroelectricity project. During the 1980s, Ethiopia was  considered to be a country, full of poverty and underdevelopment and  portrayed as a country of famine and hunger. However, after completion of construction of Grand Ethiopian Renaissance Dam (GERD) within 12 years in 2022, a 6000-megawatt hydroelectric project on the Blue Nile river, now it has started to export electricity to African countries. It has become a regional geostrategic and geo economic superpower in east Africa only after completion of this one project. However, if we compare it with the similar capacity of the Pancheshwar hydroelectricity project in Nepal that has been lingering in DPR for three decades with India, which is just an example of Nepal’s weak and dependent geoeconomic status.