Africa’s Hopeful Economies

Africa’s Hopeful Economies
The Economist, 3-Dec-2011

The continent’s impressive growth looks likely to continue

HER $3 billion fortune makes Oprah Winfrey the wealthiest black person in America, a position she has held for years. But she is no longer the richest black person in the world. That honour now goes to Aliko Dangote, the Nigerian cement king. Critics grumble that he is too close to the country’s soiled political class. Nonetheless his $10 billion fortune is money earned, not expropriated. The Dangote Group started as a small trading outfit in 1977. It has become a pan-African conglomerate with interests in sugar and logistics, as well as construction, and it is a real business, not a kleptocratic sham.

Legitimately self-made African billionaires are harbingers of hope. Though few in number, they are growing more common. They exemplify how far Africa has come and give reason to believe that its recent high growth rates may continue. The politics of the continent’s Mediterranean shore may have dominated headlines this year, but the new boom south of the Sahara will affect more lives.

From Ghana in the west to Mozambique in the south, Africa’s economies are consistently growing faster than those of almost any other region of the world. At least a dozen have expanded by more than 6% a year for six or more years. Ethiopia will grow by 7.5% this year, without a drop of oil to export. Once a byword for famine, it is now the world’s tenth-largest producer of livestock. Nor is its wealth monopolised by a well-connected clique. Embezzlement is still common but income distribution has improved in the past decade.

Severe income disparities persist through much of the continent; but a genuine middle class is emerging. According to Standard Bank, which operates throughout Africa, 60m African households have annual incomes greater than $3,000 at market exchange rates. By 2015, that number is expected to reach 100m—almost the same as in India now. These households belong to what might be called the consumer class. In total, 300m Africans earn more than $700 a year. That’s not much, and many of those people could be pushed back into penury by a small change in circumstance. But it can cover a phone and even some school fees. “They are not all middle class by Western standards, but nonetheless represent a vast market,” says Edward George, an economist at Ecobank, another African banking group.

As for Africans below the poverty line—the majority of the continent’s billion people—disease and hunger are still a big problem. Out of 1,000 children 118 will die before their fifth birthday. Two decades ago the figure was 165. Such progress towards the Millennium Development Goals, a series of poverty-reduction milestones set by the UN, is slow and uneven. But it is not negligible. And the mood among have-nots is better than at any time since the independence era two generations ago. True, Africans have a remarkable capacity for being upbeat. But it is seems that this time they really do have something to smile about.

Lions and tigers (and bears)

Since The Economist regrettably labelled Africa “the hopeless continent” a decade ago, a profound change has taken hold. Labour productivity has been rising. It is now growing by, on average, 2.7% a year. Trade between Africa and the rest of the world has increased by 200% since 2000. Inflation dropped from 22% in the 1990s to 8% in the past decade. Foreign debts declined by a quarter, budget deficits by two-thirds. In eight of the past ten years, according to the World Bank, sub-Saharan growth has been faster than East Asia’s (though that does include Japan).

Even after revising downward its 2012 forecast because of a slowdown in the northern hemisphere, the IMF still expects sub-Saharan Africa’s economies to expand by 5.75% next year. Several big countries are likely to hit growth rates of 10%. The World Bank—not known for boosterism—said in a report this year that “Africa could be on the brink of an economic take-off, much like China was 30 years ago and India 20 years ago,” though its officials think major poverty reduction will require higher growth than today’s—a long-term average of 7% or more.

There is another point of comparison with Asia: demography. Africa’s population is set to double, from 1 billion to 2 billion, over the next 40 years. As Africa’s population grows in size, it will also alter in shape. The median age is now 20, compared with 30 in Asia and 40 in Europe. With fertility rates dropping, that median will rise as today’s mass of young people moves into its most productive years. The ratio of people of working age to those younger and older—the dependency ratio—will improve. This “demographic dividend” was crucial to the growth of East Asian economies a generation ago. It offers a huge opportunity to Africa today.

Seen through a bullish eye, this reinforces exuberant talk of “lion economies” analogous to the Asian tigers. But there are caveats. For one thing, in Africa, perhaps even more so than in Asia, wildly different realities can exist side by side. Averaging out failed states and phenomenal success stories is of limited value. The experience of the leaders is an unreliable guide to what will become of the laggards. For another, these are early days, and there have been false dawns before. Those of bearish mind will ask whether the lions can match the tigers for stamina. Will Africa continue to rise? Or is this merely a strong upswing in a boom-bust cycle that will inevitably come tumbling back down?

More than diamond geezers

Previous African growth spurts undoubtedly owed a lot to commodity prices (see chart 1). After all, Africa has about half the world’s gold reserves and a third of its diamonds, not to mention copper, coltan and all sorts of other minerals and metals. In the 1960s revenues from mining paid for roads, palaces and skyscrapers. When markets slumped in the 1980s the money dried up. The skylines of Johannesburg, Nairobi and Lagos are still littered with high-rise flotsam from the high-water marks of previous booms.

Recently revenues from selling oil and metals have helped to fill treasuries, create jobs and feed an appetite for luxury. In gem-rich Angola, high-grade diamonds are reimported after being cut in Europe to adorn the fingers of local minerals magnates and their molls.

Overall, though, only about a third of Africa’s recent growth is due to commodities. West and southern Africa are the chief beneficiaries. Equatorial Guinea gets most of its revenues from oil; Zambia gets half its GDP from copper. When commodity prices soften or tumble such countries will undoubtedly suffer. But it is east Africa, with little oil and only a sprinkling of minerals, that boasts the fastest-expanding regional economy on the continent, and there are outposts of similar non-resource-based growth elsewhere, such as Burkina Faso. “Everything is growing, not just commodities,” says Mo Ibrahim, a Sudanese mobile-phone mogul who is arguably Africa’s most successful entrepreneur.

When the world economy—and with it commodity prices—tanked in 2008, African growth rates barely budged. “Africa has great resilience,” says Mthuli Ncube, chief economist of the African Development Bank. “A structural change has taken place.”

A long-term decline in commodity prices would undoubtedly hurt. But commodity-led growth on the continent is not as reversible as it used to be. For one thing, African governments have invested more wisely this time round, notably in infrastructure. In much of the continent roads are still dire. But there are more decent ones than there used to be, and each new length of tarmac will boost the productivity of the people it serves long after the cashflow that paid for it dries up. For another, Africa’s commodities now have a wider range of buyers. A generation ago Brazil, Russia, India and China accounted for just 1% of African trade. Today they make up 20%, and by 2030 the rate is expected to be 50%. If China and India continue to grow Africa probably will too.

More jaw-jaw, less war-war

What’s more, many foreign participants in the African commodity trade have become less short-termist. They are likely to stick around after they finish mining; Chinese workers, of whom there are tens of thousands in Africa, have shown a propensity to morph into local entrepreneurs. A Cantonese construction company in Angola recently set up its own manufacturing arm to produce equipment that is difficult to import. Few Western competitors would do the same (though many of their colonial forebears did).

Commodity growth may be more assured than it used to be. But two big drivers of Africa’s growth would still be there even if the continent held not a barrel of oil nor an ounce of gold. One is the application of technology. Mobile phones have penetrated deep into the bush. More than 600m Africans have one; perhaps 10% of those have access to mobile-internet services. The phones make boons like savings accounts and information on crop prices ever more available.

Technology is also aiding health care. The World Bank says malaria takes $12 billion out of Africa’s GDP every year. But thanks to more and better bed nets, death rates have fallen by 20%. Foreign investors in countries with high HIV-infection rates complain about expensively trained workers dying in their 30s and 40s, but the incidence of new infection is dropping in much of the continent, and many more people are receiving effective treatment.

The second big non-commodity driver is political stability. The Africa of a generation ago was a sad place. The blight of apartheid isolated its largest economy, South Africa. Only seven out of more than 50 countries held frequent elections. America and the Soviet Union conducted proxy wars. Capital was scarce and macroeconomic management erratic. Lives were cut short by bullets and machetes.

Africa is still not entirely peaceful and democratic. But it has made huge strides. The dead hand of the Soviet Union is gone; countries such as Mozambique and Ethiopia have given up on Marxism. The dictators, such as Congo’s leopard-skin-fez-wearing Mobutu Sese Seko, that superpowers once propped up have fallen. Civil wars like the one which crippled Angola have mostly ended. Two out of three African countries now hold elections, though they are not always free and fair. Congo held one on November 28th.

Friends and neighbours

Even if many of the world’s most inept states can still be found between the Sahara and Kalahari deserts, governance has improved markedly in many places. Regulatory reforms have partially unshackled markets. A string of privatisations (more than 100 in Nigeria alone) has reduced the role of the state in many countries. In Nigeria, Africa’s biggest resource economy, the much-expanded service sector, if taken together with agriculture, now almost matches oil output.

Trade barriers have been reduced, at least a bit, and despite the dearth of good roads, regional trade—long an African weakness—is picking up. By some measures, intra-African trade has gone from 6% to 13% of the total volume. Some economists think the post-apartheid reintegration of South Africa on its own has provided an extra 1% in annual GDP growth for the continent, and will continue to do so for some time. It is now the biggest source of foreign investment for other countries south of the Sahara.

Somewhat belatedly, Africans are taking an interest in each other. Flight connections are improving, even if an Arab city, Dubai, is still the best hub for African travellers. Blocks of African economies have taken steps towards integration. The East African Community, which launched a common market in 2010, is doing well; the Economic Community of West African States less so. The Southern African Development Community has made the movement of goods and people across borders much easier. That said, barriers remain, and the economy suffers as a result. Africans pay twice as much for washing powder as consumers in Asia, where trade and transport are easier and cheaper.

As in Asia a generation ago, relatively small increases in capital can produce large productivity gains. When, after decades of capital starvation, outside investors started to take that disproportionate return seriously, they helped Asia blossom. Now some of those investors are eyeing Africa. In financial centres such as London barely a week goes by without an Africa investor conference. Private-equity firms that a decade ago barely knew sub-Saharan Africa existed raised $1.5 billion for projects on the continent last year. In 2010 total foreign direct investment was more than $55 billion—five times what it was a decade earlier, and much more than Africa receives in aid (see chart 2).

Foreign investors are no longer just interested in oil wells and mines. They are moving on to medium-sized bets on consumer goods. The number of projects—for example by retail chains such as Britain’s Marks & Spencer—has doubled in the past three years. Despite the boom in mining, the share of total investment going into extractive activities has shrunk by 13%. That said, the riches are far from evenly spread: three-quarters of all investments are in just ten big countries.

The increased interest from outsiders that has been triggered by Africa’s political and technological changes is not, though, the heart of the story. Economic change has made life more rewarding for Africans themselves. They have more opportunities to start businesses and get ahead than they have enjoyed in living memory, and governments are showing some willingness to get out of their way. According to the World Bank’s annual ranking of commercial practices, 36 out of 46 African governments made things easier for business in the past year.

No end to worries

That said, most African countries are still clustered near the bottom of the table. In all sorts of ways African governments need to run their countries more efficiently, more accountably and less intrusively. They also need to offer much better schooling, an area in which Africa woefully lags behind Asia. African businessmen constantly complain about the shortage of skills. Hiring qualified staff can be prohibitively expensive. The return of skilled exiles has helped in some newly peaceful countries, but often foreigners are needed, usually other Africans. Without better education, Africa cannot hope to emulate the Asian miracle.

Africa’s demographic dividend, too, is far from guaranteed. A growing population and a bulge of working-age citizens proved a blessing in Asia. But population growth always has its costs. All those extra people must be fed, educated and given opportunities. If illiberal policies obstruct growth and discourage firms from hiring, Africa’s extra millions may soon be jobless and disgruntled. Some may even take up arms—a sure recipe for disaster, both human and economic.

An abundance of young people is like gearing on a balance sheet: it makes good situations better and bad ones worse. It is worrying that some of Africa’s fastest-growing populations are in economies not performing well at the moment; and fertility rates are not declining as uniformly, or as swiftly, as they did in Asia.

Africa’s extra people are flocking to cities. Some 40% of Africans are city dwellers now, up from 30% a generation ago. By 2025 the number is likely to be 50%. In Asia the rate is currently 52%. This is usually a good thing. Productivity is higher in cities. Transport costs are lower and markets are busier when people live close to each other. In bad times, the tight ethnic jumble of the city can be a powder keg. That said, Africa’s worst wars, such as those in Congo, Rwanda, Sudan and Somalia, have been fought in countries where most people are peasants or livestock herders.

Extra mouths will need to be fed. There is scope for this. Though Africa is now a net food importer, it has 60% of the world’s uncultivated arable land. It produces less per person now than in 1960. Africa’s land is often hard to farm, with large year on year variations in climate (a problem likely to get worse as the Earth heats up). Farmers lack access to capital for fertiliser and irrigation. More roads and storage depots are also needed; much of the harvest rots before it gets to market. And land ownership often raises thorny issues about who belongs to a place and who does not.

Agriculture is a long-term worry. A shorter term concern is how to deal with a coming slowdown and recession in the north. Investors fleeing risky assets in Europe are unlikely to put their cash into Africa. More likely they will pull back some of the money they have already invested there. The signs are that this is already happening. Bankers say the deal flow is slowing. But many remain generally bullish on Africa, convinced that its growth potential will reward patient investors and eventually lure back fickle ones.

Africa’s growth is now underpinned by a permanent shift in expectations. In many African countries people have at last started to see themselves as citizens, with the rights that citizenship brings. Greater political awareness makes it harder for incompetent despots to hold on to power, as north Africa has discovered. Bastions of the continent’s past—destitute, violent and isolated—are becoming exceptions.

Africa is not the next China. It provides only a tiny fraction of world output—2.5% at purchasing-power parity. It is as yet not even a good bet for retail investors, given the dearth of stockmarkets. Mr Dangote’s $10 billion undeniably makes him a big fish, but the Dangote Group accounts for a quarter of Nigeria’s stockmarket by value: it is a small and rather illiquid pond. Nonetheless, Africa’s boom will continue to benefit Africans, serving the billion as well as the billionaires. That is no small feat.

Learning Lessons from Bihar

Building on Bihar
Himal South Asian, December 2011
By Blair Glencorse

As a new government is formed in Kathmandu, how can Nepal not only learn from the changes underway in Bihar, but capitalise on them?

Poor infrastructure, weak human capacity, politicised local bureaucracies, difficult caste relations, debilitating power shortages and deeply entrenched poverty – driving around Bihar recently, it was clear that the state has yet to transform into the orderly, prosperous society that recent press coverage has suggested. That said, there is no doubt that a nascent but carefully structured institutional reform process is allowing for the slow emergence of a ‘naya’ Bihar. Since 2005, the government of Nitish Kumar has consolidated rule of law, built critical infrastructure, begun to deliver services, increased revenues and expenditures, improved bureaucratic functionality, and generated an important sense of citizenship among many of the state’s communities. The economy has grown at over 10 percent per year for the past six years, despite the separation of resource-rich Jharkhand in 2000, periodic floods and droughts, and the recent global financial crisis.

Fifteen years ago, Nepalis would look to Bihar and bemoan their luck for being located next door to one of the most corrupt, crime-prone and povertystricken states in India, from which migrants would flood northwards in search of livelihoods. Now it is the Biharis that look across the border, wondering when criminal gangs will be brought under control and seeking to draw on Nepali labourers to support the state’s construction boom. In many ways, Nepal is far wealthier than Bihar in terms of relative capacities, structures and assets. The difference is that the current administration in Patna is moving to consolidate positive changes and create a virtuous circle of growth and development – albeit starting from a low base – while Nepal continues to struggle with difficult issues of stateand market-building. While the ongoing changes in Bihar must be considered in the context of their own unique history, the current situation nonetheless poses two, inter-related questions: What broad trends can be identified from the recent history of Bihar that might be relevant for Nepal? And how can Nepal benefit from the positive changes happening to its south?

Most writings on the recent history of Bihar look toward plans put in place by Nitish Kumar’s governments across a broad spectrum of issues. These have included the rule of law (drafting 11,000 policemen), infrastructure (building nearly 25,000 km of roads), governance (signing the Bihar Special Court Bill and the Anti-Corruption Act), and service delivery (the appointment of 300,000 teachers and the dramatic improvement in public-health facilities). These are all important changes, but such explanations are often more descriptive than analytical, and provide a simplistic, linear conception of transformation.

At its core, Bihar’s transition has been based on a combination of several closely linked factors. The first is strong leadership by Nitish Kumar and his team. The key decision-makers in Bihar have spent periods of service in the national government, which has provided important experience in the management of complex organisations and has expanded conceptions of what is possible in governance terms. Traditionally, Biharis have respected power, but now power is being combined with legitimate authority, which is allowing for progress.

Second, the government has recognised the feasibility of change and the inter-dependence between state functions. Through a carefully sequenced and prioritised approach to state-building – beginning with rule of law – the Nitish Kumar administration has worked to enable change where possible, and to generate a self-reinforcing sense of progress that in turn has allowed for further reform. Third, the state has moved from dysfunctionality, during which there was deliberate abuse of public financial-management systems, into a ‘control’ phase, with supervision established over public finance and adherence to external oversight mechanisms.

Fourth, the government has generated constituencies for change by building political support through the moulding of disparate groups into coherent stakeholders in the state. Bringing in citizens from both ends of the caste hierarchy and indicating that development is a positive-sum rather than a zero-sum set of processes has allowed the government to push through wide-ranging reforms. Fifth, the current administration in Patna has used existing structures, rules and tools to work on behalf of governance rather than against it. This has allowed for ‘quick win’ initiatives and a benchmarking process against previous standards and outcomes.

Despite all of this, the changes in Bihar are as much perception as they are reality. Change can be as much about signalling intent as it is about implementation, and the current administration has put in place a carefully calibrated communications strategy to sell its successes. This is important internally – particularly in a society where a significant minority is illiterate – and externally, from where change can be catalysed and supported. To a certain degree, the story of Bihar indicates not what good governance can do, but what it cannot do. That is to say, a miracle has not occurred in Bihar, but tangible changes have taken place through implementation of efforts to build accountability. This has created a sense of hope that is, in turn, bolstering further change.

Momentum for change
Bihar’s changes are idiosyncratic, of course, and cannot be replicated exactly in Nepal. It is worth considering, however, how Nepal might learn from the nascent transition to its south. In governance terms, Nepal has a set of institutions and legislation that could generate transparent and accountable government – the authority of the Commission for the Investigation of Abuse of Authority (CIAA), for example, is as robust as that provided by the Anti-Corruption Act in Bihar. A problem arises in terms of implementation of rules, however, and in ensuring that bodies responsible for transparent use of resources are themselves adequately staffed, monitored and overseen. At the same time, the Patna government has proven the malleability of a stratified society and has brought people together behind a common developmental agenda. It has proven that the political system can help all of society, and does not have to be about caste, ethnicity or geography. If the political will could be mobilised behind small but catalytic governance changes in Nepal in a similar manner, the multiplier effect on development could be significant.

In Bihar, the current government has understood that devolution of power to legitimate local bodies can allow for more nuanced and effective development based on inputs from citizens. But it has also understood that decentralisation requires a strong centre. Moreover, the government has begun to face the reality that effective and sustainable wealth creation comes from a balance between market-based growth and the reinvestment of some of these revenues in equitable social programming at the local level. If the discussion on the future shape of Nepal could be shifted to revolve not around considerations of federal boundaries but rather about citizen-centred development, similar changes are entirely feasible. In Nepal, the debate over federalism indicates that the form and function of government sometimes seem to have become confused. Federal systems can be highly effective, as in Canada, for example, or highly ineffective, as in Nigeria; the same can be said for unitary systems. The key is understanding the functions and levels of governance within a given system, and what government responsibilities need to be carried out at which levels and with which tools.

With regard to service delivery, a central developmental constraint in Nepal is the inability of the government to spend domestic or international resources. The government continues to commit to a variety of social programmes (often politically rather than functionally motivated) that may not prove affordable or sustainable in the long-term. At the same time, a significant constraint exists in terms of capital expenditure; in fiscal year 2010-11, for instance, the government spent just 39 percent of allocated capital funding. The juxtaposition of unspent government funds with lack of infrastructure and employment continues to fuel the sense that Nepal’s political discourse is increasingly divergent from the realities of implementation.

Meanwhile, the reverse is true in Bihar. This is because the government has explicitly prioritised efforts to draw funds from the New Delhi government and to seal revenue leakages to fund catalytic infrastructure that benefits the population. Capacity has been built within the construction industry, and security has improved as public-private partnerships have been developed around roads and bridges. This has facilitated market-based activities, generated linkages among and between disparate communities, and generated a feeling of hope that creates additional momentum for change.

Development in Nepal remains a disparate and uncoordinated process in which separate projects are pursued simultaneously, implementation is often poor, and outcomes are less than optimal. Corruption and cronyism across a wide breadth of sectors are facilitated by a culture of impunity that pervades governance and the market alike, undermining the trust of the people both in political actors and in the market-based economy more broadly. The system continues because the legitimacy of political actors is derived not from delivery of services, or citizen-focused reforms, but rather from participation in these deeply entrenched patronage networks.

Bihar has slowly begun to overcome similar issues and to move beyond identity and group politics in a way that is illustrative for Nepal, particularly through developing specific programmes to build functionality and deliver citizen-centred reforms. It has started to shift away from a patronage system (in which leaders dispense favours in return for political support) to programmatic politics, where policymakers deliver benefits to all citizens. The programmes developed are far from perfect in terms of implementation, but they have initiated a process whereby rules have been set and parameters for action defined. This has helped to mobilise government, the private sector and citizens. In Nepal, a programmatic approach in just one or two sectors – rural irrigation, for example – could provide a means by which to improve coordination, increase expenditures and begin a similar transition.

Over the past five years or so, an emphasis on cooperatives as a central part of Nepal’s future seems to have taken root, with the idea of these groups as a third and equal pillar of the economy (alongside the state and the private sector) articulated in the most recent government budget. The initial plans for their development, however, does not outline exactly how cooperatives will function in this way, how connections to larger-scale development plans will be made concrete, or how cooperative-led growth will be sustainable.

In Bihar, a dairy-cooperative model might serve as an example of how Nepal’s cooperatives could be leveraged and expanded as part of a larger growth strategy. The Bihar State Cooperative Milk Producers Federation (Sudha) has built revenues from USD 73.5 million in 2001 to USD 136 million today, by bringing together some 8600 dairy outlets (with more than 450,000 members) covering 84 towns to export milk to West Bengal, Uttar Pradesh, Jharkhand and (more recently) Delhi. Twice daily, milk is collected from village dairy cooperatives and brought to district milk unions, which have plants to process the milk for urban consumers. Products are then packaged and marketed under the Sudha brand. The federation is now working to route the entire milk production in Bihar through the federation. Understanding how to build on local capacities within a broader framework of this sort might be instructive within the Nepali context.

Patna focus
This is all very well, one might argue, but what can Nepal do now to build on Bihar’s progress and growth as it is happening? Where could real, politically feasible change be initiated? Here are an initial set of ideas across four key areas. First, Nepal can build on the gains in rule of law to the south. To some degree, security improvements in Bihar have had a knock-on effect into Nepal in a negative way, with various criminal elements having been forced across the open border to the north and inevitably effecting security in the Tarai plains. But there is also an opportunity for Nepal in this situation, by working with Bihari counterparts on collective, crossborder approaches to law and order. Efforts by Nepali customs and law-enforcement officials to raise standards, share information and build a network for knowledge-sharing would be useful. Currently, security issues in Nepal more broadly seem to be improving somewhat; if the rule of law can now be consolidated for the average citizen, the effect could prove catalytic for crossborder economic growth.

Second, Nepal must capitalise on the potential for economic symbiosis with Bihar. There are around 250 million Indians living within a few hundred miles of the Nepali border, and more than a 100 million in Bihar alone. The purchasing power of these consumers is significant and is increasing rapidly as a result of economic growth. The roads on the Indian side of the border still need significant work, but have improved over the past six years – clearly a potent trade opportunity for Nepal, if the right connections can be made. Arguably, a decent road connection from Kathmandu to Patna (and indeed to Lucknow) could transform the Nepali economy more than almost any other single action. At the border, India is streamlining customs processes and creating ‘single window’ registration points. Such straightforward services are noticeably absent in Nepal, though efforts in this regard would do much to facilitate trade, create jobs and improve revenue collection.

Third, the new government in Kathmandu must seek to better understand and capitalise upon watermanagement linkages. All 38 districts in Bihar in recent years have seen flooding, partially as a result of the absence of water-management processes – such as small and mid-size dams – in Nepal. Most of the rivers in northern Bihar have their headwaters or catchment basins to the north, but despite discussions between the Nepali and Indian governments to control flooding, no agreement has yet been reached. In part, this is due to the massive maintenance obligation that large-scale dams would involve. Yet water provides a key opportunity for crossborder – and indeed regional – growth, and the basis for broader cooperation between Nepal and its neighbours. In the absence of larger agreements with India on flood control, Nepal can begin to put in place the necessary economic and legal conditions for upstream water-harnessing processes and work further in support of hydropower generation. In the shorter term, microhydro development through a coherent government-led programme still presents the most feasible, and least politically divisive, means of harnessing Nepal’s water resources.

Finally, Bihar and Nepal are closely connected geographically, making up part of the only open border in the Southasia region. Over time, this will lead to greater political linkages on an individual and collective basis. The effect that this might have on political issues and relationships within the Tarai remains to be seen, but the Indian sphere of influence will only grow in southern Nepal. Where possible, the government, business associations and civil-society groups in Nepal could consider laying the framework for regular dialogue with counterparts in Bihar to ensure understanding of these key issues, to put in place the mechanisms ahead of time to deal with potential problems, and to facilitate collaboration where feasible.

There remains a lack of trust between India and Nepal at the governmental level, which impedes progress on a host of issues. But India is not homogenous, and individual states have their own incentives and interests. As such, efforts are also required in Patna to build on areas of relative autonomy from the Union government, while Nepali politicians will need to understand that productive meetings in Patna are more worthwhile that mediafriendly trips to New Delhi. In moving forward, creating ways to generate trust at a personal level with Bihar needs to be a central component of the relationship between Nepal and its neighbour.

These are not easy principles to integrate into policymaking, or straightforward changes to make in the ways in which Nepal thinks about its linkages to Bihar. As pointed out, the government of Nitish Kumar also faces a plethora of difficult problems of its own. The central issue, however, is that Nepal and Bihar are bound by geographical ties that cannot be broken. For a collectively prosperous future, economic, cultural and political ties between Nepalis and Biharis must prove equally robust.

Blair Glencorse is an expert on issues of development and governance. Follow him on Twitter @blairglencorse.