The choices Kathmandu must makeAs the world shifts its focus to the Indo-Pacific, Nepal has a window of opportunity.
In Hanuman Dhoka is a stone inscription from 1664 CE in 15 languages, including the French words for autumn and winter. How did the Mallas know the language? Was it the early Capuchin missionaries? Or was it, as French Indologist Sylvain Levi noted, the Armenian traders mentioned by 17th-century French traveller Jean-Baptiste Tavernier? “These three simple words [Automne, Winter, L’Hiver]...evoke in their moving simplicity the first entry in contact with Europe with this corner of the Himalaya,” Levi wrote, adding, “[A]nd the presence of two French words…reminds as by an expressive symbol the universal preponderance of the French language in the XVIIth century.”
The first part of this article [‘Paris in the Indo-Pacific’, November 6] described France’s resurgent geopolitical ambitions in the Indo-Pacific. Its choice of strategic partners reflects a desire towards strategic autonomy while being aligned with the United States and engaging with China simultaneously. In the Indo-Pacific region, France has entered into strategic partnerships with India, Japan, ASEAN countries and Australia. France has also closely aligned its goals with the European Union. But smaller states will naturally hesitate before committing to such alignments. While the French—and the EU—emphasis on climate change and environmental issues must further the discussion around climate justice, especially for low-emission but highly vulnerable countries such as Nepal, the EU’s Global Gateway (GG) has the potential to further partnerships in the Global South.
Global South aspirations
GG, hailed as the EU’s ‘alternative to China’s BRI’, was launched in June 2021 when G7 leaders committed to ‘values-driven, high-standard, and transparent’ infrastructure partnerships in the Global South. Under this initiative, the EU will mobilise 300 billion euros towards ‘sustainable and high-quality’ infrastructure projects between 2021-27. It is based on six principles: Democratic values, transparency, equal partnerships, green transition, security-focused and catalysing private sector investment. It will focus on digital, climate and energy, health, education and transport sectors. The GG has a different financial orientation than the BRI. As the EU envoy to Nepal has said, the GG shifts from a ‘purely grants’ orientation towards leveraging ‘financing from private sectors and international financial institutions’. This understanding—that the GG is not a grants-based approach but one where private sector investment is essential—is critical to the initiative.
Almost half of the financial commitment, 145 billion euros, has been earmarked for Africa in February 2022 under 33 projects. Several projects have been initiated in the ASEAN region, too, such as the 1,200 MW pumped hydro storage project in Vietnam and the ‘ASEAN Team Europe’ initiative towards sustainable intergrid-connectedness. Bangladesh has recently signed a 395 million-euro loan plus grant agreement to fund 750 MW renewable energy projects in the country.
Advocates of the GG argue that it can provide a ‘more reliable alternative’ for infrastructure development by mobilising private sector investments worth 135 billion euros through a 40 billion euro guarantee. ‘[P]olitical risk insurance is often needed by private investors before they invest in developing countries.’ The EU’s emphasis on the rule of law, quality standards and respect for international norms and rights is also upheld as another way in which it stands out.
Critics, however, have said that Europe’s plans ‘pale compared to the challenge’ of infrastructure requirements of the Global South. The initiative also ‘doesn’t bring in any additional funding’, instead mobilising funds already allocated by EU states or under the 2021-2027 EU budget as a ‘rebranding exercise’. Convincing private investors to invest in the Global South will also be a challenge. Nepal’s own experience has shown that the European private sector, once keen on its hydropower sector, has had limited success in the country. Chinese commentators have called the initiative a ‘skinny’ plan, suggesting it ‘faces internal policy coordination challenges’ due to EU member countries’ differing stances on China.
In Nepal, the EU launched the Green Recovery programme in February 2023, focusing on small farmers and essential social infrastructure with an outlay of 200 million euros as part of the initiative. Given Nepal’s infrastructure requirements, this is a drop in the ocean. The National Planning Commission, in its 2030 roadmap document, says, “Financing gap in the public sector will be the highest in infrastructure”. The World Bank recommended that private sector participation, including financing, could be a solution, especially since the 14th plan envisaged more than half of the Rs2,425 billion investment required for the infrastructure sector coming from the private sector. To bridge this gap, Nepal’s policymakers need to look beyond existing foreign policy and aid paradigms.
France was the fourth country to establish bilateral ties with Nepal in 1949. Almost 75 years later, Nepal must be ready to capitalise on France and the EU’s resurgent interest in the Indo-Pacific. While there is vast scope for increased people-to-people ties, especially in education, heritage preservation, museum curation and design, and urban planning, Kathmandu must rise to the challenge now, especially since other South Asian countries are already taking the lead. During the recent visit of French President Emmanuel Macron, Bangladesh signed a $200 million concessional loan agreement with the French Agency for Development and the Asian Development Bank to support urban development in 86 municipalities. The two countries are also redoubling their efforts at the COP28 climate summit in Dubai later this year.
For Nepal to expand its engagement with other partners along similar lines, Nepali policymakers must be more ambitious. Rejection of security alliances may be central to our policy of non-alignment, but such thinking has limited our capacity to pursue economic partnerships. ‘Non-alignment’ in our discourse often means ‘non-engagement’. Our foreign policy emphasises political ties, which make them susceptible to highs and lows due to our leaders’ proclivities. In turn, political actors seek aid projects in their constituencies as examples of bikas. This reduces the Nepali capacity for negotiations and allows for influence-building through the use of aid.
Consider the reopening of the Korala border in Mustang. The border opened on November 13 after four years of closure. While China has built massive infrastructure on its side in the meantime, Nepal has asked China to assist it in building border infrastructure on its side. Meanwhile, China has given Nepal five prefab containers temporarily for Nepali officials to man the border. Resource allocation may be a historical issue, but building state capacity and infrastructure at the borders through foreign assistance does not set a good precedent.
It is an oft-repeated idea that Nepal’s foreign policy choices are straitjacketed by being sandwiched between two giants. But this is a fallacy. Nepal’s political class has historically engaged with India and China for regime survival, which is why the country has yet to capitalise on the opportunities the two countries provide. Because our political actors prioritise aid diplomacy, our capacity for negotiations and economic diplomacy is reduced. But this is impossible unless Nepal breaks out of the worldview of being a yam between two stones.
Nepal has a window of opportunity with the world shifting its focus to the Indo-Pacific. It needs to make the most of it without being timid in its worldview. It must realise that its non-alignment doesn’t mean other powers will not make choices for it, as we have seen in recent months. It must also realise that non-alignment does not mean working towards one’s interests, as Dhaka’s recent diplomacy and the ASEAN countries’ delicate balancing act in the US-China competition suggests. As the country grows to become a middle-income country, we will find fewer windows of aid opening up to us. It is time for Nepal to make the choices that suit its interests and engage with others on its own terms.
This is the second of a two-part article. Mulmi participated in the third International Session on the Indo-Pacific, organised by IHEDN, Paris, in October 2023.