Tech and transition in Nepal

Nepal finds itself at an intersection of two potent forces – a technological revolution sweeping the globe and a dramatic demographic shift.

Artificial intelligence (AI) and automation, often seen as the deus ex machina of the 21^st century, are making their presence in every part of our lives. This digital metamorphosis comes with its benefits and threats. While they promise to augment economic activities, they simultaneously risk displacing numerous labour-intensive jobs. This concern is acute for a country like Nepal, where remittances from its workers in the Gulf countries, a region rapidly embracing technological shift, account for almost 26% of the nation’s GDP.

“Job displacement from labor-intensive industries has been taking place for several decades, as countries move to higher-value-added activities and services,” wrote Mckinsey & Company in The Future of Jobs in the Middle East in 2018, adding that this will accelerate between now and 2030 with 45% of existing work in the Middle East potentially being automated.

This should be of special concern for policymakers in labour exporting countries like Nepal given the inherent link between displacement potential by automation and low-to-medium levels of education and experience. Workers who have a ‘high-school education or less’ are most vulnerable to the shocks associated with automation. The average automation potential of jobs requiring less than high school, or high school/some experience is more than 50%.

Labour migrating from Nepal predominantly characterised by a preponderance of young unskilled labor (more than 54% of total labor migration) are most vulnerable in this displacement.

At the same time, Nepal with more than 60% of its population falling in the working age group is undergoing a demographic shift.

Drawing upon the 2021 census data, Nepal’s annual population growth rate has decreased to 0.92% with the birth rate having dropped while life expectancy is on the rise. The World Bank data reveals that Nepal’s birth rate dropped from 31 per 1,000 people in 2000 to 20 in 2020, while life expectancy has risen from 63 years to 69 years during the same period. The number of people older than 60 has climbed by 2 percent points.

By 2040, the population estimates and projections from the World Bank shows that the proportion of elderly population in Nepal will have increased by more than one third. These demographic forces are poised to cause a significant increase in the dependency ratio (dependent people as percent of the working age population), a challenge for an economy primarily dependent on labour remittance.

Nevertheless, technological revolution has not only reshaped global superpowers but has also provided emerging economies with opportunities to leapfrog traditional developmental transition. Digital technology’s creative destruction could spawn new sectors of employment, that could help to harness the benefit of demographic dividend and improve the quality of life in the longer run.

A study by the Institute of Integrated Development Studies offers insightful data that underscores the significance. By 2022, Nepali IT companies had made a substantial investment of $41.26 million across the country. This investment reflects the growing confidence of stakeholders in the potential of the IT sectors. More impressively, these investments translated into staggering revenue of $515 million, showcasing the sector’s profitability, and its capacity to contribute to the national economy.

As technology has made more services tradable, Nepal has the opportunity to transition from labour exports to service exports. This not only retains talent within the country but also creates job opportunities for the youth, addressing the brain drain issue.

However, the trajectory isn’t as straightforward. Digital inclusion gaps, a limited capacity for innovative digital tech use, myopic labour laws, lack of data security laws, shortage of skills and IT infrastructural challenges pose substantial barriers for inclusive growth. Moreover, Nepal has grappled with governance failure and political instability that have hampered past policy implementation efforts, pointing towards a more critical systemic challenge.

On one hand, IT companies seek workforce proficiency in essential areas such as UI/UX, SQL, full stack web development, python, DevOps, and automation testing.

While on the other hand, demographic profile of Nepal shows that there are less than 2% youths in the age group 15-39 years with 10+2 or equivalent who have computing and technology as major field of study. The figure is much higher for those enrolled in management at more than 35%.

Viewed through a gender lens, females within this age group exhibit a strong inclination towards Education and Health/Medical Sciences. Their representation in the field of Computing and Information Technology remains strikingly low, accounting for less than 1% of the cohort.

While established digital enterprises and burgeoning startups are navigating through the talent pool, they frequently encounter a significant void: a dearth of individuals possessing the requisite skills to be deemed employable.

This scarcity is particularly pronounced among women, whose specific skill gaps act as a formidable barrier, constraining their full participation in the digital workforce and entrepreneurial ventures. Madhes Province, for instance, with a youthful demographic paradoxically grapples with staggering low female literacy rate (54.7%).

It is crucial to consider the unequal effects of service-led growth, a phenomenon that has been observed in other developing countries like India. In Nepal, this could exacerbate existing urban-rural divides, as the evolution of informational technology may not absorb the unskilled labour from rural area that currently seeks employment abroad, particularly in the Gulf countries.

It is imperative for Nepal to craft policies that are sensitive to these unequal effects. This could include investing in education and training programs that are aligned with the needs of the IT sector, bridging rural development initiatives that complement holistic service led growth, and implementing training programs that help females and individuals from underrepresented groups in the burgeoning IT sector.

As the tides of time advance, we find countries steadily pivoting towards realms of higher intellectual yield—towards activities and services that demand less from the body and more from the mind. Nepal with its youthful demographic could, to some extent, harness the power of technology to spur economic growth.

However, this same demographic group, given their current education levels, might not effectively complement in the aspired trajectory. Moreover, they are potentially the most vulnerable to unemployment due to automation, especially with over 54% of total labour migration being unskilled.

The government faces a herculean task in turning technology into a viable solution for employment and inclusive growth. Development stakeholders in the young republic must guide this transformation with astute policymaking and strategies as we witness Nepal's demographic shift in the age of automation.”

Ashutosh M. Dixit is an economist and an Australia Award Scholar with over 15 years of experience. He has worked with the National Planning Commission in Nepal and global institutions including the World Bank, UNICEF, UN-ESCAP, OECD, UNDP, and Standard Chartered.