Nepal is undergoing a political transition following its 10 year civil conflict, ending in 2006, which resulted in the death and disappearance of thousands. In a country of 28.1 million people comprising more than 100 ethnic groups, the conflict revealed resentments that Nepal’s political, social and economic institutions were exclusionary and did not reflect the country's diversity. This led to a rise in identity politics with an increasing demand for greater accommodation of diverse social, cultural, and ethnic identities and regional autonomy. One major milestone of the peace process was the dissolution of the former Maoist army, and integration of Maoist parties into the mainstream political process. Although the conflict has ended, social exclusion and political stability continue to be major issues.
In 2008, Nepal became a republic, ending 240 years of monarchy. The Head of State of the Federal Democratic Republic of Nepal is President Bidhya Devi Bhandari who assumed office in October 2015. Communist Party of Nepal Unified Marxist-Leninist (CPN-UML) and the Unified Communist Party of Nepal-Maoist are the main coalition partners elected to Government while the largest party in the parliament, Nepali Congress, is in the Opposition. Khagda Prasad Sharma Oli, Chairman of the CPN-UML, was elected Prime Minister of Nepal on 11 October 2015 following a parliamentary vote. Governance at the district and local level remains a challenge. Local elections have not been held in more than 17 years. The Nepali Government promulgated a new constitution on 20 September 2015, following almost 10 years of negotiation. The constitution was passed by 507 Constituent Assembly members out of a possible 601. Politically motivated violence was widely reported in the Terai region following the vote. The unrest centres on demands for an ethnic basis (specifically for Madesi and Tharu communities) to provincial boundaries under the new federal constitution.
Nepal faces multiple constraints to economic growth, including low levels of foreign direct investment and poor infrastructure. Around 28 per cent of Nepal’s GDP relies on remittances from migrant workers. Nepal's economic growth has been adversely affected by political uncertainty and natural disasters. The focus on political transition to democracy and attainment of peace has meant that inadequate attention has been given to economic and other reforms that could improve the investment climate, stimulate growth and create more private sector jobs. A durable political settlement is key to boosting investor confidence, spurring economic growth and supporting the Government of Nepal’s aspiration to transition from Least Developed Country to Developing Country Status by 2022.
The 2015 earthquakes in Nepal set back potential growth with widespread destruction to infrastructure, heritage sites and agricultural land. The Government of Nepal’s Post-Disaster Needs Assessment estimated a repair bill of US6.6 billion – or around a third of the country’s Gross Domestic Product in 2013-14. The private sector is estimated to have sustained 3.3 times the value of damages and losses in comparison to the public sector. While annual economic growth in Nepal was improving in recent years (approximately 5.5 per cent in 2013-14) GDP growth in 2016 is estimated to drop to 1.5 per cent. Inflation is also expected to rise to approximately 10.5 per cent as losses in agriculture production and damage to transport systems constrains the supply of agricultural products. Economic growth is expected to rebound, as economic activity recovers from the earthquakes, reconstruction gains momentum and normal trade resumes after the economic blockades on the southern border. The promulgation of the new constitution may also strengthen investor confidence.
Australia and Nepal celebrated 50 years of diplomatic relations in 2010, though Australia's relationship with Nepal predates the establishment of diplomatic links in 1960. Over the years, the Australian Government and private sector have contributed to the economic and social development of Nepal through activities and assistance in the fields of education, health, hydroelectricity, sustainable forestry management, civil aviation, and livestock and grain management.
Australia’s relations with Nepal continue to strengthen through development cooperation and people-to-people links. There are around 26,000 people of Nepalese ancestry in Australia, according to the 2011 census. Approximately 22,000 Australian tourists visited Nepal in 2014, double the number in 2010. The number of private Nepalese students studying in Australia is increasing rapidly. The Association of Australian Nepal Alumni is very active. In 2015-16 there will be 214 Australian students studying and undertaking internships in Nepal through the New Colombo Plan. There are also active Nepal-Australia Friendship societies in both countries.
Australia provided more than $28 million to Nepal following the devastating earthquakes in April and May 2015. Australia’s support provided urgently needed water, sanitation, shelter, medical supplies and food as well as longer term recovery activities focused on helping communities revive their businesses and generate much-needed income, assisting children to return to school, rebuilding better and safer schools and supporting community mediation. This support was in addition to Australia’s development program to Nepal, which in 2015-2016 is estimated to be around $31.4 million and focuses on education, livelihoods, public financial management, volunteers, the Australian NGO Cooperation Program, and Australia Awards.
Bilateral economic and trade relationship
Australia’s trade with Nepal is small, but there is potential for growth in hydropower, tourism and infrastructure development. There is strong potential for growth in the delivery of education services. Nepal is now the seventh largest market for international students with more than 13,800 Nepalese studying in Australia. Other areas in which there are increasing commercial opportunities following deregulation include civil aviation and telecommunications. Two-way merchandise trade in 2014-15 totaled $32 million, with exports to Nepal valued at $25 million. Principal exports to Nepal are vegetables and refined petroleum. Australia also exports food and beverages including wine. Australia’s main imports are floor coverings and clothing.