Introduction and background of the problems

CHAPTER 1- INTRODUCTION

1.1 Introduction and background of the problems

This research investigates challenges and prospects of youth entrepreneurship in Kathmandu, capital city of Nepal. This research was set out to investigate the obstacles that young people encounter when setting-up their businesses; the current obstacles that prevent the expansion of their entrepreneurial ventures; as well as the prospects for youth entrepreneurship development in this community.

Young people in Nepal currently face major economic challenges. Research indicates that unemployment for youth (ages 15-29) is as high as 38% and the time related underemployment rate is around 8 percent. In Nepal a youth is described as any young person between the ages of 16-40 (CBS 2011). While as per GEM report, the youth refers to young people between the ages of 18-34 years and the adults refers to the people between the ages of 35-64 years. Thus, in the context of this study, youth are known as young people.

Youth in Nepal constitute the mainstream of the population, comprising about 41 percent (CBS 2011). In recent times, youth has gradually been recognized as priority in the youth empowerment field, especially youth employment. Therefore, youth has now emerged as a separate area of attention and concern in Nepal (Peter De Schepper 2010). Nevertheless, according to the Ministry of Youth and Sports, about 38 percent of the youth population is currently unemployed and around 75 percent of them are underemployed (CBS 2010). The unemployment of young people does not only result in widespread depression, but also contribute to economic and social costs (Schoof 2006). In Nepal, embedded social cultural and structural constraints challenge young people and make it hard for them to realize their potential as lenders in business. While traditional employment will continue to play a key role, providing avenues for entrepreneurship will also be an important part of allowing youth to join the formal economy. Moreover, demand for self –employment among young people is high and remain unmet. However, these young people feel that wide range of constraints make it difficult to realize their entrepreneurial aspiration.

Global entrepreneurship Monitor (GEM) defines entrepreneurship as “any attempt at new business or new venture creation, such as self-employment, a new business organization, or the expansion of an existing business, by an individual, a team of individuals or an established business (Kelley, Singer et al. 2012). GEM represents a coordinated effort to measure, analyze and report on entrepreneurial activity in 43 countries around the world, both

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developed and developing countries. GEM calculates and reports the start-up participation rate, new firm involvement rate and overall entrepreneurial activity index on an annual basis, which can be regarded as very reliable data for international comparisons.

Entrepreneurship has been adopted as a strategy to promote economic activities among young people. The European Commission argues that academics, practitioners and policy makers worldwide have heightened their commitment towards promoting an entrepreneurial mindset within society (Commission 2003). Evidence shows that when jobs are less, especially youth are generally more likely to be unemployed. Economic crisis crippling the job market, young people are first to be laid off. This has led to thousands of laid off workers returning to rural areas where the chances for getting alternative work are dire. Compared to adults, the youth of today are almost three times as likely to be unemployed and globally one in five working youth continue to live in extreme poverty on 1 US$ per day(ILO october 2008). Therefore, many young people are compelled to be self employed and becoming “entrepreneurs by necessity” rather than “entrepreneurs by choice”. The promotion of more effective youth entrepreneurship policies and strategies is therefore getting visible attention among government and international organization and there is increasing recognition that responsible youth entrepreneurship must be core study area for tackling local and global economic and employment challenges.

Studies by International Labour Office (ILO) indicate that the young are three times more likely than adults to be unemployed. The changing demographic profile in many countries, political unrest and global and regional economic slowdown further suggest that youth and entrepreneurship is becoming even more important. According to GEM report 2012, by 2015, 660 million young people will be looking for work. With the formal sector as many countries experiencing extremely slow growth, it is unlikely that this sector will be able to offer work opportunities to the increasing number of young people looking of jobs (Schoof 2006). So the overall scenario though seems gloomy, youth entrepreneurship could be seen as an additional way of allowing the youth into the labour market and promoting job creation. GEM 2012 claims that each year 121 million young people turn 16 years old, of which 89% will potentially be searching for work in developing regions (Kelley, Singer et al. 2012). These statistics clearly state that entrepreneurship and job creation could only be viable option in present world to address future job scarcity.

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During the last few decades, recognition has been given to the importance of youth entrepreneurship as a prerequisite for household-level poverty alleviation, national economic development, and the empowerment of youth (L. 2001). Comparatively little information has been gathered about the problems young people face in Nepal when starting businesses. The aim of this research paper is to give a snapshot of the current situation faced by young entrepreneurs in Nepal, particularly in Kathmandu, the capital city, where increasing numbers of youth entrepreneurs are promoting economic growth through their individual efforts. This research paper dig in into the common challenges they face and the possibilities for the ways forward. To understand the difficulties young people face, it is important to get a general sense of Nepal’s development level through the Human Development Report. These highlight the low level of development for the country as a whole. The Human Development Index (HDI) of 0.534 ranks Nepal 142^nd out of 177 countries, while the Human Poverty Index (HPI) value of 38.1 ranks Nepal 84^th among 108 developing countries (HDI 2008).

The above statistics clearly shows that unemployment and poverty is prevalent, forcing the young Nepalese to look overseas for employment. Empirical evidence in many countries has shown that the development of industrial enterprises can directly contribute to job creation, the use of local resources, and import substitution, thus increasing the gross national product.

Therefore, to accelerate the pace of industrial development, the government of Nepal has given high priority to the promotion of SMEs. If we look at history, we can see a historical decline of self employment in Nepal. During the different stage of development, a shift from agriculture to manufacturing and economies of scale in production by big enterprises in many society offered better opportunities. Moreover, rising real wage multiply the opportunity cost of self employment with regard to return, inducing marginal entrepreneurs to become employees. Owing to globalization and opportunities available in developed nations, the trend to migration and brain drain has increased. In this context, fewer individuals are willing to run the risk associated with becoming an entrepreneur.

Youth entrepreneurship, therefore, has received the considerable focus after the government introduce youth self employment program (CBS 2010). A number of support structures aimed to develop entrepreneurship and the Small, and Micro Enterprise (SME) sector were introduced, and the youth also benefited in such intervention. However, due to the long political instability and government’s unwillingness to implement the program, it has been failed to achieve its target. Moreover, several schools and colleges have been unable to acknowledge the importance role of entrepreneurship, as they have not yet introduced in their

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curricula. Some vocational training institutes, though, introduce entrepreneurship to foster and celebrate successes achieved by youth entrepreneurs, and to creatively market entrepreneurship among younger persons, still the result they deliver is disappointing.

Nepalese younger persons have been facing an unacceptable and disappointing small and micro enterprises high failure rate, which normally occurs during their early years o f operation. Similarly, Youth Business International (2013) reports that about 60 percent of these businesses in Nepal fail within their first three years of operation, with some of them failing much earlier before they can even reach execution stage. This may not be an exception for youth entrepreneurial ventures in this country, and Kathmandu in particular (CBS 2010).

This is the background against which this research investigates challenges and prospects of youth entrepreneurship in Kathmandu, the countries capital city. This research was set out to investigate the obstacles that young people encounter when setting-up their businesses; the current obstacles that prevent the introduction or expansion of their entrepreneurial ventures;

as well as the prospects for youth entrepreneurship development in this community.