After years of endless negotiation periods, leading parties have voted in favour of the Constituent Assembly’s deal on a new Constitution before it was approved by Parliament. Under the new text, Nepal evolves from a Hindu republic (established in 2008) to a secular federation with seven provinces. The new Constitution has led to violent demonstrations in the past weeks, principally in the southern Terai region near India – leaving 40 dead – but also in Kathmandu. The secular component and province borders of the new federal system are responsible factors for protests and trade disruption with Kathmandu and India. Tharu and Madhesi ethnic minorities feel their rights are threatened whereas Terai’s people, i.e. Nepal’s majority population living in valleys, consider their demographic weight is misrepresented in the new federal structure.

Impact on country risk

The agreement is a landmark achievement, particularly as it is endorsed by all major parties including the Maoists who had triggered a decade-long civil war in 1996. Resulting social and political turmoil is all but surprising in a fragmented country with tens of ethnic groups, and highlights why it has been so difficult to find a compromise on several contentious issues during all those years. Therefore, last April’s devastating earthquake was probably decisive for joining parties to show national cohesion and make a final political breakthrough. Nepal being prone to political and social instability, the latest protests are likely to hinder economic activity and tourism for some time, which is unwelcome for the country after this year’s earthquakes. Looking forward, unless amendments are made, which is a potential option left available, the current text seems unlikely to bring lasting peace.

Analyst: Raphaël Cecchi, r.cecchi@credendogroup.com