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With faded temple photos in one hand and several of the day’s newspapers under his arm, Anil Chitrakar cuts an ­unusual figure in the cool midday sun of Kathmandu. But the engineer-turned-social-entrepreneur doesn’t seem to notice the strange looks he’s getting from tourists as they cross the hotel courtyard. Having dropped everything to commandeer my pen and notebook, he’s too busy sketching out a timeline of Nepalese history to illustrate why his country is on the cusp of something special.

“In 1820, China and India together accounted for 50 per cent of world GDP – and Kathmandu monopolised the trade between them,” Chitrakar explains. “We were very prosperous, despite being landlocked. But wars went on to seal off our borders to the north and south and our wealth disappeared.”

Today, he argues, the advent of mobile phones and the ­internet have once again opened up this mountain state to the world; moreover, by 2020 Nepal’s rapidly developing superpower neighbours are likely to once again dominate the global GDP rankings. “It’s a time of tremendous opportunity,” he says. “We’re not going to lose out.”

Basking in the polluted haze of the country’s capital city – where the roads are cracked, the power lines unstable and the air filled with a relentless cacophony of horns, whistles and bells – it’s hard at first to share in Chitrakar’s optimism. Ranked among the poorest nations on earth, Nepal is only just emerging from a decade of brutal civil war; in that time, the country has lurched from a picturesque Himalayan kingdom to the world’s youngest republic, and still bears the scars of transition. Underneath the surface though, a new current of excitement is pulsing through Kathmandu as a fresh generation of business-minded Nepalese join forces with an unprecedented wave of foreign investors hoping to capitalise on the country’s strategic location.

To understand why, jump on one of the old Tata buses heading out of the city and into the hills and there, snaking through every valley, lies the key to Nepal’s future. The country has an abundance of rivers and waterfalls, but only recently has it realised their vast economic potential. Forget gas and oil; ­despite its diminutive size, Nepal, which is home to eight of world’s 10 highest mountains and sees an annual 220 billion cubic metres of water run off its snow-capped peaks, has the capacity to generate more hydroelectricity than almost any other nation, and every year could power the equivalent of Britain one and a half times over. In a land where 60 per cent of the country has no access to electricity, that’s promising; add to this the potential to export to energy-hungry India and China and you have the recipe for a regional economic boom which is drawing investors from as far afield as Australia and America. “You’ve got a lot of low-cost, low-carbon power out there,” says Alex Klein, research director at Emerging Energy, a US-based consultancy firm. “It’s a very interesting situation.”

What makes it even more interesting is that 99 per cent of that power is so far untapped. Perversely for a country with such huge energy resources, Kathmandu still suffers daily power cuts, some lasting up to 16 hours. Now, though, after liberalising the energy market in the 1990s, the government has announced a 10-year plan to develop a further 10,000mw of ­hydropower – 15 times the country’s current capacity. Over 250 government survey licences have been issued to companies looking to build new plants as part of Nepal’s “hydropower decade”, and there is a scramble to develop another 1,000km of transmission lines that will transport power throughout the country and into India.

“We began operations in 1996 – the year the Maoist insurgency started,” says Sandip Shah, country director of SN Power, a renewable energy firm owned by two arms of the Norwegian state, Statkraft, a state-owned electricity company, and Norfund, a private equity firm funded by the state budget. At the height of the civil war, the hills surrounding its plant on the Khimti river – one of Nepal’s longest – were the scene of gun battles between rebels and the army. At the time, SN Power were the only foreign company in the energy market and suffered $4.5m (€3m) of damage. “We’ve been through the difficult times,” says Shah. “But things are finally improving and confidence is on the up.”

The scene certainly looks very different today. SN Power is now planning to double the size of its hydropower operations at Khimti. It is also conducting feasibility studies into a new plant on the Tamakoshi river which would generate a mammoth 600mw annually – almost as much as all of Nepal’s current hydro ­projects combined. And even this is dwarfed by a plant currently under construction in the West Seti region that is jointly owned by Australian, Chinese and Nepalese investors and slated to generate 750mw a year. Hydroelectricity is not a new concept here – Nepal’s oldest working hydro plant is about to celebrate its centenary. But when you consider that all the hydro projects developed since then collectively add up to less than 700mw, the scale of these latest projects becomes clear. And it’s not only the hydro industry that’s set to benefit; Khimti plant was built by a 4,000 strong workforce and required new roads, schools and hospitals to be erected in the area.

Of course, in a country still heavily reliant on foreign aid and chronically afflicted by political instability, growth isn’t all plain sailing. “The political environment does make business challenging,” admits Nadia Sood, SN Power’s executive vice president for South Asia. “At the bottom end of the scale it costs at least $1.5bn (€1bn) to get big projects like this off the ground, and what serious developers need is a stable regulatory framework. At the moment, there’s still a lot of insecurity.” Luckily for those who don’t have a spare billion dollars in their pocket, there’s also a huge boom in smaller, mini hydro projects that aren’t always connected to the national grid and have a lower start up cost, attracting local businessmen and village cooperatives. It’s a trend the government is encouraging by lightening the licensing requirements and, in some cases, removing them altogether. With both foreign money and expertise flying into Kathmandu, the nation’s ­students have wised up to the hydro opportunities ahead, and applications for engineering degrees are skyrocketing.

Hydroelectricity may have been the catalyst for Nepal’s newfound buoyancy, but the optimism it has generated is infecting other industries too. Kathmandu remains a stubbornly chaotic city but everywhere you look there are signs of a growing middle class, many of whom have worked, or been educated, abroad. At the peak of the conflict, 500 Nepalese left the country each day; now that peace has returned, it is hard to get a seat on flights from the Gulf to Kathmandu. Aspirational youngsters are demanding new roads, new cars and new apartments – and the market is delivering.

Malvika Subba, a 28-year-old former Miss Nepal who now sells high-end property, says, “We want our young people to come back, but we have to give them something concrete to come back to.” Subba’s company, Shangrila Housing, has just sold the first phase of its Sun City project, which will eventually create 1,000 new luxury apartments. It’s not alone: there are 250 high-rise blocks ­currently going up in the capital, and land prices have risen 300 per cent since the height of the war in 2003. The roads out to these new property developments are being refurbished and expanded; one six-lane super-highway is being funded by the Japanese government to the tune of over ¥4bn (€30m). “Kathmandu has always been a confident city – whatever’s been thrown at us, we’ve carried on,” says Subba. “Now things are calmer, I think that spirit is really shining through.”

Kathmandu’s expat community has also swelled in recent years, as UN peacekeepers begin to make way for entrepreneurs. Nepal has always been associated with handicrafts and heritage, but the latest crop of foreign investors are looking in unexpected corners for inspiration. Shops selling Arniko Skateboards hand-carved in Nepal, gourmet French cheese and hemp laptop bags have all sprung up in the city.

The founder of modern Nepal, Prithvi Narayan Shah, once described his country as a yam caught between two boulders. In the past, being forced to live in the shadow of India and China had taken its toll on Kathmandu, provoking a defensive nationalism which has fostered isolation. Today, however, the city is looking outwards again. Flushed with economic potential, it now sees its two billion neighbours as potential business partners, not as dangerous foes. A new rail link from Tibet is already putting Nepal back at the crossroads of Asia; it won’t always be easy, but this war-battered republic might just prove Anil Chitrakar right and ride the wave of an economic revival.

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