The emergence of democracy and globalization has transformed the role of political diplomacy toward economic diplomacy. Before the late 1970s, South Asia was one of the most highly-regulated economies outside the communist block. Sri Lanka was the first to liberalize its economy in 1977, followed by Bangladesh in 1980, Nepal in 1986, Pakistan in 1989 and India in 1991.
There is a growing realization that economic relationships have a strong impact on political diplomacy. The end of the Cold War, emerging democracy and development are the products of economic diplomacy. For instance, many Eastern European states joined the European Union in the 1990s to fulfill a larger economic interest among European nations.
Economic diplomacy is functional at three levels: Bilateral, regional and multilateral.
Bilateral economic diplomacy plays a major role in economic relations. It includes bilateral trade and treaty; agreements on investment; employment or avoidance of double taxation; and range of formal and informal economic issues between two countries. Bilateral Free Trade Agreements have been the order of the day, and is being implemented by many countries around the world.
Being a sandwiched and landlocked country, Nepal´s bilateral trade agreements with India and China are of paramount importance. Nepal should always be aware of its geographic reality, national interest, sociocultural settings and economic dimension.
Regional cooperation is of growing importance in economic diplomacy. National interest and economic liberalization is easily accepted when it is confound to a particular region. Opening of borders and markets become easier within a regional framework.
Multilateral economic diplomacy takes place within the framework of World Trade Organization (WTO), World Bank, International Monetary Fund (IMF), UN agencies et al. With the establishment of WTO, there has been a policy shift in global trading system to promote economic activities. However, there is a challenge in sustaining competitiveness in multilateral and bilateral trade agreements. Nepal, so far, has not been influential on issues of aid, trade and FDI in multilateral development forums such as the World Bank, IMF, WTO and UN agencies.
For Nepal, economic diplomacy is not a new phenomenon. In 18th and19th century, Nepal had established business ties and an effective trade system with Tibet and British India. It was created as a result of strategic alliance and was based on economic interest rather than political gain.
The focus of Nepali diplomacy has to shift from mere political relations and foreign aid to trade, tourism, investment, joint ventures and employment generation.
Foreign policy needs a strong and broader national consensus as it is linked with national interest and sovereignty. Nepal´s foreign policy is guided by the Charter of the United Nations, the principles of Panchsheel, co-existence, non-interfernce and respect for sovereignty of its neighbors and solidarity with other small, least developed and landlocked developing nations.
The success of political diplomacy is a reflection of economic dimension. Today, Nepal does not have economic diplomacy and economic affairs are handled on an ad hoc basis.
In the year 2000, the Ministry of Commerce and Industry organized the first consultation meeting to emphasize the need of economic diplomacy with foreign countries. The purpose was to provide an economic hat to political diplomats and to work for a broader economic interest by increasing trade and attracting foreign investment. It was attended by Nepali ambassadors, honorary consul-generals/consuls from 35 countries, government officials and business community. Initially, there was an increase in foreign investment, however, the lack of interest from the successive governments lead to a downfall in momentum.
In 2008, another attempt was made to engage political diplomacy for economic interest by attracting foreign investment and expanding foreign employment. But global economic crisis was at its peak and not much was gained.
The focus of Nepali diplomacy has to shift from mere political relations and foreign aid to trade, tourism, investment, joint ventures and employment generation. The role of the private sector could be significant in economic diplomacy that involves decision-making and negotiations at global, regional and bilateral competitive markets.
Nepal needs to adopt economic diplomacy rapidly, and it can be achieved in the following manner:
At the national level, the government should continue to engage Nepal Economic Forum (NEF) in order to attract FDI and to increase bilateral and multilateral development assistance. This Forum could be chaired by the finance minister with participation of correlated ministries. Unfortunately, the environment is not condusive due to prevailing political crisis. Political leaders have failed to move the country forward both politically and economically.
At the diplomatic level, the government should establish a Department of Economic Affairs, within the Ministry of Foreign Affairs (MoFA), in order to coordinate business and economic activities in other countries. This Department should closely coordinate with Ministry of Commerce and Industry and private sector. The role of private sector is vital to promote economic activities abroad while MoFA and Nepali missions act as ´facilitators´.
Private sector should have a lead role in economic activities. Economic diplomacy is best carried out through public-private partnership forum. The role of the Federation of Nepalese Chamber of Commerce and Industries (FNCCI), Confederation of Nepali Industries (CNI), Nepal Chamber of Commerce (CoC) and Nepal Tourism Board (NTB) is integral in promoting trade, tourism, cultural exchange and attracting FDI in the country. Economic issues should come in the forefront of people´s daily affairs rather than politics. Business leaders must advocate for Nepal´s long-term economic interest before satisfying short-term vested interest of political parties and its leaders.
According to the World Bank, foreign remittance is better than FDI if used in productive projects. Foreign remittance (21 percent of the GDP) has so far helped the government in improving its foreign currency reserve and balance of payment, reducing poverty level, increasing domestic consumptions, including education and health sectors. It is high time to use remittance for saving and productive development projects in Nepal. The collective investment of Non-Resident Nepalese (NRNs) can improve the country´s economy and development. It could help facilitate the improvement of economic status in Nepali households and upgrade the quality of life.
The Government of Nepal does not have enough resources to depute economic counsellors in Nepali missions abroad. This is where NRNs can support Nepali missions by offering their local contacts, knowledge, expertise and language skills. Nepali students abroad are interested to voluntarily work for six to 12 months in Nepali missions as interns. The government should make a provision to accept internship in Nepali missions and provide trainings as per their requirement.
NRNs can also work together with Nepali business associations (FNCCI, CNI, CoC) to explore markets for Nepali products and to organize ´trade fairs´ in the country of residence. A recent collaboration between NTB and NRNs to campaign for Nepal Tourism Year 2011 in other countries is a good example.
NRNs can provide remarkable support to Nepali missions and business associations with their knowledge and local associates. Unfortunately, the Nepali business associations have not taken enough initiative to tap NRNs´ skills and resources as much so as the political organizations have to voice their own political agenda through sister associations outside Nepal. This has to change. Economic diplomacy of Nepal should go beyond political relations and help pave a way for globalization.
Writer is Patron of NRN Association
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