Alarming trade deficit with major trading partners, specifically India and China, has been a matter of concern for the country for long. But recent trade statistics suggest things are changing, as Nepal’s exports to China rose by a whopping 254 percent to Rs 1.21 billion during the first five months of the current fiscal year. Undoubtedly, this is good news in the sense that after many months, probably years, we have some positive data in the economic front, badly disfigured by a toxic combination of worsening political mess and insecurity.
According to the data released by Nepal Rastra Bank, the country made impressive progress in raising its export of medicinal herbs, animal hide and skin, wheat flour, metal handicraft, and hand-knotted woolen carpets to the world’s second largest economy. The increase, however, pales in comparison to imports worth Rs 30.59 billion that Nepal made during the same period. This led Nepal to run a huge trade deficit of Rs 29.38 billion with China, as against Rs 22.04 billion recorded in the same period last year.
The trade balance data with China definitely gives a disconcerting picture. Yet the interest shown by the Chinese in Nepal-made goods in the aforementioned five-month period is a sign that trade between the two countries can become better balanced, if a little more effort is put in. For this we believe Nepal needs to immediately enhance its competitiveness, fix energy problems, raise productivity of workforce, and build necessary infrastructure.
Currently, China provides zero tariff facility to 7,787 goods manufactured in least developed countries including Nepal. This means the Chinese government will not levy any duty on these products if Nepal intends to sell them in China. Yet, Nepali traders have not been able to tap this opportunity, either due to eroding competitiveness or due to inability to raise production.
One prerequisite to boost trade with China is unhindered power supply. Currently, most production units rely mainly on diesel generators. This has raised production cost by up to five times, making Nepali products less competitive in the international market. This problem is compounded by labor related problems, which, at times, leads to closure of factories for months. All the while, these problems are hindering many of our industries from operating at full capacities.
Another ingredient needed to boost trade with China is productivity. Nepali workers are known as the highest paid in South Asia, but are considered among the least productive in the region. This is a lethal combination that will further erode competitiveness of Nepali goods and services in the international market. To tackle this problem, the government in partnership with the private sector should immediately increase investment in vocational training so that pools of workers with different qualifications are generated. Side by side, the government should be serious in strengthening the infrastructure at Tatopani customs point, which is in a rudimentary state. Although the operation of the dry port in Larcha, currently under construction, is expected to partly remove infrastructure bottleneck hindering trade with China, the inherent bureaucratic practice of continuously postponing project-completion dates has once again raised doubts on the government’s credibility.
We strongly urge the government to stop engaging in fashionable chatter and make serious efforts to bridge the trade gap between Nepal and China, as the bottom line for international competitiveness is trade balance. But what is needed most at this time is zeal on part of the government to seize the opportunity, something that the country has been missing since long.
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