Remittance is the backbone of Nepali economy, making up almost 28 percent of national GDP. The contributions come from almost three-million-strong Nepali migrant workforce employed mostly in South Korea, Malaysia and Gulf countries. Lack of employment opportunities at home and low wages and compensations have been a push factor for outward migration of aspiring young people. The country, at this point in time, has almost 30 percent of its population in the 15-29 age group, and so is in a great position to harness the demographic dividend. But continued political turmoil, policy instability, myopic vision of political leaders and slow reconstruction and rehabilitation post-disaster have resulted in weak investment climate in the country, which in turn has contributed to an anemic job market. Moreover, inadequate energy and transport infrastructures and scant use of information and communication technology on business regulation and facilitation is taking a toll on the competitiveness of Nepali economy.
Control of anti-competitive behaviors like cartel, syndicate and abuse of dominant position are important for the creation of a healthy business climate. The right to physical as well as intellectually property should be protected by the law of the land in order for the market to function properly. Distortions induced by the lawlessness or by the weak law-enforcement capacity of the government scare off investors. So ensuring fair competition through adequate laws and their strict enforcement is a precondition for unfettered operation of market economy. Nepal, for its part, enacted competition laws seven years ago but the implementation is dismal; so still a large section of the economy exhibits monopolistic, anti-market behaviors. This is definitely not a way to improve our international competitiveness.
With the liberalization of international market, barriers on trade are gradually being dismantled right around the world. Tariffs are also going down at an unprecedented rate, but there continue to be many non-tariffs barriers standing in the way of sustainable exports of developing and least developed countries. Meanwhile, poor countries, unlike their rich cousins, are not able to maintain non-tariff walls to protect their industries and production units from cheap imports from other countries. The developing countries, and particularly the least developed ones, are losing ground due to increased competition in the international trade arena; to make matters worse, those countries are also flooded with cheap imports, badly hampering their industries. The unilateral preferences offered under various bilateral trade treaties including the generalized system of preferences (GSP) are losing their relevance for those countries that are not able to produce and export goods at low cost without compromising the quality of their export commodities. Tariff liberalization around the globe is thus a double whammy for the least developed countries whose exports are constrained but imports are not. Nepal's growing trade deficit is related to the liberalization of trade in the contiguous region and beyond, something which Nepal has found difficult to emulate.
Only if we can develop a competitive economy can we enhance our exports and reduce the huge trade deficit (currently over 33 percent of the national GDP). This, again, calls for production of goods and services of acceptable quality at low cost and their delivery at the buyer's doorsteps within specified time and cost. This entails judicious management of production, enhanced productivity, better supply chains and upgrading to higher value products.
Export-led growth is a much-talked but largely unimplemented aspect of Nepali economy. We have focused on liberalization of trade, privatization of public enterprises, economic diplomacy and so on. But even as we talk up such big concepts, we have failed to get our fundamentals rights.
Primarily, in order to increase our exports, we need to be able to increase the efficiency of our production. In the Nepali context, the high-value agricultural products, non-timber forest products, particularly medicinal plants and herbs, selected manufacturing articles like cement, processed agro-products, pashmina, handicraft and carpets and services like tourism, education, health, IT and business process outsourcing are potential areas which can be developed in order to enhance our supply side capacity.
Second, we need to develop our infrastructure and create a business-friendly environment. This includes developing transport and border infrastructures, as well as energy and communication linkages that lend momentum for export growth. Streamlining transit procedures and reducing cost of movement of goods between gateway port and manufacturing units in Nepal is crucial for increasing competitiveness of Nepali products.
Third, equally important part is expansion of market access. This is related to negotiating rules of trade, at bilateral, regional or multilateral forums. The focus should be on removal of non-tariff and para-tariff barriers and mobilizing international support in trade capacity enhancement of the least developed countries. This can be done by enhancing technical capability and negotiating skill of officials in trade and other relevant ministries. Developing trade capacity is a part of economic diplomacy, and has become a part of foreign policy goals of individual countries in most of the developing world. There needs to be better coordination between our foreign ministry and other economy-related ministries so that there is a common focus on greater access to international markets.
The global economy is dynamic. Demands for goods and services in various markets keep changing, as evidenced by the steep fall in export of some key commodities from Nepal like garment, carpet and pashmina over the past 15 years. Hence it is important to undertake international market analysis, and constantly innovate, in order to better align our economy to international markets. Thus the government of Nepal should consider creating a strong trade promotion authority that would provide technical support and feedback to the government on issues pertaining to competitiveness, trade and development. It should be backed by a consolidated and practical action plan. But everything will come to a naught if there is no political will to undertake these vital reforms. Only with a strong political will can Nepali economy be strong enough to stand up to the competition in the international marketplace.
The author was a Secretary at the Ministry of Commerce and Supplies
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