International Trade Issues and Strategy of Nepal in South Asian Region

                                         1.  Strategic Outlook on South Asia

v Inter-regional trade accounts less 5% of overall trade with in south Asia Region.

v Recent World Bank studies shows that if you actually look at the economic complementary and geographical proximity (nearness) of the south Asian countries, they should be trading 3 times more what is the case.  

v South Asia countries are trading with more outside the south Asia compared to with  won neighbors  

v If fact India, Pakistan, Nepal and Srilanka have 2.9 times more restriction on trade on the south Asian Partners compared with rest of the world.

These are the numbers shows that even though we have SAFTA, but still physical barrier exist and barriers of connectivity and also digital connectivity for potential digital economy and how small developing countries and isolated countries can leave frog if they were digitally connected.

 

2. Review of Nepal Situation

¨  Nepal is policy regime has not been very effective in improving trade competitiveness

¨  Weak infrastructure, Poor HR absence if quality standardization of exports frequent policy reveals among other have restricted the country in improving its international competitiveness.

¨  Still, due to global economy, these issues need to be properly addressed. With the reference to regional and multinational agreement (SAARC, WTO, SAPTA, SAFTA, BIMSTEC) to strive for effective and meaningful regional trading.

Nepal Situation

v  Nepal’s trade deficit swelled 24.5 percent to Rs887.88 billion in the first eight months of the current fiscal year due to increased imports of petroleum products, readymade garments, aircraft spare parts and electrical goods.

v  Nepal Rastra Bank’s report shows that imports jumped 23.8 percent to Rs.949.11 billion in the first eight months of the current fiscal year, up from 22 percent in the same period during the last fiscal year.

v  Imports from

a.       India=22 %

b.      China = 37.8%

c.        Other countries = 20.8%

 

3. Issues and challenges

The following are the listed issues and challenges for international trade by Nepal.

¨  High cost of production coupled with poor access to international market.

¨  Nepal's limited exportable items such as carpet and readymade garment that used to command over 2/3 of total overseas export have lately lost since.

¨  Despite having strong export potentialities to some states of India -Nepal lacks the production of commodities that can compete in the Indian Market.

¨  Exportable performance of manufactured good is very dismal and depressing

¨  Consumption also promoted by remittance help swelling of import. Rising import has been blamed for the worsening external sector condition of the country.

¨  Nepalese industrial bases have been enfolded and squeezed.

¨  Both trade related as well as other infrastructures remain inadequate and in poor condition.

¨  Nepal's continues to struggle with poor business doing environment

¨  Export incentives are not giving much incentives to export

 

4. Control Strategy for Trade deficit

To control trade deficit, Nepal must follow three important strategies as discussed below.

       I.            14^th periodic plan has adopted following strategy

 

¨  Trade facilitation and infrastructure development

¨  Product Development

¨  Export promotion

¨  Trade diversification

¨  Service Trade Promotion

¨  Trade related capacity Development

¨  Trade information system (TIS) development

 

    II.            Export Promotion Strategy

¨  Nepal doesn't have sufficient domestic capital available for investment in infrastructure projects, foreign investor should be encourage i.e. cost effective production and encouraging export

¨  PPP policy and boost system and optimum but sustainable use of natural resources should be facilitated for industrial growth

¨  Assessment of export potential of the country should be undertaken and product with competitive advantage should be selected, developed and promoted.

¨  We are not able to reap benefit from such opportunities. Effective implementation of BIPPA agreement with India as well as china help the country increase its export and explore the opportunity.

¨  FI should be attracted to invest in hydropower ( PTA= Power trade Agreement )

¨  Zinc sheet, pebbles, Cardamom and juice export is increasing to India. Nepal's organic tea and coffee is a big demand in Europe and America. Nepal's handicraft and silver craft, Yarshagumba and other medical herbs emphasis should be given on the processing and packaging such as to add the value.

¨  Export promotion abroad by conducting exhibitions and international trade fairs. International market development should be monitored and assessed.

¨  Lack of quality certification of raw materials necessary for Nepali industries can be cited as main problem

¨  Finding new tourism sectors.

 

 III.            Import Substitution Strategy

¨  Promote the hydropower electricity as well as solar power and bio-gas  so as to replace petroleum products

¨  Agro- products such as rice, corn, vegetables, oil etc. Reduction in import of agricultural products will relax the trade deficit to large extent.

¨  Cigarette and liquor imports should be discouraged. Quota on gold , silver should be tightened and custom duties on luxurious goods should be raised

¨  If ministry of physical infrastructure and improve public transportation will reduced on the import of private vehicles.

 

5. Conclusion

The trade sector plays a highly instrumental role in attainable high and sustainable economic growth and indisputable. However, Nepal's policy regime has not been very effective in improving trade competitiveness and not reducing alarming trade deficit with India and other nation.