Trade Promotion in Nepal

Abstract

Nepal, the small poor country in the Himalayas is aiming at a full integration into the global economy. The country is a founding member of SAARC (South Asian Association for Regional Cooperation) and was the 147th member to join the World Trade Organization (WTO) in 2004. Nevertheless, with regard to trade in goods Nepal is still facing a high and constantly growing trade deficit which reached mid-2015 a massive 32 percent of GDP, which can only be sustained through the remittances transfers from millions of migrant workers. Many emerging countries like in Asia for example Malaysia and Vietnam, also Least Developed Countries (LDCs) as Laos, Cambodia and Myanmar are following the same pattern: the trade sector propelled by foreign investment is selected as lead sector to impulse a fast catch-up development. Nepal is following this strategy; the Government adopted in 2010 the Nepal Trade Integration Strategy (NTIS) as its key instrument for export expansion envisaged by the Trade Policy 2009. In this context the questions is arising: Was the strategy successful or are at least steps in the right direction visible? Despite all efforts to improve export promotion performance, outward trade in goods showed already in the months before the 2015 earthquake a renewed weakened trend. Adding on the effects of the earthquake for 2014/15 a negative export growth of around 10% has shown up, which will further deepen 2015/16 caused by the on-going fuel crisis in the country. Still, principal export products –nearly unchanged since long time- are carpets, textiles and fabrics, garment and juices, all from the industrial sector. Under the conditions of a relatively weak industrial base (only 15% of GDP) and an unproductive agricultural sector (32% of GDP) it cannot surprise that export volumes achieved are not sufficient to overcome the existing trade deficit. The reasons are relatively small production volumes as well as the insufficient compliance with required international quality standards. Moreover, high transaction costs for cross-border trade and regulatory bureaucratic obstacles hinder the export-oriented trade. Other structural and institutional hindrances have to be added on. With so many bottlenecks with regard to supply side issues and the international marketing of goods, one has to come to the conclusion that the landlocked LDC Nepal will in the foreseeable future not be competitive in the international trade environment, with the exception of the cross-border trade with India. On the other hand, the export of labour services and tourism are sustaining and running the economy of the country. Therefore a radical change in the strategy of the country is indispensable and the focus has to be put on the export of services, including hydropower as the big potential sector of the future. Such a clear vision is still missing completely in Nepal.