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October 2014 Economy and Policy

Published on: 2014-10-15 00:00:00     586 times read    0  Comments
--By Gunja B Khadka
 
The latest statistics shows that Nepal's trade deficit and national budget size is equal around 600billion rupees. In this context, Nepal trade integration strategy–2010 (NTIS) is being reviewed after four years of implementation. This is the first time that government is planning to review its trade strategy with an aim of promoting export and reforming export oriented business. Statistics show that the export of products listed in NTIS is far below the target set by it. Considering the present situation it is not going to be possible to reduce trade deficit if the NTIS reviewed in the same way as in the past. Concerned authorities say that the coming review will be based on four key criteria that includes internal supply chain capacities, world trade growth scenario, the country’s present capacity to export the identified goods and services and the possibility of increasing the export of already identified products. Officials at the Ministry of Commerce and Supplies (MOCS) say that the strategy is being reviewed for the first time so as to adopt the changing scenario in trade sector and to respond to the demands of industrialist including other major products like garments and carpets.
 
The NTIS, which was unveiled four years ago, has been criticized for not meeting its tangible targets. Enhancing the capacity building and competitiveness of Nepali products in international market is its main priority. Except some major items, the export of goods and services put under the heading “other goods and services” did not increase. The existing strategy has prioritized 19 product and services as having export potential including seven agro items, five industrial products and seven services. 
 
Trade and Export Promotion Centre (TEPC) has already published its report showing dismal performance of the listed products except large cardamom, all other listed products have not recorded much encouraging export performance. Over the last four years, government has given more priority to agro and manufacturing products. But at the same time, Nepal’s service sector is growing more competitive in the international arena. IT and Business Process Outsourcing (BPO), labor and tourism have huge potential to generate the foreign currency and reduce the trade deficit. However, this sector is not getting enough priority from both— the government and the private sector. Ishwori Prasad Ghimire, executive director of TEPC, opines that it is good opportunity to promote potential goods and services and import substitution policy. 
 
 
Hopes under Shadow
Two years ago, there was a plan to improve the export business targeting 100 billion rupees figure. However, according to TEPC annual statistics for fiscal year 2013-014, Nepal's export trade is still below that figure. In this scenario, there is no ground to believe that the export will grow after the forthcoming review of NTIS. However, as the coming review is being funded by Enhanced Integrated Framework (EIF), a Geneva based multilateral institution that specializes in promoting the trade of least development countries (LDCs), hopes have been rekindled.  The EIF, in association with Nepali government, has set up a fund of nearly 700 million rupees to promote pashmina, medicinal herbs and ginger products. And there is an agreement between EIF and Nepal government to implement projects to promote export of goods listed in NTIS. A committee has been formed in chairmanship of Nepal government’s Chief Secretary .Along with that a sub-committee called Capacities for Trade and Development (NECTRADE) has been assisting in implementing projects together with local entrepreneurs.  However, the Implementation committee is criticized for not playing its role proactively. 
 
So the forthcoming review of the Strategy is still in doubt.  
 
Service sector in shadow 
For decades, Nepal has been totally focused on goods exports. But the procedural obstacles in exporting these goods cost much money while minimizing the returns. But the recent emergence of service sector has raised the hopes again to lower the trade deficit. One such possible product is hydroelectricity. And the recently signed Power Trade Agreement (PTA) with India has enhanced this hope further. This indicates the need for Nepal entering into bilateral, regional or multilateral agreement in service sector. According to Director General of World Trade organization (WTO) Roberto Azevedo, Nepal has more potential in service sector than in others. He also suggests that Nepal can groom its economy if the service sector is handled appropriately.
 
Implementing dilemma
It was also due to the political instability and government’s weak performance that Nepal could not meet its NTIS targets. Government seems weak also in properly using the available fund. Similarly, the obstacles faced in implementing the policies have made the environment unfavourable. So, Nepal has to focus on solving problems faced in implementing its programs  by creating business-friendly physical infrastructure such as well managed dry port and international airport. At the same time, Nepali private sector has to produce qualitative products and enhance laboratory capacities. Private sector apex bodies such as the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), Confederation of Nepalese Industries (CNI) and Nepal Chamber of Commerce (NCC) have made some joint initiatives to develop varieties of products to promote export. This is a good development.
 

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