Trade Promotion in Nepal
| Author | Peter Richter |
| DOI | 10.1177/0015732516659568 |
| Published date | 01 February 2017 |
| Date | 01 February 2017 |
| Subject Matter | Commentary |
Trade Promotion in Nepal:
Foreign Trade Review
52(1) 48–59
‘An Impossible Task?’ A
2017 Indian Institute of
Foreign Trade
Case Study on a Landlocked
SAGE Publications
sagepub.in/home.nav
Least Developed Country
DOI: 10.1177/0015732516659568
http://ftr.sagepub.com
Peter Richter1
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 defi-
cit which reached mid-2015 a massive 32 per cent of GDP, which can only be
sustained through the remittances transfers from millions of migrant work-
ers. 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 envis-
aged 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 weak-
ened trend. Adding on the effects of the earthquake for 2014/15 a negative
export growth of around 10 per cent 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 per cent of GDP) and an unproduc-
tive agricultural sector (32 per cent of GDP) it cannot surprise that export
1Freelance consultant, formerly Project Manager with the German International Cooperation (GIZ)
and formerly Professor at the Management College of Berlin, (Berufsakademie) Weisswasserweg ,
Berlin, Germany.
Corresponding author:
Peter Richter, Weisswasserweg 37, 12205 Berlin, Germany.
E-mail: eprichter2003@yahoo.com
Richter 49
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 trans-
action 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.
Keywords
Nepal, international trade in goods, Nepal Trade Integration Strategy, Structural
and institutional hindrances to Trade, New vision on export of services.
Introduction
Nepal, the small country in the Himalayas with 26 million inhabitants, is aiming
at a full integration into the global economy. The country is a founding member of
South Asian Association for Regional Cooperation (SAARC) and was the 147th
member to join the World Trade Organization (WTO) in 2004 (Bastakoti & Seiler,
2015). The country counts as a least developed country (LDC) with preferential
access to most world markets. As it does not have sea access, bordering India to
the south and China (Tibet) to the north, it is landlocked and dependent on other
nations for its imports and exports. Trade in goods and services accounts for well
over 40 per cent of Nepal’s gross domestic product (GDP), of which remittances
represent by far the biggest portion with it alone contributing around 30 per cent.
Nevertheless, with regard to trade in goods Nepal is facing a high and constantly
growing trade deficit which reached mid-2015 a massive 32 per cent of GDP,
which can only be sustained through the transfers from the hardship suffering
migrant workers in the first place in Middle East and Malaysia. As the country is
still lacking a favourable business environment that encourages producers and
exporters to fully exploit the existing market opportunities open to them as
SAARC and WTO members, it is unable to achieve high growth rates needed for
a fast catch-up development. The situation has been worsened by the heavy earth-
quake which struck the country in April 2015 and more recently by the political
conflict in the Tarai and the subsequent blockade from India.
On Saturday, 25 April 2015, a 7.6 magnitude earthquake struck the central part
of Nepal with widespread destruction of residential and government buildings,
heritage sites, schools and health posts, roads, bridges and water supply systems
impacting one-third of the national GDP. Also high damages have been reported in
50
Foreign Trade Review 52(1)
the productive sectors like agriculture, industry and commerce, mostly with regard
to small and micro-enterprises which represent the largest share of enterprises in
these sectors. The earthquake distrupted the operation of enterprises due to damages
to trade-related infrastructure, lack of labour and loss of demand. It is estimated that
the total value of disaster effects is equivalent to US$7 billion. In the three above-
mentioned productive sectors, the effects amount to around US$430 million (see
Government of Nepal, 2015). In the aftermath, exports are in a downward slide and
thay are expected to be further reduced in fiscal year (FY) 2015/16.
After the promulgation of the new constitution in October 2015 protests and
demonstrations erupted in the Tarai zone bordering India which led to a continuous
disruption of the supply lines at the Nepal–India border. It is suspected that India
actively supports the Tarai movement against the central government in Kathmandu
to mark its influence on Nepal politics. The consequences have been huge addi-
tional economic losses in all sectors of the economy in the times when the country
was just starting to recover from the devastating earthquake. The private sector
losses are already mounting up to 200 billion Nepalese rupees, far more than the
earthquake-related losses. The GDP is expected for the FY 2015/16 to register a
negative growth. The most affected sector is most...
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