The make-belief world of ‘Made in Nepal’To make the policy work, policymakers must first identify the products that we can produce at lower costs.
Jagadish Prasad Bist
Every year, at the dawn of policy formulation—like this year, when President Ramchandra Poudel unveiled the government's policies and programmes for Fiscal Year 2023/24—the government promises to promote the consumption of Nepali products. The 'Made in Nepal' slogan, though, evaporates as soon as the government is done with the formulation. No government has failed to include this slogan in the past few decades in their policies, yet we import almost everything we consume. Perhaps the government has been embracing such a slogan for its inherent sense of patriotism among the electorate.
In its policies and programs, the Pushpa Kamal Dahal-led government went one step further to argue that the government and the people should be ready to pay even 20 percent more for Nepal-made products. This statement alone is sufficient to say that such slogans are only to sound patriotic and to eschew that the government cares about domestic industries. In a global economy, where consumers can access every piece of information, such policies have little chance of making an impact. There is no escape hatch for our domestic firms from competing with global firms with easy access to the Nepali market. More importantly, we need to understand that economies, in general, and consumers, in particular, don't have a nationality. And it is okay to buy goods produced abroad that are cheaper. It is good for the economy: it reduces inflation, saves governments' costs of subsidies, promotes innovation to reduce the cost of production in the domestic market, and makes domestic firms competitive.
This piece is not against Nepali products or the government's slogan 'Made in Nepal'. In fact, economics 101 tells us that we measure economic development based on the production of goods and services in an economy: The more we produce, the better. On top of all, we must transform our economy from a consumption-based economy to a production-based one. However, the argument is that the government's priority should be supporting producers in reducing their cost of production, not promoting higher prices. The government should help them access the global market, not constrain them within national boundaries. It should remove unnecessary taxes on firms and not impose import tariffs on raw materials.
However, in hindsight, the government does not care about Nepal's production. Let alone the vexed administrative procedure to register a firm in Nepal and the unavailability of raw materials tell the truth. We have also seen farmers going on hunger strikes to get their prices back for years, farmers throwing vegetables on the roads for not being able to find a market, producers going bankrupt for highly taxed raw materials and high production costs, foreign investors running away for lack of investment securities and increased labour and fuel costs, and consumers preferring foreign goods for comparatively lower prices and better qualities. Therefore, it is not about production and price but about market guarantee. When the government cannot provide a market for small investors such as farmers, such slogans remain doubtful.
The real problem with such policies is that the government has done no homework in finding out the products and services the economy is best at producing, which are the products that can be produced at minimum cost and made competitive in the global as well as domestic economy. We need to understand that we cannot produce everything and should not strive for that. It is going to do more harm than good for the national economy. The government seeks to use our homemade fuel products. Nepal has some potential to excavate our fuels – and spends millions on research and development for such motives. It will be a white elephant. Let it be the cup of tea for Gulf countries alone.
Why do European countries, China, the United States or every other country rely on Taiwan for chips and semiconductors? Why do multinational companies like Tesla, Apple, and Samsung prefer manufacturing units in China? Why do garment industries worldwide prefer Bangladesh and Sri Lanka? Why do world economies let Chinese gadgets do business in their economies? Why do world economies rely on Gulf countries and Russia for fuel products? The simple answer is that they are smart enough to understand that they cannot produce the same goods at the cost that other economies can. It is not that they are not patriotic or do not want to produce everything in their economies or they can't produce (except for a few exceptions such as Nepal); they are shrewd enough to judge that producing such products in their economies will trigger inflation and will do poorly for the economy.
It is not that an economy must produce everything domestically. Take the example of Gulf countries. They are good at making only one product, fuel. Fuel alone has helped them build empires. Imagine the government focuses on creating a single product—cheaper electricity, for instance—and promoting the consumption of the same. When global economies strive to go greenhouse gas free, if this has not been the best product for Nepal, nothing can be the alternative. Cheaper electricity in the global market from Nepal alone will help achieve every other goal of the government. It will reduce not only fuel and power prices but also almost every other product by lowering production costs. It will not only support domestic firms but also entice foreign manufacturers to establish their manufacturing stations in Nepal. It will reduce the import of petroleum products and vehicles and facilitate the environment in Nepal to promote Nepal-based production of electric vehicles and whatnot.
The government also argues for reducing the trade deficit by increasing the production of goods even at higher prices than we can consume. Such bogus policies are not in favour of the Nepali economy. We need to remember that such policies in an economy, which has already been crippled by high inflation, will do only wrong. Reducing the trade deficit in the present scenario discourages production in Nepal: we import raw materials for almost everything. On top of it all, the major product that Nepal imports is petroleum.
If the government is serious about producing goods in Nepal and turning the consumption-based economy into a production-based economy, policymakers have to do their homework in identifying products that we can produce at a lower cost. The government must put more light on such classification and start easing administrative and technological obstacles, reducing tax burdens, and making raw materials available for such firms rather than just including slogans in its policies and programs for the sake of policies. Otherwise, precipitation in policies intended to sound patriotic will harm not only the economy but entrepreneurs and consumers as well.