Foreign policy bridges the aspirations of domestic policy and the rest of the world. In doing so, it seeks support from the world to fulfil domestic policies. Economic diplomacy is therefore closely associated with a nation’s objective of achieving prosperity. In this direction, Nepal’s foreign policy aims, unequivocally stated, to contribute to the country’s social and economic transformation through economic diplomacy.

Nepal’s economic diplomacy evolved over centuries. Historically, Nepal focused on trade and revenue due to its strategic position in the entrepot trade linking India, Tibet and China. Doots (messengers) occasionally sent to and from these countries, galvanised the economic concern of Nepal from time to time. In the modern era, Jaisi Kotha, set up in 1769, institutionalised trade and foreign relations.

Moving away from seclusion, modern Nepal adopted an open-door policy towards the rest of the world beyond India and China. Consequently, between the 1950s and 1980s, the focus shifted to foreign aid and technical assistance, emphasising highway infrastructure, industrial development, agriculture, health improvement and institution-building. These efforts aimed at economic self-sufficiency. After the restoration of multi-party democracy in 1990, priorities changed to economic liberalisation, export-led growth, foreign direct investment (FDI) and tourism promotion.

Economic diplomacy for Nepal

Economic diplomacy can be split into two forms. First, the narrow approach covers only commercial diplomacy, limited to export promotion and inward investment. However, the broader approach encompasses the full spectrum of economic leverage available to a country, including food and energy security, climate change, intellectual property rights and international supply chains. Nepal’s Foreign Policy 2020 envisions economic diplomacy as a focus to contribute to national prosperity. In this regard, six areas are designated: development assistance, foreign investment, export trade, tourism, foreign employment, knowledge, skills and networking within the Nepali diaspora. Furthermore, the Country-specific Strategy for Economic Diplomacy 2018 offers actions for agencies at home and abroad. All in all, Nepal relatively embraces the broader approach.

Gaps and traps

Nepal has been ranting on economic diplomacy, yet with disappointing impact. Policy and strategy alone do not work when action is too little and too late. This syndrome is unbridled, partially due to a resource mismatch. So far, the allocated resources give an impression similar to kanika chharne (spreading broken rice). Likewise, almost all missions are handicapped, lacking a dedicated wing backed by a competent team to keep the ball rolling. In such a quandary, missions run with the old-fashioned attitude that ‘everybody’s job is nobody’s job.’ In fact, a business visibly survives only when the mission head or a senior diplomat is passionate.

Similarly, missions’ outreach, except in a handful of cases, remains limited to the Nepali diaspora and does not reach mainstream business leaders or stakeholders in the host country. Moreover, linkages between home institutions and missions abroad often stay very low and tenacious. Despite sporadic communication, even self-charged missions end up with poor support from the capital. In addition, the country-specific Strategy, though it exists, skips three central components of Nepali economic diplomacy: technology transfer, climate change and foreign assistance. In a rapidly changing context, the first two have become more apposite facets in facing Nepal’s developmental challenges these days. Although the country-specific Strategy covers 36 countries, it remains subjective, keeping mum about targets.

In this circumstance, the syndrome gare pani thikai, nagare pani thikai (doing well or not doing well either) overwhelms. During my time in the civil service, I seldom saw ministers for foreign affairs, industry, commerce and agriculture meet regularly, with the agenda focused on accelerating exports or inward investment. This was something the prime minister could have managed. Above all, the orientation of rank and file in missions abroad must come out of the existing box, as their attitude and aptitude—which together form the centrifugal force—are not fully compatible with the dynamic needs of economic diplomacy. Yet, one must keep the learning and explorative curve efficient, as no single-formula or ‘open-sesame’ alike solution exists.

Practices around

Indian Ambassador Kishan S Rana writes in a research article that embassies can serve as trade promotion hubs, providing market insights, connecting firms and organising trade missions. He elaborates that India’s Embassy in Mexico analysed local import baskets to identify new product opportunities, successfully establishing new export markets. India has been an interesting case to learn. Over the last five years, since 2021, India has secured a number of FTAs and diversified its trade and investment opportunities with Mauritius, the UAE, Australia, Iceland, Liechtenstein, Norway, Switzerland, the UK and the EU.

However, eleven FTAs and six PTAs were in India’s scoreboard, undertaken prior to 2021. Negotiations for more FTAs and PTAs with Canada, the Gulf Cooperation Council, Israel, Peru, Chile, the Eurasian Economic Union and the MERCOSUR, a Latin American trade bloc, are still active. Recently, Indian Commerce Minister Piyush Goyal proudly said that eight FTAs were achieved during the Modi government (since 2014), encompassing markets in 36 countries. This shows India’s infatuation with expanding its market worldwide.

Bangladesh, seeking deferral of its LDC graduation to 2029, is aggressively engaged in negotiations for FTAs and PTAs with India, Sri Lanka, the USA, the EU, the ASEAN, Singapore, the UAE, Bhutan, Indonesia, Malaysia and the RCEP, comprising 15 Asia-Pacific countries, while pursuing a diversification mission with many African countries.

Roads ahead

Nepali economic diplomacy is still snail-paced; however, it can be sped up. The stepping stone lies with an overhauled implementation. Second, a high gear in negotiating trade and investment with prospective countries is an imperative. No delays should occur in the making of bilateral and regional instruments. Third, Nepal should not delay setting annual targets for diplomatic missions across growth prospects. For example, targets can be set to achieve significant improvement if bilateral trade is lopsided in favour of the host country.

Fourth, ‘the best economic diplomacy award’ can stir and underpin the idea. Evaluation, however, must be revamped, focusing on their performance in trade, FDI, foreign employment, tourism, and foreign assistance. Fifth, as Nepal soon graduates from the LDC category, it will be susceptible to disputes under the WTO by member countries. To fit the scenario, Nepal must build its capability to cope with emerging cases. Sixth, soft power and economic diplomacy can go together on fronts. This least explored space needs to be extracted.

Seventh, gearing coordination between diplomatic missions and capital-based institutions is vital for solid results. Eighth, the PM could make strides on enhancing exports and inward-FDI, setting a target to leapfrog in the goods export to GDP ratio from 3 percent in 2025 to 15 percent by 2031. The PM should challenge the Ministry of Foreign Affairs and others to tune a rapid trajectory. Ninth, resource backing is immensely essential. By and large, low-hanging fruit and early-harvest can be attained immediately.

No doubt, the success of diplomacy fundamentally hinges on domestic order. With it, economic diplomacy flourishes. When the home operates well within this order, economic diplomacy expands and thrives. After recent successful elections, a new government is in the driving seat. Our optimism is on the rise—a conducive domestic order will arrive on the heels of mega-reforms. Economic diplomacy will follow suit.