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Nepal is the worst performer in economic competitiveness in South Asia, report says
The economy performed poorly in terms of innovation capability, information, communication and technology adoption, product market development, judicial independence and government’s long-term vision.
Prahlad Rijal
Despite recording three successive years of high economic growth, macro-economic stability and average annual Gross Domestic Product growth of 4 percent in the past decade, Nepal ranks 108th out of 141 economies and is the worst performer in South Asian region in terms of competitiveness, the latest report by the World Economic Forum shows.
The yearly assessment report, Global Competitive Report 2019 published on Wednesday measures national competitiveness based on the state of institutions, policies and factors that determine an economy’s productivity.
Out of the total competitiveness score of 100 or the ‘frontier’ where productivity constraints cease to exist, Nepal has gained 51.6 points — far below India (68th) with 61.4 points and Srilanka (84th) with 57.1 points — and the global average of 60 points.
The economy performed poorly in terms of innovation capability, information, communication and technology adoption, product market development, judicial independence and government’s long-term vision.
Despite its low rank, Nepal has performed better in indicators such as macro-economic stability, road connectivity, electricity access and supply.
The 2019 index that offers insight into economic prospects ranks 141 economies accounting for 99 percent of the world’s GDP based on 103 factors of productivity related to 12 pillars of infrastructure, institutions, ICT adoption, macroeconomic stability, health, skills, product market, labour market, financial system, market size, business dynamism, innovation and capability.
According to the World Economic Forum, the report demonstrates that despite central banks injecting nearly 10 trillion dollars into the global economy 10 years on from the financial crisis, productivity-enhancing investments such as new infrastructure, research and development and skills development in the current and future workforce have been suboptimal.
“The global economy is ill-prepared for a downturn after a lost decade for productivity-enhancing measures,” states the report. “Monetary policy may have run out of steam and some countries are facing a liquidity trap. Furthermore, the geopolitical context is more challenging than in 2007, with gridlock in the international governance system, and an escalating trade and geopolitical tensions fuelling uncertainty, which holds back investments, and increases the risk of supply shocks.”
As per the report, Asia-Pacific is the most competitive region in the world with Singapore as the most competitive economy, followed closely by economies in Europe and North America and Nordic countries are among the world’s most technologically advanced, innovative and dynamic while also providing better living conditions and social protection.
"The report demonstrates that there are no inherent trade-offs between economic growth and social and environmental factors if we adopt a holistic and longer-term approach,” writes Klaus Schwab, founder and executive chairman of World Economic Forum.
“While few economies are currently pursuing such an approach, it has become imperative for all economies to develop new inclusive and sustainable pathways to economic growth if we are to meet the Sustainable Development Goals."
The report appears amid fears of slowing economic growth in Nepal owing to a drop in manufacturing and foreign direct investment, despite government claims that it has improved the investment climate by reforming over a dozen laws in a year.
Figures show that the country's investment outlook has remained bleak despite political and macroeconomic stability.
As per Nepal Rastra Bank, the inflow of foreign investment plummeted 25 percent to Rs13.07 billion in the last fiscal year from Rs17.5 billion in 2017-18.
According to the Department of Industry, industry registrations fell to 436 in the last fiscal year from 498 in the previous year, the total committed investment dropped to Rs282 billion from Rs350 billion in the previous year, and foreign direct investment pledges also nosedived to Rs24 billion from Rs56 billion.
Economists say Nepal has high barriers of productivity impeding the economy to gain comparative advantage in terms of production of goods and services while the policy level measures intended to stimulate industrial growth are inconsistent and implemented on an ad hoc basis.
“Nepal needs to audit the status of factors affecting productivity — land, labour, capital and technology — and eliminate barriers to fair use of land, cronyism in sectors of development, poor capital formation and eliminate such barriers impeding productivity,” said Gyanendra Adhikari, an economist.
“The financial institutions have also imposed a high amount of interest rates demotivating industrialists, land reform policies are not in favour of redistribution of wealth, an increasing flight of human capital is leading to slack expansion of productive sectors and unlike Bangladesh or India, Nepal does not have comparative advantage in producing marketable goods like garments and such. That has led to the economy faring worst in terms of competitiveness.”