Nepal has export potential worth $9.2 billion, World Bank saysIn fiscal 2019-20, exports amounted to $835 million while imports valued at $10.22 billion flooded in.
Nepal has untapped export potential worth an estimated $9.2 billion, according to a new World Bank finding unveiled on Monday.
The multilateral funding agency said Nepal could boost its exports twelvefold, which represents an opportunity to create around 220,000 new jobs. The World Bank's Nepal Development Update published annually provides a report on the country's key economic developments.
In the last fiscal year 2019-20 ended mid-July, shipments from Nepal were worth $835 million while imports valued at $10.22 billion flooded in, resulting in a gargantuan trade deficit of $9.39 billion.
The World Bank has termed Nepal’s export potential as 'missing exports' in the special focus section under the theme 'Harnessing Export Potential for a Green, Inclusive, and Resilient Recovery'.
“This export potential represents an opportunity to create an estimated 220,000 new jobs, with significant implications for productivity growth. Realising that potential is not unrealistic in the medium term,” said Kene Ezemenari, World Bank senior economist and lead author of the update, at a virtual meeting organised by the Society of Economic Journalists-Nepal on Monday.
According to the Department of Customs, Nepal’s trade deficit crossed the Rs1 trillion ($9.95 billion) mark in 2017-18 as imports surged amid slowed domestic output and consequent sluggish export revenues.
If Nepal's export growth rate had been able to keep up with the South Asian average since 2000, the unrealised export potential would have been slashed by 73 percent, the World Bank said.
The country’s export growth has been stagnant over the past two decades, it said. “Indeed, with export growth at 4 percent on average since the turn of the century, Nepal features among the 20 countries in the world with the least dynamic exports,” the report added.
The multilateral funding agency said that stronger exports could help increase Nepal’s economic resilience, and accelerate recovery from the devastating shock that the Covid-19 pandemic has posed for the private sector.
“Exports can not only bring foreign currency into the economy to finance well-needed imports, but also spur the creation of ‘good jobs’ in higher value-added activities,” the report said. “Indeed, export orientation tends to drive productivity gains through increased scale and exposure to sophisticated global clients.”
The World Bank has suggested six key priority areas to achieve its export potential.
First, Nepal will need to reform the tourism sector through private sector coordination to meet the expected post-pandemic changes in demand and preferences. The country needs to develop nature-based tourism that is environmentally sustainable, with potential to support job creation and inclusive growth.
Second, to attract foreign direct investment, which is crucial for integration into regional and global value chains, it will be important to simplify and streamline processes for multinationals setting up shop in Nepal, besides actively engaging in economic diplomacy to attract capital.
Third, modernising export promotion will require links to digitisation, simplification of processes, skills development, and incentives for exporters.
Fourth, a reduction of trade costs will be critical, particularly given the country’s landlocked location and the mountainous terrain. This would entail reducing border crossing congestion through upgraded infrastructure and streamlined procedures and processes.
Similarly, reducing import duties—particularly on raw materials and intermediates—is crucial to ensure exporters have access to the most efficient inputs at world prices.
Fifth, investments to improve phytosanitary infrastructure will be needed for increased standards and safety of exports.
Sixth, measures to boost digital trade, and e-commerce in general, could potentially be a game changer for Nepal by adopting a robust policy framework. This would include, inter alia, efficient domestic and cross-border digital payment systems, and consumer protection and data privacy regulations aligned with international good practices.
Speaking at the virtual meeting, Finance Minister Bishnu Prasad Poudel said the government was ready to discuss the necessary policy arrangements to realise the export potential.
He said that as per the bank’s recommendation, the government was ready to discuss ways to reduce trade costs and import duties, and promote digital or e-commerce to energise Nepal's trade dynamics.
Surakchya Adhikari, co-founder of e-commerce site Thulo.com, said low-cost and reliable logistics solutions were needed to promote Nepali start-ups in global trade.
Adhikari added that gaining global trust and reducing costs by using technology were key to promoting exports.
The Covid-19 pandemic caused Nepal’s first economic contraction in 40 years. Nepal’s economy shrank by 1.9 percent in the last fiscal year 2019-20 as prolonged nationwide mobility restrictions from March to July 2020 significantly impacted all sectors of the economy.
The effect of the lockdowns and restrictions was pronounced on the services sector whose output fell by 3.6 percent. Tourism ground to a halt, which had a ripple effect on tourism-linked activities and transport. Wholesale and retail trade was also hit hard.
The World Bank said that about 1 million jobs were believed to have been lost in services linked to tourism and transport.
Industrial output dropped by 4.2 percent as manufacturing and construction suffered from input shortages, restricted labour mobility and constrained market access.
Agriculture remained the single driver of growth, expanding by 2.2 percent despite fertiliser shortages and disruptions in distribution channels.
The economy is expected to continue to recover, with growth projected to reach 2.7 percent in 2020-21. But celebrations might be premature, insiders said.
The World Bank has warned that Nepal’s economic outlook is still gloomy.
“Delays in the deployment of vaccines and new outbreaks domestically or globally would dampen the nascent recovery momentum, with a particularly detrimental impact on tourism,” the report said.
“Also, widespread or global outbreaks could cause a return to travel restrictions, leading to a reduction in outmigration and remittances.”
Shocks in migrant receiving countries would also reduce remittances, the report said.
Sekhar Golchha, president of the Federation of Nepalese Chambers of Commerce and Industry, told Monday’s virtual meeting that since Nepal was a less leveraged economy, supply and demand would pick up very fast.
“If we are not hit by the pandemic further, we can achieve double-digit growth in the next fiscal year.”
The recent political uncertainty, if prolonged, may further undermine the investment sentiment, according to the report.
Political instability heightened last December when Prime Minister KP Sharma Oli dissolved the House of Representatives. In February, the Supreme Court overturned the decision and reinstated the lower house, leading the two-party majority coalition to split into their former selves in March.
“Finally, should there be another dissolution of Parliament or similar level of political incident as occurred recently, this could dampen investor sentiment,” said the report.
Finance Minister Poudel said concerns that political uncertainties would impact the future investment environment and economic activities were unfounded.
“I urge you not to worry. As all political issues are resolved within the constitutional framework, it will not impact economic policy,” he said.