Make in Nepal campaign highlighted as rising imports increase economic vulnerabilityIndustry Minister says government plans to launch a 10-year scheme to boost domestic production.
Nepal was the net exporter of rice in the 1970s and 1980s with the government establishing as many as seven companies in 1974 to export rice.
Fast forward to today, the country is heavily dependent on imports for rice. In the first three quarters of the current fiscal year, Nepal imported rice worth nearly Rs40 billion, according to the Nepal Rastra Bank data . Last fiscal year, the country imported rice and paddy worth Rs50 billion from India.
Not only rice, Nepal is importing a whopping amount of cereals; in the first three quarters of this fiscal, the country imported cereals worth nearly Rs62 billion, making the grains the fifth largest import item of the country, according to the data from the Trade and Export Promotion Centre (TEPC).
According to a study conducted by the National Planning Commission, the country imported agricultural goods worth over Rs200 billion in the fiscal year 2019-20. Most agricultural goods came from India, according to the study titled ‘Status of Export and Import of Agriculture Goods.”
“Our reliance on imports is a well known fact while exports are very low,” said Dilendra Prasad Badu, minister for Industry, Commerce and Supplies, at Make in Nepal Swadeshi Summit-2022, organised by the Confederation of Nepalese Industries (CNI) in partnership with Kantipur daily, the Post’s sister newspaper.
“Even in food products where we could become self-reliant, we have not been able to capitalise on our capacity,” Badu added. “Our kitchens are filled with imported goods, from cooking gas to food items including rice, vegetables, pulse and pickles, which is worrying.”
Minister Badu insisted that the country needs to increase both domestic production and consumption, and that the government was ready to introduce economic and monetary policies to address this need.
With the government making preparations to introduce the budget for the next fiscal year 2022-23 on May 29, Minister Badu said that the executive plans to introduce a 10-year long ‘Domestic Production and Consumption Increment Campaign-2032.’
“The next budget will announce necessary incentives by allocating the budget needed to achieve that goal,” Badu said.
Massive imports against meagre exports has emerged as a major factor behind the worsening economic situation the country is currently facing, with a swelling balance of payment deficit and depleting foreign exchange reserves.
In the first nine months of the current fiscal year, Nepal imported goods worth Rs1466.66 billion while the country's exports stood at a paltry Rs160.57 billion, according to the TEPC.
Over the last one decade, imports of goods and services as a portion of the Gross Domestic Product (GDP) is on the rise while the share of exports of goods and services as a percentage of the GDP has remained low and constant, according to the statistics of the Central Bureau of Statistics.
According to the latest National Accounts Statistics 2021-22 released by the CBS in late April, imports as a percentage of the GDP increased to 41.49 in fiscal 2021-22 from 29.17 percent a decade ago. Exports as percent of the GDP decreased to 6.61 percent in fiscal 2021-22 from 8.75 percent in fiscal 2011-12.
CNI President Vishnu Kumar Agrawal said that the confederation launched the Make in Nepal campaign to increase domestic production and to enhance people’s trust in domestic products.
“We need to generate confidence among consumers that Nepali goods are of good quality and are competitive,” he said, adding that more than 50 companies involved in the production of goods and services have participated in the CNI’s campaign.
With the campaign, Agrawal said, the CNI expects to achieve four objectives in five years which include: annual registration of 1,000 factories, creation of 150,000 employment positions, boosting the contribution of the manufacturing sector in the GDP to 25 percent, and increasing exports to Rs500 billion.
“We have submitted a list of 34 policy interventions to be made by the government to achieve these objectives,” Agrawal said.
Speaking during various sessions of the summit, speakers highlighted a lot of the challenges to making the campaign a success.
One problem, they pointed out, is the difficulty in acquiring the land at cheaper prices and that high land prices make projects unfeasible.
“High land prices also increase the cost of production,” said Ram Krishna Khatiwada, chief executive officer of the Nepal Infrastructure Bank. “In most proposals that we receive for industrial loans, the cost of land covers around 50 percent of the total cost of setting up the business.”
Ram Prasad Thapaliya, secretary at the Ministry of Land Management, Cooperatives and Poverty Alleviation said there is a need to amend the law to tame the rising land prices. “An effort to amend the current land act stalled due to Covid-19. We are still ready to discuss what types of amendments in the law are needed,” he said.
Other speakers at the event said that domestic resources alone would not be enough for supporting the country’s industrialisation efforts, so foreign investment should also be encouraged. They said that the private sector should not fear foreign investments in the country as foreign investment would encourage domestic industries to be more efficient and competitive.
“Look, for example, at the services of the Nepal Telecom after Ncell entered the Nepali telecommunications market,” said Maha Prasad Adhikari, governor of the Nepal Rastra Bank. “We see that the Nepali private sector fears competition. But the private sector actors should be confident that they can compete with any foreign investors, both in terms of price and quality.”
Other speakers said that although Nepal has made progress in policies to attract foreign investors, the country still has a lot to do to bring large scale foreign investment, which would also promote domestic production.
Governor Adhikari said that the lack of a sovereign credit rating of Nepal by international rating agencies is one of the factors which has kept Nepal away from the eyes of large investors.
“In the eyes of investment bankers, Nepal does not fall in the investment grade owing to the lack of a sovereign credit rating of the country,” he said. “So we have been able to attract small investors only.”
Consistent policy and investment facilitation are factors that determine foreign investments, according to Adhikari. “Growing local disturbance caused under various pretexts is another hurdle to attracting foreign investment,” he said.
Hem Raj Dhakal, managing director of the IME Group of Companies, said the threshold of FDI should be revised.
“For example, the threshold for sectors like information technology should be reduced while maintaining the same threshold for other high capital intensive industries,” he said.
Currently, the minimum threshold for FDI is Rs50 million which was increased from the previous threshold of Rs5 million, in 2019.
Kantipur Media Group Chairman and Managing Director Kailash Sirohiya said, given the swelling ballooning balance of payment the country is facing, the campaign of ‘Make in Nepal’ has been necessary for the country. “The government and the private sector should join hands for the proposal,” he said.
He stressed the need for encouraging small entrepreneurs nationwide and facilitating them to get credits. “Let’s create entrepreneurs in every village,” he said.