Economic diplomacy has become a buzzword in discussions about Nepal’s economy. The concept is a relatively recent development in the field of diplomacy, dating back to the 1980s. Earlier, economic diplomacy was used in a narrow sense to denote commercial relations between states. There was no participation or input from the private sector. But unprecedented developments in trade and in the industrial sector made it necessary to gradually involve diplomatic representatives for the promotion of trade and business in the overseas market.

Today, economic diplomacy is concerned with issues that employ economic resources, either as rewards or sanctions, in pursuit of particular foreign policy objectives. In today’s globalised world, broader issues of international affairs, like foreign trade, foreign aid, external investment, bilateral and multilateral economic negotiations, resolving trade disputes, and technological exchanges have become key ingredients of international economic affairs.

Towards liberalisation

During the Cold War, the world economy was fragmented into two ideological camps—capitalist and socialist. Like most countries in the world, South Asia directly or indirectly experienced constraints in its economic affairs. Before the end of the 1970s, South Asia had one of the most highly regulated economies outside the communist bloc. Among South Asian nations, Sri Lanka was the first country to liberalise its economy in 1977, followed by Bangladesh in 1980, Pakistan in 1989, and India in 1991.

In Nepal, economic diplomacy has been embraced as a vital aspect of Nepal’s foreign policy, particularly after the restoration of multiparty democracy in 1990. Since then, Nepal seems to have been grappling with finding a way towards economic prosperity by liberalising its economy for regional and international institutions working in trade and economic development. At a bilateral level, Nepal deals with other countries in issues of trade, investment, and avoidance of double taxation. Nepal is not only an active member country of regional economic forums like Safta and Bimstec, but is also associated with multilateral institutions like the WTO, IMF and World Bank. Since the early 1950s, Nepal has been receiving much foreign aid from international communities for the development of agriculture, transportation, electricity, communications, education, and the health sector.

Long-lasting crisis

Despite all this, Nepal is still lagging behind in terms of economic development and prosperity. Extreme poverty, unemployment, rampant corruption, and out migration of skilled workers have made the country’s economy vulnerable. The 2013 Human Development Index ranks Nepal in the 157th position, just ahead of Afghanistan (175), among South Asian countries.

Thus, the country’s performance in the international arena depends on how effectively it can press its national interest with international stakeholders, and whether it has performed its expected role in regional and multilateral institutions. Alas, Nepal has so far failed to reap economic benefits from its representation in the international arena. And that is not to say that landlocked and small states can’t pursue their national interest in the international sphere. Mongolia, the largest landlocked country between China and Russia, is exemplary in this regard. It is moving towards economic independence by balancing cooperative relations with Russia and China, simultaneously diversifying relations with the United States and international institutions. Likewise, Switzerland, a landlocked country in Western Europe and three times smaller than Nepal, has made tremendous progress branding itself as a safe haven for foreign investors.

Breaking the cycle

Likewise, Nepal needs to focus on strengthening its internal and external capabilities. It can gain comparative and competitive advantage by increasing exports for several goods, such as pashmina products, leather products, Nepali paper products, and handicrafts. In addition, to cope with new necessities emerging in the global market, formulating investment-friendly acts and arrangements for institutional development are essential.

To flourish in the aforementioned sectors, Nepal needs huge investments from international business communities—and attracting international investors requires effective economic diplomacy. Thus, the role of economic diplomacy shouldn’t be limited to sending human resources to third countries and receiving remittances and foreign aid. Rather, it should be directed at attracting sustainable investments in hydropower, trade, and tourism.

Considering its geographical and socio-cultural setting and national interest, Nepal should understand that its bilateral trade with China and India is of paramount importance. Fine-tuning trade agreements with these immediate neighbours is crucial in this regard. Our economic prosperity depends on how efficiently our diplomats articulate our economic agenda with our immediate neighbours as well as the international community.

Chaulagain is an Assistant Professor of International Relations and Diplomacy, Tribhuvan University ([email protected])