Nepal’s trade deficit has been continuously ballooning over the years. The current trade deficit of the country for the first six months of this fiscal year stands at around Rs 352 billion. Sujan Dhungana of The Himalayan Times spoke to Surendra Kumar Shrestha, President of Export Council of Nepal, to know more about the current situation of export businesses in the country and other hurdles being faced by them. Excerpts:
How do you view the current export scenario of Nepali products?
As per government figures, Nepal exported goods worth Rs 91 billion in fiscal year 2013-14, which gradually reduced to Rs 86 billion in 2014-15 and Rs 71 billion in 2015-16. Similarly, goods worth Rs 24.98 billion have been exported in the first four months of the current fiscal year while we had imported foreign products worth Rs 302.88 billion during the same period. This trend of decreasing exports and the current trade deficit of more than Rs 278 billion for the first four months of this fiscal are enough to gauge the situation of Nepal’s export industry. Exports from Nepal are always minimal when compared to imports. Moreover, the earthquake of April 25 which was followed by months-long trade obstruction in the southern plains last year made the export situation more vulnerable.
Why is the export sector lagging behind even when almost all stakeholders have recognised the need to promote exports for economic growth?
Exports from Nepal started some six decades back. The sector was gradually growing but the decade-long Maoist insurgency put a spanner in our businesses resulting in a number of traders quitting export-oriented businesses and industries. The earthquake and border blockade last year further added to the woes of export-oriented businesses. The export industry has been sustaining and has reached the level that it has now only due to the efforts of the private sector and not the government. Be it promoting our products in foreign markets or overcoming obstacles that have arisen in export businesses over the years, the government has remained a mere spectator.
If you look at any developed country you will realise that export is the base for their economic and overall development. However, the government of Nepal has yet to realise this fact and as a result the export industry of Nepal is witnessing slow growth. Though the country’s trade deficit has been ballooning every year the government seems to have not noticed anything. Government has not initiated any process to bridge this gap.
The growth of export industry is primarily based on promotion, low production cost, subsidy from the government, and low interest rate on loans from banks and financial institutions, among other factors. However, our products lack competitiveness in foreign markets due to aforementioned factors. We lack promotion in the international market and our production cost is up to 60 per cent higher when compared to foreign products. For instance, Bangladesh recently increased subsidy for export businesses to 13 per cent from seven per cent. Similarly, China has increased export incentives to 17 per cent from 13 per cent and India is providing up to 20 per cent export subsidy to traders.
However in Nepal, export businesses get only two per cent cash incentive and even getting that is full of procedural hassles. The government of India issues export incentive from the airport itself when products of a company are exported to other countries. Such a system is free of hassles and needs to be adopted in Nepal. I must say that the government has not duly recognised export businesses of the country.
Traders are lobbying with the government to increase cash subsidies for export-oriented businesses. Will this help increase the country’s exports?
Definitely not. However, if the government gives us cash incentives of up to 20 per cent, this will first of all encourage domestic traders to remain in the export business and will also help increase competitiveness of our products in foreign markets as better subsidies will assist in bringing down the price of Nepali products. Nepali products are costlier due to high processing cost of imported raw materials, high interest rates on loans, lack of adequate export subsidy, expensive labour and irregular power supply. As we import a majority of raw materials, our production cost rises by 15 per cent while processing them. Similarly, production cost increases by another 15 per cent while generating energy through diesel-powered generators in factories.
Likewise, interest rates levied on export businesses by financial institutions is more than 12 per cent. This shows that our production cost is already 42 per cent higher and unavailability of export subsidies like in other countries makes our products dearer by up to 60 per cent in foreign markets. Foreign products are cheaper as their production cost is lower due to availability of raw materials at home, consistent supply of power, interest rates of below five per cent and substantial subsidy schemes from government.
It is often mentioned that Nepali products fail to meet international quality standards. Hasn’t this factor decreased the competence of our products in foreign markets?
I do not think so. Every export business today is able to deliver products as per the quality demanded by clients. Though being costlier, some of our garments and woollen products have higher demand in America and other countries compared to products from other nations. With years of experience in the same field, Nepali traders today have become experts in manufacturing garment products and they can produce equally qualitative products like those of other countries.
How do you think can Nepal take benefit from the implementation of duty-free facility being provided by the United States on a number of Nepali products?
The decision taken by the United States to provide duty-free access to 66 different products from Nepal is encouraging but is not as beneficial as most people have assumed. When providing the duty-free facility the US has set specific criteria and quality parameters that a majority of garment businesses in Nepal cannot meet. A majority of the companies involved in garment manufacturing in Nepal are small and cottage industries and such industries and traders will not be able to meet the set criteria.
We also need to understand that the trade preference will actually benefit American traders who import goods from Nepal and not Nepali traders in reality. Thus, the US trade preference given to Nepal is going to benefit very few Nepali businesses and products.
What are your expectations from the government to boost the country’s exports?
The government should first acknowledge that a strong export industry is a must to achieve better economic growth. Acknowledging this, the government should immediately increase export subsidy to at least 20 per cent and promote Nepali products in foreign markets.
Nepal Tourism Board (NTB) should play a bigger role to promote Nepal and Nepali products in international markets. Similarly, the government should bring down the interest rate on loans being provided by financial institutions to four-five per cent. This will reduce our production cost and increase competitiveness of our products.
Similarly, a number of traders who are in export business had to face huge losses during the earthquake and border blockade. The government should announce income tax waiver to traders doing export businesses for at least five years so that they can compensate their losses. Likewise, it should also encourage and support traders to participate in different international trade fairs.
A version of this article appears in print on January 23, 2017 of The Himalayan Times.
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