The Enhanced Integrated Framework — a multi-donor programme to support trade-related capacity development of least developed countries — has been extended for next phase to another seven years (2016 to 2022) through the decision of its recently held board meeting. EIF has also planned to mobilise up to $320 million during the next phase for enhancing the capacity and trade competitiveness of LDCs. EIF — initiated by the World Trade Organisation, World Bank, International Monetary Fund, United Nations Development Programme, International Trade Centre, and United Nations Conference on Trade and Development — had mobilised $202 million from 23 donors in the first phase of the programme that started from 2009 and will be over this year. EIF provides support for institutional capacity development which is called ‘tier 1’ support and productive capacity development called ‘tier 2’ to LDCs. Nepal, in the capacity of one of the LDCs, has been benefiting from EIF’s support since 2010 for institutional and productive capacity enhancement. It has received $1.5 million under tier 1 support and $6.46 million under tier 2 support for three projects — ginger, pashmina and medicinal and aromatic plants. Pushpa Raj Acharya of The Himalayan Times spoke to Ratnakar Adhikari, Executive Director of EIF, when he was in Nepal for a brief visit to explore EIF’s preparation for the implementation of the second phase programme and how LDCs such as Nepal would be able to benefit from it.

Currently, the Enhanced Integrated Framework (EIF) has been supporting least developed countries (LDCs) for their institutional and productive capacity enhancement. Will this support model remain intact or will EIF change this structure of support in the second phase of programme?

There won’t be any major changes in the structure of the programme. EIF’s support is for institutional and productive capacity building of LDCs for mainstreaming them into global trade. We have included the analytical works under institutional capacity development. First, we conducted diagnostic trade integration study (DTIS) to know the challenges and opportunities of the respective country. Then, we fixed the priority and prepared action matrix for implementation. The project, dedicated for institutional capacity development in association with private sector and development partners, was developed based on the DTIS, which is for productive capacity building or addressing supply side constraints. In the second phase programme, we have created the ‘sustainability window’, which has sought the government’s participation in terms of resource generation for institutional capacity development. In the second phase, EIF can’t extend more than $0.3 million for institutional capacity. Some countries like Cambodia have indicated that they may not need support for institutional capacity after 2015. In addition, we have included the idea of ‘leveraging of resource’. EIF’s support is meant to be a catalytic initiative because EIF is not a funding mechanism and hence it is not sufficient to achieve the goals of productive capacity development and trade competitiveness development, among others. The government needs to mobilise more resources, which it must pool in from other donors as well. We do not want to apply ‘leveraging’ as a condition, but EIF’s support will be extended with hope of resource pooling from other donors, government and private sector as well.

So, LDCs will not get more than $0.3 million for institutional capacity building in the next phase?

Yes. Further, they need to ensure that they will be putting in their own resources as well, which we have called ‘sustainability window’ to obtain EIF’s support. We’re introducing the criteria of ‘sustainability window’ to enhance government’s ownership in the programme. When the government also allocates its own resources to implement the projects for institutional capacity building of the trade-related institutions, they will then deliver substantive output as per the objectives of the programme. Earlier, EIF had supported institutional capacity development of LDCs so that the government could boost its capacity of project implementation in association with the private sector. We provided $1.5 million in support for Nepal Enhanced Capacities for Trade Development (NECTRADE) in two phases — $0.9 million (2010 to 2013) and $0.6 million (2014-15). Through the support in institutional capacity building, the government managed to give due priority to trade development, for instance, like mobilisation of aid for trade resources and enhancing capacity to work with the private sector. Currently, 48 LDCs and three recently graduated countries have been enjoying EIF’s support as catalytic resource to boost trade capacity and competitiveness. Moreover, EIF can extend its support for up to five years after a country graduates from the LDC status.

What is the limit of support that LDCs like Nepal can receive for productive capacity building in second phase?

It depends on the output of the project that the countries have been implementing in the first phase. In addition to product development, recipient countries can also utilise the support in cross-cutting priorities identified by the DTIS, like reduction of supply-side constraints, upgrading the quality of laboratories and trade facilitation measures, among others. However, the concept of leveraging the resource that we are going to introduce in the next phase programme will compel the countries to pool in resources from other development partners as well. Until we are able to leverage the resources, we cannot upscale our capacity. If Nepal develops a project based on its DTIS (Nepal Trade Integration Strategy) update and meets all the criteria for funding, it may be able to receive support under productive capacity development in the second phase as well. At the same time, there isn’t a binding requirement that the Ministry of Commerce and Supplies (MoCS) itself should develop the project and implement it. Other sectoral ministries can also take the lead on the sectoral products.

What is your assessment regarding the performance of EIF-assisted projects in Nepal?

Nepal is doing well in all three projects dedicated for productive capacity enhancement. EIF has been supporting Nepal in its productive capacity building based on the projects prepared by the government as per its priority and incorporated in the Nepal Trade Integration Strategy document. Nepal has been enjoying EIF’s support in three projects — quality enhancement of ginger, export enhancement of pashmina, and trade support and development of medicinal and aromatic plants. Ginger project that is being implemented by Food and Agriculture Organisation (FAO) had received $0.7 million from EIF and this is going to be phased out after three months. FAO has set up a washing plant at Dhulabari, Jhapa of eastern Nepal and the ginger project has played an important role in poverty alleviation at the local level. Through the help of the washing plant, farmers have been getting better prices for ginger. I have urged MoCS to send us details like the number of people employed, increment in the income of farmers, and growth in the export of the product since the implementation of this project, so that we can sell the success stories worldwide. We believe projects like ginger should not be limited to EIF-funded projects alone while the government should also encourage other farmers located in different pocket areas to replicate this model. Secondly, the Pashmina Enhancement and Trade Support (PETS) project being implemented by the International Trade Centre (ITC) has been mobilising $1.86 million support of EIF and ITC has been working on branding, marketing and trademark registration of Nepali pashmina in export destinations. ITC has already conducted a study on the market of the US, Japan and European Union about the potential of market linkage of pashmina products. ITC is also providing training to pashmina producers regarding designs, among others, to tap the international market. Even though the PETS project kicked off late — only in March 2014 — due to some procedural formalities, the performance of this project is also satisfactory. And the recently approved medicinal and aromatic plants development project is being implemented by German cooperation agency in Nepal — GIZ — and has received $3.9 million for product development and the project is moving smoothly as per ministry officials. All these projects are being implemented with support of the respective product associations in Nepal.

How is EIF planning to mobilise resources for the second phase of programme?

EIF has scheduled a pledging conference on December 14, in Nairobi of Kenya, a day before the 10th ministerial conference of the World Trade Organisation (WTO). Donor countries will pledge their support during the pledging conference and we expect to get a pledge of between $274 and $320 million for the next phase programme, from 2016 to 2022. Some of the donor countries have already announced assistance. For example, Norway has already pledged close to $20 million for the next phase of the programme.

As an expert on international trade, what is your observation on burgeoning trade deficit of Nepal. How can Nepal cope with the challenges of curbing trade deficit that amounted to Rs 716.38 billion in fiscal 2014-15?

In the short- and medium-term, the country needs to link imports with productive sector and encourage predominantly the import of raw materials that are used for exports. The government should also simplify and extend the export incentive and upscale its work on trade facilitation such as reducing the number of documents and days required for clearance of goods at customs points to reduce trade costs. The government should also prioritise trade during the post-earthquake reconstruction phase. And in the long run, the government should massively develop the infrastructure of the country like electricity and roads and transportation. It also needs to strengthen institutions; introduce required laws; enhance access to finance to boost productivity; enhance the skills of human resources in each sector, and increase investment in research and innovation to boost the production of technology intensive products on its own.