Nepal | February 19, 2020

Scattered production and export makes country’s trade weak

• Rendezvous

Sujan Dhungana

Nepal’s trade deficit, which had been consistently rising, had started narrowing down in recent months especially following a rise in export of refined palm oil lately and fall in import of petroleum products. However, the recent decision of the Indian government to ban import of refined palm oil, Nepal’s top export, has raised many eyebrows. Sujan Dhungana of The Himalayan Times spoke to Baikuntha Aryal, secretary at the Ministry of Industry, Commerce and Supplies, to know about the government’s position to resume export of palm oil to India and several other issues related to country’s commerce. Excerpts:

How do you evaluate the current position of the country’s trade and commerce?

Nepal’s trade and commerce as of today are quite okay. If we analyse the country’s trade over the last one decade, trade deficit was rising at 20.4 per cent annually on an average. As of today, the trade deficit is slowly narrowing down. In the first five months of the current fiscal year, trade deficit has come down by 6.2 per cent. The narrowing trade deficit gap is the result of different factors, including policy intervention by the government. Import has come down by 4.3 per cent. The fall in imports is primarily because of the government’s policy intervention in the import of a few luxury goods. Similarly, the government has been focusing on proper internal supply system. As a result, production of goods and services of one region of the country has been fulfilling the demand of other regions. Meanwhile, export also increased by 27 per cent in the first five months of this fiscal. However, these trade statistics are not highly encouraging and there are a lot more things that need to be done to maintain trade balance. We need to focus on both production and export. Even while focusing on production and export, priority should be given to goods with comparative advantage. Thus, Nepal’s trade today is encouraging but not satisfactory.

However, our entire export is dependent on a few products. Why has Nepal not been able to expand its export basket?

We are aware of the fact that our export is dependent on a few goods only and that we should promote export of other products that we are able to produce in bulk. Export is carried out in two ways — by using local raw materials, processing them and exporting the finished good or by importing raw materials, processing them and exporting the finished product by adding some value to it. It is not that raw materials of all goods that we export are available in Nepal itself. The export of refined palm oil, which entirely uses imported raw materials, has been halted since the last few days. However, we should not discourage the export of such products citing they do not use local raw materials and contribute less to the economy. These refined goods are exported only after some level of value addition. Even garments and carpets use imported raw materials and are exported complying with value addition obligations. However, the question always remains on sustainability of such exports as they depend on raw materials from foreign countries.

What is Nepal doing to resume export of palm oil to India?

Immediately the day after India imposed restrictions on import of palm oil, we held discussions with stakeholders to know about the current status of refined palm oil industry, including available stock, quantity of raw materials being imported, volume of refined palm oil being exported and necessary measures to be taken in the future. As it is the responsibility of the government to facilitate traders, we will hold necessary discussions with Indian authorities and ensure that export of refined palm oil from Nepal to Indian market begins as soon as possible.

Though the government has been implementing Nepal Trade Integration Strategy to promote export of goods that have comparative advantage, export of such products is not encouraging. Why is it so?

NTIS envisions three things — raising production of goods with comparative advantage, effective processing of these products and then marketing them. Both the government and the private sector should focus on marketing these products in the international market. It is true that export of goods under NTIS has not been as expected. As we have set different production and export targets of NTIS goods, we should work to achieve these targets. However, promotion of these goods is possible through effective coordination of policies and different government agencies. The need of the country is to produce goods in bulk. Our production base is low and goods are produced as well as exported in a scattered manner. We have come up with a concept of establishing an export house. Once this is implemented, the export house will collect goods produced in a scattered manner and export them. Scattered export from the country has been making Nepal’s trade weak.

The government is often criticised for its failure to diversify country’s trade which has resulted in the trade deficit continuously widening. Where actually is the problem?

There are two parts to trade diversity — country diversification and diversification of goods and services. Country diversification of trade is good but what really counts is what volume of goods are we able to send to each country. Exporting low volumes of goods to a number of countries in the name of trade diversification will result in high trade cost for the country. The trade cost is directly related to the volume of goods. As our production capacity is low, diversifying trade with a number of countries may not benefit us. Low export volume and scattered export will raise our cost of trading and higher trade cost will make our goods and services uncompetitive in the international market. If our goods fail to compete, the demand for Nepali goods will be low. Thus, we need to be cautious while diversifying our trade. We should start country diversification of trade only after ensuring that our production base is high. Until then, focus should be on exporting available production to selected international markets where the demand for the good is higher. Nepali products today have no issues related to market access. However, the problem lies in the inability of our products to penetrate different markets. The government is currently developing market profile of export potential goods. Meanwhile, it is also crucial that our products are based on consumers’ demand.

As the protocol with China to operationalise Transit and Transport Agreement has come into effect from January 1, how does the government plan to explore trade with the northern neighbour?

The implementation of the protocol of Transit and Transport Agreement with China will ease and promote Nepal’s trade not only with the northern neighbour but also with third countries. Implementation of the protocol means that Nepal will now use four sea ports and three land ports of China for third-country trade. As of today, we have been conducting third-country trade only via India. Regarding diversifying trade with China, it is under high priority of government. All customs points with China are operating effectively, while China has made available six new entry points for Nepal. As soon as these entry points are well equipped with infrastructure, we will operate and use them for trade with China. The recent visit of Chinese President Xi Jinping to Nepal and different understandings reached at the time will also help foster Nepal-China trade relationship. Moreover, a bilateral trade working group has been formed between Nepal and China to study future prospects in trade between the two countries and enhance bilateral trade relationship.

A version of this article appears in print on January 14, 2020 of The Himalayan Times.

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