No doubt boosting exports is the most desirable means of dealing with the problem, but it is a difficult one to implement. The challenge for the government is that on the back of increased remittance, which buoyed consumption and also served revenue growth, it threw into deep freeze much-needed reforms to revitalize the sector.
Nepal´s external trade suffered from a host of structural problems like high dependency on a single market (India), a small export basket, politically sensitive labor issues and higher transit-transport costs.
Nepal´s exports are ever dependent on a handful of items like readymade garments, woolen carpets and pashmina in the case of third-country trade, and on items like vegetable ghee, textiles, zinc sheet and polyester yarn, among others.
And those commodities have utterly failed to hold on to their markets because of global competition and internal unrest, which has added cost to production. For instance, exports of woolen carpets and garments together shrank to about Rs 9 billion last year from Rs 25 billion in the past.
Key exports to India, the largest trading partner which accounts for two-thirds of the country´s total trade, have also failed to register impressive growth. Statistics suggest there is not a single item whose export value is over Rs 5 billion.
“Worse still, we still do not have industries that promise any quantum jump in exports in future,” says Arun Chaudhary, president of Nepal India Chambers of Commerce and Industry.
The foremost reason behind the current gloom, say entrepreneurs, is that the government has done nothing to restrict political unrest in factories or raise the productivity of Nepali workers.
Trade unions have long remained a hornet´s nest, which governments dare not touch despite a commitment to reform labor laws.
“This must be corrected instantly. If only all the political parties declare they will not let workers go on strike at export-oriented industries, we will instantly resume operations of our closed garment factories,” says Uday Raj Pandey, vice president of the Garment Association of Nepal.
If the government is serious at revitalizing manufacturing and luring investors, says Federation of Nepalese Chambers of Commerce and Industry President Kush Kumar Joshi, it must pledge us the freedom to hire and fire and enforce a ´no work, no pay´ policy.
The private sector has long demanded immediate enactment of a Special Economic Zone (SEZ) Act, operationalization of SEZs and a garment processing zone (GPZ), differential tariff for raw materials and finished goods imports and tax incentives to revive export-oriented industries.
For instance, GAN has long argued that a strike-free GPZ in Birgunj, which is connected with Kolkata port by a railway network, will reduce their production cost by one-fifth.
The Carpet Exporters Association of Nepal in the past requested the government to pledge subsidy to farmers for rearing sheep yielding high-quality wool, so that they could cut dependency on expensive raw wool imports, thereby gaining a competitive edge in the international market.
Both these programs featured in the government´s budget at different intervals, but nothing has come of it so far.
Commerce Secretary Purushottam Ojha has stressed extending support to the private sector for product development, something which has become very necessary for expanding the export base.
“To do away with this situation and gain the confidence of investors, we are mulling over compensating the industries for all non-commercial losses,” says Industry Secretary Pratap Kumar Pathak.
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