Navin Dahal

1
Export Diversification for Human Development
Case of Nepal

• Navin Dahal
• SAWTEE

2
The Context

• Despite various export diversification measures
  adopted by the government, Nepals trade remains
  heavily concentrated with India.
• A few manufactured items garments, carpets, and
  pashmina constitute more than two thirds of
  Nepals overseas export.
• In recent years, Nepal faced deteriorating
  conditions in the exports of these major items.
• The phase-out of the quota system in the RMG
  sector through the full implementation of ATC,
  has led to a rapid decline in garment exports
  from Nepal.
• A continuous decline in the sector poses many
  socio-economic challenges, ranging from
  macroeconomic imbalance to human development
  concerns for Nepal.

3
About the Project

• In this context, SAWTEE and ActionAid Nepal, with
  support from UNDP Regional Centre, Colombo
  jointly implemented a research and advocacy
  project to address Nepals Human Development
  challenges through promotion of trade.
• Four research studies were conducted under the
  project
• Human Development Impact Assessment in the Post
  ATC Period The Case of Nepal
• Export Diversification Strategy for Nepal An
  Account of Sectors with Export Potentials
• Industrial and Trade Policy Environment in Nepal
• Trade Negotiation Strategy for Nepal

4

• Human Development Impact Assessment in the Post
  ATC Period The Case of Nepal

5
Survey Findings Impact on Entrepreneurs

• Out of the 115 manufacturers in 2001, around 30
  firms are operational in July 2006 (26 firms
  were surveyed).
• Total export of the firms surveyed declined from
  NPR 3135 million in 2004 to NPR 2790 million in
  2005 (10 decline).
• Most of the firms (17 out of 26) reported that
  their business declined after the ATC phase-out.

6
Survey Findings Impact on Current Employees

• 23 of the workers reported a decrease in their
  earnings after elimination of quota system.
• 40 of the workers reported no change in their
  income after ATC phase out.
• Most of the employees reported worsening
  conditions in the most influential determinants
  of their well being, such as over-time work,
  over-time work rate, job contract, work
  environment, and health condition.

7
Survey Findings Impact on Past Employees

• 66 percent of the past employees cited closure of
  the garment factory as the reason for
  unemployment.
• 64 percent of the workers reported a decrease in
  income after leaving the garment industry.
• Over 47 percent of women remained unemployed,
  versus only 29 percent of men.
• Over 66 percent of the illiterate workers
  remained unemployed.

8
Recommendations

• Government
• Lobbying for duty-free access in the US market
• Prioritise projects geared toward building trade
  infrastructure such as establishment of a
  Garment Processing Zone (GPZ), technology
  up-gradation, and productivity enhancement
• Private Sector
• Keep vigilance of the RMG market and understand
  fashion trends
• Improve lead-time and output cost by taking up
  more responsibility in the value chain
• Conduct training programmes to enhance the
  productive of workers
• Other Important Actors
• A labour policy acceptable to both the employers
  and the employees is required
• A mechanism to support past employees in their
  job search, and provide them training and credit
  for self-employment is required

9

• Export Diversification Strategy for Nepal An
  Account of Sectors with Export Potentials

10
Nepals Trade Dependency Problem Destination
Nepals Major Export Markets
11
Nepals Trade Dependency Problem Products
Nepals top overseas Export
12
Diversification Within the RMG Industry

• Symptoms of market diversification the EU and
  India.
• Some signs of product diversification from lower
  end to higher end items.
• Diversification strategy for the RMG industry
• Explore new markets.
• Utilise flexible rules of origins requirement in
  the EU market to gradually upgrade competitive
  strength and increase domestic value addition.
• Initiatives should be taken in product marketing,
  understanding market trends and developing an
  efficient sales network.

13
Diversification Inter Industry

• Criterion for sector selection
• Revealed Comparative Advantage (RCA)
• Export Performance of the sector
• International Demand
• Domestic Value Addition
• Employment Creation (Rural and Women)
• Sectors Selected
• Goods Tea, Herbs, Leather
• Services Tourism, Information and Communication
  Technology (ICT)

14

• Industrial and Trade Policy Environment in Nepal

15
A Review of Trade and Industrial Policy
Environment of Nepal

• Numerous factors determine the trade and
  industrial policy environment of a country. Some
  important determinants include economic
  policies, socio-political conditions, natural and
  human resources, infrastructure, institutions,
  economic policies of trading partners and the
  global political climate.
• Industrial Policy
• The current industrial policy was introduced in
  1992.
• The policy seeks to strengthen linkages between
  manufacturing and agriculture sectors and
  encourages private sector participation.
• Trade Policy
• A liberal Trade Policy was introduced in 1992 to
  promote international trade, encourage private
  sector participation, diversify trade in terms of
  both commodity and market, promote backward
  linkages, expand employment oriented trade and
  reduce trade imbalances.

16
A Review of Trade and Industrial Policies in Nepal

• Other important policies are
• Investment
• Monetary
• Fiscal
• Competition
• Agriculture
• Labour
• IPR

17
Assessment of Industrial Policy

• Able to achieve macro-economic stability
• Unable to provide incentive for investment
• Weak implementation
• Need to update the IP last formulated in 1992
• IP should focus on coordinated learning and
  sharing between the public and the private sector
• Active IP still feasible and desirable
• Inadequate coordination, discussion among
  stakeholders

18

• Trade Negotiation Strategy for Nepal

19
WTO

• Important areas for Nepal Agriculture, NAMA,
  Services, Trade Facilitation, Aid for Trade,
  IPRs, DFQF.
• Agriculture
• NAMA
• Services
• Trade Facilitation
• Aid for Trade
• DFQF

20
SAFTA

• Members Nepal, India, Sri Lanka, Bhutan,
  Bangladesh and Pakistan
• Provides special and differential treatment and
  flexibility to LDC members and provision for a
  negative list.
• Sensitive list
• Services
• Investment
• Trade Facilitation

21
BIMSTEC FTA

• Members Bangladesh, India, Sri Lanka, Thailand,
  Myanmar, Bhutan and Nepal
• Six areas of cooperation Trade Investment,
  Technology, Transportation Communication,
  Energy, Tourism, and Fisheries.
• Provides special and differential treatment and
  flexibility to LDC members and provision for a
  negative list.
• The ministerial meet held in August 2006 failed
  to announce the date for the implementation of
  the free trade agreement. Issues such as
  regulation on origin of goods, negative lists and
  market protection have primarily hindered the
  implementation of the accord
• Nepals negotiation interest should focus on
  exports to Thailand and Myanmar.
• Deeper and faster tariff cuts on the goods of
  export interest and include the liberalisation of
  services and investment in the agreement

22

• Sector Profiles

23
TEA

• Exports 72 thousand Kg In 1994/95, which rose
  exponentially to 4.3 million Kg. in 2004/05
• The Tea Policy was launched in 2000 to encourage
  production of tea quantitative and qualitative
• The availability of cultivable land is a major
  issue for tea production. The land-ceiling is too
  low to derive economies of scale and the process
  to obtain extra-land is difficult.
• In addition, the government needs to focus on
  developing infrastructure and research
  facilities.
• Tea exports face high tariffs in most markets,
  except in EU, Canada, USA and Australia.
• There is a 100 incidence of NTMs in exports of
  tea to India, Pakistan, Canada, Australia. The
  incidence is zero for Bangladesh, Sri Lanka,
  China, Japan, EU, USA, and Hong Kong.

24
HERBS

• Every year between 10,000 and 15,000 tonnes of
  NTFPs are harvested in Nepal and exported to
  India and overseas.
• Potential remains underutilised as Nepal is a
  supplier of raw materials and not of processed
  products.
• The present trade channel of herbs collection/
  processing is not providing a fair share of
  profits to the collectors. Gaps, inconsistency
  and contradiction under the set of policies and
  laws, often cause user groups to confuse over
  property rights.
• Trade barriers in the export are in the form of
  NTB like SPS measures imposed by importing
  countries.

25
LEATHER

• Comprises of tanning/processing and footwear
  industries.
• A majority of Nepals leather exports is limited
  to the semi processed wet blue leather.
• Despite high value addition in finished leather,
  manufactures are producing wet blue leather due
  to lack of capital.
• Recommendations Establishment of centralized
  processing unit, mechanized flaying and
  slaughtering, promotional efforts in the
  international market, planned livestock
  development.
• Importing countries either do not bind their
  tariff rates in leather products or bound tariffs
  are higher than applied rates in most cases,
  which shows limited commitment for tariff
  reduction in leather.
• Trade in leather products are relatively
  unhindered by NTBs

26
TOURISM

• Nepal attracts travellers from India, Japan, UK,
  USA, France and Germany, China and South Korea .
• Potential areas adventure, nature, religious,
  spiritual, culture and rural.
• The Tourism Policy was launched in 1995 , need to
  keep abreast with the changing market and update
  the policy
• Constraints in trade in tourism services exist in
  the form of restriction on currency movements,
  lack of transparency, and policies that work as a
  disincentive for specific destinations.
• Nepal should support the proposals that intend to
  liberalise tourism services.

27
ICT

• The ICT industry is still in its infancy in
  Nepal.
• The Information Technology (IT) policy was
  introduced in 2000 and revised in 2004.
• The software industry is not treated as a regular
  industry, and does not enjoy the benefits that
  are applicable to other export oriented
  industries.
• An institutional framework is necessary for the
  IT policy, strategy, project implementation, and
  international relations.
• Immigration regulations such as barriers related
  to visa and work permit procedures are one of the
  major restrictions under Mode 4 (movement of
  natural persons) services.
• Lack of uniformity in training and standards of
  workers, in addition lack of a uniform process
  for the evaluation of quality and skills of
  workers in developing countries, further hampers
  the exports of professional human resources.