Nepal losing competitive edge in export market
KATHMANDU, MAR 09 -
Nepal has been witnessing a rapid decline of specialisation in producing goods that are labour and resource-intensive, resulting in loss of its competitive advantage for exports.
Nepal has been producing goods more or less similar to the ones that exist in the market, according to a recent Macro-Economic Update report published by the Asian Development Bank (ADB).
Citing a report of United Nations Conference and Trade and Development (UNCTAD), the ADB has stated Nepal ’s specialisation, which had been positive until 2007, has fast decelerated to the negative territory.
As a result, there has not been enough value addition and substantive change in export basket and market diversification, according to the report.
“Given Nepal ’s installed capabilities are concentrated in the production of low value-added manufactured and agriculture products, the potential comparative advantage in the production and export of new products is also linked to the existing capabilities,” the report says.
“With the existing set of infrastructure and other pre-requisites for export competitiveness, the new export products will likely be somewhat similar, in terms of value addition and production capabilities to the existing ones.”
In order to attain the high and inclusive growth, together with an equitable rise in per capita income, the ADB report has suggested the need for transforming Nepal ’s production capability—from the existing low value-added manufactured and agriculture products into a more complex high value-added products including electronics and equipments.
“But it requires greater provision of critical infrastructure, technology transfer and adoption, competitive environment and innovation, enhancement of skills, supportive regulatory and institutional framework and overall macro-economic stability,” the report points out.
Posh Raj Pandey, a trade expert, said that the government policy has never been to promote specialisation but the country has also lagged behind in export growth and diversification.
Nepal requires to develop human resources and technology to enhance specialisation to upgrade the value chain of export products, Pandey said. But he advised that it should be taken positively if export grows despite the lack of specialisation.
Nepal ’s export performance has been dismal over the last four years. From fiscal year 2007-08 to fiscal 2012-13, the country’s merchandise exports grew by just 0.7 percent while imports surged by 13.6 percent, according to the report. Nepal ’s export basket is dominated by light manufactured and agriculture goods which account for 66 percent and 23.5 percent respectively of total exports in fiscal year 2012-13.
Textiles and fabrics, iron and steel, readymade garments and non-ferrous metals are Nepal ’s main manufacturing exports. Exports to India account for about 60 percent of Nepal ’s total export.
The report has indicated a number of constraints behind Nepal ’s poor export performance, including lack of adequate and quality infrastructure, political instability and industrial unrests and lack of skilled human resources.
It said that internal constraints are causing more damage to the production capacity of domestic firms than external ones, eroding cost competitiveness of export items. The external constraints are non-tariff barriers (NTBs) such as rules of origin and quality-related barriers.
Referring to Enterprise Survey 2013, the ADB report has pointed out the lack of electricity as a big problem. According to the survey, 50.5 percent of firms had been forced to own generator in 2013, up from 5.8 percent in 2009. The generators meet 34 percent of the total electricity demand.
Similarly, the inadequate transport infrastructure and logistical hassles are other factors contributing to increased production costs and lowered export competitiveness.
The political instability and strikes have led to an increase in the ‘lead time’ (the amount of time between the placing of an order and the receipt of the goods ordered). Together with the natural high-trading costs of being a landlocked country, it has contributed to an increase in delivery costs, the report says. Nepal has the highest export lead time in South Asia for land supply chain. It has also indicated that Nepal has been failing to utilise available opportunities. Despite duty-free access to almost all its products to the Indian market, Nepal ’s exporters has failed to benefit from the increasing demand for goods and services in its southern neighbour. It has also stressed the need for giving Nepal i products ready access to more markets as per multilateral agreements for being a least developed country.
Source: The Kathmandu Post
