Overcoming obstacles

DECLINING EXPORTS TO CHINA

Despite a huge potential market in China, Nepal’s exports to the country have been on a continuous decline for a decade. Nepal has also failed to capitalize on the preferential treatment provided to 4,721 exportable items in 2010. But why is Nepal’s export to China far lower vis-a-vis global export growth? I believe it is the country’s inability to consistently follow up on and implement agreements signed during multiple bilateral meetings between Nepal and China.
The two countries have signed more than half a dozen bilateral agreements since 1981. The Trade and Payment Agreement (TPA) signed on November 22, 1981 in Kathmandu was the first after Nepal recognized the sovereignty of China over Tibet in 1956. Since, the two countries have inked other bilateral treaties related to trade and transit such as the Bilateral Road Transportation (BRT) in 1994, Trade and Other Related Matters between Nepal and TAR in 2002, Agreement of Cooperation for Industrial product Inspection between General Administration Quality Supervision, Inspection and Quarantine of the People’s Republic of China and Nepal Bureau of Standards and Metrology in 2005. In 2009, Nepal and China agreed to establish an inter-governmental committee called Nepal-China’s Tibet Trade Facilitation Committee. Additionally, in 2010 the two countries signed Letters of Exchange (LoE) granting special preferential tariff-treatment to certain goods originating in Nepal and exported to China.

On the surface, the low volume of export to China can be attributed to two broad two reasons: one, supply-side constraints and two, problems related to productivity levels and administrative capacity and bureaucracy. Inadequate transportation, scarcity of customs capacity, long administrative process, lack of credit facility, absence of dry port and language and payment issues are hurdles to smooth trade between the two countries. Constantly declining exports to China and mounting imports from the northern neighbor have resulted in a mammoth trade deficit of Rs 45 billion in 2010/11.
Trade is the most viable means for development because it provides incentives and benefits to both the parties. Though China has agreed to support Nepal in encouraging, supporting and establishing payments through banks by a letter of credit in the Agreement on Trade and other Related Matters 2002, Nepal has failed to take full advantage of this and other such concessions. China’s dissatisfaction with Nepali laboratories’ certificates is also considered a major barrier to exports. But what about the Agreement of Cooperation for Industrial Product Inspection (ACIPI) 2005, which has an explicit clause that establishes mutual recognition of inspection certificates? Not just that, China has even agreed to assist Nepal in establishing laboratories with rich technology. Then why does our government not consistently follow up with China for implementation of these agreements?
Some reports claim that China hinders exports from Nepal by creating non-tariff barriers. The government should constantly follow up with its Chinese counterpart to get to the bottom of the matter and clarify all such issues. Let’s take an example, which explicitly demonstrates how the government’s lethargy contributes to low exports to China. China agreed to finance the development of a dry-port in Larcha, Tatopani. However, Nepal has been reluctant to break the transport syndicate that is dampening all such prospects. Breaking the transport syndicate on the Araniko highway is the first step towards utilizing the dry-port.
The bleak scenario of Nepal’s scant trade with China compared to its global trade points to other factors as well. The production capacity of the country is a major issue to be addressed but as we know, it takes years to strengthen this. What the government can do right away is address the problems faced by Nepali exporters in the border areas and in transportation sector. But it calls for strong will at both diplomatic and bureaucratic levels. Nepali bureaucracy is so weak that it can’t even ensure effective and timely implementation of agreements at the political level.
Nepal’s widening trade deficit at the global level may be attributed to its unstable macro-economic situation, shortage of power, limited production capacity and geographical constraints, among others. Problems with export to India and other Third World countries arise of our limited access to sea ports and hurdles caused by Indian and other customs. However, there is ample room to improve the trade with China, or at least ease the complications. In 2001-02, Nepal exported goods worth of Rs 1.1 billion and imported goods worth Rs 11.2 billion. Ten years down the line, in 2010-11, export to China is just Rs 925 million whereas imports have reached Rs 46.6 billion. Declining exports and mounting imports leading to a massive trade deficit is a stark measure of government inefficiency.

At the root of Nepal’s trade growing deficit with China is government’s inability to consistently follow up on and implement past agreements.

There is a pressing need to immediately list goods in which Nepal has comparative edge. A concrete study to identify these goods that have a high demand in China with low competition from other countries should be carried out as soon as possible. The products that are listed in the Nepal Trade Integration Strategy (NTIS), 2010 are losing their competitiveness in the Chinese market. For instance, goods like ginger, lentils and medicinal herbs are no longer as competitive as they used to be; we need to draw up a fresh list of exportable goods
It is also important to constantly engage in productive talks with China in order to keep the trade environment conducive. For instance, the Trade and Payment Agreement, 1981 has provided for an implementation and dispute settlement body. Under this provision, both the countries can meet at any a given time to resolve issues concerning trade and transit arena on the request of the two countries. However, no such efforts have been made till date.
Effective implementation of already agreed plans should be the first priority for Nepal. There is no doubt that the private sector has an integral role to play, in that it can produce high quality goods for the Chinese market, while the government should also look to remove supply-side constraints in the long term. However, that cannot be an excuse for the government not to take immediate steps.

Industrial production down 50%

As lack of movement of vehicles due to bandas sparked shortage of industrial raw materials, entrepreneurs, mainly exporters, said their productions have been badly hit and presently gone down by over 50 percent.
Worse is, exporters said the garment industry, which was gradually building its lost reputation in the international market, has once again stopped getting orders. "The production has been affected by series of bandas called by various groups," Udaya Raj Pandey, president of the Garment Association Nepal (GAN), told Republica on Tuesday.
According to Pandey, readymade garments (RMG) production has gone down by around 50 percent lately due to lack of raw materials. "Because of this, some of the factories have already suspended production."
The industry, which was exporting RMG worth around Rs 5 billion per year over the past three years, has also lost credibility in the international market. "It seems we would lose deals worth Rs 1.5 billion due to bandas, as we have failed to deliver consignments on time," Pandey added.
Similarly, carpet industry, which is one of the country´s major export items, has seen production go down by as much as 80 percent. According to Ram Gurung, vice-president of the Nepal Carpet Exporters´ Association (NCEA), most of the carpet factories are closed due to banda. Carpet industry produces 2,000 meters of carpet per day when the situation is normal.
According to our Biratnagar correspondent Ajit Tiwari, most of the factories in the Morang-Sunsari corridor have suspended operations due to severe scarcity of raw materials. Cargo trucks carrying raw materials from India have been stranded in the yard of Biratnagar Customs Office.
Meanwhile, industrialists in Morang-Sunsari corridor have submitted a memorandum to customs officials, requesting them to waive off detention charge on parked cargo vehicles. The customs office charges as much as Rs 2,500 per day on vehicles parked in the yard of customs office.
According to industrialists, thousands of cargo vehicles are stranded at Tatopani, Biratnagar and Birgunj customs for the past few days.
As many as 428 cargo trucks are lying stranded at Birgunj Inland Container Depot. The number of trucks stranded at the depot was 390 on Monday.
“Goods imported from Bangladesh are lying at Banglabanda land port," Rajan Sharma, president of the Nepal Freight Forwarders´ Association (NFFA), said. "Officials from Bangladesh Freight Forwarders´ Association have communicated us about the situation there. But the problem is that the Banglabanda land port doesn´t have adequate space for parking additional cargo vehicles.”
(With inputs from Ritesh Tripathi in Birgunj.)

Banda affects movement of cargo from customs points

Around a thousand vehicles carrying essential goods are stranded in the northern and southern border areas of the country due to bandas called by various groups, compelling importers to pay extra cost, which will eventually be transferred to consumers.
Cargo trucks are currently lying in the yard of Biratnagar Customs Office. Trucks that are carrying raw material for industries, mainly located in the Morang-Sunsari industrial corridor, and fast moving consumer goods, are currently stuck in the customs office since the last five days, Binod Kunwar, chief of customs office, told Republica on Monday.
Similarly, imports from China have come to a complete halt and more than 60 containers are stranded in the yard of Tatopani Customs Office, while around 350 empty-containers are in the Birgunj inland containers depot (ICD). The containers that are stranded in the Birgunj ICD had brought iron, feeds and fast moving consumer goods.
“The empty containers which are on the property of Indian shipping companies charge US$14 per day,” Rajan Sharma, president of Nepal Freight Forwarders´ Association (NFFA), told Republica.
Similarly, goods such as summer apparels and cosmetics that are imported from China are stuck in the Tatopani Customs Office. “More than a dozen containers are lying in the Tibetan territory of China,” said officials at the Tatopani customs.
Importers, such as Arjun Sapkota, fear agricultural products, like fruits, imported from China might be ruined if they are not taken to the market in time.
Abhinas Bohara, president of the Morang Merchants´ Association (MMA), said many industries are on the verge of closure due to scarcity of raw materials. According to local importers, they have to pay detention charge of up to Rs 2,500 per day to customs office in case their vehicles have to be parked in the yard of the office.
“The whole cost that occurs due to delay in the transporting goods will ultimately be transferred to customers,” Sharma said.
(With reports from Dhurba Dangal from Sindhupalchwok, Ritesh Tripathi from Birgunj and Khila Nath Dhakal from Biratnagar.)

Pvt sector to hold rally for peace, harmony

The business community under the aegis of Federation of Nepalese Chambers of Commerce and Industry (FNCCI) is organizing a candle light rally on Wednesday calling on the people for peace and national harmony.
The organization said the peace assembly will be held at Basantapur Durbar Square during which the private sector will request all political and non-poliitcal groups to shun violence and refrain from calling general strikes.
FNCCI has joined hands with organizations of different sectors, such as hotel, education, media, health, human rights and I/NGOs for the event. It has asked all participants to wear white and carry with a candle and a national flag.
“The assembly is for peace, harmony and prosperity,” Bhaskar Raj Rajkarnikar, acting president of the FNCCI told media persons on Monday, “We are neither in the favor or against any groups. We are against the culture of bandas and violence.” Fiercely condemning the random attacks on media persons and vehicles of different media houses on Sunday and Monday by Nepal Federation of Indigenous Nationalities (NEFIN), Rajkarnikar said, “We oppose every kind of bandas.”
The assembly, which will start at the durbar square at 5:00 pm on Wednesday, is the joint effort of Nepal Chamber of Commerce, Lalitpur Chamber of Commerce and Industry, Bhaktapur Chamber of Commerce and Industry, all the 82 commodity associations, associate member organizations of FNCCI, Nepal Federation of Cottage and Small Industries, Higher Secondary School´s Association Nepal, human right organizations, engineers association, medical association, hotel associations and other organizations working in the public and private sector.
“There will be no slogans and banners of any organizations,” Rajkarnikar explained the nature of the assembly. “This is our endeavor to preserve the national harmony and establish peace in times of nation-wide tension due to violence.” The mood of the nation is going downward where we might end up with nothing in hand at the time of promulgating new constitution in the country, added Rajkarnikar.
FNCCI said banda and violent strikes will serve no one´s interest, rather inflicted a huge loss to general public, wage earners as well as businesses. “At this juncture, we don´t want to calculate our business in numbers,” Rajkarnikar said, “This is the time for national consensus and peace.” He further added that the new constitution should be promulgated on time and the country must move forward according to recent political commitments.

'Country specific measures to lure foreign investment'

The government, which is reviewing the existing Foreign Direct Investment (FDI) Policy 1992 through a team of experts, will soon start developing different investment framework for different countries, as the single policy model failed to attract foreign investors to the country.
The 4-member team of experts, which is working under the leadership of Keshav Acharya, former senior advisor of the Ministry of Finance (MoF), made the recommendation after reviewing the FDI Policy 1992. We have recommended the government to be country-centric in order to attract foreign investmet," Acharya shared with Republica about the review and recommendations of the team. "We shouldn´t put all the investors in the same basket."
Giving an example of difference between investors from India and other third country, Acharya suggested "We have to treat them in different grounds. For instance, Indian investors might not give priority to issues that other countries´ investors are pushing for due to the pegged exchange rate between two countries." Similarly, the team has suggested the government treat Chinese investors in a different manner.
However, this does not mean there would not be one FDI policy. "The country will have one FDI policy but the government can have one-to-one bilateral understanding and sign agreements with each country and make different arrangements for different investors. According to Department of Industry (DoI), there are around 80 countries which are interested to invest in Nepal. "We have to prioritize them and have to deal with them on one-on-one basis," Acharya said.
In that direction, the team has suggested two ways for foreign investors´ entrance in the country - automatic and government approved. the first one will let foreign investors to come without any registration procedure whereas the second one will lead investors to go through the process of application and registration. "Investors who come here with investment and use domestic raw material and labor, those who invest in technology transfer and establish companies which process and export Nepali production can come through the automatic way," Acharya said.
Unlike in the existing FDI policy of the country, the team has floated an idea to allow the investors through the automatic way if they come with convertible currency to make investment here.
Moreover, the review team has said that the ceiling amount of money to be known as FDI should be changed. The existing policy recognizes more than USD 20,000 of investment as FDI and government provides multiple facilities to the investors who bring in more than USD 100,000 as investment. "We have to look for bigger investment," Acharya said, "That is why there should be increment in the ceiling of the amount that is counted as FDI."
In order to make services functional and timely, the team also has suggested government to a establish body to which investors can complain if they don´t get the instant service“. "There should be a prime ministerial level body that listens to the grievances of investors if they don´t get services in time," Acharya said.

Chicken consumption down 33 percent in Ktm valley

Consumption of chicken in the capital has come down as banda affected normal lives of people and banda enforcers forced restaurants and hotels - major consumers of chicken -- to shut down their business.
Daily consumption of chicken in the capital hovers around 250,000 kg. According to Jung Bahadur GC, president of the National Chicken Sellers´ Association (NCSA), daily consumption has come down by as much as 33 percent due to banda.
“Demand from major markets has slowed due to banda and other forms of strikes called by various groups over the past few days,” GC said, adding, “If the situation remained the same for coming few days, farmers will have no option but to dump their chicken ready for market.” GC also said chicken sales also dropped due to drop in daily wage earners´ income owing to banda.
According to the association, hotel and restaurants consume 40 percent of total chicken sales in the capital.
“Drop in sales has directly affected poultry farmers. They have already started dumping chicks due to shortage of feed,” GC said, adding that series of banda over the past week has disrupted transportation of feed and other inputs.
“We can´t store feed in warehouse for more than 15 days,” GC said. “Many poultry farmers have expressed worries about shortage of feed in their farms.”
Price of chicken, however, has increased despite decline in consumption. Last week, poultry entrepreneurs raised chicken price by 8.3 percent to Rs 260 per kg.

FNCCI condemns banda, attack on media

The Federation of Nepalese Chambers of Commerce and Industry (FNCCI), a leading umbrealla body of the private sector, has condemned the banda called by various groups that has hugely affected daily lives of people. It has also condemned the attack on media personnel and vehicles of press.
"These kind of banda delays the constitution-writing process and its promulgation in time," reads an FNCCI statement issued on Sunday. "FNCCI denounces the proclivity of banda and expresses a grave concern."
Additionally, the FNCCI has criticized rampant attacks on press, amubulance and private vehicles in different parts of the country, including Kathmandu, on Sunday.
The FNCCI, which has initiatied a peace campaign, has appealed to all groups to resort to peaceful means while fighting for their rights.
"Calling banda and disrupting people´s lives are irresponsible behaviors of those who are fighting for a cause," reads the release. "We challenge all groups and parties to make public what they have achieved by calling banda and vandalizing the property in the name of fighting for their rights."

Fast track to get investors soon

The government has decided to initiate process within a month to find investors for the construction of 76-km Kathmandu-Tarai fast-track road that connects Kathmandu and Terai.
A high-level infrastructure development committee headed by Vice Chairman of National Planning Commission (NPC) Dipendra Bahadur Kshetry took the decision on Thursday.
Following the decision, Ministry of Physical Planning and Works (MoPPW), which is executing this national-priority project, said that it would publish a global notice seeking letter of interest (LoI) from all interested investors for the construction of the expressway within a month.
Though the bid will seek LoI from both international and domestic investors, officials said there will be some special provisions in the favor of domestic investors. They, however, refused to disclose what that would be.
As announced in the past, the fast track would be built under built-own-operate and-transfer (BOOT), said Kshetry. What this means is investors putting in money in the project will operate the expressway for up to 30 years, depending on the contract that it will have with the government, and hand it over to the government after that.
Kathmandu-Tarai fast track is one of the ´national pride projects´ under which the government has announced of the construction of a six-lane highway, sharply reducing travel distance between Kathmandu and Nijgadh section of East-West Highway.
“Investors willing to develop and operate the project will be asked to submit their technical plan and cost details,” said an official at MoPPW. The bid will, thus, make clear how much cost would it need to develop the fast track. Earlier, Asian Development Bank that conducted its feasibility study in 2008 had projected the construction cost could stand at around Rs 67 billion.
More important than the investment amount, the bid will disclose how the international investors respond to the project, enabling the government to know possibility of adopting similar modality for infrastructure development in the future.
Based on the applications received from the interested parties, government will select investor for fast track road through a competitive bidding process, allowing it to execute the project under the BOOT Act, 2006.
Though the high-level steering committee decided to speed up the process of selecting the investor, MoPPW has so far finished the track opening of 51 kilometers only. But officials said they will complete the track opening of another 17 kilometers soon.
“Opening track of 68 kilometers is not a problem because we have already reached an agreement with the locals for land acquisition,” said the MoPPW source.
However, the Ministry has faced difficulty to acquire land for 8-km stretch of the highway in Khokana area of Lalitpur district as locals have demanded huge compensation.
In order to skip the liability, Kshetry said the committee has already instructed the Ministry to look for other alternative alignment. “Once that is finalized, the track opening process will be complete. We are hoping to attain that soon,” he told republica.