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Aid versus Trade: Context of Nepal

By Sambridhi Shrestha

Nepal is a landlocked country sandwiched between India and China; two of the top developing countries in the world. However, Nepal has not been able to use potential economic benefits from its neighbors. The country is highly dependent on imports for products such as oil, gold, iron and steel, clothes, pharmaceutical products, cement, electronic appliances, food, and vehicles. Almost 58% of imports are from India, which has an open border with Nepal on the East and South. In 2014, Nepal exported $1.06B worth of good/services, and imported $7.75B which created a negative trade balance.

Reliance on Aid

Aid is valued during a time of crisis. It helps the countries to rebuild. In context to Nepal, it helped us with relief efforts for the earthquake back in 2015. In the past two years, Nepal has faced major problems; first, the devastating earthquake, and second, the economic blockade by India. According to Post Disaster Need Assessment (PDNA), GDP growth was lowered over 1.5% from an estimated 4.6% in Fiscal year 2015-16 due to the earthquake. Not long after the earthquake had struck, Nepal faced an economic blockade that created a daily loss of NRs 2 billion (Nepalese Ruppee) with almost 400,000 people out of work due to a decline in manufacturing and trade. The citizens of Nepal were obligated to buy goods at an inflated price. For instance, LPG Gas, which cost NRs. 1450, was sold at NRs. 8000. These two situations proved that Nepal is highly dependent on other countries, especially its neighbors.

If we look at aid given during that same time, Nepal received pledges of aid worth $4.4 billion in July 2015. However, the government has come into criticism over mismanagement of these funds.

Importance of Trade

On-the-other-hand, trade is one of the important tools that helps the nation become economically developed. Trade creates lots of employment opportunities which lead to an increase in the living standards of people. Also, trade encourages the transfer of technology as well as promotes good international relationships. When multinationals enter a country, they bring new technologies in the process and help in modernization.

Hands

Problems Faced by Nepal in Trade

Political Instability:

Developing countries don’t have proper legislation and political stability. Nepal has had eight governments in the past 10 years alone, with the 11th in the making. The governance of the country keeps on changing so the industries and MNC’s can’t easily rely on the government policies and the legislation of the country.

Obstacles in establishing industries:

It is not easy for multinationals to establish in Nepal. For instance, John Players (an Indian clothing chain) had established a manufacturing facility in Nepal, but it couldn’t sustain itself due to political disturbances and trade unions, which cost 650 direct and 1,400 indirect jobs. Multinational companies like Colgate Palmolive, Dabur Nepal, Kodak and other MNCs had to shut down due to labor and political problems. National industries have also faced problems. Himal Cement Factory was shut down in 2002 after a finding which showed that 50% of the pollution in Kathmandu was contributed to by this factory. Strong local protests followed.

Workforce:

The young generation of developing countries, especially Asian countries, are moving to developed countries for better opportunities. The younger generations have traveled to Saudi Arabia, Qatar, and Israel in search of better income. The Department of Foreign Employment (DoFE) stated that approximately 515,000 Nepali youths obtained labor permits to leave the country for foreign employment in the year 2014-15. Similarly, the younger generation, or the most impactful generation from the cities, travel to the States and Australia. There is a lack of workers for industries like agriculture to change the traditional work method into modern methods as the old generation farmers are not educated.

Lack of infrastructure:

The topography of Nepal is very diverse. It contains the Himalayan, Hilly, and Terai region, so the infrastructure is not well developed. Roads are still not properly built even if the industries are established. For example, if a company is established, and it produces rice, it will be hard for them to reach villages and Himalayan regions like Jomsom and Mustang because the roads are not well developed, which highly affects trade. Nepal has 13,849 kilometers (8,522 miles) of paved, graveled, and fair-weather roads, with the major highways linking east to west and north to south.

Opportunities for Trade

Nepal is developing in the technological sector, and there is a decline in the rate of migration. People in the agricultural sector are slowly using modern technologies to enhance their production. Also, the Agriculture Development Bank of Nepal is providing term loans to the farmers since agriculture is their main occupation. The GDP of the country is also increasing; Nepal recorded a Current Account surplus of 6.20 percent of the country’s Gross Domestic Product in 2016. In comparison to last few years, it is the highest. So there is chance of further growth.

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