Poverty
has always been an overriding concern of various
development efforts in Nepal. However, it was only
since the Seventh plan (1985/86 – 1989/90)
that poverty reduction had been stated as an explicit
objective.
In the early nineties, the government initiated
an extensive economic reform agenda that included
liberalizing trade, investment and foreign exchange
rate, rationalizing tariff structure and the tax
system and promoting exports. These reforms were
initiated in order to accelerate economic growth
and expand employment opportunities with the ultimate
objective of reducing poverty.
As a result, the Nepali economy was transformed
into a more open, market-oriented economy making
the country open and trade dependent economies in
South Asia. These reforms helped in accelerating
growth in the non-agriculture sector that included
trade and contributed in keeping urban poverty at
low levels by increasing employment and income generating
opportunities. However, in terms of overall poverty,
Nepal is still ranked the poorest in the region.
The major achievement after initiating open and
market oriented policies in the early nineties was
the increase in exports from nearly eight percent
of GDP in 1996/97 to almost 14 percent in 2000/01.
This growth, however, was mainly because of Nepal's
trade concentration with India and the benefits
that Nepal derived out of the Indo-Nepal trade treaty
of 1996, and thus it was short-lived.
In 2001/02, exports to India as well as to other
third countries declined sharply. The major reasons
behind this decline were the global recession, imposition
of quotas on Nepali exports by India and the deteriorating
security situation at home. Whereas it was felt
that trade would play a role in promoting economic
growth and thus contribute in reducing poverty,
concentration of trade, both commodity-wise and
destination-wise, resulted in external shocks. We
remained complacent with our trade concentration
with India and the benefits we were deriving out
of the bilateral trade treaty. We could not foresee
the need to diversify our products and market. The
result is that despite the economic reforms undertaken,
we still lag behind in trade with other countries.
Nepal's trade concentration has always been prone
to external shocks. Under the quota system, the
Nepali garment and textile industry undoubtedly
flourished favorably. Being the second leading source
of foreign exchange and providing direct and indirect
employment opportunities to over a hundred thousand
people, it was a major contributor to the Nepali
economy.
Although it did not have any direct link with the
rural economy, it was linked with rural poverty
by means of the internal remittances that its workers
used to send home. The expiry of the Multi Fibre
Agreement (MFA) in December 2004 was a major setback
for the industry after which it experienced a continuous
decline in exports resulting in the closure of most
of the production units and consequently in the
loss of employment of its thousands of labor force.
However, the expiry of the MFA that ended the quota
system is not the only reason for the poor performance
of the industry. Had it been so, other South Asian
and South East Asian countries too would not have
fared better in the post-MFA era. Our complacency
with the performance of the industry during the
quota system blinded us from seeing its future.
We neither intended to diversify our products nor
the export markets. Had we recognized our comparative
advantage and worked on it prior to the end of the
quota system, we would still be confidently demonstrating
the role of garment and textile trade in substantial
reduction of poverty.
Even in other sectors, Nepal has not been able to
translate the gains from trade into poverty reduction.
Being an agrarian economy, Nepal has comparative
advantage in the export of different agricultural
products like honey, tea, vegetables, vegetable
seeds, fruits, ginger and other products like herbs.
Based on arbitrary international standards and other
technical barriers set by the importing countries,
these products of our export interest are often
barred from getting exported to the destination
markets. There are several cases of setting up of
such barriers for Nepali products by India and many
other European countries.
Developed countries have committed time and again
to help the least developed countries (LDCs) integrate
into global trade. Of those several commitments,
providing duty and quota free market access to almost
all the LDC products and providing trade related
technical assistance are the major ones. These commitments
have even been emphasized in Goal eight of the Millennium
Development Goals (MDGs) – Developing a global
partnership for development. But the implementation
aspect of these commitments has been utterly disappointing.
We have, on the one hand, internal problems of supply
side bottlenecks, on the other, the external problems
are no less severe.
The sole objective of the tenth plan, which is the
Poverty Reduction Strategy Paper (PRSP), is achieving
a "remarkable and sustainable" reduction
in the poverty level by almost eight percent, from
38 percent to 30 percent, during the plan period.
Of the different measures undertaken, boosting internal
and international trade for growth in the non-agriculture
sector has been taken as an important measure by
the tenth plan. It is during this plan period that
Nepal has gained membership of the World Trade Organization
(WTO), South Asia Free Trade Area (SAFTA) and the
Bay of Bengal Initiative for Multi Sectoral Technical
and Economic Cooperation (BIMSTEC).
It has been widely accepted that open economies
grow faster than closed ones. The steadily increasing
economic growth rates of China and India after liberalization
should be an inspiration. Although trade has not
been tied strategically with poverty reduction efforts
in Nepal, in the light of its memberships with these
different multilateral and regional trade bodies,
it remains to be seen how it utilizes these memberships
for enhanced trade that would lead to greater growth
and poverty reduction.
