Saturday, August 2, 2008

Leaking customs and weak trade

That's the title of my Op-Ed published in today's The Kathmandu Post. The article basically centers on the argument that in order to realize potential gains from trade, just joining free trade blocs is not enough; the developing countries like Nepal should focus on fine-tuning trade facilitation to promote exports and reduce domestic inefficiencies. This requires taking care of institutions that help facilitate trade, which of course cannot be done overnight.

Almost after five years of sluggish growth, Nepal's economy has grown at over 5 percent this year. According to UN ESCAP's recent estimate, the real GDP growth rate is expected to be 4 percent in 2008, up from a low of 0.1 percent in 2002. Various factors like windfall growth in agricultural sector, tourism, and remittance helped push up the otherwise lagging economy.

Now, it is time to ponder on how to sustain this, or even achieve higher GDP growth rate, in the coming year(s). This growth rate won't be sustained if we continue to bank on tourism and agriculture - both are vulnerable to external factors like weather. No country has sustained such a growth rate even for a short time without fine-tuning and promoting trade, both export-oriented policies and policies aimed at reducing domestic inefficiencies. Nepal is already a member of regional and global trading blocs. However, the potential gains from trade have not yet been realized, at least when we look at the impact on the GDP growth rate.

Curiosity abound when we learn that despite being a member of many trading blocs, Nepal has not seen even a minimal impact on the GDP growth rate. Closer look at this puzzle divulges an uncomfortable fact that despite being one of the most open economies in South Asia, Nepal still has one of the most cumbersome and investor unfriendly trade facilitation procedures in the world - one of the constraints to realization of the potential gains from trade.

Procedural hassles and delays in clearing goods at the customs are not new things; businessmen and economists have been calling for reforms for a long time. Years of neglect from the state to reform governance and trade facilitation has severely impacted Nepal's trade standing in the world. Nepal's trade facilitation process is so slow and inefficient that, in every parameter for trade facilitation that the World Economic Forum (WEF) came up with in its recent publication The Global Trade Enabling Report 2008, it was ranked at the bottom position, along with countries like Chad and Burundi.

Read the full Op-Ed here.

Links of Interest

Jamie Diamond: Cutting aid would have dire consequences

85 Percent of Africa's Land Has No Titles

Stiglitz and Sen, Food and Morals: Reflections on intellectual cowardice (very fascinating discussion on why economists are so detached from reality, especially in the context of rising food prices)