Tuesday, September 2, 2008

Industrial Policy for Nepal

That is the title of my Op-Ed (link here) published today in The Kathmandu Post. This piece is a bit longer than the usual Op-Eds I write. So, some sentences have be trimmed due to space constraints. Usually, proofreading of my Op-Eds in the newspaper desk turns out to be pretty good. But, this time there are  some glitches in proofreading economics jargons. In one of the sentences a vital information (number) is missing. The printed version is: "For instance, even if there are mega watt hydro power projects, it can easily generate 200,000 jobs." It should have been: "For instance, even if there are 100 mega watt hydro power projects, it can easily generate 200,000 jobs." This can make a lot of difference! Click here for an earlier discussion about this specific topic! Check below for a .pdf. file of the actual opinion page on today's newspaper. Click here for the full length Op-Ed I submitted on Sunday.

In this article, I basically argue for the need to redesign Nepal's Industrial Policy, which should re-prioritize industries that can best propel economic growth and increase employment in the short and medium term. This means that Nepal should prioritize hydropower and tourism industries ahead of manufacturing sectors as a short term fix to sluggish economic growth and unemployment (Why and how? read the full article!). A new industrial policy should facilitate investment, provide tax credits and other incentives, and ease cumbersome licensing regime in hydropower and tourism sectors. Rather than branding it a form of socialist agenda, think of the industrial policy in this way: Industrial policy is a form of prioritization of competitive economic policies, that can best deliver the macroeconomic needs of an economy, at the policymaking level. This means industrial policy comes with competition in policies and prioritization, which in turn can be determined through historical trends and experimentation. Those economic policies that can best deliver the macroeconomic goals should be first on the list in an industrial policy and the state should provide appropriate incentives and policy packages to boost investment of the prioritized sectors.  Click here for more on industrial policy.

...Nepal needs to update its IP, making it consistent with structural changes in the domestic and the global economy. Instead of adopting an imported policy experience, the new IP should be based on reality and pragmatism. This calls forth a hard fact that if our objective is to spur economic growth and to increase employment, banking excessively on the manufacturing sector is just not the right policy, especially after the decade of failed experimentation with this industry. We need to re-prioritize industries under a new IP.

What sectors can best propel and sustain economic growth and increase employment? What sectors have the least constraints given the present structural and geographic constraints? What sectors can best absorb surplus labor from the agricultural sector and the laid off workers in the garment and textile industries? What sectors can best adjust and assimilate the internally displaced population in the post conflict era? Note that the time frame is not long run but short and medium terms; time is of the essence here. Answering all these questions require a new IP that lays emphasis on the right sectors, at the right time, and in a right way. Also, IP should not always be centered at promoting export-based firms and manufacturing industries. Any industry that can help achieve our macroeconomic goals should be under the horizon of IP.

Considering these objectives to be achieved in the short and medium terms, it would not be risky to bet on prioritization of hydro-power and tourism industries ahead of manufacturing industry. It is open for debate whether service, agro and forestry, engineering, and herbal industries, among others should come after hydro- power, tourism, and manufacturing sector in terms of prioritization.

Read the full article here or download .pdf file here.

The broken promises made at Gleneagles

This article is definitely not in line with what Easterly has been arguing. The reporter argues that aid can help slowdown spread of terrorism, new diseases, and save failed states. Is there a direct link between aid and terrorism? I have not yet seen one.

...From that high point in Gleneagles, today the aid industry stands on the brink of disaster. According to the Organization for Economic Cooperation and Development, net aid from most of the wealthiest nations actually dropped, year on year, in 2006 and again in 2007. If the new push for foreign aid collapses completely, it could do just as much damage to the West as it does to the countries that need its benefits. Indeed, the crisis in foreign aid could not only prolong the world's human suffering, but could spark one of the biggest security challenges we face in the coming decades.

...Despite the promises of Gleneagles, net aid handouts from the G-7 group of powerful nations fell by 1 percent in 2007, according to the Organization for Economic Cooperation and Development, a monitoring group. The nongovernmental organization Oxfam projects that by 2010, wealthy nations will fall short of their pledges by some $30 billion - more than the United States' entire annual aid.

...In the long run, this stinginess will backfire on everyone involved. It will have a disastrous impact on the citizens of poor nations, both because of reduced aid and less pressure on their governments for real political reforms. And aid has benefits for the rest of the world as well. It can prevent the kinds of failed states that harbor terrorism, crime, and other serious dangers.