Reviving Nepalese exports with Special Economic Zones (SEZs)

[This was published in Republica, July 31, 2011, p.7]

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Reviving exports with SEZs

Nepal’s exports are decreasing due to loss of competitiveness engendered among others by power shortage, labor dispute, lack of investment, inadequate supply of infrastructure, policy unpredictability, and other supply-side constraints. The declining exports revenue and ballooning imports is leading to an ever-widening trade deficit, which is not only draining out foreign exchange reserves but also impacting balance of payments. The situation has gotten so worse that our exports revenue, which is around 15 percent of GDP, is barely enough to finance petroleum imports. Worse, foreign direct investment (FDI) inflow has been stagnant at US$ 39 million for two years now and FDI commitment has declined by almost 40 percent.

Right now, with the assistance of donors, both bilateral and multilateral, a number of initiatives are implemented with an objective to boost exports in line with the recommendations of Nepal Trade Integration Strategy (NTIS). Since these initiatives are run amidst the existing constraints mentioned above, the ultimate impact on exports will be minimal, if any, in the short term. To increase export competitiveness, export revenue, and FDI, an immediate enactment of Special Economic Zone (SEZ) Act is a must. This is even more necessary to revitalize the ailing manufacturing sector. Unfortunately, despite a well-prepared SEZ bill ready to be presented to the parliament for discussion and enactment, no political leaders have shown genuine interest in pushing it through for the benefit of the struggling exports sector.

The exports success in China, East Asia, Latin America, and our regional partners such as India, Pakistan, and Bangladesh are partly attributed to the enactment of SEZs—where industrial and labor laws are more liberal than in the whole economy; infrastructure requirements such as road, power and communication are adequately supplied; security is guaranteed; and firms are given income and tax incentives to locate plants inside the zone. The primary objectives of a SEZ is to enhance industry competitiveness, attract FDI, boost exports and diversify exports basket while maintaining protective barriers to create jobs and stimulate economic activities. 

A 2008 World Bank study estimated that there are 2301 SEZs in 119 developing and transition economies (clustered mainly in Asia and the Pacific and Latin America), accounting for about 69 million direct jobs and over US$ 200 billion in gross exports per annum. In Bangladesh, Pakistan and Sri Lanka, over 75 percent, 50 percent and 67 percent respectively of manufacture exports originate from SEZs. The success of Bangladeshi garment industry at a time when the corresponding Nepali industry is dying is attributed to the enactment of SEZs. The Chittagong Export Processing Zone is considered to be third most competitive SEZ in the world. At present, there are over 133 and 8 operational SEZs (with several more planned) in India and Bangladesh respectively. While our neighbors and competitors in the international market are actively pursuing every means available to incentivize industries to locate inside SEZs, entice FDI, and boost exports, our political leaders are not even showing interest in debating in the parliament the already prepared SEZ bill.

Typically most of the industries in SEZs are labor intensive and assembly-oriented activities, including light manufacture goods such as textiles, apparel, leather, and light electrical and electronic goods. Sector specific zones such as Agriculture and Herbs Processing Zone, Export Processing Zone, and Garment Processing Zone inside SEZs are established to boost exports of and investment in particular sectors.

There are numerous advantages of having SEZs in a least developed country like ours which is losing competitiveness and manufacturing base. First, infrastructure facilities, tax incentives and subsidies provided to industries that locate inside the zones will help boost their competitiveness, which in turn will aid our struggling exports sector, generate revenue and diversify exports. Second, due to policy certainty and economic incentives, multinational companies will come and bring in investment and technology with them. This will help to not only spur economic activities but also increase employment. Third, in most of the manufacture -oriented zones, a large chunk of employment is secured by women, accounting for almost 60-70 percent of total employed workforce in such zones worldwide. Empowering women via gainful employment will be much more effective than the shallow talk on women empowerment and inclusiveness at the political level.

Fourth, ancillary firms and local suppliers of raw materials, which are needed for industries in such zones, will emerge when entrepreneurs see a stable market inside the country. It will not only help in stimulating local economies but also accelerate backward supply linkages and dissemination of technology, leading to increase in productivity. Fifth, there will be economies of scale, which means decrease in average cost of production as output increases, when similar or near-similar industries operate in the same place, resulting in cost competitiveness of our products. Sixth, most of the firms in Nepal are operating below their capacity, leading to low production and productivity. With the supply of infrastructure guaranteed inside SEZs, these firms will be able to operate at full capacity. They will not only export items to contribute foreign exchange reserves, but also sell items in the domestic market, which is flooded with imported goods, by paying appropriate local taxes.

None of these benefits are in any way against our national interest, at least when viewed in terms of stimulating growth, employment and poverty reduction. There is no reason why our political leaders should not do the necessary for the enactment of SEZ Act. Specifically, the Minister for Commerce and Supplies and the Minister for Industry should personally push for the enactment of this Act by amending few provisions in the existing SEZ bill. These include, among others, lowering mandatory export requirement of 75 percent of total production for companies inside SEZs and a more flexible and industry-friendly labor law regime, which as of now includes fixing wages and welfare based on ‘agreement between industry and employee’.

The enactment of SEZ bill will help to realize the objectives of Trade Policy 2009 and Industrial Policy 2010, and in the effective implementation of NTIS, which identified 19 products having export potentials. Currently the government has proposed establishing SEZs in Bhairawa, Panchkhaal, Simara, Dhangadhi Jhapa, Kapilvastu, Jumla and Biratnagar. The International Finance Corporation (IFC) recommended SEZs in Simara and Biratnagar as being the most feasible ones. The construction of SEZ in Bhairawa is expected to be completed by the end of this fiscal year. The delay in enacting SEZ Act will negatively impact investment plans by companies considering locating plants inside the zone.

For a long time now, finance ministers, including FM Bharat Mohan Adhikari, have been regularly mentioning about SEZs in their budget speeches, but without concrete effort later on to push for the enactment of the Act. For the sake of the struggling exports and manufacturing sectors and for national interest, the political parties should at least leave aside partisan differences over political issues and collectively endorse SEZ Act, and also create enabling environment for operation of such zones. This is the surest and best way to revive our exports and manufacturing sectors for now.

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FDI inflows to Nepal, 1990-2010

FDI inflows to Nepal was the second lowest in South Asia in 2010. It received approximately US$39 million last year. The highest recipient was India with US$ 24 billion and the lowest Bhutan with US$ 11.69 million. The total FDI inflows in the world was US$ 124.37 billion, to developing countries US$ 573.57 billion, and to South Asia US$ 31.95 billion (South Asia excluding India received US$ 7.3 billion of which approx 30 percent went to Pakistan).

FDI inflows to Nepal was US$ 5.94 million in 1990. It then decreased to almost nil up until 1995. In 1996, FDI inflows was US$ 19.16 million and fluctuated quite a bit until 2000, when FDI inflows was negative US$ 0.48 million. In the last two years FDI inflows have been stable at around US$ 39 million.

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Nepal received 0.12 percent of total FDI inflows to South Asia in 2010. Similarly, it received 0.15 percent and 0.17 percent of FDI inflows to LDCs and landlocked developing countries in 2010. The corresponding figures in 1990 to these destinations, respectively, were 2.79 percent, 1.04 percent, and 0.98 percent. In 2005, they were 0.02 percent, 0.02 percent and 0.04 percent.

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Persistent labor problems, power outages, political instability, cumbersome regulations and tax regime (leading to high transaction costs), corruption, and lack of adequate infrastructure (leading to high transportation costs), among others factors, are impacting FDI inflows to Nepal. Here is a blog post I wrote in 2009 about FDI policy and investment climate in Nepal. According to Enterprise Survey 2009, 62 percent of enterprises think instability is the biggest constraint. Here is a report on FDI investment opportunities in Nepal. There are plenty of opportunities for FDI in agriculture and agro-based industries, flowers and flowering plants, Pashmina, garments, tourism, health, education, IT, nursing homes, construction, hydropower and alternative energy sources, and manufacturing, among other sectors.

Total FDI inflows
FDI inflows (US$ million)	1990-1995	1996-2000	2001-2005	2006-2010	2009	2010
Afghanistan	-0.01	571.81	566.38	1041.65	185.00	75.65
Bangladesh	125.85	4608.81	2338.69	4158.61	700.16	913.30
Bhutan	2.25	18.93	17.18	138.28	14.68	11.69
India	4220.69	43360.95	28827.96	148512.08	35648.78	24639.92
Maldives	41.57	249.65	182.86	565.43	112.34	163.82
Nepal	8.16	89.80	31.70	77.89	38.56	38.99
Pakistan	2591.56	7556.31	5059.00	19655.00	2338.00	2016.00
Sri Lanka	658.88	2191.96	1102.01	2717.20	404.00	477.60
Total FDI inflows
FDI inflows (US$ billion)	1990-1995	1996-2000	2001-2005	2006-2010	2009	2010
World	1349.12	7825.63	3750.82	7605.60	1185.03	1243.67
Developing economies	423.78	2214.48	1199.64	2744.64	510.58	573.57
South Asia	7.53	72.40	51.56	188.43	42.46	31.95
Least developed countries (LDCs)	8.40	79.49	56.34	132.93	26.54	26.39
Landlocked developing countries	7.81	65.02	42.29	102.30	26.19	23.02

[All data are sourced from the latest UNTCAD’s World Investment Report 2011. Here is a WIR’s FDI profile of Nepal].

Have we already achieved MDG target on poverty?

In a latest policy brief, Laurence Chandy and Geoffrey Gertz of The Brookings Institution argue that the MDG target on halving global poverty may have been already achieved in 2008. Using household survey data, they come up with new poverty estimates, which are lower than the World Bank’s estimate.

They estimate that between 2005 and 2010, the total number of poor people around the world fell by nearly half a billion people, from over 1.3 billion in 2005 to under 900 million in 2010. Looking ahead to 2015, extreme poverty could fall to under 600 million people—less than half the number regularly cited in describing the number of poor people in the world today. Their estimates show that as of 2010 less than 16 percent of world population remained in poverty, and fewer than 10 percent will likely be poor by 2015.

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The sharpest fall in poverty has occurred in Asia, mainly because of the rapid growth in India and China. South Asia is estimated to have 145.2 million poor people in 2015, much lower than in Sub-Saharan Africa which is expected to have 349.9 million poor people. Nigeria is expected to have the highest number of poor people (95.9 million) in the world in 2015.

Poverty (US$ 1.25 a day)	Number of poor people (millions)			Poverty rate (% population)
Region	2005	2010	2015	2005	2010	2015
East Asia	304.5	140.4	53.4	16.80%	7.40%	2.70%
Europe and Central Asia	16	8.4	4.3	3.40%	1.80%	0.90%
Latin America and Caribbean	45	35	27.3	8.40%	6.20%	4.50%
Middle East and North Africa	9.4	6.7	5.4	3.80%	2.50%	1.90%
South Asia	583.4	317.9	145.2	40.20%	20.30%	8.70%
Sub Saharan Africa	379.5	369.9	349.9	54.50%	46.90%	39.30%
World	1,337.80	878.2	585.5	25.70%	15.80%	9.90%

Between 2010 and 2015, India is expected to see 367.7 million people rise above poverty; 23.8 million for Bangladesh and 8.5 million for Pakistan. The poverty landscape is going to change four years from now. In 2015, India, Bangladesh and China are expected to have 88.1 million, 33.2 million, and 48 million, respectively, people in poverty. As mentioned above, Sub-Saharan Africa will have the largest number of poor people, with Nigeria having the largest of any country.

Reduction in number of poor people (millions)
	2005-2010	2010-2015	Total
India	230.4	137.4	367.7
Bangladesh	18.9	23.8	42.8
Pakistan	14.6	8.5	23.1
China	153.1	50.1	203.3

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What is driving reduction in the number of poor? Rapid and sustained growth in the developing world, especially India and China led to such a remarkable reduction. Their estimate also takes into account the impact of global recession on poverty. China and India are responsible for three-quarters of the reduction in the number of world’s poor.

They find that while 20 percent of the world’s poor lived in fragile states in 2005, this share is rising sharply and will exceed 50 percent by 2014. They argue that “with the majority of the world’s poor expected to be living in fragile states within the next three years, poverty is likely to increasingly be viewed through a security and governance lens, with potentially important ramifications for rich-world policies on poverty reduction.”

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Here is how their estimate differs with that of the World Bank:

Percentage of the population living under $1.25 a day in 2015
	Chandy & Gertz	World Bank
East Asia	2.70%	5.90%
China	0.30%	5.10%
Europe and Central Asia	0.90%	1.70%
Latin	4.50%	5.00%
Middle East and North Africa	1.90%	1.80%
South Asia	8.70%	22.80%
India	7.00%	23.60%
Sub Saharan Africa	39.30%	38.00%
World (developing only)	9.90%	15.00%

Land distribution and inequality in West Bengal

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This paper uses data from a household survey to estimate changes in land distribution in rural West Bengal between 1967-2004 and decompose these into contributions of different factors. There was a substantial drop in land per household and land per capita, while within-village inequality rose. The latter was associated mainly with rising landlessness induced by high rates of household division for marginal and small landowning households. Conversely, division of large landowning households reduced inequality. We find a significant indirect effect of the tenancy reform (Operation Barga) on inequality, as it reduced division rates of small landowning households while raising those of large landowning households. The land titling (patta) program also reduced inequality by reducing landlessness. Land markets were highly active, and were mildly equalizing. The inequality reducing effects of land reforms and land markets were dwarfed by the rising inequality and landlessness induced by division of small landowning households and immigration.

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Full paper by Pranab Bardhana, Michael Lucab, Dilip Mookherjee, and Francisco Pino here. Seems like inequality was reduced by breaking away landholdings of large landowning households and by implementing land titling program. But, inequality and landlessness also increased as smallholding lands (and immigration) were further divided. The latter effect overshadowed the former gains.

Nepal’s Monetary Policy for FY 2011-2012

I forgot to post it even though I wrote it few days back. So, here it is, my take on the monetary policy for fiscal year 2011-2012.

Major highlights:

• CRR to be 5 percent (decrease by 0.5 percentage points)
• Growth rate target of 5%
• Inflation target of 7%
• BoP surplus target of Rs 5 billion
• Forex Reserve targeted to finance at least 6 months of imports
• Broad money supply target 12.5%
• Domestic credit growth target 13.7%
• Credit growth to private sector target 14%
• Banks deposits growth target of13 percent growth, up by Rs 87 billion to Rs 756 billion
• Bank rate (policy rate) unchanged at 7 percent. The penal rate, which NRB has been charging while issuing finances to the BFIs, has been left unchanged at 3 percent of over 91-day Treasury Bill rate or bank rate, whichever is higher.
• NRNs allowed to open dollar account.
• Foreign exchange facility raised to US$ 2,500 at one instance and up to US$ 5,000 in total in a year by showing relevant document (mainly passport). NRB has also allowed Nepalis returning from foreign country to carry up to US$ 1,000 on behalf of Nepalis residing abroad for giving it to their family members back home.
• Deprived sector lending for BFIs increased by 50 basis points. Commercial banks, development banks and finance companies would need to lend 3.5%, 3% and 2.5% respectively of their total loan portfolio to the deprived sector.They will need to raise such loans by 50 basis points every year for the next three years.
• The central has bank agreed to let BFIs issue loans in foreign currency in priority sectors like hydropower and infrastructure.
• Intensify actions against willful defaulters that took loans of Rs 10 million or more from BFI
• To strictly enforce prudent corporate governance in the BFIs and punish players that flout its norms
• Legal actions against borrowers that use loans, taken for one stated purpose, to run different unproductive businesses
• Loans of Rs 1.5 million at zero interest rate to the micro-finance institutions--the category D financial institutions--if they opened branches in 9 remote districts where access to finances is pretty low.

More highlights here. Here is the full text in Nepali language.

Quick comments:

• A sudden decline in BoP deficit and a surplus of Rs 1 billion due to reimbursement of foreign aid (grant and loan), pension of Gurkhas, and government expenditure is expected for FY 2010/11. The deficit was around Rs 12 billion in the first eleven months of FY 2010/11.
• Bringing down CRR by 0.5 percentage points will not solve the liquidity crisis, whose roots lie in the number of BFIs, which meant that the more they are, the more money they need to keep up their deposit and loan targets.
• GDP growth, inflation and BoP targets are very unlikely to be achieved. These targets are follow up of the targets mentioned in the budget. It is NRB’s religion to do that. But, it should be more honest in advising the government on what can be achieved and what not. GDP growth target is hard to achieve due to loss in productivity and power outages and other non economic constraints. High and sticky inflation has more to do with supply-side constraints and the NRB can do very little to tame it. Partly, it is also due to rising food prices, which are unlikely to come down. BoP target is hard to achieve because we are in the same mess as we were two years ago.
• It is very disappointing that the NRB has not brought clear policy framework to incentivize BFIs to go for merger or acquisition. Nepal’s financial sector needs consolidation and the BFIs will not do it on their own and will wait till the last moment when the NRB will be forced to step in.
• The bank rate should have been lower (it should be always lower than inter-bank rate). Since inter-bank rate is very high, it would not hurt to lower bank rate below 7%. The lower the bank rate, the higher will be credit withdrawal by banks from NRB. This would have reduced strain in short term liquidity in the market.  
• Emphasis on channeling credit to deprived sectors and in rural areas is noteworthy of this monetary policy.
• Overall, it is a weak policy that will do very little to bring Nepali economy out of the mess it is in right now.

Where is all the money going?

Prithivi Man Shrestha reports that a large portion of the aid money that comes in the form technical assistance (TA) is unaccounted for in Nepal.

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According to the OAG report 2011, of the total Rs 17.19 billion received by the country as technical assistance in the fiscal year 2009-10, it is not clear where 87.43 percent (Rs 15.02 billion) of it went. Of that aid, 6.3 percent was spent for consultants, 3.57 percent for goods and 2.70 percent went for trainings and seminars. “It is necessary to make such aid transparent by classifying the programme and areas it goes to,” the report states.

Of the total 75 agreements signed in 2009-10, a total of 67 were related to 22 ministries, but there was no information on eight agreements and the amount spent, according to the OAG.

The government’s policy is to reduce the size of the TA by enhancing the capacity of civil servants, but the size of the TA reveals that donors still don’t believe in the capacity of Nepali civil servants.

“Multilateral donors including the World Bank and the Asian Development Bank and even bilateral donors prepare most of the project documents themselves by using the TA,” said Kailash Raj Pokharel, under secretary at the Finance Ministry. “We have been preparing such documents for small projects only.”

Officials said that the size of the TA remained so big as donors didn’t trust the capability of Nepali bureaucrats. The amount peaked this year with the inclusion of most of the possible projects operating in the country. Not only the size of the TA but also the number of TA projects peaked this year to reach 229 from 96 a year ago.

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Usually, TA is used to pay for consultancy services, purchasing goods and equipment and trainings and seminars. Most of it goes to the donor countries themselves though it gets reported as being received by recipient country when they report such figures to OECD and their own governments. In Nepal, donors have pledged Rs 45.23 billion for ongoing technical assistance (TA) related projects. This is half the total foreign aid (grants and loans) estimated for the fiscal year 2011-12.

Given the interest of donors in promoting their own personnel (in terms of employment) and capital (in terms of using resources sourced from their countries)—this is important to their citizens—it is understandable that the size of TA might not go down or halted at all. In doing so the donors also do care (or they should) about results on the ground, i.e. whether their effort has produced intended results, which is doubtful most of the time. Most of the donors’ expertise is in brining ‘experts’ to write reports. They have very little knowledge of what works on the ground. Else, more than US$ 12 billion that Nepal received since 1960 would have made a significant dent in an economy whose size is just US$ 12 billion. To further fine-tune their interest (and Nepal’s to some extent) the donors have their own development strategy paper, which should have largely adapted the National Planning Commission’s actual paper.

That said, aid has made good impact on education and health sectors. No doubt about that. In other sectors such as promoting trade, assistance has been restricted to writing reports on how best to implement a given agenda or a product. Most of the money is spent on studies, seminars, and conferences—all of which will involve personnel and capital from the donor countries at some stage. Some of the money goes back. Some stays back in the form of short term employment and reports that detail how best to implement a strategy or tackle constraints.

The irony is that substantial aid to actually tackle the identified constraints hardly comes from most of the donors (save the WB, ADB, India and China). Our policymakers and stakeholders are pretty clear on the constraints, but still reports are written to identify the constraints, which are actually identified by talking to policymakers and stakeholders in the first place. The baseline is that if we already know what the constraints are, then why not pump in resources (monetary, human, technical) to tackle them directly, and not waste money in writing yet another report that adds very little value to the already overfull stock of knowledge. Money should not be wasted in writing reports unless they are essential to guide policy in changed and evolving circumstance. Leave that to the academicians and policy wonks. The donors and policymakers should focus on projects that gives the biggest bang for buck, which is in the interest of the citizens of the donor countries and recipient country. And, in the case of Nepal, we already have such projects identified since a long time. One reason they are not implemented could be that the donors cannot cough up enough resources to make them happen in reality. Other might be that the government is simply not caring too much to implement them.

Mainstreaming trade in Nepal: Trade policy, agricultural policy, and industrial policy compared

A brief (Policy Brief 6-- Nepal)  published by the FAO evaluates mainstreaming of trade by reviewing three different policies supporting trade (the trade chapter in the Three Year Interim Plan 2007-10 which was Nepal’s PRSP, Nepal Trade Policy 2009, and Nepal Trade Integration Strategy 2010); three on agriculture (National Agriculture Policy 2004, agriculture chapter in the PRSP, and Agri- business Promotion Policy 2006); two on industrial policy (industry chapter in the PRSP and Nepal Industrial Policy 2010); and one food security policy (food security section in the PRSP). Below are the main points from the brief.

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Policy papers show considerable consistency on vision, goals and orientation – On the whole, there is considerable consistency on the overall vision, goal and orientation of policies (e.g. contribute to growth and poverty reduction, inclusiveness, market-led growth, liberal economic and trade policies, increased role for the private sector). They also indicate a strategic shift towards supporting value-chains as a whole rather than concentrating efforts at the primary production end as was the case in the past.

But the 2009 trade policy focuses exclusively on exports and thus misses out on some broader development issues that trade policy needs to address – The trade chapter of the PRSP identified as one fundamental problem the trade sector’s weak linkages with the domestic economy and raw materials, but provided no analysis or guidance on how this would be reversed. Indeed, many of Nepal’s prominent export products that developed during the past 2-3 decades are heavy users of imported raw materials. Nepal’s 2009 trade policy and 2010 integration strategy, both with exclusive focus on exports, also largely miss out on this “quality” of trade issue. For example, there are no serious analyses on what policies and incentives would encourage export-oriented industries that use local materials and have strong linkages. The exclusive focus of the trade policy on exports is one reason for missing out on these issues because many of the issues are related to importables, notably the food and agro-industry sub-sectors. These include, for example, the structure of import tariffs and protection, including tariff escalation, and incentives to import-competing industries. These are also important development issues for the agriculture and industrial policies. A trade policy is not an export policy and needs to be balanced in looking after the needs of all productive sub-sectors.

The desire to promote priority export products likely to be undermined by weak mainstreaming process – While the trade chapter of the PRSP did not have a list of priority products, 19 such products were identified in the 2009 trade policy (and a similar list in 2010 trade integration document). This approach to focusing resources on selected products is consistent with similar practices in other countries. But the process needs to be improved considerably. First, it is not clear why the lists in the two trade papers that came within two years are not identical. Second, the 2010 industrial policy did not refer to the list in the 2009 trade policy and has its own list of priority products, but covering almost everything and thus undermining the very notion of priority. Third, agricultural policy does not have such a list, although both trade and industrial policies list many agricultural products. The experience with Nepal’s 1995 Agricultural Perspective Plan, which took a similar approach of listing priority products is not positive, in large part due to lack of mainstreaming across policies. No attempt has been made in the trade or other policies to learn from that experience. There is thus a real risk that support to priority products – in whichever policy document they belong to – might continue to remain weak.

Should Nepal’s PRSP be designed differently? - Nepal designated its 11th development plan as the PRSP. Being similar in design to the previous periodic plans, this differs considerably from the PRSPs in most other countries. While there are some advantages, having 20 or so separate, stand-alone sectoral chapters also comes with disadvantages. One is the challenge to ensure that policies at the sectoral and macro level, including trade policy, are mainstreamed consistently. In this format, mainstreaming essentially depends on the ability of the National Planning Commission to ensure coordination and synergy. The studies note several weaknesses on this. A related problem with this format is that there are often two policy documents – the chapters of the PRSP and respective national policies. Maintaining consistency between these two sets of papers appears to be a challenge. An alternative format to the traditional plan is the focused PRSPs like those in Ghana and Tanzania, for example.

Lack of baseline statistics on product-specific support is a serious handicap for prioritizing trade support measures – While policy papers specify priorities (e.g. export products), it is hard to discuss prioritization and resource reallocation for lack of disaggregated statistics on public outlays and incentives/subsidies. This is the situation across the board – from agricultural research, provision of industrial and export incentives, to commodity development. In trade policy and elsewhere, provisions are made for one or more incentive schemes, typically involving subsidies, and yet it is no where explained how these policies were determined nor if these schemes were effective in the past. With the increasing focus on value chains, statistics on outlays along the chains have also become essential, but are mostly missing currently.

The process of stakeholder consultations needs strengthening - Stakeholder consultations are increasingly being organized. But the quality of these meetings needs strengthening. In Nepal’s case, participation of the private sector from the business and industry side has been strong but is lacking on civil society, farm organizations and independent analysts. The more serious issue is with the effectiveness of such meetings. Typically, not having prepared evidence-based briefs on the issues being debated and circulated in advance, stakeholders’ inputs are limited. Interestingly, similar weaknesses were noted for meetings of inter-ministerial committees and task forces. In some cases, even important ministries have been missing altogether, e.g. the Ministry of Agriculture is not even represented in the high level Boards created in the 2009 trade and 2010 industrial policies, despite the fact that at least half of the targeted priority products are agricultural.

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