Dealing With The Economic Challenges For Nepal Brought About By Covid-19

The pandemic of Covid-19 has brought many challenges for states of all size and shape, whether economically or politically

June 9, 2020, 2:19 p.m.

The pandemic of Covid-19 has brought many challenges for states of all sizes and shapes, whether economically or politically. The hardest hit is likely to be the least-developed countries like Nepal which already suffer from other handicaps. They lack a long-term strategy to use economic diplomacy successfully to develop the economy of the country. Economic diplomacy is about knowing how to exploit the unique selling points that the country has, maximize the benefits resulting from them and putting in place policies designed to achieve such objectives. The following are some of them:

  1. Benefiting from competition among foreign actors

We are often led to believe that Nepal is a resource-poor country, but in reality, it is a country rich in water resources and other resources such as medicinal Himalayan herbs and has a huge potential for the development of the tourism and other services sectors. Since the country is endowed with such resources and there is so much potential for the services sector, Nepal is well placed to attract foreign investment to harness its natural resources and develop its services sector since the country has achieved some degree of political stability. Heightened competition for influence in Nepal among its immediate neighbours and other major powers is not necessarily negative developments for Nepal. Competition among other nations for natural and other resources of Nepal or for the development of the tourism sector should increase its bargaining power and bring in more revenues for the country. If Nepal were to develop the business acumen and political skills required it could do well by exploiting its geostrategic status. For a country like Nepal, it is better to be the center of attention than neglect

2. Maximising the benefits of the land-locked highland status

It was not long ago that hinterland land-locked states felt safer when the pirates used to terrorise people in coastal countries. Only when the carriage of goods by sea became popular and economical that land-locked countries have felt disadvantaged. However, with the prospect of sea-level rise and corresponding climatic hazards in the coastal areas land-locked countries should feel insulated from such adverse consequences. The land-locked status may actually become a blessing in disguise for highland land-locked countries such as Nepal as people from low lying areas begin to push for a place or space in such countries.

Nepal will not have to erect coastal defences spending billions of dollars to cope with the sea-level rise nor will have to manage population transfer from one area to another to save them from the impact of sea-level rise. Nepal will not have to deal with the El-Nino effect or the consequences of a tsunami. Highland land-locked states may be perceived as safer places for investment, residence and other business than the low lying countries such as Bangladesh or the Maldives

3. Maximising the benefits of a least-developed country status

Poverty and the status of a least-developed country do not impress anyone. However, as there is a silver lining in every dark cloud there are ways in which Nepal could maximise the benefits of her least-developed country status. To begin with, under the rules of the WTO, Nepalese products heading to international markets should enjoy duty-free and quota-free access. For instance, it makes a sense to a prospective foreign investor to invest in, say, Biratnagar, than on the Indian side of Jogbani or Darbhanga or in Tato Pani rather than in Khasa on the Chinese side because the goods produced or manufactured in Nepal will enjoy duty-free and quota-free access to international markets but not those produced on the Indian and the Chinese sides. What is more, the WTO has decided to grant a waiver for the service sector products from the least developed countries to the markets of both the developing and developed countries. Economic diplomacy should be about exploiting such opportunities offered by international law.

4. De-politicisation of the Foreign Service

The foreign or diplomatic service has a crucial role to play in articulating, protecting and enhancing economic diplomacy. In many countries, the ministries of foreign affairs are full of people who are the best and brightest in society. Those countries which have done well on several fronts have a highly professional and dedicated diplomatic service. Unfortunately, in Nepal, the disease of politicisation has affected the diplomatic service too. While there are some first-rate brains working within the Ministry of Foreign Affairs, mediocrity is creeping into it. There is no yardstick to measure who is qualified to become an ambassador to foreign countries and there is no certainty that the appointee will serve a full period of assignment. The situation is becoming such that no self-respecting person of high caliber with independent means of living is likely to volunteer for appointment as Nepal’s ambassador abroad. Furthermore, there does not seem to be a robust system of assessing performance by those who work in the diplomatic service. Again, political favouritism rather than performance seems to be the deciding factor for appointment to plum positions. If Nepal wishes to have any policy of economic diplomacy the first step that should be taken would be to revamp, revitalise, professionalize and de-politicise the diplomatic service and make the diplomats and other officers within the Ministry work hard for their salary and other perks which they enjoy from the money paid by the taxpayers.

5. Establishment of a Non-partisan Serious Think-Tank

In spite of the challenges looming large in the Nepalese horizon, the country does not seem to be readying itself adequately to deal with such challenges. Political parties and different groups within the same party are busy squabbling and bickering for power and the political leaders do not seem to have the vision, wisdom and foresight required to prepare the country for the challenges and opportunities offered by the geostrategic factors of Nepal. Since the best and brightest seem to be either shunning politics or heading abroad, the main political parties seem to lack the capacity required to present a farsighted vision for the country in terms of its foreign policy objectives. Therefore, what is needed in Nepal is the establishment of a serious, independent, non-partisan research and policy analysis institution staffed by highly professional people to advise any government of the day and leaders of the political parties on the strategic foreign policy objectives of the nation.

It is surprising that the nation of the size of Nepal with about 35 million people and facing so many economic challenges does not yet have such a national institution. There are different models that Nepal can look at when establishing such an institution. One of them is the Bangladesh Institute of International and Strategic Studies closer to home and the Institute of International and Strategic Studies in London. India too has several such institutions and any of them could be a good model to follow for Nepal. To devise the ways and means of exploiting the opportunities offered by the geostrategic factors of Nepal and to rise to the challenges in this fast-changing region, Nepal could do well by having such an expert professional institution fully funded by the State.

6. Development of Nepal as a Regional Hub of Institutions

Exploiting the traditional image of a neutral and non-aligned country, Nepal could develop itself into a regional hub of international legal and international relations institutions. Nepal can take some cue from the Netherlands which has developed its capital city, The Hague, as the legal capital of the world exploiting initially its status as a relatively neutral country. Switzerland is another example. The city of Geneva has benefited so much not only as the centre of financial services activities but also as the home of so many international institutions. Nearly two-thirds of the actual business activities of the UN are carried by the UN agencies located in Geneva. If the physical infrastructure of Nepal were not so poor even in the capital city itself, Nepal would be well placed to develop as a regional hub of international legal and international relations activities such as the regional arbitration centre and regional think tanks. The presence of such international institutions will have such a positive direct and indirect impact on Nepal’s national security and help develop its capacity.

7. Developing Nepal as an international financial services centre

Another possibility would be to develop Nepal as a financial services centre along the lines of Switzerland, Andorra, Jersey, or even the Isle of Man. As the people in both of our neighbouring countries grow richer, they would be looking to deposit their money in a safe, neutral country. With a traditional image of a relatively neutral country which cannot at the same time go against the basic interests of both China and India, Nepal would be an attractive venue for people to transfer their savings. There was some talk about it in the mid-1990s in Nepal and the late King Birendra himself was interested in developing this sector in Nepal. During one of his trips to London, he wanted to see me ask whether I could produce a report for him by studying the experience of other jurisdictions. I did study the area and submitted a report to him. He appreciated it and forwarded it to the Prime Minister of the day. But this happened to be the time of political instability in Nepal with frequent change of government and the onset of the Maoist campaign and nobody had the time, inclination or determination to take the idea forward.

If properly developed within an acceptable level of an international legal framework and managed and regulated well it can become a sizeable source of revenue generation. International experience has shown that those who are well off wish to spread their wealth by depositing them into bank accounts in different safer and secure locations. There is nothing to prevent Nepal as a sovereign nation to provide the financial services that the rich require. For this, Nepal should have political stability, maintain strict and strong equilibrium with both of its neighbours, present itself as a safe and neutral venue to do business in and have a robust framework of laws designed to protect investment and regulate the financial services industry. The development of Nepal as such a centre will have a significant positive impact on its national security too.

8. The political climate for investment

On the basis of the experience of a number of countries, it can be said that the most influential factors for foreign investors when choosing a country for investment are in priority order: (1) access to new customers (2) political stability (3) the impartial rule of law, (4) adequate infrastructure (5) sound regulatory regime (6) favourable tax regime and (7) quality of labour. We should address each of these issues seriously and do thorough homework required for it if the political leaders wish to have the country take off economically.

9. Attracting outsourcing business

Attracting outsourcing business from other more advanced countries, not only from Western countries but also from neighbouring countries such as China and India, is another activity which will stimulate the economy. With rapidly growing prosperity and the middle-classes in both her immediate neighbours with more than one billion population, each Nepal has a ready-made huge market at her doorsteps. There is every prospect of more prosperity for Nepal provided that the country is able to put in place sensible policies designed to exploit such opportunities.

Dr. Subedi QC, OBE, DCL, is a Professor of International Law at the University of Leeds, UK and also founding Chairperson of the Global Policy Forum for Nepal (GPFN).


Professor Surya P. Subedi

Dr Subedi QC, OBE, DCL, is Professor of International Law at the University of Leeds, UK and also founding Chairperson of the Global Policy Forum for Nepal (GPFN).

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