Make in Nepal campaign highlighted as rising imports heighten economic vulnerability

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Nepal was the net exporter of rice in the 1970s and 1980s, with the government establishing up to seven companies in 1974 export rice.

Fast forward to today, the country is heavily dependent on rice imports. In the first three quarters of the current financial year, Nepal imported rice worth almost Rs 40 billion, according to the Data from the Nepalese bank Rastra . Last year, the country imported rice and paddy worth 50 billion Indian rupees.

Not only rice, Nepal imports a huge amount of grain; in the first three quarters of this financial year, the country imported grain worth nearly 62 billion rupees, making grain the country’s fifth largest import item, according to data from the Trade and Export Promotion Center (TEPC).

According to a study conducted by the National Planning Commission, the country has imported agricultural products for more than 200 billion rupees during the 2019-20 financial year. Most agricultural products came from India, according to the study titled ‘Status of exports and imports of agricultural products.”

“Our dependence on imports is a well-known fact while exports are very low,” mentioned Dilendra Prasad Badu, Minister of Industry, Trade and Supply, at the Make in Nepal Swadeshi Summit-2022, organized by the Confederation of Nepalese Industries (CNI) in partnership with the daily Kantipur, a sister newspaper of the Post.

“Even in food products where we could become self-sufficient, we have not been able to capitalize on our ability,” Badu added. “Our kitchens are filled with imported goods, from cooking gas to food items, including rice, vegetables, pulses and pickles, which is worrying.”

Minister Badu insisted that the country needed to increase both domestic production and consumption, and that the government was ready to introduce economic and monetary policies to meet this need.

As the government prepares to present the budget for the next fiscal year 2022-23 on May 29, Minister Badu said the executive plans to introduce a “campaign to increase domestic production and consumption-2032 “for a period of 10 years.

“The next budget will announce the necessary incentives by allocating the necessary budget to achieve this goal,” Badu said.

Massive imports against meager exports have emerged as a major factor in the deteriorating economic situation the country is currently facing, with a ballooning balance of payments deficit and depleting foreign exchange reserves.

During the first nine months of the current fiscal year, Nepal imported goods worth 1466.66 billion rupees while the country’s exports amounted to a paltry 160.57 billion rupees, according to the TEPC.

Over the past decade, imports of goods and services as a share of gross domestic product (GDP) have increased while the share of exports of goods and services as a percentage of GDP has remained low and constant, according to the statistics of the Central Bureau of Statistics.

According to the last National accounts statistics 2021-22 released by the CBS in late April, imports as a percentage of GDP rose to 41.49 in fiscal year 2021-22 from 29.17% a decade ago. Exports as a percentage of GDP declined to 6.61% in FY 2021-22 from 8.75% in FY 2011-12.

CNI Chairman Vishnu Kumar Agrawal said the confederation has launched the Make in Nepal campaign to increase domestic production and build people’s confidence in national products.

“We need to build consumer confidence in the good quality and competitiveness of Nepalese products,” he said, adding that more than 50 companies involved in the production of goods and services have participated in the CNI campaign.

With the campaign, Agrawal said, the CNI hopes to achieve four goals in five years, including: the annual registration of 1,000 factories, the establishment of 150,000 jobss, increasing the manufacturing sector’s contribution to GDP to 25% and boosting exports to Rs 500 billion.

“We have submitted a list of 34 policy interventions to be made by the government to achieve these goals,” Agrawal said.

Speaking at various summit sessions, speakers highlighted many challenges to making the campaign a success.

One problem, they pointed out, is the difficulty in acquiring land at lower prices and that high land prices make projects unfeasible.

“High land prices also increase the cost of production,” said Ram Krishna Khatiwada, managing director of the Nepal Infrastructure Bank. “In most industrial loan proposals we receive, the cost of land covers around 50% of the total cost of setting up the business.”

Ram Prasad Thapaliya, secretary in the Ministry of Land Management, Cooperatives and Poverty Alleviation, said changes to the law were needed to control rising land prices. “An effort to change the current land law has stalled due to Covid-19. We are always ready to discuss the kinds of amendments needed to the law,” he said.

Other speakers at the event said domestic resources alone would not be enough to support the country’s industrialization efforts, so foreign investment should also be encouraged. They said the private sector should not fear foreign investment in the country as foreign investment would encourage domestic industries to be more efficient and competitive.

“Look, for example, at the services of Nepal Telecom after Ncell entered the Nepalese telecom market,” said Maha Prasad Adhikari, Governor of Nepal Rastra Bank. “We see that the Nepalese private sector fears competition. But private sector players must be convinced that they can compete with any foreign investor, both in terms of price and quality.

Other speakers said that although Nepal has made progress in policies aimed at attracting foreign investors, the country still has a long way to go to attract large-scale foreign investment, which would also boost domestic production.

Governor Adhikari said that Nepal’s lack of a sovereign credit rating by international rating agencies is one of the factors that has kept Nepal out of the eyes of big investors.

“In the eyes of investment bankers, Nepal does not fall into investment grade due to the country’s lack of sovereign credit rating,” he said. “So we were only able to attract small investors.”

Coherent policy and investment facilitation are factors that determine foreign investment, according to Adhikari. “The increasing local disruptions caused under various pretexts are another obstacle to attracting foreign investment,” he said.

Hem Raj Dhakal, managing director of the IME group of companies, said the FDI threshold should be revised.

“For example, the threshold for sectors like information technology should be reduced while maintaining the same threshold for other capital-intensive industries,” he said.

Currently, the minimum threshold for FDI is 50 million rupees, which has been increased from the previous threshold of 5 million rupees, in 2019.

Chairman and Managing Director of Kantipur Media Group, Kailash Sirohiya, said that given the balance of payments boom the country is facing, the “Make in Nepal” campaign is necessary for the country. “Government and private sector should join hands for the proposal,” he said.

He stressed the need to encourage small entrepreneurs nationwide and make it easier for them to obtain credit. “Let’s create entrepreneurs in every village,” he said.

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