After eight weeks of compliance to a government mandated blanket lockdown, the country is onto yet another extension.Continue reading
Forty-two days into the nationwide lockdown, the focus of the government rests upon flattening the curve – as it should be. But the simultaneous economic quarantine has managed to bring all sorts of economic activities to a grinding halt. At the most telling fronts, it has taken a hit on the GDP, escalated inflation, surged unemployment and disrupted livelihoods of daily wage laborers who have little to no economic buffer.Continue reading
Image Sources: India Today, 1989 (top and bottom left); AFP, 2015 (top right); The Himalayan Times, 2015 (bottom right)
More than two months into the “unofficial” blockade now, it is no surprise that blockade is what (almost) everyone is talking about; be it some casual chit-chat or some blown-up rant on the social media. An interesting observation here is that quite some of these regular people here appear to understand, and be able to scrutinize the geo-politics as soon as the supplies get disrupted. It must be noted that these are not mere hollow outcries; these informal discourses sometimes lead to some meaningful recommendations that could benefit our economy in the long-run. This disruption could be the harbinger of the change – the opportunity for us to reform our economic policies and trade strategies – that can lead us to prosperity. It all depends on how we take lessons from this crisis:
1. Let ’em do it!
The state-owned Nepal Oil Corporation (NOC)’s monopoly, stemming out of the NOC-IOC (Indian Oil Corporation) partnership has barred the private sector from partaking in the industry and exploring alternatives elsewhere. This has further constrained the choices that the public has in terms of procurement of petroleum products. Today, we even pay higher prices for the petroleum products just to cover NOC’s inefficiency. Even after having proved its inefficiency through repeated shortages and bankruptcy, why shouldn’t the government let the private sector do it?
Although the private sector is technically “allowed to import” petroleum products, and even allowed to open a refinery, the paid-up capital requirement is a ridiculously high Rs. 20 billion – equal to 1% of the GDP and multiple times higher than that for the commercial banks. Such high regulatory capital requirements pose a barrier to entry for the private sector. Had we had more flexible policies, and thus private companies bringing in petroleum products from other sources, we would not have been facing this petroleum crisis today. It is unfortunate that even after all of this, the government has instead created a ‘black market’ by banning the entrepreneurial individuals from “smuggle”-ing these basic supplies. Pun intended!
2. Don’t put all your eggs in one basket!
“Self-reliance” has also made it to one of the most discussed issues amidst current political-economic crisis. The people in favor of this “self-reliance” however seem to forget the very reason trade exists. Trade benefits consumers the most through competition in prices and qualities, and giving choices to the people. It is important we be clear that the havoc this disruption has created is because of lack of diversification in our supply-chain, and not trade. Our foreign policies and trade policies have not been liberal enough. Relying on just one source for most of our essential supplies has handicapped us. The answer to guaranteeing an uninterrupted supply of goods and services lies in diversifying our import portfolio instead of relying on one country to supply us almost everything. Had there been a competitive and diverse supply chain, who knows we might even have been importing crude oil from Russia and cooking gas from Kazakhstan!
3. Treat your friends equally, because if you don’t, you don’t see them as friends – Michiyo Yamashita
Free trade in goods, labor and capital would help Nepal from both uninterrupted supply of necessity goods and prosperity perspectives. Otherwise, treaties can be detrimental when they are exclusive. They will divert trade from cheaper goods of non-member countries to more-expensive goods from member countries.
Nepal has signed a transit treaty as well as a treaty of trade with India and some other nations. However we haven’t been able to capitalize on them for mutual benefit. We need treaties that lower the tariffs, reduce and standardize the documentation and provide access to each other’s markets. It is important here that Nepal treats its neighbors at par with each other. Another important factor for free trade is free connectivity. The recent turn of events has paved way for trade and transit treaties with more partners. Nepal, as a landlocked nation needs to secure connectivity through multiple accesses to sea ports. Nepal has already agreed with China to open more transit points, but we also need a transit treaty with China. There is equal need to institutionalize transit treaty with Bangladesh.
The Bottom Line
The above lessons should be one of the defining norms of our economic and trade policies even at normal times – not just when supplies get disrupted. The ability of the free market to coordinate itself through entrepreneurial discovery process is second to none. And when it comes to diversification of imports, what it means is that the government should facilitate, without direct participation, the process of market discovery for our imports from producers worldwide. Such facilitation is only possible by ensuring better connectivity and access through trade and transit treaties that are non-exclusive.