1.0. INTRODUCTION
1.1. World Perspective:
Globalization today is directly related to the economies of the world, containing giants like United State of America, United Kingdoms and China, and also all other developed and developing countries. Every country is directly or indirectly related to the next country. In this report, we try to examine the economic relationship between a country and the international platform of globalization. The economic development means the progression of social and economic transformation. The transformation process regularly tracks a well-organized arrangement and shows mutual features across the nations. (Thirlwall, 1999) The global economic development, remains in dangerous platform. The results of this precarious situation can be seen in the Euro Zone crisis, the central factor of global economic problems.
1.2. National Economic Overview
This report studies the economic situation of Nepal and the future possibilities that it has, nationally and internationally. Nepal is the country well known to the world as the land of Everest. It is a land locked country situated in-between two giants India and China. That is why it’s also known as "yam sand witched between two rocks”. The altitude of country ranges from 60 meter to the highest altitude of the world 8848 meters, within the range of 150 KM, Nepal is a country enriched with bio diversity and resources, which gives Nepal a high chance of Economic Development if exploited properly. Unfortunately Nepal is a developing country, which directly depends upon agriculture, closely followed by tourism, trade and manufacturing. According to the survey conducted by the Central Bank of Nepal, the growth rate of Gross Domestic Product (GDP) as of 2012 is 4.2%, and the Per Capita Income of the country is $750 according to World Bank. Nepal is moving through the rough interim phase, after the end of ten years long conflict which ended in the year 2006, since then it has been a transition phase of prolonged political unrest.
Nepal, in comparison to the global economy remains secure from the world crisis, because of Indian and China, since the growth rate has been growing in these countries, Chinas growth being 9% and India’s growth rate being 7%. Nepal can get ample opportunities from these two giants positive growth.
2.0. Macroeconomics and Microeconomics Overview
The macroeconomic factors, which means factors relating to fiscal, monetary and financial issues such as increase of inflation, debt crisis, payment crisis and volatile exchange rate are some of the reasons which are compelling and constraining the Nepalese to grow. The previous decade has shown Nepal huge ups and downs. Nepal’s GDP on the year 2000/01 was $5.62 Billion, conscientiously Nepal’s economy has grown to $ 8.76 Billion in the year 2010/11. Nepal’s politics saw a tremendous change in the political system due to the fall of Monarchy, relating to the end of civil war. Nepal’s economy is directly depended on the trumping socio-political situation of the country. The Central Bureau of Statistic, reveals that Nepal’s Gross National Income from 2000-2011 has jumped from $260 to $645. Having a slow but desirable growth, Nepal still falls way behind in the Global Economic Situation. The Nepal Living Standard Survey (NLSS), shows that the poverty has decreased by 5.5% in the year 2011. The main reason to for this declination is the inflow of Remittance.
Micro economic development in Nepal would lead to the development of self-employment, female empowerment, boom in traditional craftsmanship, labor incentives, equal income distribution and entrepreneurship and innovation. (UNDP, 2010) The Nepalese economy can be divided into two sectors Agricultural sectors and Non Agricultural sector. In the year 2011, Nepal has seen a positive inclination in the agricultural sector, due to adequate monsoon and winter rainfall, it has also seen an improvement in the distribution of chemical fertilizers and importantly the expansion and development of seed and technology has helped in obtaining the growth rate of 4.93 %, comparing to the growth rate of 4.51% in the previous year. On the other side, the Non Agricultural sector includes Manufacturing, Mining, Wholesale and retail traders, Gas, Electricity and Water, Construction, Hotel and Restaurant, Transportation, Communication and Warehousing, Real State Etc. The non-agricultural sector is believed to grow by 4.7 % in the current fiscal year, which has grown only to 3.4% in the past five years. Which gives the positive attitude toward the development of Nepalese Economy. The gross consumption of the fiscal year 2011/12 at the price constant of 2000/01 is projected to range $ 6935433263.44, with rise of 3.6 %. The Government consumption expenditure increased by 12.5 % and the private consumption expenses increased by 2.6 %. The portion of Gross Domestic Saving to GDP has enhanced by 1.36%, which is expected to be $1765175953.75. (MOF, 2012)
3.0. Trade theory
It’s well known that the theoretical importance of trade theory only can lead to sound economic structure of any country. Since the writings of David Ricardo, the concept has expanded and developed. According to David Ricardo, the International Trade, allows the country, to get comparative benefits and advantages, with the statistical and dynamic specialization, performing the purpose of exchange of goods internationally. (Ricardo, 1951) Nepal from 80s has been moving toward market oriented and substantial policies, with the complement of different reforms going on from 90s. (Pant, 2005) Trade is a dynamic and multi-dimensional occurrence, determined by various factors in different period of time.
4.0. Trade overview of nepal
Nepal, being a developing nation, has intense potentials on the sector of Information Technology, which will surely help to solve the problem relating to the land locked position of the country , trade barrier and tariff barrier. The future opportunities on the sectors like carpets, garments, agricultural production, huge herbal production possibility, should not be overlooked. These are the factors that will encourage the Foreign Direct Investment towards the country. Nepal has a very poor performance in terms of foreign trade. This is due to the land locked position, which has a direct link with the export and import of different product and services. The only transit that Nepal has is with India, with whom it shares open borders, this has directly or indirectly constrained trade with the outside world. The transit through China is impractical, although Nepal have had relation with China through the route of Tibet, but in a very small quantity. That makes India the only country which is economically suitable for all kinds of commercial movement. Excluding Bhutan, Nepal is the only country in the world which is hopelessly reliant on the transit facility from only a single country. (Poudyal, 1998) The History is the proof that almost every trade and transit treaties, has been only with India, and provided by India, in an exchange to the Nepal’s acceptance of the Indian products and services. For the very reason the Nepalese trade has been constrained to India. Which suggest why Nepal is lacking behind in terms of economic development, in this scenario, naturally neither Economy nor the Foreign Trade can be expected to take a positive growth.
It’s a well-known fact that Trade is the “engine of economic development”, because it consists of the prospective for sustainable long term growth. Developing countries adopt to the liberal economic and trade policies. Nepal, has adopted the Open Market Policy, since 1980s, which boomed from 1990s due do Privatization and Industrial Enterprise Act, Technology Transfer Act, Foreign Development Act. Nepal is also a member of World Trade Organization. Nepal being a country full diversity, climate variability, topography and plentiful natural resources, it has a high potential for harnessing its trade, by exploiting the human capital and the abundant resources. Which will not only increase the living standard of people but will also help to develop the economy of the country. Development of Trade, for Nepal would be, an appliance to deliver opportunities for the society to join and take benefits from it.
5.0. Export and import Postion of nepal
The export position is not positive as Nepal has intended it to be, from 14.9% in the year 2004/05, the ratio reached to -27.7% in the year 2009/10. The average ratio, of import and export with the GDP in the period 2004/05 and 2009/10 were 12.1% and 32.9% correspondingly. In the year 2010/11 the export ratio to GDP has reduced from 14.6% in year 2004/11 to 8.7% in the year 2010/11. But on the other hand, the import ratio to GDP, has increased from 29.5% in the year 2004/05 to 37.4% in the year 2009/10. Which clearly shows that the import rate is higher than the export rate.
The potential export goods that Nepal can use to develop its economy are as following, ready-made garments, pashmina, silk products, carpets, woolen goods, local and traditional handicrafts, coffee and tea, vegetable seeds, floriculture, pulses, precious gems and stones, silver and gold ornaments, processed leather, herbal product, honey etc. (Minstry of Commerce and Supplies, 2009)
The growing, unevenness in the trade, is the major reason for the negative balance of payment (BOP), in 2010/11. The statistics today suggests that the BOP will continue to be negative because of the lower export and higher remittance level. During 2010/11 the trade imbalance amplified by 5.4%.
6.0. Strategies to balance trade
The main strategies that Nepal can implement in order to achieve the trade balance in order to enhance that national economies are as following:
a. To create a proper atmosphere for building competitive trade in an international level.
b. To promote the export level in order to reduce the trade deficit.
c. To enhance the opportunities relating to income and employment.
d. Making a proper relationship between proper and domestic relationship.
e. Building specialized role for government and private sectors in order to enhance the balance of payment.
f. To develop institutional and physical infrastructure policies involving foreign trade.
g. To provide the additional motivations and incentives to industries related to export.
7.0. Foregin Aid and Investment
7.1. FOREIGN AID:
Nepal depend highly upon the Foreign Aid, for most of its major development and the high portion of government expenses. The International Monetary Fund, (IMF), is giving aid to Ministry of Finance in order to restore the official sector of the country. India, is providing aid to Nepal for the construction of embankments, the amount of aid amounts to $ 32.5 million, over the four years from 2008. The United States Agency for International Development (USAID), providing the aid for HARIYO BAN program, which is related to the protection of the forest, flora and fauna, and the wildlife. World Bank is another important aid provider to the economy of Nepal. The Asian Development Bank, is providing aid to Nepal amounting $ 80 million in order to manage the Water Supply system in Kathmandu Valley. The Chinese Government is assisting in the development of the Army hospital, currently amounting to $8.26. There are many other minor foreign aids coming into the nation in order to encourage development of the country.
7.2. FOREIGN DIRECT INVESTMENT:
Foreign Development Index (FDI) is the straight investment in any potential economy, in which the investors, profoundly performs the administration skills, along with the factors like resources, skilled workforce and technology. (Gillespie, 2007)
Foreign Direct Investment (FDI), amounted to $0.93 Billion, as of 2011, creating more than 155432 jobs with the help of 2100 projects. Out of 2100 projects, 650 are relating to service sector, 712 relating to manufacturing, 561 relating to tourism, 60 in agriculture and 36 in the sector of mineral.
India, is the biggest FDI, contributor for Nepal covering 47% with permitted 0.44 Billion dollars. China is Nepal’s second biggest FDI provider. United States, is the third contributor of the FDI. The FDI plays a very important role in terms of economic growth. As, sketched above India covers 50% of the total FDI contribution. The peace accord in 2006, has completely changed the FDI climate in Nepal, in positive terms. In the year 2011, the FDI of Nepal (BOP in $) stated to be 94022274.70. (World Bank, 2012)
8.0. Tourism Industry in Nepal:
Nepal, is considered to be one of the most beautiful countries around the globe. It has a huge variety of natural endowments and cultural variation. Tourism is not a new sector in Nepal, it has been the important factor for it to be known around the globe, the sector has been growing rapidly in the past 10 years, but it still has a huge potential of growth. In economic sense, Tourism plays a very important role in increasing national productivity and income, increasing and creating employment, increasing the foreign currency inflow in the country, and maintaining the regional imbalance.
Tourism, is and was an important source of Foreign Earning. The initial roots of development of Tourism Industry can be tracked back to 1953, when Sir Edmund Hillary and Tenjing Norwe Sherpa, first climbed the world highest peak Mount Everest, attracting the eyes of the Western World. Nepal is also famous for its Adventurous and Eco Tourism, Religious Tourism and Spiritual Tourism. Out of 10 highest peak in the world Nepal has 8 of them, making it the country of Mountains, which undoubtedly can attract lots of tourist. Being the only Hindu Country in the world, The birth place of Gautama The Siddhartha, commonly known to the world as Buddha, and with its high variety of religious site, it has the potential of attracting many people as religious tourist, which is mainly concentrated to India, which has 800 Million Hindu followers and China, which has more than 1 Billion Buddhist follower. If Nepal can enhance its Religious Tourism, even to India and China, the tourism sector can uplift the economic structure of the country within some years.
The Spiritual Tourism, is another dimension of Tourism Industry, for Nepal Being known as the country of Yogis, the long range starting from Lord Shiva, the ultimate yogi, in the Hindu belief. Being the Home to Khaptad Baba. Shivapuri Baba, known as the spiritual teacher of Queen Victoria and US President Theodore Roosevelt, and the person who lived for 137 years. The country is also home of GORAKHNATH, the God in the belief of Nathas, and as the place where the Samadhi of the world’s most controversial Guru, Bhagwan Shree Rajneesh, majorly known as Osho is kept. The country is profoundly described to the world as the land for seeking the spiritual truth. This particular industry relating to tourism also has a high potential of growth, in order to develop the nation.
Nepal has the widest variety of Adventure and Eco Tourism, It has 9 out of 11 climatic conditions found in the world. Having the high range of variability gives birth to a large number of flora and fauna. Annapurna Trekking site, is considered as one of the best trekking site in the world. The ultimate peak of the world, Mount Everest. Sky diving, rafting in the swift flowing water, Bujee jumping, hiking, trekking, the unmatched scenic beauty, the ice peaked mountain, mountain flight, paragliding, rock climbing, hot air balloon, ultra-light aircraft flights, mountain biking, jungle safari, bird watching are only few of the factors that attracts wide range of tourist.
8.1. SWOT Analysis of Tourism Sector:
STRENGTH:
1. Political Stabilization achieved after a long run of conflict, helping to attract more tourist.
2. Government focusing efficiently in the field of tourism.
3. Outstanding beauty of the country.
4. Global Touristic Market.
5. Unique Bio Diversity and natural state.
6. Country of Buddha and Mount Everest.
WEAKNESS:
1. Direct Competition with China and India.
2. Bad impression of “LOW COST DESTINATION”.
3. Poor Infrastructure
4. Internal Political conflict
5. Poor air and land transport
6. Hygienic issue in some rural areas
7. Unmotivated Economic Sector
OPPORTUNITY :
1. Stabilizing political situation.
2. Growing influence on tourism.
3. Travel advisories
4. Increasing inquiries of the global market
5. Life Time Opportunity
6. Growing awareness about Nepal
7. Intensive cultural values
THREAT:
1. Victim of past images of conflict on western tourist.
2. Declination on International Economy
3. Lack of enough Travel Facility
4. Negligence in advertisement
5. High Level of Competition to close competitors like Thailand , Malaysia, India, China
6. Low market resources
9.0. Recommendation and Conclusion:
Along with the settlement of political unrest and the chances of Nepalese economy trying to step forward, there are several large scale investors who are currently keeping an eye on the land of Buddha. The government of Nepal should implement, new and dynamic plans, policies and strategies, to develop the economy and also to attract more FDI.
Some of the crucial factors that must be taken into considerations are as following:
v Maintain the political stability, along with the creation of peaceful environment.
v Directional emphasizes on the strategies on marketing toward investment sectors.
v Increase the skilled workforce by vocational and creative training.
v Develop the infrastructure.
v Make a stress free FDI investment opportunity.
10.0. References
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