Cover Feature

So Say their Excellencies

Three of the seven most industrialized countries, Germany, Britain and United Stales are the largest markets of Nepal's exports overseas, but the economic fundamentals of this relationship are quite shaky.

As the data presented in the accompanying chart reveal, Nepal runs robust trade surpluses with VS and Germany, while the case is reverse with UK. worse still is the fact that the surpluses or deficit are continuous. Going by general economic theory, neither the deficit nor surplus in a country's foreign trade can sustain perpetually, other things being normal.

But these surpluses and deficits also indicate to a brighter aspect, i.e. there is possibility for imports to grow from the countries with which there is a trade surplus, and to increase exports to those countries with which there is a trade deficit. In practice that has not been the case indicating that the reasons underlying the continued deficit and surplus are special.

One way for reducing the deficit is setting up joint venture units as has been proven by the Indian joint ventures that helped to increase exports to India from Nepal over the last several years.

Looking at the situation from another angle, Nepal’s exports to these countries are limited to single item-carpets in case of Germany and garments in case of US. But as the recent years have evidenced, both these products are not going to provide sustainable basis for Nepal’s trade with these countries.

When the Multi-Fibre Agreement expires (and that is to happen very soon), garment exports from Nepal would no more be possible. Though export of electronic goods to Germany has become sizeable, this too is limited to a very few export units. Efforts, however, are being made to Set these fundamentals right so that Nepal can have sustainable and thriving trade relations with these markets. Recent initiatives to promote British wool in Nepali carpets in exchange for promotion of Nepali carpets in Britain is such an effort.

Another such effort in a broader scale is Himalayan Expo, an annual business fair of international nature in which the Embassies of these countries have been actively involved for ‘last several years directly or through the binational chambers of commerce related to these countries.

Still, the achievements so far have not been up to the general expectations, be it in increasing the trade or in promoting joint ventures. In separate exclusive interviews with Business Age the heads of the diplomatic missions of these countries in Nepal explain the obstacles and opportunities as well as what they are trying to do.

In this connection, the problem commonly cited is lack of information among the businesspeople in Nepal and in these countries about opportunities available.

According to Narendra Kumar Basnyat, president of Nepal -USA Chamber of Commerce and industry (NUSACCI), one of the new things being specially emphasized this year by his chamber in the Himalayan Expo is going to be educational opportunity in USA while last year it was the

Nepal's Trade With US, UK & Germany

information about US customs and other trade related issues. "Thus our focus in this and earlier Himalayan Expos has been on information. We have been using this expo as one of the important media for information sharing," says Basnyat.

However, the problem with expos in Nepal is that the Nepali participants are still more concerned with achieving immediate sales than on using the event as an occasion to develop long-term business link. "Our effort has been to change this attitude, and with all the trials and tribulations we have gone through during the last one decade, we have succeeded to a great extent in our effort," says Birendra Rajkarnicar, MD of House of Rajkarnicar, organiser of this expo.

The effort seems to be appreciated as indicated by the fact that the country pavilions in the Expo are continued year after year. Besides US, UK and German pavilions, Himalayan Expo has pavilion hosted by National Small Industries Corporation (NSIC) of India and Nepal Export Mart a special section for Nepali export items. From this year, there also is a Chinese pavilion, which is being hosted by CM Sky International of China and Manjushree International of Nepal. China is another major trading partner of Nepal with which Nepal has a huge trade deficit.

Interview Questions for the German Ambassador:

The German Catalogue Show is a welcome means of informing the business community in this country on what Germany has to offer. Together with the Nepal-German Chamber of Commerce and Industry and the Private Sector Promotion Project of GTZ, to whom we are grateful for organising this show for the third time this year, we hope that it may lead to many new and mutually beneficial business contacts between our two countries.

German investments have not followed in the footsteps of its huge trade with Nepal. What is your comment?

Quite true, but this is to some degree related to the imbalance in our trade relations just described. For instance, the huge and rapid expansion of Nepali carpet and garment exports to Germany in the mid-nineties did not require any substantial investment from the German side. At the same time, the few successful examples of German-Nepali joint ventures have demonstrated that they can contribute substantially towards boosting and diversifying the Kingdom’s export potential. Let me mention here that Germany is offering a number of instruments through which the moblisation of venture capital can be facilitated. Likewise, the European Union has also developed initiatives in this field. Again, opportunities existing within the framework of programmes like the EU’s "Asia Invest" have hardly been tapped by the business community thus far. This may have to do with the general investment climate here, which is suffering under a number of especially unfavourable circumstances lately. Another factor is perhaps location: Although it has often been said that, in today’s age of global communications and e-commerce, truly land-locked countries do not exist any more, the fact remains that Nepal is a small country with a difficult infrastructure, positioned between two giant and dynamic economies that both attract huge amounts of foreign investment due to the sheer size and potential of their respective markets. Nepal still has to find its niche in this increasingly competitive environment.

Nepal's exports to Germany have been dependent heavily on a single item, woollen carpets. How do you see the prospects for product diversification in Nepal's exports to Germany?

I do see prospects for this, and to some extent such diversification is happening already. Think of garments as a related, yet different and recently quite dynamic export branch that registered sales worth more than 11 million US$ in Germany last year. Few people may know that Nepal’s exports of electronic parts to Germany exceed one million US$. By the way, this latter example also serves to illustrate the advantages of carefully planned and fine-tuned joint ventures not only in securing a new market niche in a highly advanced market such as Germany, but also in acquiring technical and managerial know-how through partnership. Let me also express the hope that the recent EU decision to do away with remaining customs and trade barriers vis-à-vis least developed countries including Nepal ("all-but-arms") may contribute towards a certainly desirable greater export diversification.

Given the experience of the important role played by small scale enterprise in the German economy, what is your suggestion to Nepal's small business sector as a way of learning from the German experience?

It is probably not so easy to transfer our model to another country with a totally different socio-economic framework. Even in Europe, the German "dual system" in skill formation and education of young workers is rather unique. This approach of conveying practical skills as well as the theoretical base has played an important role in shaping a strong small and medium scale business sector in Germany. It rests on the foundation of a general elementary school system that provides free basic education to every young member of society virtually without exception. Nepal with its high illiteracy rate is still far away from providing such a solid knowledge base. This certainly is one of the highest development priorities in the country.

On the other hand, it could also be argued that the small business sector in Nepal is already - next to agriculture - the mainstay of the economy, although on a much less sophisticated level than in Germany. One only has to drive and look around in the streets of Kathmandu to discover ample proof of the strength and ubiquity of thriving small businesses.

Germany was very active during the days of UNCTAD's prominence in promoting imports from the Third World. Today, Germany has even scrapped Pro-Trade, an institution dedicated to the promotion of imports from the LDCs. How committed is Germany today in promoting imports from LDCs as a way of providing opportunities through the "market" rather than just hand-outs?

For many years, government supported programmes such as the famous "Übersee Messe" (overseas trade fair), "Partners of Progress" in Berlin have allowed developing countries to introduce their export potential to the German market virtually free of charge. It has been a largely successful programme. Times change, however, and so do the appropriate methods of export promotion. The concept of general trade fairs has become largely outdated for the huge German market. We are organising specialised fairs instead that are more manageable and tailored to the specific demand of individual business sectors.

Likewise, the approach towards promoting LDC exports had to become more sector- or even product-specific. As far as Nepal is concerned, new products should be developed. Medicinal herbs, herbal teas, flower seeds and other agro-based products are only some of the potential export items that deserve attention. German cooperation is actively involved in these new fields. Take the considerable opportunities of tea production in Nepal: Together with the Nepal German Chamber (NGCCI) and actively supported by GTZ, we have just organised a three-day workshop on quality control and marketing for Nepal-grown orthodox tea of Ilam. This goes to show that we have not at all scrapped the promotion of LDC exports, but have become much more targeted in our approach.

Political instability, Maoist insurgency, corruption - all ingredients of a bad business environment in Nepal. How can Germany help?

Unfortunately, these are all negative factors that are hampering development through a vicious circle, since they are very much interrelated. Efforts to combat these ills have to be made first and foremost by the Nepalis themselves. Germany can help, though, by providing assistance in tackling the root causes: Poverty and underdevelopment foster frustration and favour recourse to extremism, including organised violence. Just a few weeks ago, a German delegation from our Ministry for Economic Cooperation and Development was here for government consultations during which we reiterated our staunch commitment to continued support for Nepal’s development efforts as one of the country's major foreign donors.

US Ambassador

Q. What do you advise the Nepali and US businesses participating in this year's Himalayan Expo in terms of existing Nepal-US trade and business relations?

I think they've made a great decision in taking part in the Expo. There is great potential for commercial relationships between Nepal and the US, and being here means they're in a good position to make the most of it.

Q. Nepal has not been able to attract significant US investment. Is it because Nepal's private sector has not been able to offer good proposals? What is your assessment?

American businesses have long seen the promise of investment in Nepal. From manufacturing and financial services, to hydropower and tourism-there is huge potential here. It's true that US investment in Nepal is not what it could be, but I don't think that's because of any problem in the private sector. Over the years, many American firms have seriously considered large-scale investments in Nepal. Most, for a variety of reasons, have eventually elected not to move forward with their plans. There are still plenty of American firms who are interested in being involved here. I think they just need to be certain that the investment climate is healthy, both in the short-and long-terms.

Q What is your comment on the impact of Kodak's misfortune? What is your comment on the role of FNCCI and the Government on this episode?

Kodak's experience has undoubtedly discouraged other foreign investors. If Nepal is to progress economically it must attract international capital, and it is important that the Government of Nepal create as encouraging an investment climate as possible.

Q The on-going political instability, Maoist insurgency, and corruption are all ingredients of a bad business environment in Nepal. How can the US help?

I believe that good governance and a stable democracy are essential for open markets and a healthy business climate. The US is committed to doing whatever we can to help Nepal's democracy flourish. We are working to raise awareness of the costs of corruption and ways to eliminate it. We continue to encourage all parties to work towards a peaceful, democratic resolution to the insurgency. Again, I see enormous commercial potential in Nepal and I think that once these problems are solved, you'll see a lot of American companies wanting to be here.

U.K

Q. What do you advise Nepali and British business participants in the fair in terms of Nepal-Britain trade and business?

We spend a great deal of our time trying to encourage British people to consider doing business in Nepal. What we say to them is, there are opportunities here and the people have to come along and look for themselves. We provide advice and guidance to the people. We encourage the people to find the longer term possibilities to do business in Nepal. One has to come to the market, look at the market and talk to the people in the market, and consider Nepal as the long-term option, not just as a quick time solution. We also, through particularly our very closer relation with Nepal-Britain Chamber of Commerce and Industry (NBCCI), take a very direct interest in trying to promote Nepali business in UK and we do that also through our relations with Britain-Nepal Chamber in London.

Q. How well informed are British investors about prospects in Nepal?

Not very much, quite honestly. Nepal has never been traditionally a very strong market for UK. One of the key factors in this is information. Therefore, one of the main things we try to do is to develop information availability within UK, and we try to do that as much as possible through new technology.

Q. Is there anything special being done through this Expo?

I think the Himalayan Expo is pulling a very large number of potential business decision makers into a single place at on time. Our experience with this Expo in the past shows that all the British exhibitors who have participated have been happy with the kind of visitors who have been coming to their stands. That means, right people are being attracted to Himalayan Expo.

Q. How satisfactory have been the recent efforts to promote British wool in Nepali carpets?

I think the things are very successful. We worked very closely with the Central Carpet Industry Association, the wool importers here and also with the British Wool Marketing Board in London. We had taken several samples of carpets to Harrogate fair. Now import of British wool is taking place and we are delighted about that. And now we are providing help of British designers through British Wool Marketing Board to design Nepali carpets especially for British market.

Q. We have learned that the efforts in Harrogate were not so successful. What were the reasons?

Harrogate fair is a very high profile fair and very competitive. You have to be very well focused. Ours was a first step on the road and Nepali carpet exporters were not aware of the realities of doing business in that kind of environment. So, it will be a struggle, but I think they will be successful.

Q. Education service is a significant export of UK. Is it possible to put a value to this export ? Would not it be helpful if the British visa was facilitated to accommodate more intake of students?

In terms of real figures, what I'm able to tell you is that between 1999 and 2000, the number of student visas issued to Nepalis rose from 300 to 600, which means that their number has doubled, and we're delighted at that. I think that also answers the rest of your question. Good students who are keen to go to UK for studies get visa.

Q. Maoist insurgency, corruption and political instability in Nepal together form the ingredients of bad environment for investment in Nepal. How can UK help?

I think it is an issue. There is no question about it. As far as a potential British investor is concerned, it is the question of stability in the country, because that will affect the quality of the investment. What we do here is that we work through NBCCI and the ministries here to promote industrial security. There have been, following some high level meetings in which we were involved, some major advances in this area.

According to Narendra Kumar Basnyat, president of Nepal –USA Chamber of Commerce and Industry (NUSACCI), one of the (new thing being specially emphasized this year in the Himalayan Expo is going to be educational opportunities in USA while last year it was the information about US customs and other trade related issues. "Thus our fours in this and earlier Himalayan Expos has been on information.

We have been using this expo as one of the important media for information sharing," says Basnyat.

However, the with expos is Nepal is that the problem Nepali participants are still more concerned with achieving immediate sales than on using the event as an occasion to develop Long-term business link. "Our effort has been to change this attitude, and with all the trials and tribulations we have gone through during the last one decade, we have succeeded to a great extent in our effort," says Birendra Rajkarnicar, MD of House of Rajkarnicar.

The effort seems to be appreciated as indicated by the fact that the country pavilions in the Expo are continued year after year. Besides US, UK and German pavilions, Himalayan Expo has pavilion hosted by National Small Industries Corporation (NSIC) of India and Nepal Export Mart a special section for Nepali export items. From this year, there also is a Chinese pavilion, which is being hosted by CM Sky International of China and Manjushree International of Nepal. China is another major trading partner of Nepal with which Nepal has a huge trade deficit.

By Madan Lamsal

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