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Despite the landlocked position and large tract of rugged terrain, Nepal has the locational advantage of being nestled between two highly populated countries of the world. China and India are the two biggest economies and regional powers with a combined population of 2.7 billion. The next door neighbour, Bangladesh, with a population of 160 million, ranks 8th in the list of countries with the highest population. The three countries together represent 37 percent of the global population and 18 percent of the world GDP. The major markets of India and Bangladesh are within a radius of 2,000 kilometres from Nepal, while the market of China is in the range of 2,000-3,000 kilometres from Nepal's borders.

With the development of modern fleets of transport and logistics services, these distances are not considered to be a hindrance to conducting international trade. Physical movement of goods may take a considerable amount of time in destination delivery but the movement of both goods and services is now greatly facilitated by the modernisation of logistics services backed by the application of information and communication technologies. Indeed, the world now more than ever, is providing common platforms for all humankind with shared ideas, information, challenges and destiny. This is testified in the collective fight against the upsurge of Covid-19 in a bid to alleviate people from the excruciating sufferings of the pandemic.

Continental South Asia is rich in culture, heritage, and natural resources including water, waterbodies, forests, mines, and minerals and represents a large geographical diversity. India and Bangladesh are emerging as big manufacturing hubs of Asia after China. The prospects of economic cooperation and integration are high in the region and the South Asian leaders' dream to achieve this through the South Asian Association for Regional Cooperation (SAARC) started during the mid-80s. However, SAARC has stalled over the last few years due to political rivalry between India and Pakistan. Alternatively, a new form of sub-regional cooperation is being espoused within the BBIN (Bangladesh, Bhutan, India and Nepal) framework which has initiated cooperation in connectivity, with the signing of a quadrilateral motor vehicle agreement in 2015.

Nepal's geographical position between India and China provides unique opportunities for the country to become a land bridge between these two big neighbours. The Treaty of Transit concluded with India and the Transit Transport Agreement with China have obligated Nepal to provide transit services through each other's territory on a reciprocal basis. Based on this concept, the political bosses of Nepal on many occasions have reiterated the idea of the country becoming land-linked from a land-locked one. The big question is, whether we are doing the right things to make it happen sooner than later?

The critical part in the realisation of this concept is the development of physical infrastructure in the form of roads, railways and even inland waterways. The development of these modes of transport is being discussed at the sub-regional and bilateral forum among BBIN partners. Bilateral cooperation between India and Bangladesh is gaining traction for the establishment of better connectivity between the north eastern states of India and the rest of India through the territory of Bangladesh. The conclusion of a coastal shipping agreement and the opening up of various protocol routes for inland waterways have added a new dimension to the issue of better connectivity between India and Bangladesh.

Similarly, a joint statement issued in New Delhi during the visit of the Nepali Prime Minister to India in April 2018 opened up ways to use the riverine terminals at Kalughat and Sahebgunj for the movement of transit traffic to and from Nepal. This is supposed to open a new vista in transit transport services of Nepal thereby enabling multimodal connectivity and reducing transportation costs. But it warrants a word of caution, since this can be realised only by crafting a workable protocol, which is still awaited.

One of the major hurdles in improving economic and trade relations with China is the lack of transport infrastructure. Out of the six cross-border corridors designated for trade, only two (one at Tatopani and another in Rasuwagadhi) are connected by roads. The other four border posts do not have transport connectivity and are reachable only by mule or pedestrian trails. The construction of roads to connect these border posts is ongoing but moving at a very slow pace. Transaction in the border posts of Tatopani and Rasuwagadhi has become irregular and frequently faced obstructions after the outbreak of Covid-19.

In the given situation, the government of Nepal should accelerate the process of developing north-south transport corridors that will not only help to link the Terai community with highlanders, promoting the cause of national unity, but also provide a strong basis for the country to serve as a land bridge between its two big neighbours. With the development of appropriate infrastructure and an operation modality in place, Nepal could be a conduit for linking the rest of South Asia with China and further north with central Asian countries. Thus, the countries should work together with a holistic vision of global economic integration from the miniature of bilateral cooperation.

Trade data over the past several years shows that Nepal’s trade has not been able to keep pace with the progress made by the neighbouring countries. The trade gap is widening due to stagnation in production and exports and a colossal increase in imports to meet the rising demand. Besides the issue of connectivity, there are a plethora of non-tariff barriers impeding the access of Nepali goods to the neighbouring country markets. Cooperation on maintaining plant and animal health, food safety, product standards and mutual recognition of test and certification has been discussed many times but remains unsettled. Transparent work cultures, simplification of trade processes and increased coordination and collaboration between governments, private sector service providers and businesses work as bastions in addressing the concurrent problems of trade and investment.  

Nepal demonstrates poor value chain linkages in the production network of the neighbouring countries. Abundance of cheap labour, growing number of IT professionals, availability of water resources and hydro energy are factors that can help establish linkages of Nepali firms with the production units of the neighbouring countries. High value agriculture and forest products are regarded as being products that hold comparative as well as competitive advantages for the country.  These products can move higher up the value chain with the application of manufacturing. Nepali garment manufacturers could be linked with the production network of Bangladeshi manufacturers while the energy intensive industries could be linked with big manufacturing units in India. Nepali IT professionals could be linked with the IT companies in Bengaluru or Shanghai in providing subsidiary services to big companies.

Another potential area for harnessing the potential that lies in the neighbouring countries is in the sector of tourism. During 2019, out of the total tourist arrivals of 1.17 million in Nepal, the highest number of tourists were from India (209,611), followed by China (169,543). This number in absolute terms is still small but there is potential to increase this number while the prospects of receiving visitors from Bangladesh is also high. Bangladesh is making economic progress at breakneck speed and tourist outflow from the country is increasing every year. Nepal should seize this opportunity.

Last, but not least, Nepal should be mindful of the inflow of foreign direct investment into the country. According to a UNCTAD report published last year, the volume of FDI in Nepal was one of the lowest in South Asia, just above Bhutan and Afghanistan. The outflow of investment from China in 2019 was USD 117 billion, second to Japan. Indian investment outflow was USD 12 billion while total inward investment in Nepal was merely USD 185 million in that particular year. Measures for increasing investment, particularly from the neighbouring countries, should receive priority in the government's economic development agenda.

The whole paradigm of economic cooperation squarely falls on the major policy guidelines of the country. Foreign trade, investment, labour, competition and privatisation policies are considered fulcrums when it comes to attracting investment and making inroads to export markets. Above all, the foreign policy of the government is the determining factor in making a deal on international trade and investment. A pragmatic and effective economic diplomacy must always be at the helm in order to pursue the interests of the country in the neighbourhood and beyond.

(Ojha is former Secretary of Commerce of Nepal Government.)

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