A new approach in logistics is required to face the grave threat posed by the viral contagion.
--BY RAVI SHANKER SAINJU
The escalation of the coronavirus (COVID-19) pandemic has created unprecedented levels of strain in international trade and commerce causing disruptions in the global supply chain that hasn’t been seen post-World War II. Governments across the world are sealing off their land, air and maritime borders in an attempt to stop the spread of the deadly pathogen in their countries. A country like Nepal which has long relied on its neighbours India and China for trade and commerce now finds itself in between a rock and a hard place with the abrupt halt in cross-border movement. This is having a massive impact be it in manufacturing, service sector or agriculture. From pharmaceutical companies to producers of fast-moving consumer goods (FMCG) and other daily essentials, all are reeling with shortages of raw materials and equipment for production.
It is up to us to transform the unprecedented challenge caused by the pandemic into opportunities. For instance, when I talked to owners of some pharmaceutical companies about the difficulties they are facing importing medicines and raw materials of different pharma products, they told me that Chinese exporters are ready to send the molecules if shipments to Nepal are allowed. Here the government needs to work to find ways to enable Nepali producers to import molecules and other raw materials of life saving pharmaceutical products. As India has temporarily halted export of several types of medicines to other countries, Nepali pharmaceutical producers can work to replace Indian medicines from the Nepali market; they need to manufacture drugs, the quality of which should be on par with the medicines produced in India. Doing this will ultimately help us to boost the productivity of the Nepali pharmaceutical industry.
We need to be very careful about moving ahead with the post-pandemic economic recovery. The time has come for us to adopt the right set of policies and execution process for transforming our economy from import-based to export-centric. Equal emphasis should also be given to boost our internal trade as well. Presently, it is much easier for consumers of western parts of Nepal to buy agro products such as tea, fruits and vegetables and manufactured goods produced in India than to access such items produced in eastern parts of the country.
Our weak internal distribution system significantly increases the cost of transporting goods from one part of the nation to another. Enhancing our logistics capacity by strengthening existing infrastructure and creating new ones is necessary in this respect. This will hugely expand the market of domestic producers and will be pivotal in the commercialisation of agriculture in Nepal which has not moved beyond subsistence-oriented activity. Lowering the costs associated with production is important to develop economic sectors.
In this regard, there are lessons to be learned from Bangladesh which is now an exporter of food moving past its image of a food deficient country till 2005. The South Asian country which used to import agro produces such as rice and potatoes from Nepal in the past now exports such products to us. Their remarkable achievement in the agriculture sector is basically due to their focus on removing constraints in the internal supply system.
As an effect of the current uncertainty created by the coronavirus pandemic, our existing supply system has become overwhelmed as people started panic buying, hoarding food and daily essentials. This situation clearly points to the deficiencies in our distribution system. There is a need to formulate effective policies related to warehousing and the supply chain system. The engagement of the private sector is very much essential in this regard as they are the ones who produce and supply goods and manage the logistics. The policies in warehousing and supply chain management should be facilitative rather than regulative. Besides, building the required infrastructure such as roads and facilities in warehousing and cold storage should be another focus.
We are yet to get a clear picture of the extent of the effects of the pandemic to our trade and commerce. Actually, the current situation is a trade-off between public health and the country’s economy. The government, which is more centered towards protecting the health of the citizens, is yet to work seriously for the economic revival. However, it can be said that the impacts will be enormous looking at the initial estimates. Every major part of our economy from the inflow of remittance to domestic consumption and production, is likely to take major hits from the ongoing global health emergency. Besides, developmental activities will also slow down drastically and as a result the government’s capital expenditure will become sluggish further. BFIs are also likely to be affected with the slowdown in the country’s economic momentum. The steepest decline is in travel due to restrictions placed internationally to stop the spread of the deadly virus which has hit hard our airlines, travel and hospitality industries where huge investments have been made in the recent years; the businesses are struggling for their existence at the moment. All we can try to do is to mitigate the immediate risks to the economy and then focus our efforts to place effective safeguards for the long-term. Looking at the actions taken by the government, it seems that officials are in a state of confusion due to the lack of fallback plans to face a circumstance like this. It is an irony in that we did not learn much about managing logistics and the supply chain even after the unfortunate events of the earthquake and economic blockade in 2015.
To ease the enormous pressure on the distribution system in the country, the authorities concerned need to have all the statistics related to production and supply of goods. It will make things clearer about the market availability of daily essentials thus avoiding the havoc that can arise among citizens due to the lack of clarity in the situation. The government needs to ensure that necessary items are well-stocked and are distributed across the country adequately.
There are several areas of long-term focus to enhance Nepal’s international trade so as to boost the country’s industrial productivity. When I was in the Ministry of Commerce, opening of third country cargoes of raw materials directly via India was proposed. We had reached an understanding among ourselves that three types of goods- industrial raw materials, industrial spare parts and lifesaving drugs - should be opened in the first phase. India had also said that it is ready to agree on the modality of non-reciprocity. But the nationalistic tendency in our political leadership and bureaucracy did not view the Indian proposal as benefitting to Nepal. People in the government failed to understand that our benefit lies in becoming competitive by boosting industrial productivity if we can directly source raw materials from India which the country imports from third countries.
At present, Nepali importers are paying relatively higher costs in importing raw materials from India. It is because the raw materials, that India itself imports from other countries, arrive here with added value (at least in paper). It is costlier for a country like Nepal to directly import raw materials and industrial spare parts from third countries given our low carrying capacity. It will be much more economically beneficial if we can directly import such items from India which the country imports from other countries in large quantities.
At an estimated 30 percent, the cost of logistics in Nepal is much higher compared to the two neighbours. In India, it is 13 percent and the government there has announced to lower it to 10 percent in the budget for the current fiscal year. Similarly, China has lowered the logistics cost to 8.5 percent which was 15-16 percent a couple of years ago. Logistics cost has multiplier effects in any economy. The higher cost of production and low level of competitiveness of domestically produced goods are basically attributed to such costs.
Crises like the current pandemic have very high social and economic tolls. Nonetheless, such unfortunate events also offer people valuable lessons to change the way they think and work to face challenges in the future. It is certain that Nepal won’t be left unscathed by the ongoing global health emergency. We now need to look at an important area of the economy like supply chain management with a different perspective if we are to face the current and future challenges.
Sainju is former Joint Secretary at Ministry of Industry, Commerce and Supplies.