This article was originally published in The Kathmandu Post on 14 Jan 2015.
Lower cost of trade would encourage people do to business through official channels.
In light of the economic blockade faced by the country, trading across border has become a major topic for discussion among the Nepali people. However, even without the blockade, doing business across border is difficult in Nepal. In a recently released report by the World Bank titled ‘Doing Business 2016: Measuring Regulatory Quality and Efficiency’, Nepal ranked 99 out of 189 countries for ease of doing business. This, coupled with its poor performance in trading across border, shows that it is challenging for Nepali entrepreneurs to do business internationally, regardless of the economic blockade. The border and document compliance costs are high, ample amount of time is wasted at ports, and in contrast to other countries, Nepal’s performance is very poor.
Amidst the current embargo, it is taking many days for the shipments to reach their destination, while a lot of them are stuck at the border for months now. But even before India’s unofficial blockade, one can argue that on-time delivery of shipments was not our strong suit. Ideally, to fulfil all the border compliances, it takes 60 hours for exports and only 30 hours for imports. These compliances include obtaining, preparing and submitting documents during port or border handling, customs clearance and inspection procedures. A number of factors contribute to this delay, but especially for goods that are being exported, one of the reasons is the non-accreditation of the Nepal Bureau of Standards and Metrology (NBSM) approved tests by the Bureau of Indian Standards (BIS). This obstacle has led to increased time and cost, as samples have to be sent to labs abroad for approval. If the Indian side, regardless of the present blockade, has not been accrediting our tests, then NBSM should improve its standardised tests to meet Indian standards.
The goodwill of any business largely depends on its ability to deliver goods on time. The government obviously would want to promote exports, but the existing strenuous domestic compliances on exports, that do nothing but delay the delivery, is unreasonable. Ten different documents are obligatory for international trade in Nepal, while other countries such as Serbia, Botswana, Japan, two of which are landlocked countries, require much less. Also, it is no surprise that to comply with all the documents required for trade, it takes 19 hours for exports and 48 hours for imports (as per the latest Doing Business report), probably owing to the lack of clarity in roles and responsibilities among ministries, departments and implementing agencies.
Other countries that export at a larger volume or have more variety of trading products have lower compliance costs. For instance, compliance costs in Sweden and Netherlands are only $55 and $0 respectively. One cannot expect Nepal to be at a par with them, but the current cost of almost $311 for exports from Nepal is huge.
Being a landlocked country, Nepal relies heavily on imports. If the required volume of essential commodities does not reach the country for some reason, shortages loom and prices rise. Also, when the cost of doing business through official channels is high, it is likely that unofficial channels would be used, which boosts the underground economy, or black marketeering. Lower cost of trade would encourage people do to business through official channels.
One might argue that even if the government makes favourable policies for international trade, Nepal, being a landlocked country, does not have access to sea. Nor does it have railway systems or efficient airports. And thus, its performance gets adversely affected. But other landlocked countries such as Serbia, Bhutan and Czech Republic fare better than Nepal. Bhutan, for instance has a similar transport system as Nepal. It has one international airport, no railway system, and international trade takes place via road, just like in Nepal. However, in these countries, border compliances are more lenient and only four documents need to be submitted which takes far less time than in Nepal.
The quantitative indicators, as presented in the Doing Business report, reflect how a country performs in ten different components. Our performance in trading across borders shows that, regardless of the current embargo, there are some policy loopholes that need to be addressed. First, redundant documents required for international trade can be removed or combined if possible. Also, a one-window policy for some, if not all, documents would reduce the time and effort taken for document compliance.
In addition, an integrated database system, interlinked between ministries, departments and related agencies can also be a viable option to improve coordination. The costs incurred during trading across borders need to be re-evaluated. This would make trade cheaper and encourage businesses to expand. In addition, creating mechanisms that aid in reducing border compliance time would make trade more professional. Policies that incentivise businesses in delivering their products on time would smoothen and boost trade across borders. There are landlocked countries that have strong economies and are competitive in the world market; if they can do it so can we!