Roots, perfume, herbal tea and cheese: Ground-up market development in Nepal

The debate continues across development studies about the centrality of economic growth as a driver for development understood in wider terms. But from inside Nepal, a country burdened by critical human underdevelopment, stunted by economic stagnation, and hindered by political deadlock, the view is clear enough: economic growth is the engine of development. And although optimal performance requires more than just a big engine, as the BBC’s Top Gear team will tell you, without it a country doesn’t even get moving.

Our understanding of the drivers of growth is still limited, and the application of what wisdom we do have to inform policy decisions is often difficult. After all, designing country-specific policy conducive to sustainable, and ideally inclusive, growth is no simple matter, nor should it be. ‘On the ground’ even benign decision-makers lack the information to foresee how best to manage the economy to achieve sustained growth. The advisors they turn to, while better informed by research, often lack a perspective contextualised enough to withstand the idiosyncrasies of country specificity. Furthermore, this analysis doesn’t even take into account the inevitability of politics in decision-making, and the technical constraints to research.

Notwithstanding the epistemological constraints, law, policy and intervention are being designed across the world to support and enhance economic growth in developing countries. The tools deployed are diverse: macro-economic policies encourage domestic and foreign investment and balance the cost of importing intermediate goods required as inputs in the economy with the relative prices of export-oriented producers; domestic laws and regulations are instituted that help enterprises and business get off the ground and prosper; government funds are directed to help industries overcome expensive hurdles to growth, from start-up costs and difficulties in coordinating within and across industries, to information-gathering activities.

All of these tools are controversial, for more reasons than can be enumerated here. For a few examples though, pro-growth macro-economic policies have in the past been accompanied with strong pressures to minimise the role of the state, leading to vast cuts in health and educational spending. Pro-business law and regulation make concessions in labour protection. And government intervention in industrial development, known as industrial policy, involves supporting some industries over others, and thus can lead to countries ‘betting on the wrong horse’. This results in a misallocation of resources, stunting rather than enabling growth. Industrial policy can also lead to corruption, where government officials support industries they have a political or private  interest in.

Nonetheless, all of these approaches are deployed in some form wherever economic growth is a priority (probably everywhere), with varying success.

Market-chain development is a practical, ground-up approach to industrial policy, often implemented by INGOs and NGOs in partnership with government ministries. In principle underdeveloped markets are encouraged to blossom by enabling a conducive policy, legal and regulatory environment  and by intervening to ensure that the services that support enterprise development are in place and properly functioning.

Effective market-chain development must balance industrial upgrading potential with market viability. Intervention planning must carefully choose potential markets for development that will self-sustain after the project cycle support is removed. In Nepal this means targeting agricultural markets, such as dairy products, forestry related markets, non-timber forest products (NTFPs) and medicinal and aromatic plants (MAPs) in particular, and the tourism sector. Not only are these the markets that are likely to survive once subsidy support is pulled, but they are the ones that will alleviate poverty directly. In a country where over 80% of the population is rural, and where poverty is strongly correlated to natural resource dependence in particular, market development support in these areas offers opportunities to provide new, sustainable income-generating activities for the poorest in Nepal.

This goes against the growing consensus that the markets that should be targeted are those where there is a potential over time to move into products that have a higher value, and therefore bring greater benefits to the economy. Traditionally these are deemed to be in the manufacturing and industrial sectors. Given Nepal’s infrastructure and international trade relations, this alternative is not currently viable however.

At the time of writing, Kathmandu faces 10 hours of electricity load-shedding a day. This is likely to rise until significant rains replenish the mountain lakes that drive Nepal’s hydro-electricity reliant power grid. This failure in the supply of a good that is used as an essential, and non-substitutable, input for so much of the economy creates a crippling bottleneck for manufacturing, industrial and service sector development. Poor transport infrastructure further compounds domestic and export difficulties – Nepal, being landlocked, has no ports, only one international runway, and few, poorly maintained roads.

Nepal’s free trade accord with SAARC countries floods it with cheap Indian goods, limiting domestic market development. Furthermore, low-value industry and manufacturing struggle to compete internationally without special support which competitors in Africa benefit from through the US African Growth and Opportunities Act (AGOA). At the beginning of 2005 the World Trade Organization’s Agreement on Textile and Clothing (ATC) came to an end, and the poorest countries, who had been exempt from the quota system and thus had preferential market access to the USA and other industrialised countries, were made to compete with less poor countries such as China. AGOA cushioned Africa’s situation but doubled the blow to poor Asian countries such as Nepal. Nepal’s readymade garment (RMG) exports to the USA, its biggest market, collapsed to one-tenth of its pre-2005 level in 5 years. Its RMG exports to India died similarly.

In contrast, markets in tea, coffee, essential oils, plant products used in fragrances and dairy products are underdeveloped domestically in Nepal, and have the potential to be competitive internationally. Furthermore, many of these products tap niche markets where demand is dependable and growing, and are thus somewhat protected from international price fluctuations.


Tags: , , , , , , , , , , ,

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: