Global Competitiveness of Nepali Economy

Narayan Manandhar

Governance expert

The post Jana Andolan II economic debate in Nepal is littered with astonishing concepts like leapfrog development, double-digit growth,10,000 MW hydro-power, next Switzerland with latest fad to attract FDI with a fan fare celebration Investment Year 2012. I am not sure whether a finance minister with a higher secondary education on law really does understand the concept of double digit growth and FDI. It may be a long, a long way to catch up with Switzerland, but definitely, it will be interesting to read what is coming out of Switzerland.

With the publication of Global Competitiveness Report 2012-13 by Davos based World Economic Forum (7 September), the global competitiveness index (GCI) for Nepal is now available for seven years starting from 2006-7 to 2012-13. Interesting, the publication of GCI for Nepal matches with its tryst with new political (dis)order.

GCI is a composite index comprising of 12 “pillars” contributing to make up three distinct competitive advantages of an economy. It basically seeks to understand whether an economy is (a) factor-driven, (b) efficiency-driven or (c) innovation-driven. The 12 pillars are further divided into 111 sub-indicators. The factors are scored in a scale from 1 to 7. With 5.72 score, Switzerland is at the top of the list of 144 countries of the world and Burundi, with 2.78 score is at the bottom. With GCI score of 3.49, Nepal is at 125^th position.

The numerical distance between Switzerland and Nepal looks like marginal difference of 2.23 (5.72 minus 3.49). Borrowing a phrase from our revolutionary PM, we have to leapfrog 124 countries that are ahead of us. When the point of destination is long, arduous and virtually unknown, it is much wiser to understand the point of starting. Where we are now and how we have we arrived to this situation? Again, our PM may be revolutionary, if one goes by the global data, our economy is moving not better than a snail’s pace. When first data set for Nepal was released in 2006, we scored 3.26. With the latest score of 3.49, the gain of 0.23 is marginal and that too achieved over a period of seven years (2006-12). Only excuse we can make is this never ending transition situation.

One can fairly imagine the number of years we need to cover a difference of 2.23 to catch up with Switzerland, that too, with an assumption that nothing happens with Switzerland, it stands still expecting us come and catch it up. Instead of absolute value, if one goes by the country ranking we had slipped down from 110^th position (out of 125 countries) in 2006-7 to 125^th position in 2012-13 (out of 144). The message is clear: in a global competitive race, our pace is not only slow others are jumping ahead of us with a higher, greater speed. This may be mind boggling message to Maoists’ economists who are adept in churning out phrases like “holistic vs. partial”, “absolute vs. relative” or “subjective vs. objective”. Let us further dig into the data.  

Prof. Michael Porter, a renowned figure in strategic management, is one of the chief architects of the Report. He speaks of competitive advantage, not comparative advantage, for economic development. As a country moves from a factor driven economy to efficiency driven to innovation driven, the source of country's competitive advantages change from a relative emphasis on inputs (factor driven) to processing (efficiency driven) to outputs (innovation driven). The WEF defines competitiveness as "the set of institutions, policies, and factors that determine the level of productivity of a country". The level of productivity, in turn, sets the sustainable level of prosperity that can be earned by an economy. More-competitive economies tend to produce higher levels of income and faster level of growth in medium to long run. Nepali economy is primarily a factor driven. With remittance money, the economy is primarily surviving on the export of labor.

This year, out of 111 sub-indicators that go into the making of GCI, the Nepal has a competitive advantage only in five sectors. This is shamefully low. The factors include (a) gross national saving (18^th ranking), (b) women in labor force (13^th ranking), (c) financing through local equity market (44^th ranking), (d) government budget balance (48^th ranking) and (e) total tax rate (41^st ranking). Last year, we had competitive advantage in four factors; the new additional factor is women in labor force. Obviously, more and more women are entering into our labor market. This is an interesting area to investigate: why more women are entering into labor market in Nepal? A number of factors may account for this – change in the definition of labor force, growing economic necessity, male outmigration, issue of women literacy, rights, freedom and, growing feminization of Nepali workforce. To the last category, much of Nepal’s productive sectors like garment, carpet, handicraft and processing industries are highly feminized. I have been surprised to find more than half of my students in management faculty, here in Kathmandu, composed of female students. Earlier, it used to be not more than five to ten percent. Obviously, sea change is taking place in the employment of women in Nepal.

If we have competitive advantage in five out of 111 sectors, what about competitive disadvantages? The list includes many. Going by the five bottom-most factors we end up with following list: (a) quality of electricity supply (143^rd out of 144), (b) extent of market dominance (140^th), (c) prevalence of foreign ownership (140^th), (d) cooperation in labor-employer relations (140^th) and (e) quality of scientific research (137^th). It is pathetic to see a country rich in hydro power to be at the bottom of the global ranking on quality of electricity supply. Electricity supply, market domination, FDI and scientific research may be outside our control, it is surprising to see how quality of labor-relations or labor-management relations is also at the bottom of the list.

The Global Competitiveness Report also includes opinion survey of Chief Executives asking them to rank five top most problematic factors from a given list for doing business in Nepal. The Chart depicts the results from the survey. The government instability/coup ranks at the top most problematic factor in Nepal (24 percent) followed by corruption (13%) and inefficient government bureaucracy (10%) and policy instability (10%). These four factors account for more than half of business problems in Nepal. Over the years there have been some shifts in rankings but these four factors have consistently remained to be the primary bottlenecks in doing business in Nepal. In a country where the government itself is the source of malady; it is pointless to expect it to play a role of a remedy.

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Comments

• Posted on - 2012-09-20    by     gaunle
• Minister in any govt does not run his ministry all alone and he does not have to be expert in all matters. There are consultants,advisors and on top of it his party cooligues.As far as Nepal is concerned we have no economy of our own,it is dependent on donor nations and other resources from outside. So no problem.Dr BRB the PM is all qualified in Finace-it is on his behalf that the FM works.