03Dec2022

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Tag: Regional Connectivity

OP-EDs and Columns

Connectivity via sub-regional cooperation

NISCHAL Dhungel, Non-Resident Fellow

The column originally appeared in The Kathmandu Post on 4 August 2022. Read the original article here.

The geostrategic positioning of Nepal offers a unique opportunity to participate in numerous regional projects. Before engaging in such projects, it is essential to understand where our strengths lie concerning our connectivity, and the reasons holding back our connectivity with South Asian countries. In this regard, improving connectivity through sub-regional cooperation such as the Bangladesh, Bhutan, India, and Nepal Motor Vehicles Agreement (BBIN MVA) plays a crucial role in pushing forward social and economic development among these South Asian countries.

Following the failure of the South Asian Association for Regional Cooperation (SAARC) to reach a consensus on a regional motor vehicle accord at the Kathmandu Summit in 2014, primarily due to resistance from Pakistan, the BBIN MVA connectivity project was proposed. The BBIN MVA seeks to build a road-based economic corridor linking Bangladesh, Bhutan, India and Nepal. Bhutan has not ratified the agreement but encouraged the other three to approve and engage in the pact. The BBIN MVA aims to promote the smooth movement of passengers, personal and vehicular cargo traffic within and between the BBIN countries.

Intraregional trade

With only 5 percent of the total trade in the region, intraregional trade in South Asia is among the lowest in the world. Significant challenges lie before implementing massive connectivity projects like the BBIN MVA. Traders usually have to visit more than 10 agencies for documentation clearances. The lack of accredited laboratories to certify export products often delays shipments by weeks. The lengthy border hold-ups add to the enormous trade costs among BBIN member nations. Regarding infrastructure gaps, congested borders, long and diversionary transport routes, and low quality roads increase trade cost and transit time which directly hampers the transport of goods and services. Besides these challenges, the development of inter-modal transhipment facilities, modern warehouse capacities, and gender-friendly infrastructure and trade and transit-related offices should be considered.

As Nepal is a landlocked mountainous nation with poor transportation infrastructure, improving road and railway connectivity is essential for the smooth flow of goods and services. Simplifying paperwork, advancing risk management practices to reduce physical checks, facilitating cross-border transit and modernising sanitary and phytosanitary measures will help streamline trade processes. To enable importers and exporters to submit their paperwork electronically, the World Bank assists Bangladesh and Nepal in building single electronic gateways. These National Single Windows which are anticipated to decrease clearing times require strong implementation support. Upgradation of the roads connecting integrated check posts and inland container depots will help smoothen large volumes of cross-border trade.

Hence, modernising infrastructure and integrated border points, developing and upgrading cross-border and internal roads, and increasing multi-modal transport networks, including road and railways, helps to bridge the infrastructure gaps. Also, local concepts such as border “haat” practised at the India-Bangladesh and India-Myanmar border points should be adopted on the India-Nepal border to provide economic opportunities to small entrepreneurs and women traders.

Looking at the composition of transport connectivity in Nepal, 90 percent of goods and passenger transport services take place via road, 8 percent by air and 2 percent by rail, rope and others. Nepal should prioritise high-quality road infrastructure to increase connectivity in the short term. At present, the upgradation of the east-west highway, which connects significant land ports (Birgunj, Biratnagar and Bhairahawa) is crucial for transport connectivity. High quality road infrastructure could be initially expensive. However, investing in such massive projects is worthwhile in the long term. Several studies in high-, middle- and low-income countries show a positive relationship between transport infrastructure and economic development. Therefore, transport infrastructure becomes extremely important as it is the primary driver of economic growth. Nepal can tap into two huge markets—China and India—if she can develop advanced road and railway systems.

South and Southeast Asia

The Greater Mekong Sub-Region (GMS) in Southeast Asia and the BBIN MVA in South Asia operate under a similar model (project-based). The GMS comprises six countries and is regarded as a successful development story. The GMS countries share the Mekong River in implementing high priority projects to facilitate doing business, accessing markets and engaging in other activities that comprehensively support trade and development in addition to developing infrastructure. Similarly, the BBIN countries can follow in the footsteps of the GMS by leveraging their economic corridors and concentrating on priority sectors to foster regional harmony and integration by cementing strong ties between their peoples.

A recent World Bank report entitled Deepening Linkages between South Asia and Southeast Asia examines new strategies for reviving trade and economic ties between the two regions, concentrating on sectors including digital systems, environmental goods and services. The gross domestic product (GDP) gains would be significant, amounting to about 17.6 percent for South Asia and 15.7 percent for Southeast Asia. Nepal will benefit from such regional South Asia and Southeast Asia cooperation by engaging in high priority projects.

Nepal confronts significant economic development obstacles due to electricity supply. Recently, there has been some positive developments. Nepal and Bangladesh intend to hold meetings about bilateral power trade and Bangladeshi investment in Nepal’s hydropower industry. The positive side of the bilateral power trade is that Nepal can buy power from Bangladesh during the winter and sell its power dominance during the rainy season. This increases the prospect of improving energy trade not only with India but also with Bangladesh. In this regard, The Millennium Challenge Cooperation (MCC) Nepal Compact ushers in a new era in United States-Nepal Partnership, which aims to improve road quality, increase the availability and reliability of electricity, and facilitate cross-border electricity trade between Nepal and India.

The MCC Nepal Compact and bilateral power trade with Bangladesh will be an opportunity for Nepal to improve its connectivity and engage in power trade with India and Bangladesh respectively. Nepal can also benefit from new railway connectivity with another neighbouring country China. The feasibility study for the proposed Kerung-Kathmandu railway project would significantly boost the development of a “cross-Himalayan connectivity network” using transportation, ports for trade, roads and telecommunication. While implementing projects like the BBIN MVA, Nepal should be free from political ties and act in the country’s best interests. Swift implementation of high priority connectivity projects should be first on the agenda, bringing considerable macro economic benefits not limited to generating thousands of jobs for the Nepali people.

Research Commentaries

NRC0004 – Framing Nepal’s relations with China and India: balance or diversify?

Framing Nepal’s relations with China and India: balance or diversify?

Santosh Sharma Poudel

Synopsis

Scholars and political leaders, be it within or out of the government, have used various terms to describe the policies Nepal should adopt vis-à-vis China and India. From the evergreen ‘balance’ to short-lived ‘equi-distance’ to now buzz word ‘equi-proximity’ have been put forth. In essence, all these words convey that Nepal should maintain equal relations with both our giant neighbors. This commentary explains why these concepts (about balance) are problematic and Nepal needs a new ‘frame’ to describe our relations with China and India.

Balance: What do we mean?

In the context of Nepali foreign policy, ‘balance’ is a term that is most frequently used by decision-makers, academicians, journalists and the general public. I once talked to a former Prime Minister and asked him about his views on Nepal’s relations with China and India. His brief response was – “China and India are major powers. We need to have balanced relations with both”. It is so commonly used that many do not even feel the need to explain the term. The need for balance is pronounced even more after the India-imposed blockade along the Southern border in 2015. However, what do they refer to by ‘balance’?

First, most Nepali understand ‘balance’ at a strategic level. They feel that India has undue influence in Nepal and frequently applies bullying tactics to meet its interests. India has extensive access/influence over major political, business, security stakeholders, including academicians. To those, ‘balance’ means seeking the help of another big neighbor, China, as a counterweight to ‘excessive’ Indian influence. In doing so, it will increase the leverage of Nepalese domestic actors and hence reduce Indian high-handedness. This is ironic at best and counterproductive at the worst. Inviting a third country to ‘intervene’ to lower interference from another country simply leads to higher, not lower, interference cumulatively.

Second, ‘balance’ typically refers to a trading relationship. The ratio of Nepal’s export to import is 1:14.8 in the first 11 months of the fiscal year 2075/76. This means, for every dollar of export, we import 15 USD worth of goods. The vast proportion of such trade imbalance is with India. During this period, Nepal exported goods worth NPR 56.59 billion to India and imported goods worth NPR. 841.7 billion. While the export-import ratio is the same [it’s primarily because Nepal’s trade with India accounted for 65%]. It is the absolute amount of trade deficit that is concerning to many Nepalese. Many Nepali understand, and correctly, that this over-dependence on India provides enabling environment for extensive Indian influence. Hence, trade with other countries, especially China, should be increased to reduce such over-dependence. A similar case can be made for investment (China has become the largest investor in Nepal in recent years) or aid. However, the irony is that Nepal’s export-import ratio with China is 1:95. Hence, increased trade with China has furthered the trade deficit, not created ‘balance’.

Third, and related to the second, is ‘balance’ in terms of Nepal’s connectivity. Given the geographic location of Nepal, as of now, our access to the rest of the world is mostly through India and Indian ports. Therefore, India virtually has a monopoly over Nepal’s connectivity and supply of petroleum products. Hence, opening trading and connectivity links though China is understood as a ‘balance’. This intensified after the 2015 Indian blockade and resulted in multiple agreements of trade, transit, and connectivity between Nepal and China. In saying that, the connectivity with China will not come cheap.

Is Balance Possible?

The relation between any two countries is guided by the interests of the thus involved countries. Therefore, the relation between any two pairs of the country is never the same. Nepal has its dynamics concerning India and China.

Geographically, the Southern neighbor is easily accessible. Even the infrastructure along the Southern border is better than along the Himalayas. In line with geography, the population of Nepal is also concentrated along the Southern plain. Culturally, India and Nepal largely share the same civilizational roots, religion, linguistic origins, and social values. Nepal has a ‘roti-beti’ [bread and marriage] relations with India. The close socio-cultural ties along with open-border mean the movement of people across the border is thick. Varanasi was/is a major educational/religious center for the Nepalis and so is Pashupatinath and others for Indians.

Even in economic terms, Nepal trades five times more with India than with China. If we include the trade via India as well, the ratio will be even higher. Hundreds of thousands of Nepali workers migrate to India for work and education. A similar number of Indians enter Nepal for work and investment opportunities. A significant proportion of Nepalis can speak or understand Hindi/Bhojpuri and watch Indian TV channels.

Even in technical terms, Nepal’s resources are too limited to engage in a ‘balancing’ game or make any major impact on the overall balance of power in the region. Neither is our diplomatic practices sophisticated enough to handle the risks associated with having to balance the two powers.

Or desirable?

Both China and India have their interests in Nepal and Nepal has different interests in engaging with the two neighbors. Nepal should engage with them based on the actual premise of the relations, and not compare one to the other. When we frame our foreign policy as ‘balance’, we are weighing the importance/influence of those two countries. The interests of those two powers are different; the socio-cultural, economic, strategic context of Nepal’s relations with the two powers is different. Then, why should we put the relations between those two neighbors on the same scale and try to ‘balance’ them out?

Also, it is equally important in diplomacy how the other partner understands the policy or framing. India is wary of increasing Chinese presence/influence in the South Asian Region. In such a context, India likely understands Nepali ‘balance’ as an attempt to tilt away from India towards China. Hence, it is likely to resist such policies using every means available. This will provide fuel to further skepticism of Nepalis among Indian policy-makers. Increase in distrust with a major partner is not something that is in Nepal’s interest.

Diversification, not balance!

While balance may not be possible or desirable, all three understandings of ‘balance’ are relevant. Nepal cannot simply be passive and accept Indian domination as a ‘revenge of geography’. The common point in all three understandings of ‘balance’ is the need for diversification: diversify engagement of neighbors (and other major powers), trade/aid/investment or connectivity. They are not about reducing/increasing the influence of one neighbor vis-à-vis another but not being over-dependent on anyone so that Nepal retains diplomatic independence as required by the constitution of Nepal. Today, we have trade over-dependence on India. Soon, we might have investment over-dependence on China. Neither of them is healthy for Nepalese diplomacy even though some might suggest that creates balance between China and India.

Unlike in ‘balancing’, which is a zero-sum game, Nepal need not work towards reducing the role or significance of one neighbor against the other if it follows ‘diversification’. Instead, it can improve its trade and strategic relations with other members, as diversification is not a zero-sum game, while keeping the relations with others at the same level.

‘Balancing’ is a term loaded with strategic (and military) connotation, meaning chances of mistrust are higher. Meanwhile, ‘diversification’ has an economic connotation where cooperation is easier to achieve compared to strategic issues. Also, the ‘diversification’ is less threatening to the interest of dominant power than ‘balancing’. This could make India less skeptical about Nepalese intentions. While both may not have major differences in policies, the impact of the change in framing could make it easier for the implementation of the policy and therefore the impact of such framing should not be underestimated.

References
  1. Investment Promotion Board (2019), Reports, retrieved from: http://www.ibn.gov.np/
  2. Ministry of Finance (2019), Development Cooperation Report, retrieved from: https://mof.gov.np/uploads/document/file/20171231154547.pdf
  3. Ministry of Foreign Affairs (2019), Publications, retrieved from: https://mofa.gov.np/media-centre/publications/
  4. Ministry of Health and Population (2019), The Constitution of Nepal, retrieved from: https://www.mohp.gov.np/downloads/Constitution%20of%20Nepal%202072_full_english.pdf
  5. Ministry of Industry, Commerce and Supplies (2019), Transit Treaties Agreements of Nepal, retrieved from: https://www.moc.gov.np/downloadfile/Compendium%20of%20Transit%20Treaties%20and%20Agreements%20of%20Nepal%20Since%201950_1546239430.pdf
  6. The Kathmandu Post (20th August 2018), Kathmandu-Kerung Railway: Project to cost Rs. 257 bn, retrieved from: https://kathmandupost.com/national/2018/08/20/project-to-cost-rs257-billion
  7. Trade and Export Promotion Center (2019), Foreign Trade Balance of Nepal, retrieved from: https://www.tepc.gov.np/projects/tepc/assets/upload/fck_upload/First%20Eleven%20Months%202075_76_tables.pdf