Prospects for US Investment in Nepal’s Priority Exports

As Identified by NTIS 2010

Presentation by

Chandra Ghimire chandrakg64@yahoo.com

Ministry of Commerce and Supplies Government of Nepal

To the US Investors visiting Nepal

28th June, 2011, Kathmandu, Nepal

Contents

• Background (TIFA and Current Nepal)

• Status of US-Nepal trade and investment

• Priority export sectors in NTIS 2010

• Prospects for US investment in priority export sectors

• Why to invest in Nepal’s priority export sectors?

Backdrop of TIFA• Nepal-US historic trade and economic relations

were formally established by signing a ‘Friendship and Commerce Agreement' on 25th April 1947.

– A realization meanwhile grew to strengthen their trade and economic relations

• So, a Trade and Investment Framework Agreement (TIFA) was signed by the 2 countries on 15th April 2011 in Washington DC, USA.

• TIFA is expected to enhance trade, investment, and trade cooperation between the two countries and helps Nepal's economy to grow

Nepal's Trade with the US• The US has remained one of the leading trading

partners of Nepal since long.– The volume of export, however, declined from US$ 180

million in FY 1999/2000 to US$ 52 million in FY 2009/10.

– Share of the US in Nepal’s export declined from 27.6% in FY 1999/2000 to 6.35 % in FY 2009/10.

– Until 2001 export to the US moving upward but since 2002 downward largely due to MFA factor

– Despite all Nepal had a trade surplus of US$ 24 million with the US in 2009/10.

– Nepal’s major export items to the US include: • textile, floor coverings, woven apparel, knit apparel, precious

stones, and arts & antiques.

Status of Nepal's Trade against the US

Fiscal Year Total Exports of Nepal(US$ million)

Exports to the US(US$ million)

US share in Nepal’s total exports (%)

1999/00 652 180 27.6

2000/01 717 194 27.1

2001/02 614 121 19.8

2002/03 644 163 25.4

2003/04 730 131 18.0

2004/05 805 104 13.0

2005/06 823 124 15.1

2006/07 838 75 8.9

2007/08 899 62 6.9

2008/09 892 68 7.2

2009/10

Increasing Trend Decreasing Trend Decreasing Trend

818 52 6.3 %

Share of Top 5 Investor Countries in FDI (Upto FY 2066/67)

43%

11%9%

2%

8%

27% India

China

USA

Japan

S. Korea

Others

Current Nepal

• The country recently came out of a decade long conflict

and still in transition

• The infant republican democracy is due to deliver

economic prosperity as 'peace dividend' to its people

• To let economic transformation, Trade Policy 2009 and

Nepal Trade Integration Strategy 2010 are in-force

• The idea through the policy and the NTIS is to enrich its

comparative advantages with competitive advantages

which are potential in certain items

• National trade strategy to populate its 'export basket' by enhancing 'supply side capacity' of the country,

• Prioritized strategy launched by PM on 24 June 2010;

• 19 goods & services identified as comparative advantageous;

• Plus 5 other goods and services suggested to roll down;

• 10 potential destination markets identified for each item;

• 3-5 year period for implementation;

• Trade Mainstreaming a high agenda, i.e. in TYP (2010-2013), current FY's Budget and sectoral plans and policies

• National Institutional Mechanism in place, i.e. NSC, NIU, 5 TCs, DF and TTF in-plan

• By these all, 258 actions are in implementation so as to add competitive advantages with Nepal’s comparative advantages

What is the NTIS?

NTIS Priority Export Sectors

USA

USA

USA

USA

USA

USA

USA

USA

USA

USA

USA

USA

USA

India

China

China

India

India

India

China

China

China

China

India

China

India

India

Markets of the US for 13; China for 7; and India for 7 goods and services

Nepal is the largest producer whereas not imported by the US so far. Also, the US has a 32% of market growth

The US is the 4th largest importing country constituting 11.5% of global imports. Also, India is potential.

The US market is one of the huge, i.e. 1/5 of the global imports.

The US is one competing country, thus other markets are potential.

Nepal begun exporting to the US and seems to have growing potentials.

So far only India exported to, thus huge potential exporting to the rest others

The US is the largest importing country in the world. Seems to be growing Nepal's exports to it.

The US is the largest market whereas only US$ 85000 imported from Nepal

India one of the potential market available for us. The US uses Nepal's paper as raw materials. Also, it imports finished products from Nepal.

The US is the largest market with 1/3 share of the global imports.

India is the fastest growing market as 51% growth rate for Nepal's export.

The US is the 2nd largest (next to Japan) with 17% of the global market share. Also, China is the fastest growing market, grown by 51%.

The US is the largest importing country (1/4 share of the global market)

China is the largest student sending country followed by India. Nepal is in between, thus US institutes can come over Nepal to cater their as well as Nepal's educational needs.

Neighboring China and India are the 2nd and 3rd most attractive markets.

Why Invest in Nepal’s Priority Export Sector?

1. Product Factor:

• High socio-economic impacts

• Highly environment-friendly sectors, i.e. Pashmina, Cardamom,

Ginger, Honey (as through Bee-keeping) etc

• High chance for value addition as minimal VA so far there

• High rate of return expected in the priority sectors, e.g.

– hydropower sector (high demand but low supply at present). After

fulfilling domestic demand, surplus hydroelectricity can be exported to

neighboring Indian states that are facing power deficit.

Why Invest in Nepal’s Priority Export Sector?

2. Domestic Factor:

• Growing middle-class population with increasing purchasing power will demand more goods and services, e.g. agro and manufactured products as well as services like education, health, tourism,

electricity and IT services.

• An increasing number of world-class educated youths, e.g. HRs available for joint venture companies.

• Rising growth of remittances is triggering demand. To cater that, new ventures can flourish.

• Business-friendly environment expected after the political parties iron out differences and write a new constitution.

• Nepal Government is committed to fulfill the needs of investors e.g. infrastructure, human resources, security, etc.

Why Invest in Nepal’s Priority Export Sector?

3. Giant Neighbor factor:

• 2 rapidly growing emerging economies are at Nepal's door step, i.e.

China and India which are projected to be big economic power-houses

in the days ahead.

– China has already pushed back Japan.

– These economies continue to grow and people have rising purchasing

power, which offers huge markets for Nepal based companies.

– Nepal can sale transit facilities to India and China.

– Geographic and cultural proximity to China and India will lower

transportation and transaction cost, thus Nepal is a perfect choice.

• As wages in China and India continue to increase and their middle

class population is on rise, Nepal is a best place to cater their demand.

Why Invest in Nepal’s Priority Export Sector?

4. Other Factors:

• Duty free (0-tariff) market access available in India, China and many developed countries, e.g. EBA in EC and so on

• USA is the all time most potential export destination for most of the Nepal's priority export sectors

Thus, please grab the opportunity

Finally, I would say just 3 words just like President Barack Obama so said 1 day before his election campaign 'tomorrow', 'tomorrow' and 'tomorrow'... ...'investment’, ‘investment' and ‘investment' in Nepal

Thank you……….…….

…..for your kind attention!