Nepal punishing e-commerce
The Covid-19 lockdown has broken seamless global supply chains. Producers, distributors, retailers, and consumers are all trying to figure out new ways of delivering essential goods so that people can survive. American consumers alone spent $347.26 billion online with retailers in the second quarter of 2020, which is 30.1 percent up compared to the same period last year. E-commerce in Pakistan started in early 2000 but just three percent of population was buying online, which during the pandemic has increased by 10 percent. Covid-19 has had a significant impact on global e-commerce and sales are expected to reach $6.5 trillion by 2023, from an estimated $3.46 trillion in 2019. Consumers spent $2.93 trillion online in 2018. But in Nepal the government is arresting suppliers and delivery personnel of online businesses.
Africa’s booming e-commerce relies on one of the most digitally connected populations on the planet, with 400 million active internet users. There, consumers from remote areas rely on e-commerce to save time and money while purchasing goods. The ASEAN countries have already marched ahead in e-commerce with an emphasis on data connectivity, logistics to facilitate the free flow of goods and services, connectivity to facilitate cash flows, and seamless links between the physical and cyber space. Online sales account for 15 percent of retail sales in China and 14 percent globally. Nepal is clearly on the wrong track.
E-commerce is the future path. But it is full of regulatory complexities with issues related to data privacy, consumer protection, delivery, cyber security, market access regulation, and digital payment. Any country that wants to walk on this path should do some serious homework to address these challenges. Shutting down entire industry without such homework harms the economy and blocks the path of progress. Moreover, it has direct consequence on people’s lives in this time of pandemic. People have been locked in, with ever-increasing fear of contracting the dreaded virus. This could be the perfect time for an e-commerce boom.
E-commerce is not limited to serving domestic consumers. It is also being considered as a platform to better integrate regional trade. The World Bank, in its flagship report in December 2019, says e-commerce can boost a range of economic indicators across South Asia, from entrepreneurship and job growth, to higher gross domestic product (GDP), to overall productivity. The report’s lead economist and co-author Sanjay Kathuria claims that by unleashing its online trade potential South Asia can better integrate into international value chains, increase market access, and strengthen commercial links among countries across the region. These words echo louder in this pandemic as the brick-and-mortar businesses are being shaken to their core.
In Nepal, there are no laws to govern e-commerce while other countries have moved much further in regulating it. In 1996, a Model Law on E-commerce (MLEC) was adopted by United Nations Commission on International Trade and Law (UNCITRAL). The objective was to bring a uniform e-commerce international law and to increase electronic transactions to bring them on par with paper-based transactions. India, a UNCITRAL signatory, has established a new regulatory regime for e-commerce businesses by endorsing a slew of laws. As per the new Consumer Protection (E-commerce) Rules 2020 of Indian Federal Government, it is compulsory for e-retailers to display critical details of all their goods.
Nepal’s is a unique case as there is neither a roadmap to enhancing e-commerce nor a foundation for it. State bureaucracy and police forces are acting as if e-commerce is a criminal activity. But despite the state bullying, e-commerce businesses in Nepal are mushrooming. Hence there is an urgent need to establish an effective regulatory mechanism to strengthen the e-commerce legal framework. This should be done to save people’s time, money and, most importantly, their lives in these dangerous times.
Nepal Govt. reads e-commerce as criminals
The covid-19 lockdown has broken the seamless global supply chains. Producers, distributors, retailers, and consumers all have been trying to figure out new ways of delivering essential goods so that people can survive. American consumers alone spent $347.26 billion online with retailers, which is 30.1 percent up compared to the same period last year. E-commerce in Pakistan started in early 2000 but just three percent of population was buying online, which, now with the pandemic, has increased by 10 percent. Covid-19 has had a significant impact in e-commerce and sales are expected to reach $6.5 trillion by 2023, from an estimated $3.46 trillion in 2019. Consumers spent $2.93 trillion online in 2018. But in Nepal the government has arrested suppliers and delivery personnel.
Africa’s booming e-commerce relies on one of the most digitally connected populations on the planet, with 400 million active internet users. Consumers from remote areas also rely on e-commerce to save time and money in goods purchase. The ASEAN countries have already marched ahead in digital connectivity with an emphasis on data connectivity, logistics to facilitate the free flow of goods and services, connectivity to facilitate cash flows, and seamless links between the physical and cyber space. Online sales account for 15 percent of retail sales in China and 14 percent globally. Nepal is clearly on the wrong track.
E-commerce is the future path. But it is full of regulatory complexities with issues related to data privacy, consumer protection, delivery, cyber security, market access regulation, and digital payment. Any country that wants to walk on this path should start homework to address these regulatory challenges. Shutting down entire industry harms the economy and blocks the path of progress. Moreover, it has direct consequence on people’s lives in this time of pandemic. People have been locked in with the fear of the virus spreading. This could be the right time to let e-commerce boom.
E-commerce is not limited to serving domestic consumers. It is also being considered as a platform to better integrate regional trade. World Bank, in its flagship report in December 2019, says e-commerce can boost a range of economic indicators across South Asia, from entrepreneurship and job growth to higher gross domestic product (GDP), to overall productivity. The report’s lead economist and co-author Sanjay Kathuria claims that by unleashing its online trade potential South Asia can better integrate into international value chains, increase market access, and strengthen commercial links between countries across the sub-region. These words echo more in this pandemic as the brick-and-mortar old world is being shaken.
In Nepal, no law governs e-commerce while many other countries have moved much further in regulating it. In 1996, a Model Law on E-commerce (MLEC) was adopted by United Nations Commission on International Trade and Law (UNCITRAL), and later adopted by the assembly. The objective was to bring a uniform e-commerce international law and to bring electronic transactions at par with paper-based transactions. India, a UNCITRAL signatory, has established a new regulatory regime for e-commerce businesses by endorsing a slew of laws. As per the new Consumer Protection (E-commerce) Rules 2020 of Indian Federal Government, e-retailers must compulsorily display critical details of goods.
Nepal’s case is unique as there is neither a roadmap to enhancing e-commerce nor a foundation. State bureaucracy and police forces are acting as if e-commerce is a criminal activity. E-commerce businesses are mushrooming in Nepal up despite the state bullying. Hence, there is an urgent need for an effective regulatory mechanism to strengthen the legal infrastructure on e-commerce so that people’s time, money and most importantly lives of the self-isolating folks can be saved.
Nepal Govt. reads e-commerce as criminals
The covid-19 lockdown has broken the seamless global supply chains. Producers, distributors, retailers, and consumers all have been trying to figure out new ways of delivering essential goods so that people can survive. American consumers alone spent $347.26 billion online with retailers, which is 30.1 percent up compared to the same period last year. E-commerce in Pakistan started in early 2000 but just three percent of population was buying online, which, now with the pandemic, has increased by 10 percent. Covid-19 has had a significant impact in e-commerce and sales are expected to reach $6.5 trillion by 2023, from an estimated $3.46 trillion in 2019. Consumers spent $2.93 trillion online in 2018. But in Nepal the government has arrested suppliers and delivery personnel.
Africa’s booming e-commerce relies on one of the most digitally connected populations on the planet, with 400 million active internet users. Consumers from remote areas also rely on e-commerce to save time and money in goods purchase. The ASEAN countries have already marched ahead in digital connectivity with an emphasis on data connectivity, logistics to facilitate the free flow of goods and services, connectivity to facilitate cash flows, and seamless links between the physical and cyber space. Online sales account for 15 percent of retail sales in China and 14 percent globally. Nepal is clearly on the wrong track.
E-commerce is the future path. But it is full of regulatory complexities with issues related to data privacy, consumer protection, delivery, cyber security, market access regulation, and digital payment. Any country that wants to walk on this path should start homework to address these regulatory challenges. Shutting down entire industry harms the economy and blocks the path of progress. Moreover, it has direct consequence on people’s lives in this time of pandemic. People have been locked in with the fear of the virus spreading. This could be the right time to let e-commerce boom.
E-commerce is not limited to serving domestic consumers. It is also being considered as a platform to better integrate regional trade. World Bank, in its flagship report in December 2019, says e-commerce can boost a range of economic indicators across South Asia, from entrepreneurship and job growth to higher gross domestic product (GDP), to overall productivity. The report’s lead economist and co-author Sanjay Kathuria claims that by unleashing its online trade potential South Asia can better integrate into international value chains, increase market access, and strengthen commercial links between countries across the sub-region. These words echo more in this pandemic as the brick-and-mortar old world is being shaken.
In Nepal, no law governs e-commerce while many other countries have moved much further in regulating it. In 1996, a Model Law on E-commerce (MLEC) was adopted by United Nations Commission on International Trade and Law (UNCITRAL), and later adopted by the assembly. The objective was to bring a uniform e-commerce international law and to bring electronic transactions at par with paper-based transactions. India, a UNCITRAL signatory, has established a new regulatory regime for e-commerce businesses by endorsing a slew of laws. As per the new Consumer Protection (E-commerce) Rules 2020 of Indian Federal Government, e-retailers must compulsorily display critical details of goods.
Nepal’s case is unique as there is neither a roadmap to enhancing e-commerce nor a foundation. State bureaucracy and police forces are acting as if e-commerce is a criminal activity. E-commerce businesses are mushrooming in Nepal up despite the state bullying. Hence, there is an urgent need for an effective regulatory mechanism to strengthen the legal infrastructure on e-commerce so that people’s time, money and most importantly lives of the self-isolating folks can be saved.
Nepal’s patronage economy
The blind push for government-led capital expenditures without adequate concern over the quality of those investments is limiting Nepal’s growth and could derail the economy. Development partners, who in effect finance the capital expenditures, must demonstrate greater honesty in the due diligence of their investments.
Despite the projected decline in economic growth, Nepal’s broader economic indicators remain robust. Foreign exchange reserves are now bordering on the excess, having surged to be sufficient for 12 months of imports. Budget deficits, external current account, inflation, and other key markers remain stable.
A recent analysis by the International Monetary Fund (IMF) concluded that Nepal has strong borrowing capacity. The current public debt to GDP ratio, at approximately 30 percent, is less than half of what IMF estimated as the benchmark debt carrying capacity. There is similar space in debt servicing capacity. These ratios are projected to remain comfortably below the benchmarks in the future.
There are growing calls for Nepal to accelerate public capital expenditures. The Asian Development Bank (ADB), for example, believes Nepal must significantly increase infrastructure investments. It calls for tripling the public capital spending to GDP ratio from current 3.5 percent to between 8-12 percent.
This is the simple narrative in Nepal: investments are needed for growth, and there is ample room to borrow. So, hurry up government!
This, however, fails to examine the quality of public capital expenditures—how the projects were chosen, their broader economic returns, and who really benefits from these investments.
Public capital expenditures failing
While Nepal does have adequate space for borrowing to finance capital investments, it also has an almost infinite need for infrastructure. From that perspective, public capital investments are zero sum. An investment on a project erodes the equivalent debt space. Government-led capital investments, therefore, must be viewed through the lens of budgetary constraints.
In Nepal, every capital investment—whether a simple community tap or a magnificent new airport—is needed. But in the context of budgetary constraints and the many competing projects, how are public capital expenditure projects prioritized and rationalized?
Government-led capital expenditure projects are overwhelmingly selected by patronage and corruption, and based on who will execute them, rather than on their broader economic returns. This is the reason public capital expenditure programs disproportionately favor projects with frequent procurements.
The failure of government-led capital expenditures in Nepal is already visible. These projects are not providing economic returns fast enough: their impact on broader economic growth is negligible, and they have failed to improve domestic capacity or enhance investor confidence.
Consumption based taxes (value-added, customs, and excise duty) currently account for approximately 60 percent government revenues. When public capital expenditures fail to produce growth, government revenue base will remain limited. Consumption-based taxes will need to continue to finance these expenditures. This means higher taxes on consumption products.
Government capital expenditures aren’t enhancing the confidence of international investors. In project selection, design, and execution, investors see a messy network of intertwined short-term interests. These projects are also not increasing the technical, financial, or managerial capacity of domestic firms at the rate public capital expenditures suggests they should.
Absence of institutional filters
Nepal lacks the institutional filters to screen government prioritization and rationalizing of public capital expenditures. The National Planning Commission (NPC), and the civil service in the ministries, should be playing that role. Unfortunately, they have folded into the patronage economy.
Business associations are too vested in the patronage economy to serve as meaningful filters. Civil society lacks the organization and resources.
This where Nepal’s donors could do more to plug the gap for an honest filter of government prioritization and rationalization of public capital expenditures. Donors must employ more comprehensive due diligence on their proposed investments—listen carefully to stakeholders, and critically examine the process for rationalizing and prioritizing projects. They must partner with, and help empower, independent civil society organizations in this process.
Financing a poor public capital expenditure project does more to relegate Nepalis to a future of poverty and debt servitude, than not financing it at all.
An alternative narrative
The continued emphasis on accelerating public capital expenditures for growth is overshadowing the underutilized productive capacity and pent-up growth potential bottled within the economy. Unlocking this potential requires interventions not with public capital expenditures but painful reforms.
For the patronage economy, that’s simply not profitable enough.
