The media has been abuzz with the talk of Nepal’s favourable trade balance. The year-end trade statistics show a positive growth in export and a pause in import. While the export volume (in rupees) grew by 11.2 percent between the fiscal 2073/74 and 2074/75, it grew by amazing 19.4 percent between 2074/75 and 2075/76. Between 2074/75 and 2075/76, there has been a halt in ever increasing import volume too as it grew by 13.9 percent compared to 26.3 percent in the previous fiscal. Nepal has been suffering from continued import growth and declining export volume and options, draining foreign exchange reserves and widening trade deficit. The favourable figures, both in export and import, led to the slowing down of trade deficit. The reported figures portray a picture of better days in the offing.
Unfortunately, as one digs deep into export figures, the euphoria evaporates. Surge in export is neither due to increasing export volume of traditional export items like hand-knotted woollen carpet, pashmina products, handicraft, and readymade garments; nor due to any new home-grown product. The list of major export commodities shows palm oil as the number one export item for the fiscal 2075/76. Its contribution to total export, standing at 10.64 percent, was the highest among the major exported commodities. Interestingly, the export figure of palm oil was absolute ‘zero’ just a year back in 2074/75. In the first five months of the current fiscal, the trend continued. Export increased by 27 percent compared to first five months of the previous fiscal. Again, the number one contribution came from palm oil, whose export increased by 756.1 percent, reaching rupees Rs 11.52 billion in the first five months.
These figures are pleasant surprise for a nation which does not produce palm oil. Now, as one digs further into the facts, we see adoption of the ‘true and tested’ trading practice of benefiting from the tariff gap in India. This time, it is a duty of 40 percent or more imposed (by India) on import of crude and refined palm oil from major palm oil producer Malaysia. And, Nepal has 10 percent duty on import of crude palm oil. Nepal and India both being part of SAFTA (South Asian Free Trade Area), Nepali traders are more than happy to take advantage of the SAFTA’s provision of minimum tariff on goods exported from underdeveloped countries like Nepal. If the exporter can add value in final product, say by 30 percent in Nepal, then there is zero tariff levied in India. This further motivates traders to import crude palm oil, process and package it in Nepal, and export to India. But one cannot benefit from such tariff gaps for long.
Already, India’s recent move to halt the import of refined palm oil (originating in Malaysia) has hit the Nepali palm oil exporters hard. Still, there is hope if Nepali government is serious about taking this issue up with India and India agrees to halt in import of products originating only in Malaysia. Nepal has been importing crude palm oil from both Malaysia and Indonesia. If so, Nepal might need to shift all its crude palm oil import to Indonesia and ensure there is at least 30 percent value addition while producing refined palm oil in order for Nepal to continue to benefit from its export of palm oil.
Note: All facts and figures are derived from online resources of Trade and Export Promotion Centre, Ministry of Industry, Commerce and Supplies