Economic diplomacy: A vehicle for national development

A vital form of diplomacy, economic diplomacy is the full spectrum of economic tools of any country to safeguard its national interest. Broadly, it executes ‘rules for economic relations between states’ at the international level by employing economic resources, either as rewards or sanctions, in pursuit of a particular foreign policy objective. 

Different agencies of government play a vital role in international economic diplomacy apart from non-state actors such as non-government organizations (NGOs), businesses and investors. 

The phrase economic diplomacy is a combination of economic and diplomacy, therefore, the foundation of economic diplomacy is taken as economic theories and diplopic political theories (Pokharel 2014). Of late, economic diplomacy has become a prominent activity in the diplomacy of nation states and international organizations. Take India, for our neighbor India, which has been using economic diplomacy as a core component of its foreign policy.

Economic diplomacy has become the primary means of penetrating the world market, where economic aspirations like foreign assistance, foreign employment, foreign investment (direct or porthole) and foreign trade and tourism are pursued through diplomatic skills. 

Economic diplomacy is also an indispensable instrument for securing Nepal’s foreign policy objectives and economic development. At present, the government engages in economic diplomacy/development at three levels—bilateral, regional and multilateral. Nepal needs to focus on facilitating trade and business investment by promoting domestic tourist destinations through high-tech means like the use of new science and technology tools.

A least developed, sovereign and independent country, Nepal is lagging behind in the race for development. If used skillfully, foreign policy (with main thrust on economic diplomacy) can speed up the national development process as conventional diplomacy has failed to deliver, by and large. At present, we are facing a volatile economy and unstable political situation, which demands using diplomacy as eyes and ears in the national interest. 

Our current economic indicators have laid bare several flaws in capital endowment, slacking foreign trade, diminishing exports and increasing imports and mostly ineffective implementation of policies.

According to World Bank (2019), Nepal’s export of goods and services was 8.93 percent of GDP while import of goods and services was 42.38 percent in 2019. In such a situation, the government needs to promote exports by exploring potential actors and factors. This can be achieved by mobilizing Nepali diaspora, encouraging private sector investors and prioritizing different trade and export promotion agencies. 

Notably, we have failed to welcome FDI due to an unstable political situation, illiberal policies and investor insecurity. These issues need to be addressed as soon as possible. As we know, components of economic diplomacy have a greater impact and crucial role in strengthening the national economy. 

For achieving desired economic growth, Nepal should conduct its diplomacy by expanding its missions to attract investments. In addition, Nepal needs to introduce investment-friendly Acts and other legal provisions for the creation of a favorable environment for foreign investors and donors.  

In this globalized, liberalized and competitive global market, Nepal needs to be very skillful to pursue effective diplomacy with other nations. It is obvious that none of the states in this globalized world can escape from economic interdependence, so economic diplomacy has become the unavoidable reality of the 21st century in international relations. Nepal should explore opportunities and challenges, and prioritize the issues on execution procedure.

But a number of experts point out that Nepal has not accorded due priority to economic diplomacy.  

Bishwambher Pyakuryal, former ambassador and economist, says economic diplomacy is highly affected by a country’s foreign policy. According to him, the government of Nepal has not taken this form of diplomacy as seriously as it should. As for the way out, he says structural changes are necessary in our diplomacy. 

Purushottam Ojha, a former commerce secretary, says, “Economic diplomacy is vital for promoting national economic interests like trade, commerce, investment, tourism, migration, aid and investment.” But our economic diplomacy and diplomats have failed to protect economic interests.

FDI promotion should focus on enhancing economic development. In line with this, diplomatic missions need to focus on attracting more assistance in Nepal’s priority areas like infrastructure development, employment generation, capacity building and so on. Economic diplomacy should be able to create an environment that is welcoming and friendly for businesses. 

Nepal can learn and adopt different forms of economic diplomacy from different nations. For instance, Switzerland’s strong and effective economic diplomacy has enabled its agency based in Geneva to conduct nearly two-thirds of the United Nations’ business activities. Japan’s foreign policy is aimed at strengthening economic diplomacy as a means of driving economic growth, which is very supportive of overseas business expansion and developing collaboration with diplomatic missions. 

On the contrary, we still struggle in trade diplomacy with neighboring countries, leading to a yawning trade deficit each year. Diplomats must be mobilized and foreign missions expanded to address such issues. 

Coordinated diplomacy between several ministries, including the foreign ministry, as well as private and civil societies is crucial, with the main focus on economic diplomacy. 

Policymakers need to find ways to attract foreign investment and increase export strategy and other forms of economically beneficial exchanges where Nepal enjoys a comparative advantage. Our diplomats and overseas missions must acquire a new global strategy and new skills to make diplomacy effective. Improving managerial capacity, acquiring new knowledge and negotiation skills are a prerequisite for economic diplomacy. 

Economic diplomacy involves using diplomatic skills with economic tools for advancing and achieving the country’s economic and strategic goals. A serious lack of policy coordination among stakeholders for pursuing economic diplomacy has affected the conduct of diplomacy.

Against this backdrop, every concerned agency, including the Foreign Ministry and other government entities like the Ministry of Finance, National Planning Commission, Ministry of Commerce and Supplies, Ministry of Tourism, and Trade Promotion Center should be equally involved in promoting economic diplomacy on a broad level.