1. Economic Diplomacy and Changing Scenario of Intentional Economy
Madhu Raman Acharya

2. Concept of Economic Diplomacy
Two sides of economic diplomacy
Use of economic policies to achieve a foreign policy objective (e.g. aid diplomacy)
Use of diplomacy to achieve country’s economic objectives/
Inclusion of economic elements into foreign policy and diplomacy
Preference to economics over politics in diplomacy and foreign policy
Economic interests have started to become political interests
When economic interests converge- political interests converge as well

3. Concept of economic diplomacy
Theory of comparative advantage - pursuing those advantages abroad
Export of labour-intensive and resource-intensive products
Adventure and eco-tourism
Foreign Investment in Hydropower
Bio-diversity, herbs etc.
Broadened concept “development diplomacy”
e.g. LDCs, MDGs, Post-2015 Development Agenda
Opening of a Policy Planning and Development Diplomacy Division in the Ministry of Foreign Affairs (2015)

4. Historical antecedents (global)
Trade/commercial diplomacy was always there
Colonialism/ East India Company- came on trade interests
Marshall Plan- rebuilding of post-war Europe through US aid
European Union -was an economic cooperation project
Bretton Woods -World Bank, IMF, IDA- tackling economic issues
GATT to WTO- (1994)- rule-based trading framework
G20/ World Economic Forum
SAARC, BIMSTEC -regional blocs

5. Historical antecedents (Nepal)
Economic protection (Prithvi Narayan Shah)
War with Tibet on clash of trade interests, currency war
Opening of trans-Himalayan routes/
Vakil in Lhasha (1856)/ Elaichi Kothi/ Calcutta customs Liaison Office- all were economic posts
Opening of Nepal for tourism (1950s)
Start of aid diplomacy (1950s)
Trade and Commerce Treaties with India
impasse- failure of economic diplomacy
1990s- First wave economic liberalization/ privatization
High-Level Task Force, coined “economic diplomacy”

6. Factors behind prominence of Economic Diplomacy
Shrinking political differences among nations- priority to economic issues
Wave of liberalization, deregulation, globalization and economic interdependence and integration
Increasing economic competition
Global economic and financial crises
Emergence of new international financial architecture
Search for new paradigms in foreign policy and diplomacy

7. Why “Economic Diplomacy” in Nepal
Low economic development/ development imperative
Continued dependence upon foreign aid
Low share of export in trade/ trade deficit/weak trade diversification
Poor employment opportunities (labour migration)
Comparative advantage in tourism, hydropower
Need for new slogans in foreign policy and diplomacy
Shift from aid to trade and investment/ remittances

8. Facets of Economic Diplomacy in Nepal
Trade (WTO, SAFTA, bilateral)/export promotion
Investment- FDI
Tourism
Foreign Employment
Foreign Aid (“Development Cooperation”)
LDCs- Graduation from LDC
Nepal as a “transit economy”
NRN
Post-earthquake reconstruction

9. Levels of Economic Diplomacy
All four levels are important
National
Bilateral
Regional
Multilateral

10. Trade
Huge trade deficit, India-centric trade, weak diversification of products and countries
Inability to gain from benefits-SAFTA, WTO, EBA, GSP
Poor market research (embassies alone cannot do)
Restrictive trade polices of destination countries/ new of protectionism (environmental and labour standards)
Problem of branding Nepalese products abroad

11. Investment
Inability to highlight stable macro-economic fundamentals and Nepal’s importance in investment for
Cheap labour
Good policy framework
Location between two big framework
Inability to address negative factors - power shortage, labour relations, political interference, strikes etc.
Slow decision-making at the Investment Board / Turf wars
Poor Doing Business ranking- 108th
Unclear strategy in big PPP projects (e.g. Fast Track Road)
Weak focus on investment from India and China- China biggest investor since 2015

12. Foreign employment Remittance-dependent economy (29% of GDP)
The Dutch Disease (consumption-imports-revenue complacency)
Still labour “on the cheap”/ 3D jobs/ unskilled (96%)
Well-developed institutional and legal arrangements/ but weak enforcement
Inability to address new issues
Feminization /domestic workers (age limit)
Non-involvement of embassies in demand attestation
Proliferation of agencies( 759 -Association list)- poorly regulated

13. Foreign Employment ….
Opening countries without homework (110 countries, including Iraq, Afghanistan, Libya, Somalia)
Corruption/ cheating and manipulations/ exploitation every step of the way
Weak focus on return migrants
Use of remittance for “investment” instead of consumption
Insufficient and weak bilateral agreements (e.g. RoK, UAE, Qatar, Bahrain)
Poor application of instruments of rights of migrant workers/
UN Convention on the Rights of Migrant Workers
ILO Conventions

14. NRN Recognition of NRN as a “niche” in economic diplomacy
Economic Diplomacy and NRN Division -changed to Policy Planning and Development Diplomacy Division (2015)
Annual conferences-
Grand bargain /NRN Act
Liberal property, visa and other provisions
Focus on privileges (e.g. Dual Citizenship)
Need a shift from “charity” to “investment”
Outsourcing economic diplomacy jobs to NRNs- tourism, business promotion etc.

15. Tourism Low ranking in “Tourism Competitive Index” (102nd -2015)
Susceptible to internal and external shocks/ economic downturn/ terrorism/ disasters/ political instability
Proliferation of hospitality industry- unhealthy competition and degradation of services
poor connectivity/ air safety- blacklisting by EU
Weak monitoring of “travel advisory”
Weak focus on China, big source
Neglected Buddhist circuit/ Lumbini
Insufficient promotional campaigns (weak branding of campaigns)

16. Foreign Aid
“Development cooperation” one of identified areas of economic diplomacy, but outside the role of Ministry of Foreign Affairs
Development Cooperation Policy good intentions, but cannot be applied
Weak enforcement of Paris Principles on “aid effectiveness”
Donor conditionality / donor-driven, donors defining development agenda (not accepting “one-door policy”)
Extra-budgetary foreign aid- still a major problem
Low absorption capacity- low expenditure on capital side
Focus on rebuilding after the earthquake- international conference

17. Institutional set up for Economic Diplomacy in Nepal
Need to activate the high level Economic Diplomacy Implementation and Monitoring Committee-
Focal points in sectoral ministries
Activation of Consulates, Economic Counsellors. Honorary Consul Generals/ Consuls/Labour Attachés
Policy Planning and Development Diplomacy Division
Promotional agencies (NTB, TPC etc.) NTB at trouble

18. Challenges of economic diplomacy
Shelving of important reports:
HLTF, 1996
Report of the Economic Diplomacy Policy Study 2002
Task Force on Foreign Policy 2006
Parliamentary report on foreign policy- 2011
Lack of linkage between economic and foreign policy/ (e.g. Singapore)- Ministry of Foreign Affairs and Trade (New Zealand , South Korea)
Ambitious goals (e.g. “double digit economic growth”, “transit economy” without home work)
Weak programmatic backing/ less than 2% of Embassies’ expenses

19. Challenges of Economic Diplomacy..
Politicization of economic issues (e.g. BIPPA, PTA, water agreements)/ lack of consensus on economic issues
Ambassadors without economic and diplomatic backgrounds
Terms of reference for ambassadors- to new ones only
Under utilization of facilities LDCs , GSP, EBA, SAFTA etc.
Weak private sector leadership
“diplomatic” mindset/ favours to private business considered unethical- but changing
Economic diplomacy regarded lower order diplomacy

20. Challenges of Economic Diplomacy …
Leadership deficit/ turf wars/ e.g. Investment Board
Proliferation of agencies/ lack of coordination
Economic diplomacy considered a foreign ministry job (wrongly)
Poor monitoring and evaluation of embassies/opening without accountability
“Diplomatic deficit”
Foreign service- 278
Other services -154
Contract -346 (including 235 local staff)

21. Challenges of Economic Diplomacy …
Poorly staffed embassies/ mostly without economic staff
Under-equipped economic cells in embassies (only a few)
New missions without “mission”/ resources/ strategic guidance/ accountability/
Absence of rewards and punishment based on performance
Lack of conducive political environment at home/ economic diplomacy begins at home

22. Challenges of Economic Diplomacy …
Low ranking on international indices
Corruption Perception Index : 116th among 177 countries in 2013 (improved from 139th last year)
Doing Business Index : 108th among 189 countries (2014)
Global Competitiveness Index : 117th in 2013/14 (up from 125th previous year, still low)
World Tourism Competitiveness Index : 102nd (2015)

23. Opportunities India China market- transit economy
India’s renewed focus in the region-Modi factor
Chinese tourists- big numbers to handle
Resilience of remittances
Growing outside interest in Nepal
Growing NRN interest
Foreign investors interest in big hydro projects
Nepal’s chair of SAARC and BIMSTEC
Reconstruction as an opportunity

24. Way forward Strategize economic diplomacy
Focus on sector in which Nepal has comparative advantage
Focus on India and China – how to benefit economically
Revamp the institutional machinery
Strengthen partnership with the private sector
Introduce annual plan on economic diplomacy
Activate diplomatic missions
Improve inter-ministerial coordination
Human resources development for economic diplomacy

25. Way forward.. Better utilization of the Honorary Consuls
Increase the confidence of investors
Fix the faulty foreign employment system
Encourage NRN as niche for investment
Bring a strong tourism promotion strategy
Make aid more effective
Make more effective use of available facilities
Formulate country-wise strategies
Sign performance contract with ambassadors

26. Conclusion Never too late Need better strategic thinking
Focus on implementation
Importance of all three levels- bilateral, regional and multilateral
Collective responsibility-clear roles required
Needs proper domestic policies- begins at home
Need review of foreign policy- integration of foreign and economic policies

27. Break !
Q & A

28. Changing international economic scenario
Experience of Global Financial and Economic Crisis , Eurozone Crisis (e.g. Greece)
Failure of existing intentional financial architecture to address the aspirations of developing countries
Weak role for developing countries in the INM, World Bank etc.
Shift of balance of power to developing countries and to Asia (India and China)
Emergence of alternative financial architecture
BRICS Bank
Asian Infrastructure and Investment Bank (AIIB)

29. Changing international economic scenario
Global economic slowdown - spreading to developing countries
Rise of inequality – income and asset inequality- concentrated to a richer few
Wealthy 1% possess more than half of world’s wealth
Bottom half of world’s population owns less than 1%
(wealthy 1% will soon (by 2035) control 99% of world’s wealth-Oxfam report 2013)
Can have pervasive social, economic and political consequences

30. Changing international economic scenario
Emergence of “knowledge economy”
based on intellectual capital, intellectual property rights
Information/knowledge intensive
Importance of “blue economy” (SAARC declaration)
Ocean-based economic growth- transport, tourism, fisheries, etc.
Need for “inclusive economic growth”
Link between social exclusion and economic growth
Inclusion of informal, subsistence and household sectors
Providing access to markets, credit etc.
Disaggregation on poverty, HDI – lower among Dalits, janjatis, marginalized regions etc.
Nepal Living Standard Survey also shows poverty higher among excluded groups
Economic opportunities for all sections of society

31. Changing international economic scenario
Green economy
Environment and climate-friendly production and consumption
Vulnerability of economies- to disasters, climate change, global and regional financial crises,
Uncertainties in global economic environment
India-dependent economy (currency, trade etc.)
Potential for regional economic integration
Effects of economic cycle
periods of expansion and contraction)-
counter-cyclical measures-reducing anti-social effects of economic cycles
Focus on economic integration – those in the margins (LDCs, LLDCs) should be brought to the economic mainstream

32. Q & A
Thank You