Tuesday, April 23, 2024

What are Nepal's competitive advantages?

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Earlier, using globally available indicators, I sought to answer two questions: Are we a fragile country? What are the sources of our governance failure? This time, I look into our competitive advantages, that is, the factors that are uniquely available to us so that we can compete in a global market. This will take us to reading Global Competitive Index (GCI) produced by the World Economic Forum (WEF), based in Davos, Switzerland.   

Before sieving through the data, let us first recall what our politicians and policymakers have to say about our competitive advantages.

Ideas in desperation

Faced with a desperate situation, some leaders are calling for legalizing ganja cultivation and sale; others are calling for branding tumba, chhang and raksi. There are more calling for exporting naturally available materials like sand, boulders, logs and mineral water. Some economists are warning that we don’t have much time left. Their solution: we need to speed up, asap.

Often leaders promise making the country like Singapore and Switzerland. Singapore is a city state. Switzerland is a landlocked, neutral and mountainous country, with hydropower and tourism potentials. There are few countries in the world which are small and yet underdeveloped. This is because small is easy to manage. Going by this standard, Nepal is not a small country.   

There are caveats in hydropower and tourism development. Hydropower entails huge investment cost, state-of-art technology, there are environmental consequences. Moreover, India being a single buyer puts us in a disadvantageous position. Tourism, being a service industry, imposes distributional consequences. We are now a remittance-dependent economy, relying on population export. Again, no country in the world has become rich by exporting its people. If this has not been true, Africa should have been the richest continent by now.   

Typologies of economies

Since 2004, the WEF has been publishing GCI on yearly basis, covering around 140 countries of the world. Due to pandemic situation, this is now put on hold. Prof. Michael Porter from Harvard University, is said to be the man behind the construction of GCI. The index is composed of 12 pillars, divided into three primary components, namely, basic requirements, efficiency enhancers, and innovation and sophistication. These three components conform to three specific types of economies, namely, factor-driven, efficiency-driven and innovation-driven economies. GCI scores are ranked from 1 (worst) to 7 (best).

From 2018-19, WEF has revised the index and called it GCI 4.0 version. The latest version also contains 12 pillars divided into four components, namely, Enabling Environment, Human Capital, Markets and Innovation. The scores are now rescaled from 1 to 100. Table 1 gives comparative picture of GCI and GCI 4.0 components and Table 2 gives a summary GCI trend for Nepal from 2006-2017. These information were collected from the annual publications of Global Competitive Reports.

Table 1: Components of GCI and GCI 4.0

GCI

GCI 4.0

  1. Basic requirements
  • Institutions
  • Infrastructure
  • Macro economy
  • Health and primary education
  1. Enabling Environment
  • Institutions
  • Infrastructure
  • ICT adoption
  • Macro economy stability
  1. Efficiency Driven
  • Higher education and training
  • Goods market efficiency
  • Labor market efficiency
  • Financial market sophistication
  • Technological readiness
  • Market size
  1. Human Capital
  • Health
  • Skills
  1. Innovation Driven
  • Business sophistication
  • Innovation
  1. Markets
  • Product market
  • Labor market
  • Financial system
  • Market size

 

  1. Innovation
  • Business dynamism
  • Innovation capability

 

GCI and GCI 4.0

GCI data for Nepal are available from 2006 to 2017. Chart 1 depicts GCI scores for Nepal together with its three components. With a score of 3.26 out of 7, in 2006, Nepal was ranked nearly at the bottom at 110th position among the list of 125 countries of the world. In 2017, with a score of GCI 4, we improved our ranking to 88th position out of 137 countries of the world. There is a marginal gain of around one point over a period of 11 years (2006-2017). However, the latest publication of GCI 4.0, in 2019, we are again at 108th position among the list of 141 countries.

 

By and large, Nepal is a factor-driven economy. This is reflected by comparatively higher scoring on basic requirements vis-à-vis efficiency enhancers and innovation scales. Among the listed four factors under basic requirements, our strength comes from macro-economic stability and investments made in health and education (human capital). There is a poor showing on infrastructure. This is true even with GCI 4.0. May be this could be the reason why we are exporting people.

Among the efficiency drivers, our primary strength is in financial markets. The size of our market is pretty poor. We have made considerable gains in the area of higher education and training.

Much of our disadvantages lie in the field of innovation and adoption of technology. In fact, we are at the rock bottom of the scale; and there are hardly any perceptible changes taking place in the field of innovation and technology adoption. We can call ourselves to be a least innovative economy. Hopefully, the leaders at Innovation Centre are reading this piece.

Table 2: Global Competitive Index (GCI) and its components for Nepal (2006-2017)

Descriptions 

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

GCI (Total Score 7)

3.26

3.38

3.4

3.34

3.34

3.47

3.5

3.7

3.8

3.9

3.9

4

Global Ranking/Nr of Countries

110/125

114/131

126/126

125/133 

130/144

125/142

125 / 144

117 / 148

102 / 144

100 / 140

98 / 138

88 / 137

A. Basic Requirement

3.65

3.54

3.5

3.5

3.52

3.67

3.7

4

4.1

4.1

4.2

4.4

1. Institutions

3.2

3.1

3.1

3.02

3.03

3.12

3.3

3.2

3.2

3.4

3.5

3.6

2. Infrastructure

1.83

1.96

1,9

2.03

1.84

1.87

1.8

1.9

2.1

3.2

2.2

2.6

3. Macro-Economic Stability

4.47

4.64

4.6

4.44

4.41

5.05

4.9

5.3

5.4

5.4

5.5

5.6

4. Health and Primary Education

5.09

4.46

4.5

4.45

4.81

4.64

4.7

5.4

5,7

5.6

5.6

5.7

B. Efficiency Enhancers

2.87

3.18

3.1

3.15

3.14

3.22

3.3

3.2

3.4

3.5

3.5

3.6

5. Higher Education and Training

2.63

2.65

2.7

2.69

2.62

2.74

2.8

2.7

3.2

3.2

3.3

3.4

6. Goods Market Efficiency

3.58

3.73

3.7

3.64

3.58

3.7

3.8

3.7

3.9

4

3.9

4

7. Labour Market Efficiency

-

3.62

3.6

3.61

3.58

3.6

3.8

3.7

3.8

3.9

3.9

3.9

8. Financial Market Sophistication

-

3.64

3.7

3.76

3.64

3.67

3.8

3.8

3.9

3.8

3.9

3.9

9. Technological Readiness

2.39

2.41

2.2

2.21

2.5

2.65

2.6

2.6

2.6

2.6

2.6

2.8

10. Market Size

-

3.06

2.8

2.99

2.93

2.98

3

3.1

3.1

3.3

3.2

3.4

C. Innovation

2.9

2.89

2.9

2.77

2.67

2.73

2.8

2.9

3

3

2.9

3.1

11. Business Sophistication

3.26

3.29

3.3

3.21

3.04

3.15

3.2

3.3

3.3

3.3

3.3

3.4

12. Innovation

2.54

2.49

2.5

2.34

2.29

2.32

2.4

2.6

2.6

2.7

2.6

2.8

Data Source: Global Competitive Reports, www. weforum.org

Published on 13 April 2023

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