March 18, 2006, The Kathmandu Post
By Puspa Sharma
Poverty has always been an overriding concern
of various development efforts in Nepal. However, it was only since
the Seventh plan (1985/86 – 1989/90) that poverty reduction
had been stated as an explicit objective.
In the early nineties, the government initiated
an extensive economic reform agenda that included liberalizing trade,
investment and foreign exchange rate, rationalizing tariff structure
and the tax system and promoting exports. These reforms were initiated
in order to accelerate economic growth and expand employment opportunities
with the ultimate objective of reducing poverty.
As a result, the Nepali economy was transformed
into a more open, market-oriented economy making the country open
and trade dependent economies in South Asia. These reforms helped
in accelerating growth in the non-agriculture sector that included
trade and contributed in keeping urban poverty at low levels by
increasing employment and income generating opportunities. However,
in terms of overall poverty, Nepal is still ranked the poorest in
the region..
The major achievement after initiating open and
market oriented policies in the early nineties was the increase
in exports from nearly eight percent of GDP in 1996/97 to almost
14 percent in 2000/01. This growth, however, was mainly because
of Nepal's trade concentration with India and the benefits that
Nepal derived out of the Indo-Nepal trade treaty of 1996, and thus
it was short-lived.
In 2001/02, exports to India as well as to other
third countries declined sharply. The major reasons behind this
decline were the global recession, imposition of quotas on Nepali
exports by India and the deteriorating security situation at home.
Whereas it was felt that trade would play a role in promoting economic
growth and thus contribute in reducing poverty, concentration of
trade, both commodity-wise and destination-wise, resulted in external
shocks. We remained complacent with our trade concentration with
India and the benefits we were deriving out of the bilateral trade
treaty. We could not foresee the need to diversify our products
and market. The result is that despite the economic reforms undertaken,
we still lag behind in trade with other countries.
Nepal's trade concentration has always been prone
to external shocks. Under the quota system, the Nepali garment and
textile industry undoubtedly flourished favorably. Being the second
leading source of foreign exchange and providing direct and indirect
employment opportunities to over a hundred thousand people, it was
a major contributor to the Nepali economy.
Although it did not have any direct link with the
rural economy, it was linked with rural poverty by means of the
internal remittances that its workers used to send home. The expiry
of the Multi Fibre Agreement (MFA) in December 2004 was a major
setback for the industry after which it experienced a continuous
decline in exports resulting in the closure of most of the production
units and consequently in the loss of employment of its thousands
of labor force.
However, the expiry of the MFA that ended the quota
system is not the only reason for the poor performance of the industry.
Had it been so, other South Asian and South East Asian countries
too would not have fared better in the post-MFA era. Our complacency
with the performance of the industry during the quota system blinded
us from seeing its future. We neither intended to diversify our
products nor the export markets. Had we recognized our comparative
advantage and worked on it prior to the end of the quota system,
we would still be confidently demonstrating the role of garment
and textile trade in substantial reduction of poverty.
Even in other sectors, Nepal has not been able
to translate the gains from trade into poverty reduction. Being
an agrarian economy, Nepal has comparative advantage in the export
of different agricultural products like honey, tea, vegetables,
vegetable seeds, fruits, ginger and other products like herbs. Based
on arbitrary international standards and other technical barriers
set by the importing countries, these products of our export interest
are often barred from getting exported to the destination markets.
There are several cases of setting up of such barriers for Nepali
products by India and many other European countries.
Developed countries have committed time and again
to help the least developed countries (LDCs) integrate into global
trade. Of those several commitments, providing duty and quota free
market access to almost all the LDC products and providing trade
related technical assistance are the major ones. These commitments
have even been emphasized in Goal eight of the Millennium Development
Goals (MDGs) – Developing a global partnership for development.
But the implementation aspect of these commitments has been utterly
disappointing. We have, on the one hand, internal problems of supply
side bottlenecks, on the other, the external problems are no less
severe.
The sole objective of the tenth plan, which is
the Poverty Reduction Strategy Paper (PRSP), is achieving a "remarkable
and sustainable" reduction in the poverty level by almost eight
percent, from 38 percent to 30 percent, during the plan period.
Of the different measures undertaken, boosting
internal and international trade for growth in the non-agriculture
sector has been taken as an important measure by the tenth plan.
It is during this plan period that Nepal has gained membership of
the World Trade Organization (WTO), South Asia Free Trade Area (SAFTA)
and the Bay of Bengal Initiative for Multi Sectoral Technical and
Economic Cooperation (BIMSTEC).
It has been widely accepted that open economies
grow faster than closed ones. The steadily increasing economic growth
rates of China and India after liberalization should be an inspiration.
Although trade has not been tied strategically with poverty reduction
efforts in Nepal, in the light of its memberships with these different
multilateral and regional trade bodies, it remains to be seen how
it utilizes these memberships for enhanced trade that would lead
to greater growth and poverty reduction.
Ranks
of the rich, files of the poor
The number of billionaires across
the globe may be increasing by the day but a system based
on ever-widening gap between them and those living on less
than a dollar a day will remain fragile
By Abid Qaiyum Suleri
Every year, the Forbes magazine produces the ranking
of the world's richest people. The magazine's editors feel that,
during the last two decades of printing the ranking, making a billion
has changed a lot from what it used to be. Twenty years ago Forbes
found some 140 billionaires across the world. Only three years ago,
the number stood at 476. But this year the number of billionaires
globally is a record 793, up 102 from last year's. Together they're
worth $2.6 trillion, up 18 per cent since last March. The average
net worth of each of these billionaires is $3.3 billion.
These billionaires, holding 20-22 per cent of the
world's total wealth, are only 0.00001 percent of the world's 6.5
billion people. It will be just an overemphasis to say that global
wealth distribution is extremely skewed. The world's five richest
people have more money than the combined Gross Domestic Product
(the value of all goods and services) of the world's 60 poorest
nations. The world's richest 225 people have combined assets equal
to the combined annual income of the world's 2.5 billion poorest
people. According to United Nations Development Program, cost of
ending extreme poverty -- $300 billion -- is less than 2 per cent
of the total income of the world's richest 10 per cent people.
While more than 1.5 billion people live on less
than one dollar a day and two billion more are only marginally better
off, the much talked of link between trade, development and poverty-reduction
(TDP) is gaining added significance. How can the widening gulf between
the few super-rich and billions of super poor be bridged? Can it
be done through increased trade and growing economic activity. In
other words, do trade and economic growth take care of development
and poverty reduction? Many, including Prime Minister Shaukat Aziz,
believe they do. Though in doing so they will certainly produce
some losers in the short run but in the long run trade liberalisation
and economic growth will alleviate poverty, is how their argument
goes.
It, therefore, comes as no surprise that public
policies are tailored to facilitate economic growth and freer trade.
But it's equally unsurprising that more often than not these policies
help millionaires turn billionaires, leaving the poor and the marginalised
even more so. The World Bank's anti-poverty prescription -- poverty
reduction strategy paper (PRSP) -- plays an important role in promoting
these policies. Those who have titled Pakistan's PRSP as 'Accelerating
Economic Growth and Reducing Poverty' have only made the link all
too obvious.
I feel trade reforms do not automatically or necessarily
result in poverty reduction. For trade reforms to reduce poverty,
it is necessary that macroeconomic policies -- including trade reforms
-- are accompanied by complementary and compensatory microeconomic
policies with a view to introduce and strengthen social safety nets.
This will create resilience among trade liberalisation's assumed
losers who are often left to fend for themselves as a result of
ostensibly pro-poor interventions.
To me, the real problem starts with the notion
of 'pro-poor interventions'. International financial institutes
support an absolute pro-poor growth, which means that it will remain
pro-poor as long as it is at least of some benefit to the poor.
The latest Human Development Report by the United Nations brilliantly
puts this growth in a perspective: "...if one dollar is poured
in Brazil, then according to the existing wealth distribution pattern,
only 15 cents would reach the poor whereas 85 cents would go to
the rich and this would still be a pro-poor intervention".
Thus to make growth really meaningful for the poor, it has to be
relative -- that is, it has to be positively biased towards the
poor and the marginalised, clearly favouring them over the rich.
Though there are many initiatives focusing on poverty
reduction through enhanced economic growth, lack of policy cohesiveness
is killing almost all of them. Lack of coordination among donors,
among donors and recipients and among recipients themselves is a
major factor affecting policy cohesiveness. As a result, many of
these initiatives have turned into stand alone activities which
do not bring any real change.
But there is much more to these policies than just
the lack of coordination and cohesiveness. For instance, absence
of democratic participation by all stakeholders including the targeted
sections of population, non-consultative and non-transparent policy
formulation mechanism, and a predilection for quick fixes in most
of the developing countries are some of the other factors -- which
not only widen the gap between various TDP initiatives, but also
favour the rich and the well off over the poor and the marginalised.
Experts at Forbes are of the opinion that most
of the billionaire on their list earned heir fortune through hard
work and business wisdom. They claim: "Strong stock markets
around the world (the United States being the notable exception)
contributed to this surge in wealth. India, whose BSE SENSEX market
was up 54 per cent in the past 12 months, is home to 10 new billionaires,
more than any other country besides the US."
That the second biggest increase in the number
of billionaires happened in India comes as no surprise. I strongly
feel that -- especially in countries like India and by extension
Pakistan -- more than hard work and business wisdom, it's flawed
public policies heavily in favour of those 'who have' over those
'who do not have' that should be credited with making the rich even
richer and turning the poor further poor.
Here is how it happens. Our service delivery system
favours the rich, our infrastructure is developed to cater to the
needs of the already privileged, our lending institutes lend money
to those who can prove that they are not in need of money, our taxation
system offers tax holidays to big investors, big loans worth millions
of rupees can be written off with a little push of the political
pen but defaulters of small loans are sent behind bars. Even our
educational and health systems (the backbones of any living society)
also favor those who can afford to pay.
Without adding a human dimension to economic growth,
the linkage between trade, development and poverty reduction cannot
be realised. Before that can happen, the rich list will keep growing
and today's 793 billionaires will be far outnumbered by those with
as much money in the coming years, with an increasingly large number
of them coming from countries where millions of people are condemned
to life of perpetual poverty and misery.
There is one caveat, though. Even if the number
of the super-rich keeps on increasing at an astounding rate, it
will remain a very tiny fraction of the total population of the
world. It's here that the frailty of this system becomes all the
more obvious and susceptible to challenges by the marginalised multitude.
Anything can happen if, for instance, all those gathering for World
Social Forum in Karachi become somehow convinced that they have
in them what it takes to bring down this system, run by the few,
for the few. My guess can be as good as anybody else's about the
likelihood and success of this ever taking place.
Dr Abid Qaiyum Suleri is an Islamabad-based columnist and is contactable
at Suleri@sdpi.org
