Globalisation In Nepal Assessment Of Achievements And The Way Forward.docx

Globalization in Nepal Assessment of Achievements and The Way Forward 1. Introduction Broadly, globalization is a tendency of business, technology or philosophy to spread throughout the world. In economics, it is a process of interdependence, integration and interactions among economies driven by increased international trade and investment and facilitated by the fast growth in information communication technology and multinational corporations. It upholds the spirit of a ‘Global Village’, ‘World sans Borders’ or ‘Global Neighborhood’. Globalization got a real boost with the General Agreement on Tariff and Trade (GATT) in the 1940s. The modern agents of globalization are the World Bank (WB) and International Monetary Fund (IMF) through the Structural Adjustment Programmed (SAP) and liberalization and privatization policy recommendations. Similarly, the World Trade Organization (WTO), known as the 3rd pillar of the Brettonwoods System, established in 1995 has been the major architect of globalization encouraging open global trade. Initially seen as Westernization, it has now spread like wild fire across the globe as the triumph of Classicism of Adam Smith and the victory of democracy, liberalization and capitalism over all other ideologies and statecraft. However, globalization is an ever evolving and cross-cutting issue. It may come in multidimensional forms - economic, political, cultural or environmental. As globalization is a two-edged sword, it possesses both benefits and costs. Theoretically, the major benefits of globalization include expansion of the market, consumer benefits, increased competition, greater inflows of FDI, transfer of technology along with managerial and entrepreneurial skills, expansion of the economy through linkage effects and global partnerships. On the other, its major possible costs are displacement effects, price effects, job insecurity, widening income inequality, possibility of capital flight, high dependency and socio-cultural disruption. While being a complex and multifaceted array of phenomena, globalization can be broken down into separate aspects;     

Industrial Globalization: Rise and expansion of multinational enterprises. Financial Globalization: Emergence of worldwide financial markets and better access to external financing for corporate, national and sub-national borrowers. Political Globalization: Spread of political sphere of interests to the regions and countries outside the neighborhood of political (state and non-state) actors. Informational Globalization: Increase in information flows between geographically remote locations. Cultural Globalization: Growth of cross-cultural contacts.

In Essence Globalization Implies;  Minimum role of the government in economic activities  Economic openness and weakening of the border wall  Free flow of goods and services, factors of production, information and technology  National treatment of foreign goods, services and technology  Structural changes in production and technology  Domination of multinational corporation in policy making 1

2. Objectives of the study The main objectives of this study are as follows:  To analyze the Assessment of Achievements of globalization and way forward in Nepal.  To analyze the effects of globalization in Nepal.

3. Methodology of the study This present study is based on the theoretical concept. This study analyses the major objectives using the different articles downloaded through the site google. This study is based on the secondary sources of data.

4. Globalization in Nepal Nepal formally adopted the policy of liberalization, privatization and globalization after the restoration of multiparty democracy in the early 1990s as the forerunner of globalization in the South Asian region. The accession of Nepal to the WTO in 2004 accelerated the process of globalization. However, in the past two decades or so, Nepal has experienced a few success stories as well as cases of failure and frustrated expectations, which clearly highlight the need to assess the whole process of globalization. Nepal has gained some genuine benefits and opportunities from globalization, but in small areas and amounts. As economic reports and indicators reveal, the per capita GNI increased from $185 in 1990 to $721 in 2015 and the size of the GDP has expanded manifold since then. Furthermore, the extent of absolute poverty has reduced from 49 per cent to 23.8 per cent during that period. Though many factors may be responsible behind the historical transformation of Nepali economy, it would be prudent to analyses this phenomenon visa-vis globalization. First, globalization has greatly contributed to the modernization of the Nepali economy. Nepal has been transformed into an open and service-based economy by lowering the share of agriculture in the GDP to 33%. Second, Nepal has expanded its market to the global level. Consequently, the country’s total exports have been increasing, though gradually, and the trade with the outside world has been diversified to some extent. Third, Nepal has witnessed increased inflow of FDI. A number of multi-national companies such as Standard Chartered, Nell and UniLever are operating in the country. The FDI in the field of ICT, tourism, education and financial sectors is noteworthy, which has facilitated the transfer of modern technology and helped improve the balance of payments of the country. Fourth, the consumers have benefited by way of increased quality at cheaper price due to global competition. A wide range of global brands such as iPhone, Samsung, KFC, JohnPlayers, Facebook, Youtube have come within easy reach of Nepali customers. Fifth, globalization has provided access to global financial institutions such as the World Bank, IMF, and the Asian Development Bank, which has facilitated the country’s development efforts by greater volume of foreign assistance. Sixth, globalization opened up the international labor market to Nepali workers. The share of remittance has reached nearly 30% of GDP which has helped to reduce unemployment and poverty to a great extent as well as rescue the economy in the hardest of times. Finally, globalization has promoted socio-cultural transformation of the country through cultural exchange, tourism activities and expansion of knowledge. Besides, it has raised

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concerns over environmental issues of the day, such as climate change, global warming, and pollutions of various forms.

5. Benefits of Globalization 5.1. Expansion of Markets: Globalization through reduction in tariff barrier as well as non-tariff barrier increases the scope of market for the product. 5.2 Consumer Benefits: Consumer through globalization get benefit by way of qualitative and modern products at a lower price produced at fat distance from them. 5.3 Foster Competition: Competition in product as well as factor market is the pre-condition for efficient allocation of resources in different line of production. Factors of production get competitive price. So there is no possibility of monopoly as well as monopolistic exploitation in product markets. Globalization fosters competition around the globe, which helps for better utilization of resources. 5.4 Flow of Foreign Investment: Globalization facilitates flow of international capital mobility and technology at a low cost. Through the promotion of foreign direct investment, it helps to solve the problem of resources gap, trade gap, and revenue expenditure gap and debt burden in developing countries. 5.5 Transfers Technology, Managerial and Entrepreneurial Skills: The backward technology and the lack of entrepreneurial abilities and management skills have often constrained economic growth of the less developed countries like Nepal. There has always been a wide gap between what we have and what we need for our development. The globalization through the promotion of foreign direct investment fills this gap at least partly, if not wholly. Foreign investment, especially where it is coming through the multinationals brings along not only the 'financial resources and new factories to poor countries' but also a package of management experience, managerial ability, technical personnel, entrepreneurial abilities, technological skills and innovative skills in product and technology. Such experience, abilities and skills do not remain confined to the subsidiaries of the multinationals. They spread to other sectors also in the process of 'learning by doing' adaptation and imitation. This kind of transfer of technology, skills and knowledge enhances the growth potentials of Nepal. 5.6 Expands Economy through Linkage Effects: Globalization stimulates domestic investment and economic activities in the host country through its backward and forward linkages. As regards to the backward linkages, when a multinational set up a factory in another country, it creates demand for building materials and construction labor. When it starts its production process, it creates demand for local raw materials and production labor. It means that foreign private investment creates, on the other hand, job opportunities for unemployed labor and, on the other; it creates a large market for the suppliers of raw materials which helps increase their production. It generates thereby secondary employment. Besides, such expansions lead to the growth of ancillary industries. The foreign investment benefits 3

the economy through its forward linkages and their secondary effects. Where production is meant for the supply of replacement and spare parts, and also it creates new job opportunities in the service sector.

6. Cost of Globalization 6.1 Displacement effect: All of the labors, small-scale capital and indigenous raw materials may be displaced by globalization. This reduces the income of local workers and investors who are unable to compete with foreign labor, capital and entrepreneurs. 6.2 Capital intensity Effect: In an attempt to raise efficiency and profit, capital-intensive process of production is adopted. Only the people with high technical know-how get employed and mass of unskilled workers suffer from this. 6.3 Income inequality effect: The persons with recent knowledge about machines, management and manufacturing are employed and such labors become highly mobile nationally and internationally. They would capture most of the incomes. This increases the inequality in the society. 6.4 Government policy effect: The government may have high pressure of foreigners as it is asked to harmonize its economic and social policies. 6.5 Danger of dual economy: As the urban sector can link with international and national markets, there is a danger of remote areas becoming isolated from the development stream. This further intensifies the dualism in the developing economies. 6.6 Capital flight effect: In the process of globalization, there is free movement of capital. This creates the danger of capital flight from to the foreign countries in case of small uncertainty and political instability occurs in the country. 6.7 Small and medium scale industries (SMSIs) effect: SMSCIs can be adversely affected by the globalization. They cannot compete with big multinational companies and there is the possibility of wiping out the small investors and self-employers

7. Implications of Globalization in Nepalese Economy Underdeveloped countries (UDCs) like Nepal can get benefits from processes of globalization by getting more jobs, incomes, new technologies, and skills. The globalization may have the adverse implications as well. UDCs should compete with developed countries (i.e. competition between unequal), high possibility of brain drain, increasing gap between haves and have-nots and so on. Liberalization, structural adjustment, and privatization in the process of globalization have had the following impacts in the Nepalese economy: 4

7.1 Foreign employment opportunities: With increasing Liberalization and Globalization, the employment opportunities for cheap labor became intensified in various countries. As a result, the export of labor became obligatory for the country like ours. Nepalese workers engaged in foreign employment abroad, in East Asia, South East Asia and Middle East are exemplary in this regard. The remittance economy is becoming robust and expected to replace other sectors of the economy in future. 7.2 Foreign Direct Investment (FDI): One of the major implications of globalization is flow of foreign direct investment and establishment of multinational corporations (MNCs). Efforts compatible with globalization have been made to attract foreign investment through liberal policies that gives a top priority to privatization in Nepal. After the restoration of democracy in 1990, reforms in industrial sector to attract FDI were made. The Industrial Enterprises Act, 1992, The Foreign Investment and Technology Transfer Act, 1992, and Foreign Investment and One Window Policy, 1992 are in operation. Although these reforms were expected to mobilize a large number of joint ventures, only a limited number of operations in financial, assembling and services sectors appeared to be in existence. 7.3 Foreign trade Globalization: Foreign trade Globalization opens the economic borders of the countries and emphasizes to remove the trade barriers and curtail in import tariffs of the countries. In the context of globalization and as being the member of WTO, the member should not discriminate the foreign product. The countries with the comparative advantages in the products can be benefited. But, in Nepal the trade balance is worsening year by year. Export is shrinking and import has been expanding nowadays. 7.4 Privatization and industrial growth: Globalization always favors private sectors. Privatization and less role of state in business activities can increase the quality and working efficiency. It reduces the government burden on unnecessary economic activities and budget deficit. In Nepal, Privatization Act, 1993 has been introduced and public enterprises have been privatized according to this act. But, most of the privatized enterprises have not run efficiently, some have already been closed down. The process has somehow become irrational in Nepal. Globalization and liberalization in the industrial sector has negligible impact on industrial growth in Nepal. The growth of industrial sector is jeopardized by prolonged conflict, frequent labor strikes, and poor infrastructure, especially load shedding sometimes exceeding 18 hrs. a day. 7.5 Trade competitiveness and transfer of technology: The firms have to compete in international market. The producers, entrepreneurs and labors should increase the skill to cope with the new technology and other products in the international market. Technology is an important ingredient of the development mix. Developing countries are generally characterized by technological backwardness and a slow pace of technological progress. Transfer of technology from the developed to the developing countries is a necessary measure to speed up the pace of the economic development and modernization process. But, Nepal could not be benefited from such advantages. The export of garments, carpets and pashmina have been declined after removing the quota facility provided by the importing countries. There is lack of entrepreneurship, trade competitiveness and technological adoption in Nepal. 5

7.6 Impact on tourism sector: The impact of globalization on tourism is relatively better for Nepal. In recent years, about 5 to 6 lakhs tourists per annum have visited in Nepal. It can be doubled or tripled within few years. For this, peace and political stability is essential. Building infrastructure to access the tourist spots, hotels, trained manpower and publicity in abroad can increase the number of tourists in Nepal. 7.7 Information technology (IT): In this globalized world, IT plays a crucial role. IT revolution has shrunk the economic territory of the world. Nepal has also achieved the great advantages of development of communication. It has the positive impact on the national economy. 7.8 Impact on poverty reduction: The ultimate impact of globalization in underdeveloped countries is to alleviate poverty by increasing production and export of goods and services. In Nepal, poverty has been reduced from 42 percent in 1996 to 25 percent in 2010. The major cause of reduction is remittance of workers. It is a remarkable achievement in Nepal but Gini-coefficient has been increasing which shows the widespread income inequality between people.

8. Cases of Failures Nepal marched on the path of globalization with much zeal and expectations at the outset. Over the decades, however, the country has gained little, and the expectations have grossly turned into disappointments mainly due to its own peculiarities. First, the structural change of the economy in the aftermath of globalization has caused imbalanced development, fueling widening income inequality and putting self-reliance into question. Second, the liberal trade policy has ended the age of trade concessions, displacing many domestic industries. Moreover, the long standing transit problem and the recent blockade by India have clearly undermined the fundamental principle of globalization, which calls for free movement of goods and services. Third, globalization has aggravated the privatization drive in the country, causing heavy losses to the national coffer. This has resulted in dominance of the MNCs and capital flight. Haphazard privatization has worsened off social welfare due to setbacks in public goods delivery. Fourth, globalization has increased the import of consumer items, raising fears of dumping of low quality goods in the country. Besides, it has pushed up the trade deficit annually at such an alarming rate that the total exports of the country cannot buy even a single item petroleum products. Fifth, as globalization took motion, Nepal slowly plunged into aid dependency. This has put excessive pressure of the donors on development efforts, and the autonomy of the economy is in peril. Sixth, rising foreign employment has triggered a brain drain of the active labour force of the country, which has given rise to the remittance economy. However, doubts are still there over the sustainability of the current inflow of remittances. Finally, globalization has induced Westernization, eroding the local values, culture and identity. Besides, emergence of organized crimes such as human trafficking, cyber crimes, money laundering, fake currency, fraud, prostitution and growing environmental degradation are the side-effects of globalization. 6

9 The Way Forward Globalization has no human face and heart. For maximizing the benefits, stable macroeconomic policies, sound infrastructure and good governance are essential. In brief, the following are the key areas to consider:  

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Formulating policies and programmes with long-term vision to build up the basic infrastructure to adjust the structural changes in the economy. Focusing on trade diversification and product differentiation, enhancing capacity and competitiveness of local businesses by identifying specific areas of comparative advantage to reap maximum benefits from the global market. Introducing social security schemes and Corporate Social Responsibility to raise social welfare and Special Economic Zones and economic diplomacy to attract more FDI. Promoting local products and setting up a mechanism to control quality of goods in the market to prevent the dumping of goods in the economy. Prioritizing the key areas of foreign assistance and strengthening the absorption capacity through good governance. Imparting vocational education to hone the skills of laborers to cater to the demands of the national and international market, making a policy to channelize the remittance to productive sectors and making labor agreements with various countries through diplomacy. Strengthening the capacity of the security agencies to curb social crimes, raising civic awareness and focusing on Sustainable Development Goals and strict law enforcement to safeguard bio-diversity, genetics and farmers’ rights.

10 Conclusion Globalization is not a grand panacea of all the ills of an economy. As no country in the world can remain isolated from the wave of globalization these days, it will be wise to make it an effective tool to eliminate the common problems of today and the future through enhanced global co-operation and unity among the least developed countries. Realizing that the benefits of globalization do not come automatically, a grand economic package offering special facilities to the areas of comparative advantage, especially hydropower, tourism and agro-farming is the urgent need of the hour to keep the economy safe from possible recession ushered by globalization.

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11 References 11.1 On the World wide web  Business for Social Responsibility: http://www.bsr.org/  Corporate Watch: http://www.go.com/  Friedrich Ebert Stiftung: http://www.fes.de/  Inter-Press Service: http://www.ips.org/  Inter-Parliamentary Union (IPU): http://www.ipu.org/  The World Bank: http://www.worldbank.org/  The Ford Foundation: http://www.fordfound.org/  The World Trade Organization: http://www.wto.org  Transparency International: http://www.transparency.de/index.html  UN Department of Economic and Social Affairs (DESA): http://www.un.org;  UNDP: http://www.undp.org/  UN Secretary-General Kofi Annan's Global Compact: http://www.unglobalcompact.org/  World Summit for Social Development and its five-year review: http://www.un.org/socialsummit 11.2 Publications  An agenda for development, United Nations, 1997  Bhattarai Keshab Prasad, 2006 “The impact of globalization in the emergence of civil society and identity conflict to enhance the process for social transformation, A case of Nepal,”  Change: Threat or Opportunity for Human progress?, UNDP, 1991  Human development Report 1997, UNDP  International Journal of Humanities and Social Science Vol. 2 No. 15; August 2012  Overcoming human poverty 2000, UNDP, 2000

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