- We need to realise that we will never be able to compete in low-value, high-volume products
Apr 26, 2016-As the country continues to move against global trends, it is a challenge to figure out our competitive and comparative advantages. We have decided to go back to manually painted license plates when the world is moving towards digital ones with built-in smart chips. We hate traffic lights and so we do not use the few ones that we have. While the world moves towards more sophisticated smart traffic lights, we like to create jobs for the traffic police to manage something that is best automated.
Many restaurants have been told to revert back to manual bills and discontinue invoices generated by certain software. In hotel and office rooms, we still love not to have electric pots for tea/coffee and use people to serve us. Perhaps our emphasis on manual and labour-intensive work is due to the belief that our biggest comparative advantage is in cheap labour and we would like to leverage that to the maximum. However, this is turning out to be a paradox. Nepal’s labour cost is the highest and its productivity the lowest in South Asia. The labourers under the patronage of different political parties have turned out to be rent-seekers and the ones who really believe in working, and not in politics, leave Nepal. But the rest of the world is entering an era where the comparative and competitive advantages lie in technology, and not in labour. So the question is: Can Nepal recalibrate itself in the changing global context?
We in Nepal need to realise that we will never be able to compete in low-value, high-volume products. It can never produce the $2 shirt cheaper than Bangladesh or India. However, Nepal can lead in high-value low-volume products. The signing of the Nepal Trade Preferences Legislation in the US can open up the prospects of many high-value, low-volume Nepali products in the US. So rather than being dejected that the old ways of routing cheap readymade garments through Nepal will not happen, we need to recognise new opportunities. For instance, Kobold Watch Company has begun handcrafting high-end leather products in Nepal using the best of imported leather. Similarly, Sherpa Adventure Gear manufactures world-class products. There are high-end cashmere products, recycled paper packaging products among others that are made in Nepal, that meet the highest global standards and that fetch high prices. The focus of Nepali entrepreneurs should therefore shift to create products that are based on a combination of high-end craftsmanship and technology.
Agriculture globally is undergoing a transformation through agricultural robotics. Drones, robots and other technologies are deployed to replace repetitive human labour that is drying up. For instance, in the tea industry, in another 15 to 20 years, how will you convince someone not to attend school or college, not try to get a better job but continue to pluck tea day in and day out? So using robotics in tea plucking is the solution. Kedar Sharma in Ilam is mulling over this idea with engineers to get many repetitive tasks in agriculture to be performed by robots that are going to be developed in Nepali R&D labs. In developed countries, robotics has changed the face of agriculture ensuring better products, better monitoring and a reversion to traditional organic ways but on a large scale. In Nepal, if we can improve our agricultural productivity—one of the lowest in Asia—people from the bottom stratum of society will surely benefit.
All about scale
I love watching Megafactories on the National Geographic channel and How It’s Made on the Discovery Channel. How the sheer scale of operations and better use of technology are delivering superior products to customers baffles oneself. With electricity availability and potential of captive power plants for industries increasing in the coming decade, it will be interesting to see how we can take our agricultural products and process them into world-class products. These may not necessarily be for export. Around 30 million people have to eat two times a day in the country. This is three times the meals served in Australia. Nepali traditional products—be they pickles or traditional sweets—are making a comeback. What is required is processing capability that can take advantage of economies of scale. In India, there was resistance to international potato chips companies as they were entering the country; there were concerns that they would eat up the domestic market. But over the years, we have seen how traditional Indian snacks and sweets are produced in large quantities in world-class facilities. Manufacturing in the coming years will be about scale and using more automated systems. Cheap electricity, not cheap labour, will be the key comparative advantage.
To unleash Nepal’s economic potential, we need to recalibrate the way we think, like dropping the idea of labour as the decisive factor. Pseudo nationalism will only ensure that a few political forces benefit and competition-shy cartels in the guise of political-business-organisation will manage to keep their status quo. However, the world of cooperatives, cartels and crony capitalism will never be able to change the economic fate of Nepal for the better. It is time we thought again where our comparative and competitive advantages lie, open doors for global companies and help Nepali investors and consumers.
Next week Rwanda is hosting the 26th World Economic Forum on Africa under the theme ‘Connecting Africa’s Resources through Digital Transformation’. We need to aim to host such summits in Nepal. The starting point could be to get all the political and business leaders in one room and explain to them what the World Economic Forum is!
Published: 26-04-2016 08:32