Migration and its effect on Import: A
Social Capital Perspective of Nepal.
Every year, the number of people living as migrants is increasing and
according to estimates, in 2015, 244 million people lived outside of their
country of origin which comprised 3.3 percent of the world population (UN,
2016). International migrants fulfill the demand of labor in industrial
countries. In the sending countries, migration and remittance has social,
economic and political consequences. Remittance affects the consumption
decision of the households while changes the foreign reserve and the output of
the trading sector (Guha, 2013). Existing social networks change or even can
deteriorate if people leave the society for a longer time.
Increasing number of people from developing and underdeveloped countries
started going abroad for employment, having no or lower paying jobs at home to
fulfill the increasing expenditure of the family members, particularly on food,
education, clothing and medicines In Nepal, those going abroad are mostly adult
men aged between 20 and 45. The increasing out-migration of these people in the
most productive age of their lives has loosened the social and economic networks
which were developed and perpetuated over a long period of time informally. The
members of the society who automatically become the member of political, social
and economic networks of the society have left their networks during migration.
This migration has affected these
networks in a number of ways with far- and wide-reaching consequences. When a
community continuously looses a significant number of people with strong will
and arm, the functioning social and economic networks start deteriorating and
become minimal. The problem becomes more intense when most active members of
these networks migrate and don’t return for a significant period.
Another side effect of mass migration is also seen in the declining
traditional knowledge and skill sector. Older generation used to run their
livelihood by using different tools and techniques there have been part of
their boarder knowledge. But these skills have been transferred from
generations to generations without any formalized system. Newer generations
used to learn these things by regularly taking part in the socio-economic
activities in the localities with their parents’ generation. Personal or
household matters or reserving food and
seed grains for the rainy season or for plantation, preserving excess
vegetables for another season, producing dairy items like butter, cheese and
cream from milk and storing them, soil and water treatment for better
production, herding the cattle in large numbers, treating them against diseases
to the socio-economic activities of allocating the amount of water among all
members of the society for irrigation or for household purpose, constructing,
sharing and caring the public infrastructures and resources like discussion
houses, water resources, jungle and roadways all was done in a highly organized
and systematic fashion but once a generation of people started going away from
home, these activities and underlying rules to conduct them could not pass to
future generations. Many agricultural tools like the plough and harness,
sickles and axes, curd churning drum and plunger, grain-grinding stone, rice
beating and etc.
Source: World Bank, World Development Indicators
With the inflow of remittance from migration directly reaching into the
hands of other members of the family who are unaware of the sweat and toil of
earning the money, but are actively involved in spending it, the remittance money
is at the risk of over-spending and mis-utilization. The members of the family,
parents, wives and children feel proud that they are receiving money from
abroad, and want to show off it through a number of alternative socio-economic
activities of consumption and idleness. Most notable of these activities are buying
consumer goods, purchasing small piece of land or at times migrating themselves
to some city areas leaving their land and house in the village unattended. In a study by Germenji
and Seinnen (2005), in Albania, the remittances tended
to divert the efforts away from agriculture. Similar conclusion has been drawn in
the case of Nepal by Maharjan and et.al (2013) that “most farm households tend to neglect subsistence farming
altogether in the presence of alternative sources of income”. Thus in general, the
household sending a member out for employment changes from a
producing-consuming economic entity to a solely consuming entity with few
exceptions.
With large number of households, converting to consuming entities, the
total agricultural production declines. Not only the existing consumption is to
be fulfilled by buying from the market, but also new consumption demands arise
with increased income and introduction of new goods and services like
television, electric equipments, mobile telephones, packaged food stuffs and
many other daily goods. If the society or country does not have sufficient
production in the market for these new demands, it has to import from other
countries. This increase in import may be further accentuated by the appreciation
of domestic currency which leads to make the imports cheaper. On the other hand
the increase in domestic demand and decrease in production causes the domestic
prices go higher. This effect of remittance is supported by some empirical
studies done in developing countries with high remittance receipt. The Dutch
Disease effect of the remittance is also studied by scholars to show the
diversion of resources from tradable to non-tradable sector as tradable sector
becomes less profitable due to the exchange rate appreciation.
Nepal import export balance data shows increasing trade deficit
particularly after the 2000 which is escalating every year. This is interesting
to see that the deficit in trade is almost the same as the remittance after
2003 with minor differences. Although trade deficit is not new to Nepal, it has
become much larger in the last 15 years.
Source: World Bank, World Development Indicators, 2016
The widening gap between import and export or the trade imbalance of
Nepalese economy can be more explained by this framework of gradually degrading
social and economic networks in the society and increasing consumptive behavior
of the remittance receiving households. It is the year 1996 when the insurgency
started and intensified during 1999-2005. We can see a clear upsurge in the
import of goods and services. If we compare this trend with the remittance data,
it becomes clearer that remittances actually started increasing in the same
period. It seems more logical that the money received from these migrant
workers has contributed significantly in the consumption pattern of the people.
To be more precise, remittances started to increase dramatically after 1999-2000
which was the full intensified insurgency period when the Maoist guerillas
attacked the army barracks. In the later phase of the most violent conflict, there
were blockades on the roads almost everywhere which might have caused the trade
decline. Factories were vandalized, power houses were shut down and many public
facilities including schools, banks, and government buildings were closed down
or moved to the district headquarters. This had a very bad impact on the
production and export sector of the economy which was already in the initial
phase of progress. That is why when once insurgency is finished and a kind of
internal peace was restored, people who have gone out did not come back, rather
many people started going out following the path of their seniors. Thus the
trade gap became wider and wider.
Is this sustainable or vulnerable?
While remittances are useful to reducing poverty and enhancing the livelihood
of the people, it has also been found that remittances can have a negative
impact on the economy in medium and long term as remittances can cause
inflation, reduce labor participation and also cause to defer the government
action towards implementing macroeconomic policies. These negative effects of
remittances can be compensated by transferring some portion of the remittances
to capital investment, which in turn can have multiplier effect to the
development. If this fails and remittances continue to go in unproductive
sector, those negative impacts start to show up. The economy relies more and
more on remittances exposing to vulnerability in case the remittances fall
because the size of remittances is not fully dependent on domestic factors.
Theory of Institution provides a good background to understand why
competitive market environment with fullest availability of information to each
of the participants work more efficiently than those with limited market
information. North (1991) gives the example of Suq in Middle East and North
Africa that characterize the type of setting with limited market information,
no or very limited institutions and rules to foster competition among people
and only a face-to-face transactions and discusses why this system of trading
did not evolve to exploit the full potential of the trade. While on the other
hand, market with “institutions devoted to assembling and distributing market
information”, pricing, quotation and standardization have developed the
economy. These types of institutions are important to take advantage from trade
and competition, continuously evolving and improving through innovation in risk
spreading, mobility of capital and lowering the transaction costs.
The issue vulnerability, in the case of Nepal can be anticipated in two
aspects. Firstly, assuming that
remittances will continue flowing in, more and more people will be going for
employment, - at least for now, the government policies seem promoting it - ,
the same situation of increasing imports and decreasing exports continues. For
how long can an economy run with this never ending trade imbalance, decreasing
exports and increasing imports? How much trade deficit can be considered good
if it is compensated by remittances? If the remittances are used for creating
investment capital and enhancing production for consumption and export, i.e. if
they are contributing the economy to grow, then it is arguable that they are
sustainable. But, if the remittances are increasing import and making just dull
consumers out of the people, decreasing the production, then it can’t be
considered sustainable. The existing social and economic network of production
and transaction are loosened in Nepal due to migration, new systems based on
the modern method of production and transaction should have taken over them but
that did not happen in the case of Nepal economic activities are scattered in
pieces, market is not organized and there is no industrialization or
commercialization of the economic activities. Most of the people are not in the
economic and manufacturing value chain. It looks like this is not going to be
so sustainable in Nepal. Migration has been causing a kind of brain drain, if
we think that these people would have been involved in productive activities if
they were at home.
The second aspect of the issue is also not less disappointing. The
question is: What happens if the inflow of remittances decreases significantly?
This will have a multiplicity of negative effects: unemployment will rise as
migrants will be returning to homeland and perspective migrants will fail to go
abroad. Source of income of the households will fall down rapidly but their
consumption habits will not adjust immediately. Consumption tax revenue of the
government will start fall. This will create imbalance in the economy. If this
happens in large scale due to some problems in host countries, especially in
the gulf, this will leave a severe problem in the Nepalese economy. Symptoms of
such phenomenon are gradually seen in the gulf.
A World Bank press release in April 2017 reads , “Low oil prices and
weak economic growth in the Gulf Cooperation Council (GCC) countries and the
Russian Federation are taking a toll on remittance flows to South Asia and
Central Asia” (WB, 2017) . In Nepal, receipt of personal remittances in 2016 declined
by almost 7% than in 2015. The recent conflict between Qatar and other gulf
countries is not a welcoming signal for the countries like Nepal to heavily
rely on remittance for running the economy at micro and macro level.
What can be done? : Preparedness
For the proper utilization of the resources available from the
migration, assuming that they will continue to flow in, channeling the
remittances through formal financial and banking sector for capital generation
and wise investment policies are crucial for employment generation and
infrastructure development. Projects can be devised which can be funded by the
remittances money. People will feel more confidence in the government once
employment opportunities rise and development plants kick start with their
money. A comprehensive training and skill management system can be placed at
work to capture the knowledge and skill of the returnee migrants and to use it
for further dissemination, training or utilization in respective sectors. This
will also help in entrepreneurship development among the returnee migrants and
their close acquaintances.
To fight with the disaster relating to the second aspect, the government
has to take steps to develop resilience through diversification of destination
countries. South Korea has been a newly explored host nation from Nepal and
there are very good prospects. We have to increase our production base of the
goods and services so that employment becomes available locally and youths find
less and less incentives to leave the homeland. Government policies are to be
devised which contribute to employment, investment and entrepreneurship rather that
selling more and more passports and labor permits. Migration and remittances
income does not seem a long lasting phenomenon of the Nepalese economy but its
decline will do good or bad depends on how we manage the opportunities created
by it and how we become prepared to face the challenges posed to us.
Composition of Imports
Total imports for Nepal in the year 2015 amounted to 6.61 billion US
dollars. It had increased by almost 21% in the year 2014 and declined by almost
11% point in 2015 due to the massive earthquake and the border sanctions after
the promulgation of the new constitution. Largest share of the imports is of
petroleum products which consists almost 11% of the total import. Other major
imports are iron and steel(12%), silver and gold (6.9%) vegetables and
foodstuffs(11.2%). This shows that a large part of the import goes to
non-capital goods or consumption goods.
The top 10 category list of HS code for import to Nepal from year 2009
to 2016 shows that Fuels has remained first during the whole period while
vegetable oil, animal products, cereals, electronic goods, vehicles and jewelry
have repeatedly shown in the list. In my observation, only one category that is
in the list which can be considered a capital good is iron and steel. Even
that, in the case of Nepal is mostly imported to construct houses of the individuals
and families. Imports to Nepal are mostly finished and final goods rather than
the raw materials while exports are mostly the raw materials, agriculture goods
and handicrafts.
Table: 2-digit HS
category code and the rank of them in the total import value (2009-2016)
|
HS category
|
Description
|
Year
|
|||||||
|
2009
|
2010
|
2011
|
2012
|
2013
|
2014
|
2015
|
2016
|
||
|
27
|
Mineral
fuels, oils, waxes & bituminous sub
|
1
|
1
|
1
|
1
|
1
|
1
|
1
|
1
|
|
72
|
Iron &
steel
|
3
|
2
|
2
|
2
|
2
|
2
|
2
|
3
|
|
85
|
Electrical
machinery & equip. & parts, television ...
|
5
|
3
|
3
|
3
|
3
|
3
|
3
|
5
|
|
84
|
, Machinery
& mechanical appliances, computers
|
6
|
5
|
4
|
5
|
5
|
4
|
4
|
4
|
|
87
|
Vehicles
other than railway or tramway rolling stock
|
4
|
4
|
6
|
6
|
6
|
5
|
5
|
2
|
|
15
|
Animal or
vegetable, fats, oils & waxes
|
8
|
9
|
8
|
8
|
9
|
9
|
10
|
8
|
|
39
|
Plastics
& articles thereof
|
10
|
10
|
7
|
7
|
7
|
8
|
8
|
7
|
|
71
|
Pearls,
stones, prec. Metals, imitation jewelry, coins
|
2
|
6
|
5
|
4
|
4
|
6
|
6
|
10
|
|
30
|
Pharmaceutical
products
|
9
|
8
|
10
|
10
|
-
|
10
|
9
|
9
|
Source: Trade and Export Promotion Center (TEPC), www.tepc.gov.np
. Aug, 2017
By looking at the table above, it can be observed that the pattern of
imports has not much changed since 2009. Almost the same category of goods has
remained in the top ten lists for that period. In fact, 8 categories appear every
year in the top ten lists. From 2nd position in 2009, “pearls and
stones” has come down to 10th position in 2016. It may be useful to
compare the annual import of this category with other categories to find the
actual volume and value of import. Position of vehicles has increased which is
logical for the fuels being in first position because Nepal imports all the
vehicles and all the fuels.
By looking the above facts and figures, it can be concluded that Nepal
has not been able to harness the benefits of remittance from migration.
Furthermore, our traditional social and economic networks are on the way to
crumble due to the mass migration of the people of working age. If Nepal wants
to take advantage of the remittance and the skills and knowledge from the
migration, it’s high time to devise sound policies to convert the remittance
money into investment and to create a knowledge network of the migrant workers
home and abroad to promote entrepreneurship, create employment and foster
development.
References:
Guha, P.
(2013). Macroeconomic effects of international remittances: the case of
developing economies. Economic Modelling, 33, 292-305.
Maharjan, A.,
Bauer, S., & Knerr, B. (2013). Migration for labour and its impact
on farm production in Nepal. Kathmandu, Nepal: Centre for the Study of
Labour and Mobility.
North, D. C.
(1990). Institutions, institutional change and economic performance.
Pant, B.
(2008). Mobilizing remittances for productive use: A policy-oriented
approach. Nepal Rastra Bank, Research Department Working Paper, 4.
Solimano, A.
(2003). Remittances by emigrants: issues and evidence. Santiago de
Chile.
