Economic Diplomacy

Concept of Economic Diplomacy

Economic diplomacy refers to the use of international (bilateral and multilateral) diplomatic efforts to advance a country’s economic progress. It involves leveraging a nation’s economic potential in global markets and maximizing benefits from external economic opportunities through government or non-government strategies, policies, plans, programs, and activities. This includes advocacy, promotion, negotiations, dialogues, cooperation, partnerships, and coordination in the global market. Gaining prominence since the 1980s, economic diplomacy is a critical dimension of diplomacy.

Areas of Economic Diplomacy

The priorities and key areas of economic diplomacy vary based on a country’s governance system, development level, international relations, and geopolitical context. The following are key areas of economic diplomacy:

Creating a secure investment environment.
Promoting foreign direct investment.
Securing and effectively utilizing foreign aid.
Ensuring infrastructure for development, such as education, health, roads, energy, IT, and skilled human resources.
Facilitating international trade.
Promoting import substitution and export growth.
Facilitating technology transfer for industrial development.
Maintaining geopolitical balance.
Identifying international trade routes.
Effective representation in international forums.
Ensuring transit facilities.
Managing safe and dignified foreign employment.
Identifying new labor destinations and establishing labor relations.
Promoting tourism.
Improving labor relations and ensuring the safety of international workers.
Reducing corruption and promoting good governance.
Enhancing resource mobilization capacity in the bureaucracy.
Formulating appropriate policies and maintaining policy stability.
Developing institutional and human resource capacity for economic diplomacy.
Maximizing the use of information technology.

Economic Diplomacy in Nepal

In Nepal, economic diplomacy is driven by government institutions such as the Ministry of Foreign Affairs, Ministry of Finance, Ministry of Industry, Commerce, and Supplies, embassies, consulates, and representatives in international missions, as well as high-level political visits. Economic diplomacy is also advanced through international media, participation in organizations like the United Nations, World Bank, Asian Development Bank, World Trade Organization, SAARC, and BIMSTEC. Non-governmental entities, including non-resident Nepali organizations, trade delegations, international trade fairs, and participation in bilateral and multilateral forums, also contribute significantly. Having established diplomatic relations with 182 countries, Nepal aims to achieve sustainable economic development and prosperity through international relations, cooperation, investment, and partnerships via economic diplomacy. Nepal’s Constitution, under Article 50(4) and Article 51(D), addresses economic diplomacy in its directive principles and policies on international relations.

Importance of Economic Diplomacy in Nepal

Economic diplomacy holds the following significance for Nepal:

National: Policy reforms, whole-of-government approach, and removing domestic bottlenecks.
Bilateral: Negotiations, partnerships with host governments and private sectors, facilitation of promotional activities, and business delegations.
Regional (SAARC, BIMSTEC, etc.): Economic integration, connectivity, free trade agreements, and investment.
Multilateral: Conferences, diplomacy, and engagement with multilateral financial institutions.

Problems and Challenges of Economic Diplomacy in Nepal

Inability to scale economic diplomacy in line with expanding economic activities.
Failure to effectively integrate economic diplomacy opportunities into annual budgets.
Lack of minimum political consensus on economic issues (e.g., politicization of the MCC project).
Low prioritization of economic diplomacy and limited research on the subject.
Appointment of ambassadors and consuls based on political affiliations rather than economic or diplomatic expertise.
Absence of performance agreements for ambassadors and consuls, and lack of a reward-punishment culture based on results.
Limited identification, promotion, and investment in goods with comparative advantage.
Exportable products being primary-level, lacking value addition, and of low quality.
Lack of investment infrastructure and weak connectivity.
Multiple transit-related barriers to supply chains.
Inadequate tourism infrastructure and lack of basic facilities for tourists.
Unclear scope of economic diplomacy and lack of inter-agency coordination.
Absence of country-specific policies and targets for economic diplomacy.
Weak presentations by embassies and missions, with nominal monitoring.
Inability to effectively leverage relations with key partners for foreign aid, investment, tourism, trade, and employment.
Failure to prioritize balanced diplomacy to gain the trust of both China and India.
Unstable and unclear diplomacy due to an unhealthy political environment.
Lack of effectiveness in global economic forums.
Inability to fully utilize regional forums.
Poor rankings in international indices like Doing Business, Corruption Perception, and Competitiveness.
Inadequate mobilization of non-resident Nepalis’ labor, skills, networks, and investments.
Weak private sector capacity for global promotion, coordination, and partnerships.
Challenges in addressing multidimensional impacts of global pandemics and conflicts.

Opportunities for Economic Diplomacy in Nepal

Adoption of a new constitution and federal governance system.
Political stability and public enthusiasm.
Shifting global economic center toward Asia and Nepal’s favorable geopolitical position.
Potential for trade, resources, investment, tourism, aid, and employment targeting India and China.
Deep international goodwill toward Nepal.
Ability to attract capital, technology, investment, networks, and skills from non-resident Nepalis.
Resolution of the energy crisis and interest from foreign investors in large hydropower projects.
Improvements in labor relations.
Transition from least developed to developing country status.
Abundant natural resources, geographical diversity, tourist attractions, and unique cultural heritage.
Investment commitments for connectivity projects from OBOR, AIIB, and BRICS.
Open transit routes toward China for international connectivity.
Enthusiasm of elected governments at all three tiers to achieve development and prosperity.
Significant improvement in the Corruption Perception Index (CPI).
Inclusion of economic diplomacy in periodic plans.
Local governments establishing sister-city relationships with foreign municipalities.

The Way Forward

Establish minimum political consensus on economic issues.
Identify, invest in, promote, and mobilize sectors with comparative advantage.
Emphasize branding of goods and services.
Prioritize value-added exports over primary-level products.
Develop annual plans for economic diplomacy, enhancing institutional and human resource capacity.
Strengthen private sector capacity and partnerships with non-resident Nepalis.
Establish dedicated institutional arrangements, clear policies, and improved inter-agency coordination for economic diplomacy.
Define country-specific policies and targets for economic diplomacy.
Prioritize balanced diplomacy to gain the trust of both China and India as key partners for aid, investment, tourism, trade, and employment.
Appoint only individuals with economic or diplomatic backgrounds to consulates and ensure performance agreements.
Ensure investment-friendly environments, security of investments, and facilitation of profit repatriation.
Prioritize the development of investment infrastructure and connectivity.
Ensure safe and dignified foreign employment destinations.
Maintain good governance in foreign employment administration.
Identify, invest in, develop, promote, and publicize new tourism destinations in partnership with the private sector.
Maximize the use of facilities available to least developed countries.
Enhance the implementation capacity of the bureaucracy and resource mobilization capabilities.
Effectively mobilize all three tiers of federal governance.

Conclusion

Economic diplomacy involves identifying, promoting, developing, and mobilizing a country’s resources, potential, and opportunities, while creating a conducive domestic environment through public and private sector efforts to attract global economic opportunities for sustainable development. With abundant resources, human capital, potential, and a favorable geopolitical position, Nepal can achieve rapid economic development and prosperity by adopting a well-planned, country-specific economic diplomacy approach, supported by capacity building and institutional strengthening.

2.8 Economic diplomacy