Foreign Investment and Economic Diplomacy

• Economic diplomacy refers to the use of (diplomatic tools) such as visits, discussions, bargaining, negotiations, agreements from the government, private sectors, civil society, or from individuals at bilateral, regional, and multilateral levels to protect and promote the national economic benefits.
• Economic diplomacy has been a key component of the foreign policy of every country since the end of the Cold War in 1990.
• The end of the Cold War, liberalization, and globalization of most countries’ development of ICT and political changes in a large number of countries after 1990 made them realize that economic relations between countries are more powerful than any other type of relation.
• So, despite the political system and ideology of the government of any economy, the relationship between them has been defined in terms of economic interest.
• So, to protect and promote the economic benefits, every country tries to use diplomatic tools with others.
• There may be differences in the political and socio-cultural issues, but the interest of every country is to maximize the economic benefits through bilateral, regional, and multilateral forums and arrangements. (bilateral = दिपक्षीय, regional = क्षेत्रिय,  multilateral = बहुपक्षीय) 

Rationale/Importance of Economic Diplomacy

1. To promote foreign trade through bilateral, regional, and multilateral agreements.
2. To attract and promote foreign investment (BIPPA, Double Tax Avoidance, etc.).
3. To make foreign employment more respected, secure, and high-yielding.
4. To promote international tourism and foreign exchange earnings.
5. To mobilize foreign aid in the domestic priority sector with more flexible terms and conditions and at a lower interest rate.
6. To promote and protect the economic security and sovereignty of the country.
7. To minimize or control cross-border illegal economic activities such as illegal trade, human trafficking, money laundering, tax evasion (कर छली), etc.

Economic Diplomacy in Nepal

• The economic diplomacy of Nepal can be traced back to the 18th and 19th centuries, when Nepal used to have good trade relations with Tibet and the British.
• After the Sugauli Sandhi of 1816, a separate Gorkha regiment was established by the then East India Company, which started to recruit Nepali youth in the British Army.
• The Treaty of Sugauli is the treaty that established the boundary line of Nepal, signed on 4 March 1816 between the East India Company and Guru Gajraj Mishra following the Anglo-Nepalese War of 1814–16
• Similarly, the Peace and Friendship Treaty with India in 1950 provided unrestricted access to the Indian labor market in both the government and the private sector.
• After the establishment of democracy in 1950, Nepal’s priority was shifted to foreign aid mobilization.
• Nepal’s membership of the UNO, the World Bank, IMF, and ADB made it possible to mobilize multilateral development assistance.
  • • United Nation Organization (संयुक्त राष्ट्र संघ) = December 14, 1955 as 77th Member
    • World Bank (विश्व बैंक) = September 6, 1961 (International Bank for Reconstruction and Development — IBRD)
    • International Monetary Fund (अन्तराष्ट्रिय मुद्रा कोष) =  September 6, 1961
    • Asian Development Bank (एसियाली विकास बैंक) = 1966
• Similarly, Nepal extended the bilateral relations with a large number of countries, which helped to receive foreign aid, international tourist and also some trade with them.
• The rapid growth of the Gulf countries in the 1980s provided opportunities for Nepali labor to work in middle east. So, the government of Nepal extended the relationship with the Middle East countries, including Malaysia, by gradually opening up foreign employment in these countries.
• After the restoration of multi-party democracy in 1990, several task forces and working groups were formed to make Nepal’s diplomacy more effective.
• For example, the high-level task force in 1996 emphasized reviewing Nepal’s diplomacy with a focus on economic interest.
• Many reforms and structural changes were made to reorient Nepal’s foreign policy and give emphasis on the economic interest.
• Similarly, another high-level foreign policy task force in 2006 focused on economic relations as one of the major pillars of foreign policy.
• In recent years, economic diplomacy has gradually been developing as an integral part of Nepal’s foreign policy.
• Since 2009, the government has been allocated a separate budget for economic diplomacy.
• The periodic plan has also incorporated economic diplomacy as an instrument for promoting foreign trade, investment, foreign employment, aid, and tourism.
• The Ministry of Foreign Affairs (MoFA) is the coordinating ministry of economic diplomacy. Which allocates the resources to the Embassies (दुतावास) and Diplomatic missions (कूूटनीतिक नियोग) on their programs based on their performance.
• National Planning Commission, Sectoral ministries and departments, different boards such as tourism boardm foreign employment board, investment board, trade promotion board, etc., private sector and their bodies such as FNCCI, CNI, etc are working to promote economic diplomacy.
  • • • FNCCI – Federation of Nepalese Chambers of Commerce & Industry नेपाल उद्योग वाणिज्य महासंघ 
      • CNI – Confederation of Nepalese Industries नेपाल उद्योग परिसंघ 
• Different ministries have their own international cooperation, division, or section.
• There is high level committee on economic diplomacy under the chairmanship of the foreign minister with sectoral ministries, departments, as well as the private sector.
• This committee is responsible in formualting policies, implementing strategies, monitoring and evaluation of activities, and giving overall guidance on economic diplomacy.
• This shows that economic diplomacy has been fully owned and institutionalized in Nepal, especially after the reforms of 1990.
• This emphasis on economic diplomacy has achieved some benefits for Nepal, such as:
  • • Expansion and diversification of the foreign employment market.
    • Increase access to the market at the bilateral, regional, and global levels.
    • Increase the inflow of tourism and Nepal’s recognition as a tourist destination.
    • Increase in foreign investment, with an increased number of industries receiving foreign investment.
    • Mobilization of development assistance from bilateral and multilateral development partners.
    • Expanding role of Nepali diaspora and Nepal’s identity.
    • Increasing presence of Nepal in international forums and institutions.
    • Increased inflow ot remittance and improvement in the forex reserve.
    • Improvement in diplomatic professionalism and capacity.
    • Shift of the focus from political relations to economic relations with other countries.