Regional economic groupings like SAARC, SAPTA, SAFTA, and BIMSTEC aim to promote trade and cooperation among member countries. However, for a developing and small economy like Nepal, these groupings also create several challenges. The major issues faced by Nepalese businesses are:
Thank you for reading this post, don't forget to subscribe!1. Affect on Domestic Industries
When Nepal joins regional trade agreements, tariffs are reduced and foreign goods (especially from India, China, Bangladesh) enter Nepal easily.
This creates problems for local industries such as:
- Small manufacturing units
- Textile industries
- Agro-based industries
- Cottage and small enterprises
Domestic firms struggle to compete and may lose market share.
2. Decline in National Expertise
Cheaper imported goods discourage local production.
As a result:
- Skilled workers do not get opportunities
- Traditional knowledge and local craftsmanship decline
- Local industries fail to develop research and innovation
Over time, Nepal becomes dependent on foreign technology and goods.
3. Minimize Domestic Investment
Because of high competition from strong foreign companies, domestic investors feel insecure.
This results in:
- Reduced investment in manufacturing
- Capital being diverted toward trading rather than production
- Slower industrial expansion
Uncertain policies and weak protection for local industries further discourage investment.
4. Outflow of Capital
When Nepal imports more than it exports under regional trade arrangements:
- More money flows out of the country
- Trade deficit increases
- Foreign companies earn profits and repatriate them
This reduces national savings and weakens the economy.
5. Creation of Unemployment
When domestic industries fail to compete and close down:
- Local workers lose jobs
- Youth migrate abroad for employment
- Skilled workers remain underutilized
Foreign companies may prefer machines or skilled workers from their own countries, which also limits job opportunities for Nepalis.
6. Ignoring the Environment
Regional groupings often focus on trade and profit, not environmental protection.
Possible impacts include:
- Import of environmentally harmful goods
- Industrial pollution from large foreign projects
- Weak control over waste and carbon emissions
- Unsustainable use of natural resources
Nepal’s environmental policies are often overshadowed by trade agreements.
7. Unfair Competition
Nepal’s industries are small and less competitive, whereas member countries like India, Thailand, and Bangladesh have:
- Larger economies of scale
- Advanced technology
- Government subsidies
- Low production costs
As a result, Nepalese products struggle in regional markets, and unfair competition harms local producers.
Conclusion
Although regional groupings offer opportunities for trade, cooperation, and development, they also pose significant challenges for Nepal’s small and vulnerable economy. To protect domestic industries and promote sustainable development, Nepal must adopt supportive policies, upgrade technology, and enhance competitiveness.