The post COVID-19 world order: Scenarios for Asia and implications for Nepal

Marc Saxer, head of FES Asia and Pacific Department, emphasized that countries like Nepal might need to revisit their development models. On a global scale, fifty years from now, the corona-crisis might be looked upon as a turning point in history. However, what we see is rather a continuation of already existing trends rather than a rupture; three of the most important are de-globalization, the increase of great power conflicts and digitalisation. Many countries in the West are increasingly worried about Chinese investments in parts of their economies considered vital to their national interests and try to curb involvement in certain industrial sectors and (high-tech) infrastructure. Both, the US and China, have put enormous pressure on European and Asian allies to choose a side and decouple from the other, dismantling the global supply chains built over the last decade, the backbone of globalization. Furthermore, the dependence on Chinese products to deliver essential goods like public health was a rather painful experience for many Western countries during the early stages of the COVID-19 pandemic.

Furthermore, the old multilateral order is likely to keep crumbling even more. China and Russia have openly challenged American pre-eminence and the Trump administration itself is putting axe to the liberal world order. The outcome of this will make it even more difficult to tackle global challenges like terrorism and migration and might result in the resurgence of selfish acting nation states. The third trend, digitalization, we already see unfolding in the reorganization of the global capitalist machinery, where algorithms and robots will replace human workers on a growing scale in the future. In consequence, the relevance of labor costs as the decisive factor in choosing the location of production will shrink compared to other factors like logistics costs, energy costs, the predictability of the regulatory environment and skills. Overall, this will change the playing field for late industrialisers completely; the East Asian path to development, with its focus on export-oriented production in labour intense sectors, might close for countries like Nepal.

Gyan Chandra Acharya, former Foreign Secretary to the Government of Nepal, pointed out that not only regional engagement but also supporting a rule-based international order is in the interest of Nepal. He further stressed that it is the right time to look at the fundamental structure of the Nepalese economy in context of the changing global economy. However, for Nepal to succeed an inclusive global order is needed as well. Countries like Nepal should have a voice in areas where they can contribute and where they have been affected by the decisions made at the global level. Asia does not have any pan-Asian regional security framework or a pan-Asian economic forum. At the same time, the region has attracted interest of different power centers that create dynamics and tensions among Asian countries in context of the transitions in the global order. Further building regional trade, investment, connectivity, and value chains would be an important avenue. However, in South Asia regional integration is very low due to the ongoing conflicts and power politics in the region. Therefore, Nepal needs to find its niche and be prepared to maximize our efforts to serve the countries interest. But this will tough for a country with a small market, limited productivity and trading capacities that at the same time is confronted with multi-dimensional poverty challenges. For a country like Nepal, maintaining mutually benefiting relationships with both India and China is a critical challenge, but Nepal also has to look beyond the direct neighborhood and the region to broaden its options. The country needs to get out of the cocoon of south Asia and have a strong multi-sectorial, multinational and multi-lateral engagement with countries around the world.

Three of the avenues of development that Nepal has been perusing over the last two decades are threatened by the pandemic: Tourism, labour migration, building export-oriented production. It is time for a discussion on Nepal’s future development model. However, some new opportunities were also discussed: For example, in the future Nepal could seek opportunities in knowledge-based (digital) service sectors that are less dependent on physical infrastructure, but this will take a focused investment in education and building human resources.