This post was originally published in the Himalayan Times
In March, the Government of Nepal banned imports of international wines and spirits as part of a series of measures aimed at protecting the country’s foreign currency reserves in the face of the COVID-19 crisis.
Along with governments worldwide, Nepal is understandably grappling with policies that minimize health risks without side-tracking the economy and destroying job markets. However, it is doubtful the supply restrictions will generate the intended economic benefits and it is almost certain that increased criminal activity and risks to public health will follow.
In fact, the last few months have generated several valuable lessons learned from COVID-19 related prohibition laws that were pursued—and then abandoned—in India, Thailand, South Africa, Mexico, and Colombia. In all cases, the laws facilitated growth in illicit trade (and the criminal activity that supports it), exposed consumers to health risks from toxic illicit alternatives, and rapidly drained government revenues dependent on excise tax collections.
While emergency restrictions on imports of high-end vehicles might temporarily bolster Nepal’s balance of payments, the fact that imported wines and spirits represent less than 0.2% of the country’s total import value suggests that the ban will have negligible economic impact. On the contrary, the import restrictions may end up costing the country tax revenues and jobs.
The heavy taxes on imported wine and spirits generate almost $55 million in the form of excise and customs, much of which will instead be diverted to the criminal black market. Moreover, these lost tax revenues are essential to domestic resource mobilization, enabling Nepal to invest in public services and infrastructure at a time when it is needed most.
Looking deeper into the unintended economic consequences of the supply restriction is the impact on Nepal’s vibrant tourism and hospitality sectors. Once international tourists start visiting, post-crisis, they will expect the brands they know and trust to be available. If consumers cannot buy legal alcohol, they will turn to illicit alternatives, with potentially disastrous consequences for Nepal’s reputation as a safe tourist destination.
Like other countries in South Asia, Nepal has a significant informal alcohol market that includes dangerous ‘bootleg’ alcohol. According to research by the World Health Organisation and the Nepal Health Research Council, at least 66% of all alcohol consumed in Nepal was either illegal or home-produced, making for an illicit market that is more than twice the size of the legal market.
Prohibiting the import of international spirits and wines will only compound this problem, increasing the share of illicit alternatives through smuggling across borders into Nepal and counterfeiting of popular, premium international brands.
Spikes in demand for illicit alcohol also present severe health risks to consumers exposed to end-products that do not comply with sanitary, quality and safety regulations and are contaminated with toxic chemical additives. In March, it was reported that police confiscated large quantities of illicit alcohol produced in 38 illegal breweries; and nine people died, and six others became severely ill after drinking illicit alcohol during the Holi festival. Local experts including Dr. Rakesh Ghimire, of the Department of Clinical Pharmacology at Tribhuvan University Teaching Hospital, have expressed deep concern about the deaths that have been registered in just the past few months due to the consumption of toxic alcohol.
These horror stories are not new and the public health consequences associated with illicit alcohol are widespread and alarming. More than 100 people died from consuming toxic illicit alcohol in Mexico under COVID-19 prohibitions and the harms of illicit alcohol are so severe that the Health Minister of the Dominican Republic has declared that the consumption of illicit alcohol has caused more deaths than COVID-19 in his country. In just the last year, neighbouring India has witnessed hundreds of deaths associated with toxic, illicit alcohol.
The dubious economic benefits of Nepal’s alcohol import restrictions, along with the negative impacts on illicit trade and public health, are a compelling case for the government to reconsider its ban on legitimate imports of international wines and spirits. A better approach would be to ensure the availability and access to legitimate products, enforce health and safety regulations in the sector, and collect the proper tax revenues important to public investment in Nepal.
To this end, we support the creation of local private-public partnerships to bring key industry and government stakeholders together to define strategies that can preserve currency revenue needs while securing the legitimate market for alcohol.
For more information
The TRACIT statement on Illicit Trade in context of COVID-19 Product Fraud along with other resources can be found here: /www.tracit.org/covid-19_alcohol
About tracit talking points
TRACIT Talking Points is a channel we’ve opened to comment on current trends and critical issues. This blog showcases articles from our staff and leadership, along with feature stories from our partners in the private sector and thought-leaders from government and civil society. Our aim is to deepen the dialogue on emerging policy issues and enforcement measures that can be deployed against illicit trade.