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Economic environment
This document summarizes the key economic structures and dimensions of Nepal's economy. It outlines the main sectors (primary, secondary, tertiary), their contribution to GDP, and expected growth rates. The primary sector includes agriculture, forestry and fishing. The secondary sector includes manufacturing and construction. The tertiary sector or service sector makes up the largest portion of GDP at 57.6%. It also discusses economic indices like GDP, income distribution, savings and investment rates, trade issues, employment, privatization policies, and challenges faced by industries in Nepal.
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Introduction to the economic environment, focusing on its significance.
Analysis of Nepal's GDP contributions: Agriculture (28.2%), Industry (14.2%), and Services (57.6%).
Exploration of internal and external economic performance indicators, including GDP, income distribution, and socio-economic factors.
Details on industrial components like agriculture, industry, and services, including their employment impacts.
Issues faced by the agricultural sector in Nepal, including traditional practices and infrastructure.
Industrial sector issues such as lack of capital, infrastructure, and market limitations.
Problems in the service sector, including quality of service and shortage of skilled labor.
Key economic indices: GDP, GNP, and per capita income; economic growth calculations.
Decline in exports and challenges in the foreign trade structure in Nepal.
Overview of Nepal's privatization policies and procedures, highlighting past privatization efforts.
Benefits of privatization, improvements in sectors, and introduction of Industrial Policy, 2010.
Trade Policy, 2015 objectives aimed at increasing exports and reducing trade deficit.
Goals of the Employment Policy, 2005, aimed at creating productive and dignified work opportunities.
Nepal's Tourism Policy, objectives to enhance the tourism sector and improve economy.
Internal and external economic reforms aimed at improving financial stability and growth.
Current plan's challenges, opportunities, and targets for economic growth and poverty reduction.
New trends in Nepal's business environment including technology advancement and consumerism.
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Economic environment
- 1.
- 2. Economic structure • Compositionof size and rate of growth of its population, income level and distribution of it, natural resources, agricultural and manufacturing activities, the magnitude of its service sector, openness of the economy and the degree of urbanization • Basic economic structures of Nepalese economy are; - Primary sector: agriculture, forestry, fishery and mining - Contribution on GDP is 28.2% - Gross value added of agri & forestry expected to expand by 2.7% ( because of increase in production of agricultural products) - Gross value addition of fishery & mining is expected to increase by 7.4% & 10.5%. Contribution to GDP is 0.5 & 0.6% respectively.
- 3. - Secondary sector:Manufacturing, construction, electricity, gas and water. - Contribution to GDP estimated to be 14.2% - Annual average contribution is 14.4% - Production of manufacturing sector is estimated to be increased by 8%. Annual average growth is 3% - Estimated GVA of construction sector is 10.6% - Contribution to GDP is 7.6% - Estimated GVA of gas, electricity & water is 20.5% - Contribution to GDP is 1.2%
- 4. • Tertiary sector:service sector of economy - Contribution to GDP is 57.6% - Annual average contribution is 52.4% - Wholesale & retail sector contribution to GDP 13.3% - Hotel and restaurant sector 2% - Transport and communication sector 8% - Financial sector 6.3% - Real estate and business service sector 11.4% - Public administration & defense 2.9% - Education and health sector 7.2% & 1.7% respectively - Other community, social & personal service 4.9%
- 5. Dimensions of Economy •Economic dimensions - Shows economic performance of the country - Internal economic performance is reflected by GDP, income distribution, poverty level, personal consumption, saving, debt, inflation, interest rate, fiscal and monetary policy. - External economic performance is presented by balance of payment, exchange rates, foreign trade volume etc - Economic dimension indicates the purchasing power and pattern of consumption.
- 6. - The economicdimension is classified as demand side and supply side performance. - Demand side performance is presented by per capita income and income distribution - Supply side performance is presented by saving, investment, productivity and capacity utilization.
- 7. • Socio- economicdimension - Indicates demographic features - The market for a business is determined by the number of people and their purchasing pattern and capacity. - The size, distribution, density, growth, age and gender mix, urbanization and migration of population are some factors
- 8. • The industrialand agricultural dimensions - Relates with production of goods and services - It reflects the potentials to supply goods and services to the consumers and raw materials to the industries.
- 9. • The economicdevelopment dimensions - Reflects pattern of economic development of the country - The direction and priority of development of different sectors - It is reflected in devt. Plans - Plans determine the devt. Policies and strategies along with resource allocations.
- 10. Industrial sector • Manufacturing •Agro and forest based • Energy-based • Mineral • Tourism • Service • Construction
- 11. Contribution to theeconomy • Contribution to the economy • In 2018, agriculture contributed around 27.6 percent to Nepal's GDP; 13.5 percent came from the industry and 57.6 percent from the services sector. • Overall growth rate of value added ( % of GDP) 13.5.
- 12. Contribution to Employment •Rural based industries provided employment to rural people • Female workforce is heavily concentrated on carpets, rugs, wearing apparels. • Industrial enterprises are more labour intensive • The industrial units in KTM valley provided employment to 33.42% of the total employment • Industries all together provided 48% employment.
- 13. Major industries • Agriculture– Coverage 35%- GDP contribution 27.6% • Industries_ ,, ,, 20%- ,, ,, 13.5% • Service_ ,, ,, 45% ,, ,, 57.6%
- 14. Agriculture and associatedproblems • Traditional farming • Lack of proper irrigation system • Lack of transport and market • Unscientific and undemocratic distribution of land • Over pressure of manpower • Poor economic condition • Lack of research activities.
- 15. Industrial sector &associated problems • Lack of capital • Lack of infrastructure • Scarcity of raw material • Limited market • Landlocked position • Lack of industrial security • Lack of availability of skill • Frequent change in policy • Lack of protectionist policy • Primitive technology
- 16. Service sector andassociated problems • Professional and computer • Communication services: courier, telecom, motion picture production • Engineering services • Distribution services: wholesale, retail • Educational services • Financial • Health related • Tourism & travel • Transport
- 17. Problems • Infrastructure • Qualityof service • Safety and security • Shortage of skilled manpower • Problem of pollution
- 18. Industrial sector constraints •Govt. & Policy - Widespread Corruption - Administration of tax law: expect turnover rise every year - VAT administration: obtaining refunds - Smuggling of goods - Lack of security
- 19. • Demand sideproblems - Inadequate demand: textile, metal, paints - Growing competition with cheap Chinese products - Fluctuation of demand - Less protection from govt.: Govt. purchase
- 20. • Infrastructure - Costof electricity - Infrastructure problems - Frequent closure of highways - Cost of trucks: syndicates - Less cargo flights • Labour legislations
- 21. Economic Indices • GDP:27.278 billion, GDP growth: 6.5%, GDP by sector( Agriculture; 65%, Industry; 14% and service 21% • Income distribution: shows market potential and standard of living. • Realistic estimation of demand is made through it • Realistic estimation is made based on household income, middle income family, trend in income growth, concentration of income, variation in income distribution • Gini coefficient( income inequality measurement) in Nepal (.32), rural .31 & urban .35.
- 22. • Rate andgrowth of GNP: GDP+ foreign income transferred to country - GNP is used to measure size & growth of economy - Growth rate of economy refers to rate at which GDP is increasing - GDP grows depend on available resources with pace of time ( capital + Labour) and efficiency of factor of production - Nepal’s Gross National Product was reported at 29.257 USD bn in Dec 2018. This records an increase from the previous number of 25.472 USD bn for Dec 2017.
- 23. • Per capitaincome: Shows purchasing power of people - One of the lowest per capita & lowest among SAARC countries. - Per capita GDP at constant prices is Rs. 812.2 in 018 and per capita GNP is $877 and estimated to be $ 1012 in 018/19. - Regional difference in per capita is significant • Rate of saving and investment: Higher consumer savings would positively contribute to debt & credit availability. - Higher saving---- Low interest rate--- more investment
- 24. - Survey revealed; Inequality widening, significant portion of household lie below poverty line, Saving propensity lie on level of income, more loan on informal sector by shau, mahajan , most household borrowing for consumption purpose, remittance contributed to investment. • Foreign trade structure & related issues: - Export has been declined - Share merchandise export to total trade 28.2% in 2004/5 , now 6.9% - In last five yrs export of merchandise increased by 0.5% and import by 17%.
- 25. • India -Increasedexport of Cardmom, JUTE, THREAD/YARN GINGER AND MEDICAL HERBS • Chine- Pashmina, handicrafts, woolen carpets, garments • Import from India: petroleum products, vehicles and their parts, machines, cement etc • China: Machinery, communication equipments, T.V. and parts readymade garments and raw silk • Other countries: Gold, silver, polythene, machinery, parts and medical equipments and tools • Trade deficit increased by 26.7 % in 2017-18 • Balance of payment deficit Rs. 24.7 billions (historic record)
- 26. Issues and challengesin Nepalese Foreign Trade • 5 lakhs people entered in the labour market every year. • 4.3 million youth ---- abroad • Skilled 1.5%, Semi-skilled 24% & non-skilled 74.5% people are in foreign employment • About 1,000 youths flies abroad for work • Issues are; Lack of training, lack of protection to Nepalese, less priority to regulate foreign employment, voilence against women
- 27. Privatization policy • Initiatedin sixth plan • 1985, 12 PEs were planned to privatize but failed so, govt decided to sell share of financial PES at premium prices • In 1989, Privatization cell was created in Ministry of Finance for developing plan and programs • A paper was produced in 1991including policies, modalities and administrative mechanisms • In 1994, privatization Act
- 28. • Procedures asper Act; - Formation of privatization committee on the chairmanship of finance minister - Committee conducts study, evaluate, remove problems, formulates privatization programs and recommends schemes to the govt. - Committee may appoint experts - Govt. may privatize in any mode - May call proposals - Priority is to be given to Nepalese - Disputes- consultation- arbitration
- 29. Practices • Bhrikuti paperAssets & business sale • Harisiddhi ,, ,, • Bansbari ,, ,, • Nepal Film Ind. Share sale • Balaju Textile ,, • Raw hide collection & processing ,, • Nepal Bitumen & Barrel ,, • Nepal Lube oil ,, • Nepal Foundry Factory ,, • Raghupati Jute ,, • Nepal Bank ,,
- 30. • Nepal TeaDevt corporation share sale • Biratnagar jute mill MGMT contract • Nepal Jute devt. Co Liquidation • Tobacco devt co ,, • Agriculture project service centre ,, • Himal Cement Ind ,, • Cottage Handicraft sales Emporium ,,
- 31. • Effect ofPrivatization - Increase production - Product diversification - Improve in technology - Reduce financial losses - ,, ,, burden of govt. - Increase investment of private sector - Increase in quality of goods and services
- 32. Industrial Policy, 2010 •Nepal is a member of WTO, SAFTA, BIMSTEC and its connectivity with the world • Require to enhance productivity and demonstrate expertise to gain competitive advantages • To cope with the challenges posed by globalization, meet mandatory compliances of international agreements , increase the role of private sector providing conducive environment. • New Act came into use entitled as Industrial policy 2010.
- 33. Objectives of IP,2010 • Increase export of industrial product along with growth in national income and employment through enhancement of quality and competitive industrial products and productivity • Increase contribution of industrial sector in the balanced national and regional devt. By mobilizing local resources, raw materials, skills & means. • Establish industrial entrepreneurship as sustainable and reliable sector by utilizing latest technology and environment friendly production process
- 34. • Create strongbasis of investment having developed productive manpower and managerial capacity required for industrial devt thereby establish Nepal as an attractive place for investment in South Asian Region and in the world as well • Protect industrial intellectual property rights
- 35. Trade Policy, 2015 •It replaced the earlier commerce policy 2008 and help reduce trade deficit through the utilization of opportunities provided by world trade system maintaining harmony, enhancing supply related capacity, increasing production and productivity. • The policy envisaged to constitute Board of trade at central level in the participation of private sector for formulating policies. • Convert Trade Promotion Centre into autonomous Trade Promotion Academy • Policy consists possible 26 items of goods & 7 services.
- 36. Objectives of TP,2015 • To enhance supply related capacity, reduce trade deficit by increasing exports of value added and competitive goods and services • To increase access of goods, services and intellectual property to the regional and global markets.
- 37. Employment Policy ,2005 • The state is responsible for building environment that enables life that is full of dignity, exploitation- free , minimum social and professional security by ensuring access to income generating employment opportunities • For the purpose, it is essential to maintain balance between the labour market elasticity, productivity and social security. • This Labour and Employment Policy, 2005 is promulgated in response to the felt need for attaining the goal of alleviating poverty through the creation of employment.
- 38. Objectives of EP,2005 • To pave the path of sustainable economic devt creating investment friendly environment by offering productive and full employment for entire workforce • To augment ( increase size) productivity by eliminating forced labour practices and establishing congenial labour relation through the introduction of international labour standard • To make labour market safe, healthy, competitive and open by developing a social security system. • To eliminate child labour
- 39. • To enhancethe prospect of employment and self employment by developing high quality multi-skilled HR • To ensure equal access of women, dalits, indigenous nationalities and the displaced people to employment • To make labour and employment administration smart, up-to-date, efficient and effective
- 40. Tourism Policy, 2008 •Nepal is a major tourist destination due to unique natural beauties, rich bio-diversity, multi-ethnicity, variety of language and religions and historical and cultural heritage. • For the diversification and expansion of tourism business, a policy has been formulated and implemented i.e. Tourism policy.
- 41. Objectives of TP,2008 • To develop tourism as an important sector of the national economy by developing linkage between tourism and other sectors. • To diversify tourism down to rural areas so as to improve employment opportunities, foreign currency earnings, growth of national income and regional imbalances • To improve natural, cultural and human environments of the nation in order to develop and expand the tourism industry
- 42. • To maintaina good image of the nation in the international community by providing quality service and a sense of security • To develop and promote Nepal as an attractive tourist destination.
- 43. Characteristics of TP,2008 • Emphasis on promotional activities • Emphasis on rural , community based tourism and home –stays • Priority to internal tourism • Diversification, growth and expansion of tourism: Business tourism, sports tourism, mountaineering, trekking, rafting, casino, cinema tourism, adventure, educational, cultural, religious, health and agricultural tourism. • Development of air services • Leading role of pvt. Sector in tourism devt.
- 44. • Focus onHR devt. For tourism devt. • Emphasis to environmental protection for tourism devt. • Extensive use of IT & data in tourism mgmt • Focus on tourist security and crisis management • Recognition to tourism as industry • Focus on congenial relationship between mgmt & labour • Reforms in legal, administrative, managerial and structural aspects • Formation of Tourism Coordination Committee, crisis mgmt committee • Activation of Tourism Council ( chaired by P.M.)
- 45. Economic Policy Reforms •Internal Reforms: create a sound market oriented financial system for macroeconomic stability and private sector led economic growth a. Financial sector reform: - Banking sector is opened for foreign investment - Banks are allowed to accept current and fixed deposits in foreign currency - Deregulation of investment rate regime - allowed to fix interest - Restructuring of Nepal Bank & RBB
- 46. b. Fiscal reforms:include tax reform, strengthening financial system, deregulation of interest rate and convertibility of Nepalese currency - Introduction of VAT - Introduction of export duty drawback and bonded warehouse - Private sector is allowed to borrow money from foreign source c. Monetary policy reform: Deregulation of interest rate, determination of foreign currency exchange rate and privatization of PEs d. One window policy:
- 47. e. Removal ofsubsidies f. Public sector reform: not setting of new PEs. g. Insurance sector reform: Private sector is allowed to enter in insurance business h. Capital market reform: The foreigners are allowed to invest in stock market • External Reforms a. Reform in trade sector: - change from import substitution industrialization policy to export led economic growth strategy. - Import is freed to assist export - Reforms is promoted by Industrial Enterprise Act 1992 ( with amendment 2017) & FITTA, 1992
- 48. - These twoacts fully made current account convertible and capital account partially convertible b. Reforms in foreign exchange - Current account reform: Fx market is converted to floating system but pegged with Indian currency - Capital account reform: Nepalese and foreigners are allowed to purchase assets and stock market
- 49. Monetary Policy ,2018/2019 • The objective is to achieve a high economic growth rate with a target of 8% growth. • Major highlights -Inflation rate is targeted at 6.5% and below - Fx reserves to be maintained sufficient to cover the imports of goods and services at least for 8 months - Achieve economic growth rate of 8% - Internal loans have been prospected to grow by 22.5% - Limit the growth rate of private sector loans to within 20% - Expansion of refinancing window from Rs. 25 billion to 35 billion
- 50. - Commercial bankscan borrow in Indian currency from foreign banks under the foreign borrowing facility - CRR to 4% for commercial and 5% to devt. Banks - Commercial banks must float 15% of the total loan portfolio to the energy and tourism sector - Credit rating of borrowers that utilize credit of 500 million and above - Margin call only if stock price plunge over 20% of the collateral value - Deprive sector lending: A class bank: 5 %, B class:4.5%, Class C: 4%.
- 51. - Presence ofcommercial banks must in every local unit and the deposit collected in the remaining 116 local units provided relaxation form CRR and SLR calculation for the next three years from 2018/19.
- 52. Economic Planning Current threeyear plan’s impact assessment • Plan has come to guide to represent the basic rights of the people • The background and the value as well as principles of welfare state have been included • Responsibility of compensating losses of blockade and earthquake • Has to promote industrialization and advancement by making agriculture professional, constructing physical infrastructure & increasing trust.
- 53. • Increasing private,public and cooperative investment by making devt. Administration more efficient, utilizing resources • Reducing poverty rapidly by providing equitable distribution and social security. • Strengthening the public expenditure mgmt and increasing the overall good governance.
- 54. Challenges of CurrentPlan • Transform traditional agriculture into business oriented structure • Minimizing possible risk against natural disaster • Constructing and developing infrastructure and interrelating rural-urban development • The guarantee of providing the flow of public service • Maintaining transparency, accountability and integrating with development • Developing regional and local areas
- 55. Opportunities of currentplan • Increase in the quantity of active population • The opportunities of using physical and other infrastructures • Active cooperation of private and cooperative sector • Partnership with international agencies • Attraction of NRN • Chances of expanding tourism and other business sectors in rural areas with the help of middle class people.
- 56. Targets of currentplan • Increase national economy growth by increasing employment, export promotion and import substitution
- 57. Objectives of currentplan • To increase the contribution of industrial sector to GDP by increasing production of this sector • To create employment opportunities by increasing domestic and foreign investment in industrial sector • To reduce trade deficit by increasing the export of industrial goods • To transform socio-economically by reducing poverty through high economic development, productive employment generation and national income distribution.
- 58. Strategies • Increase outputthrough transformation of agricultural sector and expansion of tourism, industries as well as small & middle businesses • Building infrastructure for the development of energy, road and air transportation, information and communication, rural-urban and trilateral connections • Promote high and sustainable human development by emphasizing social development & security • Promote good governance by economic , social and governance reforms & fair central public service
- 59. Targets of 14thplan Indicators Position at FY 2016/17 Target of 14th plan by FY 2018/19 Annual growth rate% 0.77 7.2 Agriculture sector% 1.33 4.7 Non-agricultural sector % 0.63 8.4 Pre capita GDP ( Rs. In ‘ 000) 79.37 116.5 Population below poverty line % 21.6 17 Human development index 0.54 0.57 Gender empowerment index 0.56 0.58 Life expectancy ( in Years) 69 72
- 60. Emerging business environmentin Nepal • Technological advancement • Increase private investment in core business • Growing urban population • Rising educated customers • Changing role of government • Rising economic agenda : constitution emphasized to private sector for economic agendas • Integration with the world economy • Shifting socio-cultural values
- 61. • Shifting towardsservice industry • Workforce diversity • Emergence of consumerism