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Nepal is an agriculture country major labor force is employed, and contributes nearly thirty
percent of GDP. Countries have adopted the policy of industrialization and create jobs for the
economic active population. This paper discusses and tries to identify the role played by the
manufacturing enterprises. Basically share in GDP, employment, value addition and gender
participation. A simple average, straight line growth trend and percentiles are used for the role
measurement. The source of data is mainly censuses on manufacturing enterprises conducted
in Nepal since rst one from1991 to last one in 2012 and Economic Survey. Analysis of the
data indicates that the total number of operating establishments is declining, in the same way
the total number of employees is also declining. The highest percentages of female workers
are engaged as operative workers in all the CMEs. It is realized that whatever the status
measured may help to the policy makers or researchers to correlate and analyze further.
It is recommended the need of further information is needed on market opportunities and
challenges in the past and present, investment and export potential and bottlenecks. This
would be useful to entrepreneurs and policy makers alike.

R Census, Employment, Gender, Manufacturing Industry, Manufacturing Value Added,

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Nepal is an agriculture country where nearly 66.67% (CBS 2015) of labor force are employed,
and contributes 27.6% in GDP (MoF 2018). 2008 Nepal labor force survey indicates that
manufacturing sector employed nearly 6.6% (NLFS 2008). In agriculture sector the over
employed population needs to be diversi ed in other sector as well as population as of with
their capacity needs to be employed. In this regard expansion of the manufacturing sector,
both in terms of size and productivity can improve the status of population below poverty line
through generating gainful employment and acceleration of country’s economic prosperity.

Due to traditional method of farming, availability of quality and timely inputs, small farm
size 0.66ha with 3.2 numbers priority sector are considered as the factors for lower agriculture
sector growth as expected and desired by the policy and farmers. In this scenario manufacturing
sector generally offers better opportunities in comparison to agriculture in such a way:

* Lecturer, Shanker Dev Campus, Tribhuvan University, Nepal

 0 Role of Manufacturing Industries in Nepalese Economy

3 Technological progress,
3 Transfer of surplus resources, if any, from agriculture to manufacturing,
3 Output growth, productivity and capital accumulation
3 Economies of scale, and
3 Positive spillover effects

In such situation it is needed to capitalize these opportunities with appropriate policies and
strategies. The status of available information is tried to analyze the role status of policies
and programs implemented by the government.

In each ve years interval since 1964/65 scal year Central Bureau of Statistics (CBS) is
conducting census of Manufacturing Establishment (CMEs) and in 2011/12 has completed
10W CME. In each and every CME’s covers the manufacturing establishments those who
engage 10 or more economic active age persons within the Republic of Nepal’s geographic
boundary.

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Major obstacles to industrial development are Nepal's small domestic market, landlocked
position, and limited skills and resource base. Industries catering to local markets face
low disposable incomes and serious competition with Indian consumer goods industries,
which bene t from economies of scale. In most hill areas, purchasing power, already below
subsistence levels, increasing population density and the lack of unexploited arable land. In
manufactured exports, Nepal's landlocked position results in high transport costs, a sizeable
burden on export prices of low value items. Cottage industry production in the hills is
constrained by seasonal demands from agriculture and limited commercial orientation of the
artisans. Traditional techniques limit productivity. Most craftspeople are not entrepreneurs;
their tradition, scale, and knowledge limit growth beyond the household level and necessitate
services by market agents for distribution of inputs and nished products.

Till the date CBS publishes only statistical synopsis or abstract of each CME’s. Even though
there are covered different a number of indicators which can help to assess the performance
of manufacturing establishments, besides the number of establishments, employment, wages
and salaries, xed assets, input, output and value added. The use of the information collected
is mainly used for the estimating contribution of the sector in GDP.

But the information can be used for further analysis on various aspects mainly on the
role evaluation of this sector. Thus, in this paper it is tried to evaluate its role in Nepalese
economy or in employment, in GDP, Productivity, in Competitiveness and Conclusions and
recommendations.
 I V 8 N 0 0

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This paper is based on the secondary information published from governmental organization
and limited to the available latest information like manufacturing establishment census (CME’s)
of 2011. The analysis of data in this paper is based on the latest Manufacturing establishment
census 2011, of cial industrial statistics from the Ministry of industry 2015/2016 and latest
economic survey from Ministry of Finance (MoF). Here the analysis is based on the indicators
available from the CME’s and the MoF.

The data used are primarily those of the censuses of the manufacturing establishments
conducted in 1996/97, 2001/02, 2006/07 and 2011/12 at the 2 digit level of the International
Standard Industrial Classi cation Revision 3 (ISIC rev.3).

While calculating the growth rates the following Straight-Line formula is used.

=
( 3 V W − VW )×
VW
Where:
PR=Percent Rate
V U W =Present or Future Value
V D W = Past or Present Value

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As mentioned and reviewed by SAWTEE -Nepal’s manufacturing/ industrial policy can be
roughly divided into two time-periods, pre-1985 and post-1985. Before 1985 policies were
guided by inward looking protectionist strategies. Domestic industries were treated as ‘infant
industries’ and were protected from foreign competition by high tariff and quota restrictions.
The government was directly involved in the economy and provided essential products and
services.

Liberalization initiated in 1985 and accelerated after the 1990s, sought to modernize the
economy and accelerate structural changes by creating an environment appropriate for private
sector participation. The government began to withdraw from the economy, and policies were
implemented to promote private and foreign investment. A new liberal Industrial Policy was
formulated in 1992. One of the major objectives of the Industrial Policy of 1992 is to privatize
public sector industries. The policy seeks to create an open and competitive economy by
curtailing government interference in price xing of industrial goods. In addition, the policy
aims to strengthen linkages between manufacturing and agriculture sectors and promote
labor intensive, local resource based, export oriented industries. Private sector participation is
also encouraged in community and private forest development, generation and distribution
of hydro-electricity and in construction and management of nursing home, hospital, power
propelled railway, roads, bridges, tunnels, ropeways etc.
 0 Role of Manufacturing Industries in Nepalese Economy

As reviewed by CBS 2014, despite these policy measures, the manufacturing sector did
not improve as expected. The 1989-90 trade disputes with India are largely to blame: Nepal
could not import many inputs and this caused lower capacity utilization in some industries
and lost India as its traditional market for certain goods. Even in these trying times, the
government of Nepal continued to provide support to the manufacturing sector. From 1992,
all manufacturers exporting more than 90% of their products bene tted from the bonded
warehouse system.

In 2010, a new Industrial Policy was introduced that replaced the 18-year old Industrial Policy
1992. It promises easy exit to the investors, recognizes subcontract manufacturing, promises
tariff protection to local industries with high value addition, incorporates intellectual property
protection provisions, and emphasizes employment creation and poverty reduction. Ensuring
balanced industrial growth, backward linkages, protection and state-support to the industries
are some of the key objectives of the policy.

Under the new Industrial Policy 2010, government support would be extended to the
development of infrastructure to industries on a priority basis and special tax holidays were
provided for industries in rural and unindustrialized areas. The new Policy 2010 is expected
to accelerate manufacturing growth guided by timely rules, regulations and laws. It has
many new provisions that would help create friendly relations between the government and
private sector, and also help economic growth of the national economy by promoting the
industrial sector in the country.

The policy aims to develop industrial infrastructure, such as roads, electricity and
telecommunications in parts of the country having the potential for manufacturing and
processing. The policy provides additional incentive packages to export industries, particularly
the small and medium enterprises. It promises 25 per cent income tax concessions to small,
medium and large industries that employ 100, 300 and 600 persons respectively.

The policy broadly categorized the geographical regions of the country into three groups -
extremely underdeveloped, underdeveloped and developing industrial regions and pledged
holidays in income tax and excise duties for the industries in those regions for 12 years, 7
years and 5 years, respectively.

In addition to the existing Special Economic Zones (SEZs), the policy also envisages the
development of Agro- Export Promotion Zones (AEPZs). The industries, established in both
types of zones, are exempt from excise duty and value added tax on raw and packaging
materials. It also recognizes research and development, and market promotion as integral
parts of industrial activities, and allows 5% income tax deduction for each purpose.

The policy listed the following sectors under high priority: IT, cement, hydropower, vehicle
& motor parts, chemical fertilizer, bio-technology and adventure tourism. It also listed
agriculture, forest-based industries, ayurvedic & homeopathic medicine manufacturing,
 I V 8 N 0 0

minerals and handicrafts as priority industries. The other provisions of the policy include
no-work no-pay, business incubation center and industrial investment protection funds to
compensate the ailing industries. Similarly, the policy envisages special package program to
develop the Karnali industrial corridor and new industrial villages.

The year 2010 also saw the adoption of the Nepal Trade Integration Strategy, which identi ed
19 priority export sectors. In the manufacturing sector, these were instant noodles, handmade
paper, silver jewellery, iron and steel, pashmina, and wool products. Dairy products were
mentioned under additional potential export sector. Sector speci c recommendations were
derived from detailed Strength, Weakness, Opportunity, and Threat (SWOT) analyses.

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Here the role of manufacturing industries is discussed in details of the manufacturing sector
in terms of its position in the economy, current structure.

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Nepal’s manufacturing sector has not performed as the engine of growth. In fact, its share in
GDP gradually declined from 9.0 per cent in 2000/01 to 5.39 per cent in 2017/18 (Table-1).
Other sectors - transport, storage and communications and nancial intermediation - increased
their shares in the economy over the years. Still others showed minor changes. Agriculture
maintained its dominant position with 27.10 per cent in 2017/18.

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 0 Role of Manufacturing Industries in Nepalese Economy

Figure 1 gives the average growth rates of value added by sector from 2000/01 to 2017/18 (for
more details on growth rates per year (Table 2). The average growth rate of manufacturing
value added per capita is over 2000/01 -2017/18 periods: 2.02 per cent. The fastest growing
sectors were: education (13.24%), Health and social work (12.71%), Financial intermediation
(11.94%) , Public administration and defense (11.84%), Other community, social and personal
service activities (10.82%), Fishing (11.49%) transport, storage and communication (9.61%),
and various services (together about 10.82%).

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Although the share of manufacturing in total GDP decreased from 9.03 per cent to 5.39 per cent
(Table -1), the manufacturing sector underwent some substantial changes in its composition
by sub-sectors based on CME’s (Figure 2). The major change is the increase of the share in
value added of the food and beverages sector from 22.8 per cent in 1996 to 34.0 per cent in
2011. This went up at the expense of textiles (from 25.9 per cent to 3.8 per cent), and wearing
apparel and fur (from 6.3 per cent to 0.5 percent).

All these sectors are classi ed as low technology sectors but within these the food sector
can be regarded as the rst step towards industrialization. It is driven by domestic demand
and uses mainly agricultural inputs, with low value added to input ratios. Thus, apart from
a declining contribution to the total GDP, the manufacturing sector also retreated towards
more basic industries.

From a policy perspective, this means that agro-based industries should be taken as one of the
starting points for quality improvements, product diversi cation, technological development,
competition with imports, and export expansion.

Similar to its share in a number of manufacturing industries, food and beverages contributed
the highest share in the value added, in both 2006 and 2011. In 1996, the value added from
textiles was the highest among other branches. The share of value added from food and
beverages in the last 15 years increased from 23 per cent in 1996 to 34 per cent in 2011. Similar
patterns were observed for non-metallic mineral products (7 per cent in 1996 to 14 per cent
in 2011).
 I V 8 N 0 0

Value added from textiles signi cantly decreased over the years. It decreased by 6 percentage
points from 2006 to 2011 and by 22 percentage points from 1996 to 2011. Although tobacco
products based manufacturing has only around 1 percent share in the total number of
manufacturing, its share in value added has been very signi cant (12 per cent in 1996, 17 per
cent in 2006 and 13 per cent in 2011) standing 2nd and 3rd in total share in value added. This
might be the case because the output was reported at market prices (including tax).

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CME 1996 CME 2006 CME 2011
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15 Food and beverages 4996 22.8 12907 27.0 30865 34.0
16 Tobacco products 2624 12.0 8164 17.1 11921 13.1
17 Textiles 5673 25.9 4873 10.2 3425 3.8
18 Wearing apparel, fur 1376 6.3 668 1.4 486 0.5
Leather, leather products and
19 I W DU 288 1.3 293 0.6 771 0.8

Wood products (excluding furniture) 309 1.4 615 1.3 1798

21 Paper and paper products 370 1.7 2007 4.2 904 1.0
Printing and publishing 316 1.4 541 1.1 571 0.6

23 Coke, re ned petroleum products, 33 942 366 0.4

nuclear fuel
24 Chemicals and chemical products 1318 6.0 3897 8.1 6976 7.7
25 Rubber and plastics products 649 3.0 2004 4.2 4225 4.7
26 Non-metallic mineral products 1584 7.2 3758 7.9 12716 14.0
27 Basic metals 386 1.8 2418 5.1 4903 5.4
28 Fabricated metal products 1095 5.0 3409 7.1 8117 8.9
29 Machinery and equipment n.e.c. 18 0.1 132 0.3 270 0.3
31 Electrical machinery and apparatus 483 547 1.1 772 0.8

32 Radio, television and communication 59 0.3 188 0.4 492 0.5

equipment
34 Motor vehicles, trailers, semi-trailers 5 23 82 0.1
36 Furniture; manufacturing n.e.c. 292 1.3 449 0.9 1169 1.3
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 0 Role of Manufacturing Industries in Nepalese Economy

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Industrial performance of a nation is an outcome of various social, economic and technological
factors. Productivity, structural change and competitiveness are considered main dimensions
of industrial performance. Here an attempt is made to discuss various measures of
productivity. Productivity is an important measure of the ef ciency of production and its
productivity performance indicator is a crucial variable for industrial policy making.

Productivity is a ratio of a measure of output to a measure of input use. In practice, it is

derived from the ratio of the value of real output to the value of input over a period of time
of the nation. But a precise measurement of productivity is not so straightforward, especially
due to the complexity of input components. In economic statistics, inputs are disaggregated
into two major groups. The rst one is primary inputs (also known as factors of production)
comprising labour input and capital input and the second one is intermediate inputs (materials
and supplies, energy, industrial services, etc.). The change in productivity occurs as a result
of the change in the ef ciency of the use of all these inputs. An approximate estimation of the
combined effect of a change in primary inputs on output is called total factor productivity.

Productivity can be measured in different ways, depending on the de nition of output and
input components or measures. The following partial productivity indicators are discussed
below: value added per capita, value added per employee, value added per unit of capital,
value added per output total factor productivity, while the share of training in wages and
salaries is presented in Section 0 as an indication of the efforts by rms to improve productivity
by labor skill improvements.

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The current status of the manufacturing industries is analyzed on the basis of the size of the
manufacturing establishments, number of employees, wages/salaries, investments, inputs,
output, and value added. In addition, tried to estimate the structure of the rms: the average
 I V 8 N 0 0

number of employees per establishment, inputs as percentage of output, Manufacturing

Value Added (MVA)/employee, MVA/output ratio, and MVA/capital ratio.

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No. of establishments 100 83 75 81 95

No. of employees 100 88 85 80 91
Wages/Salaries & other bene ts to 100 89 114 114 146
employees
Gross xed assets at the end of the 100 97 120 187 177
DU
Input 100 125 193 265 353
Output 100 122 172 225 289
Value added 100 118 143 168 198
Average no. of employees per rm 100 105 113 99 96
Input as percentage of output 100 103 112 118 122
MVA/Employee 100 134 168 211 217
MVA/Output ratio 100 96 83 75 68
MVA per unit of capital 100 121 119 90 112

Table 3 (Based on the annex-1) provides an interesting overview of what happened to the
manufacturing sector in terms of the above indicators comparing various census years to the
year 1991/92.

The total number of operating establishments declined by 17%, 25%, 19%, and 5% in the
year 1996/97, 2001/02, 2006/07 and 2011/12 respectively. The total number of employees
declined by 12%, 15%, 20% and 9% in CME year 1996/97, 2001/02, 2006/07 and 2011/12
respectively (Fig-3). The average size of manufacturing establishments uctuated over the
years with a peak in 2001/02. Real wages/salaries (including other bene ts) declined by 11%
in 1996/97, increased by 14% in 2001/02 and 2006/07 and by 46% in 2011/12, Gross xed
assets at the end of the year decreased by 3% in 1996/97 and increased by 20%, 87% and 77%
in 2001/02, 2006/07 and 2011/12 respectively. Inputs rapidly increased by 25%, 93%, 165%
and 253% in the year 1996/97, 2001/02, 2006/07 and 2011/12 respectively. However, real
output increased only by 22%, 72%, 125% and 189% in the year 1996/97, 2001/02, 2006/07
and 2011/12 respectively. As a consequence, inputs per unit of output gradually increased by
3%, 12%, 18% and 22% over the four census years; Value added of manufacturing industries
signi cantly increased by 18%, 43%, 68% and 98% in the CME year 1996/97, 2001/02, 2006/07
and 2011/12 respectively.
 0 Role of Manufacturing Industries in Nepalese Economy

Besides these the MVA/Employee, the measure of labour productivity of the manufacturing
industries increased by 34%, 68%, 111% and 117% in the year 1996/97, 2001/02, 2006/07 and
2011/12 respectively; MVA per unit of capital somewhat erratically behaved, particularly for
the year 2006/07 (Fig-3); this could have been caused by changes in the utilization of capacity
for the year. The MVA/Output ratio decreased by 4%, 17%, 25% and 32% in the CME year
1996/97, 2001/02, 2006/07 and 2011/12 compared to the CME year 1991/92, indicating that
inputs are at a higher proportion of output, perhaps the result of a structural change towards
agro-based industries (Fig- 4).

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Following the review of the role of the manufacturing sector in the above sections , Here it is
tried to analyse the impact of the manufacturing sector on gender. Since the manufacturing
sector in Nepal is small and not dynamic, it cannot be expected to play a strong role in mitigating
economy-wide imbalances. Imposing too many constraints on the sector may be counter-
productive in the long run. Yet, good labour relations, gender equality and environmental
health can be pursued simultaneously with modern developments in manufacturing.

The unequal distribution of the country’s resources between individuals and groups in
society in terms of region, caste/ethnicity and gender can give rise to social exclusion. It
can be measured by various indicators. It may include multidimensional poverty, inequality,
equity, social cohesion, and empowerment. Here, only the disparity in terms of gender in the
formal manufacturing sector is highlighted.

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The per cent of women workers as percentage of the total workforce is one of the indicators
to measure social inclusion. In all of the four manufacturing and establishment census years,
less than 20 per cent women are working. Table 4 shows that out of the total manufacturing
employment, around 5 per cent women are working as administrative workers and less than
 I V 8 N 0 0

5 per cent women as technical workers from 1996/97 to 2011/12. The highest percentages of
female workers are engaged as operative workers in all the CMEs.

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% o f % o f % o f % o f
HDU Male Female Male Female Male Female Male Female
Female Female Female Female
1996/97 17668 915 4.9 5561 221 3.8 123668 39283 24.1 146897 40419 21.6
2001/02 20522 1166 5.4 10585 243 116902 32525 21.8 148009 33934 18.7
2006/07 19268 1362 6.6 8381 364 4.2 112830 27686 19.7 140479 29412 17.3
2011/12 19142 1089 5.4 9416 298 3.1 130618 34426 20.9 159176 35813

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The information collected by various CMEs follows standard prescriptions of international
conventions. To a large extent, the data collected provide a good general picture of the
manufacturing sector over time and include many details relevant to speci c users.

The analysis carried out has highly encouraged to the researcher to go further inside.

It is realized that whatever the status measured may help to the policy makers or researchers
to correlate and analyze further. It is recommended the need of further information is needed
on market opportunities and challenges in the past and present, investment and export
potential and bottlenecks. This would be useful to entrepreneurs and policy makers alike.

5HIHUHQFHV
CBS 2010. Nepal Labor Fource Survey 2008, National Planning Commission Secretariat,
Central Bureau of Statistics, Kathmandu, Nepal
CBS 2015, Population Monograph of Nepal, Volume III National Planning Commission
Secretariat, Central Bureau of Statistics, Kathmandu, Nepal, 2015
CBS, 2014. National Census of Manufacturing Establishments Nepal2011/12 National Level,
Government of Nepal National Planning Commission Secretariat, Central Bureau of
Statistics, Kathmandu, Nepal,
MoC 2016. Nepal Trade Integration Strategy 2016 Executive Summary and Action Matrix
Government of Nepal Ministry of Commerce Kathmandu
MoF 2018. Economic Survey 2017/018, Nepal Government, Ministry of Finance, Singh
Durbar, 2018 (In Nepali)
MoI 2016. Industrial Statistics Fiscal Year (2015/2016), Government of Nepal, Ministry of
Industry, Department of Industry, Planning, Monitoring & Evaluation Division,
Tripureswore, Kathmandu, Nepal
 0 Role of Manufacturing Industries in Nepalese Economy

Web sites:
www.moi.gov.np/
http://www.sawtee.org/publications/Research-Brief-3.pdf, A Review of Trade and
Industrial Policy in Nepal
https://www.slideshare.net/rajudong/nepal-industrial-policy-2011-reviewRef
fncci.org/old/downloads/industrial_policy2067.pdf

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No. of establishments 4271 3557 3213 3446 4076

No. of employees 213653 187316 181943 169891 194989
Wages/Salaries & other
5389434 4791997 6157356 6150560 7866931
bene ts (‘000 Rs)
Change in stocks at the end of
3741606 2872270 1276509 3818083 6108463
the year (‘000 Rs)
Gross addition to xed assets
3820488 3337554 2991988 4758437 2948517
(‘000 Rs)
Gross xed assets at the end of
32298244 31282123 38903625 60319235 57290064
the year (‘000 Rs)
Input (value) in (‘000 Rs) 31139922 39029406 59944856 82431910 110019819
Output (value) (‘000 Rs) 53109610 64861013 91364077 119238910 153482264
Value added in (‘000 Rs) 21969689 25831608 31419222 36807000 43462446
Average no. of employee per
50 53 57 49 48
establishment
Input as percentage of output 59 60 66 69 72
MVA/Employee (‘000 Rs) 103 138 173 217 223
MVA/Person Engaged in (‘000
98 131 164 207 213
Rs)
MVA/Output ratio 0.41 0.40 0.34 0.31 0.28
MVA per unit of capital in
0.68 0.83 0.81 0.61 0.76
(‘000 Rs)