KATHMANDU, March 6: Although industrialization is necessary for the nation's development, Nepal has struggled to achieve significant industrial progress. Despite the government's assurances of creating an industrial environment and driving production growth, these commitments are yet to materialize in practice.
The contribution of the industrial sector to the country's gross domestic product (GDP) has not increased for a decade. In the fiscal year 2014/15, the contribution of the industrial sector (manufacturing) to the GDP was 6.20 percent, but instead of increasing after a decade, it has actually decreased. In the fiscal year 2023/24, the contribution of the industrial sector to the GDP is limited to only 4.87 percent. In the first quarter of the current fiscal year, 6 out of 18 industrial sectors had negative growth. The value added growth rate of the industrial goods production sector has been positive by 2.30 percent.
Former Executive Director of Nepal Rastra Bank (NRB) Nara Bahadur Thapa said that investors need to be reassured to create an industrial environment in the country. “Investors expect complete security and a return on their investments,” Thapa said, “The government is not giving priority to the industrial sector.”
The flow of credit to the industrial sector from banks and financial institutions has been quite low. According to NRB, an analysis of credit flow for the first six months of the fiscal year 2024/25 reveals that only Rs 68.41 billion in credit flow from banks and financial institutions to the industrial production sector has been recorded. This accounts for just 8.4 percent of the total credit investment. Thapa said that the low credit flow to the industrial sector is due to the lack of confidence among investors to make investments.
Thapa says that even though the government has introduced the concept of Special Economic Zones (SEZs), Industrial Villages, and Industrial Estates, it has not been able to systematize them. The government has not been able to accelerate the construction of infrastructure in industrial zones, special economic zones, and industrial estates. “Declaring an industrial area is not enough," Thapa said, “an environment must be created to establish industries within the industrial area.”
Due to the lack of growth in industrial production at home, the country has a trade deficit of Rs 861 billion in the first seven months of the current fiscal year 2024/25. Industrialists and entrepreneurs said that an industrial environment has not been created due to the lack of a suitable investment environment, high production costs in the industrial sector, the obligation to import raw materials, the difficulty and cost of acquiring land required for industries, and taxes imposed by all three tiers of government.
The process of acquiring land required to open a new industry in Nepal is very complicated. Other countries seem to have facilitated land acquisition to attract foreign investment. Other countries have made it much easier to bring foreign investment by simplifying the land acquisition process. Industrialists are now demanding that the government provide land on lease for a limited time to create a better industrial environment.
Chandra Prasad Dhakal, president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), said that the industrial sector has not been able to flourish due to the government's lack of stable policies. “Investment has not been attracted to the industrial sector,” Dhakal said, “The contribution of the industrial sector to the economy is weak due to the lack of industrial development.” Dhakal added that investors need to be assured that their investment is safe.
Although the government has been talking about bringing foreign investment for industrial development, it has not been able to achieve success.
There is no enthusiasm for establishing large manufacturing industries in Nepal due to factors such as labor relations, political instability, an investment-friendly environment, inadequacy of the domestic market, lack of competitiveness in external markets, problems with quality certification, and high cost of production. Industrialists and entrepreneurs said that the government should also protect and promote domestic investment. “Stable policies and legal arrangements are also needed to promote domestic investment,” Dhakal said.
“Recently, the government has amended laws and regulations through an ordinance to create an industrial environment,” he said, “It is expected that improvements will continue.”
The Confederation of Nepalese Industries (CNI) has launched the 'Make in Nepal' campaign. The program aims to increase the production and consumption of domestic goods and make Nepali products competitive and reach the global market. The targets include registering 1,000 new industries annually, increasing the share of the productive sector in the total GDP to 25 percent by 2030, creating 150,000 jobs annually in the industrial sector, and achieving an annual export value of 4.6 billion US dollars within five years.