Among all sectors of Nepali economy, manufacturing has been contributing least to the country’s gross domestic product (GDP). As per recent statistics, manufacturing sector’s share in the GDP declined to 6.8 percent from 9.0 per over a decade.
Such decline indicates that the sector is not competitive enough, according to a study entitled “Development of Manufacturing Industries in Nepal of 2014.” The development of the manufacturing sector is crucial to generate employment, alleviate poverty, promote trade and spur national growth.
But Nepal’s manufacturing sector is hardly operating in their full capacity resulting in low output and weakened competitiveness.
There can’t be a single reason behind such low productivity. Lack of electricity, inefficient human capital, transportation syndicates and too many public holidays have been hampering the growth of manufacturing sector, a primary sector of any economy.
Once all these issues are addressed, industrialists say, the sector’s output would improve by making products cheaper as well as competitive against imported goods and opening door for exports. Pashupati Murarka, acting president of Federation of Nepalese Chambers of Commerce and Industry, said, “We are trapped in a vicious circle of problems and we can not imagine expansion until profitability improves through improved production.”
Electricity
Lack of electricity affects the manufacturing sector in the worst possible manner. Using fossil fuel to generate electricity is a huge burden on the factories.
Arghakhanchi Cement Limited alone burns diesel worth Rs 180 million annually. Had there been consistent electricity supply, the factory would have to spend only Rs 50 million per annum.
Transport entrepreneurs ready to talk to end syndication
The amount saved--Rs 130 million--annually would mean increase in the company’s profit and production at a cheaper rate, thereby, making the product competitive. Instead, the company has invested Rs 150 million for a generator plant.
The factory produces 900 tons of cement per day, much less than its installed capacity of 1200 tons. Murarka, one of the promoters of the factory, says, “A consistent electricity supply can help us decrease the price of cement by 15 percent at least.” Each sacks of the cement costs Rs 600, excluding tax.
“Savings generated from not having to burn fossil fuel is also earnings that can be used for reinvestment and government would earn more from income tax,” added Murarka.
A Nepal Rastra Bank study on “Export Diversification and Competitiveness: Nepal’s Experiences” states that the high costs and the unreliability of electricity provision are endemic in export fronts.
transport Syndicated
Syndication in transportation is another factor behind low factory output. Industrialists say the cost of transportation varies from place to place.
Cost of transporting goods from Bhairahawa to Kathmandu stands at Rs 23,000 per truck, while ferrying goods from Mirchaiya of Siraha to Kathmandu is Rs 21,000, even though the route is longer by about 200 km.
Political protection to syndication is the root cause and making the supply of goods dearer, hitting manufacturing industries hard. The government has ignored several Supreme Court orders directing it to end syndication.
One of the prominent forms of anti-competition practices in the current Nepalese market is prevailing syndicate in the road transportation sector, states a study by Samriddhi entitled “Competition watch in key growth sectors of Nepalese economy.”
Hari Bhakta Sharma, promoter or Deurali Pharmaceuticals, compares the transport cost between Raxaul and New Delhi with Birgunj to Kathmandu, which is 1.5 times costlier.
Capacity utilization of pharma industry stands just at 50 percent. He blamed red tape within government agencies and procedural delays as pushing their costs higher.
Many investors have either pulled out of manufacturing sector or cut investments, hurting job creation. They have shifted instead to trading, which is comparatively less risky and yields high profit margins but contributes poorly in terms of job creations.
Labor
Different studies say that Nepal’s labor force is comparatively less productive in terms of output. The cost of labor is also high in Nepal compared to Sri Lanka and Bangladesh, said Sharma.
Politically-motivated employees and legal obligations regarding recruitment of staff are the major problems. Industrialists cannot take decision on the employees based on their productivity and output.
In addition, there is a shortage of technical manpower in the country. “There are no skilled workforce available and industries also prefer to recruit zero-skilled or semi-skilled manpower and run factories below their capacities,” said Dipendra Bahadur Chhetri, former vice-chairman of National Planning Commission. Chhetri also said that investors’ avoidance of the manufacturing sector to making fast buck through import and trading is also a reason behind low industrial productivity.
“We struggle to find the required manpower for our factories, so we train them. But they soon leave the country for foreign jobs,” added Murarka. Too many public holidays are also major problems for manufacturing industries.
Industries are supposed to run 24/7 and in three different shifts but too many public holidays affect their operations.
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