Manufacturing

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Manufacturing Poverty Reduction in Nepal
Shiva SharmaNational Labour Academy-Nepal Email
nla_at_mail.com.np
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Concept- Link with Poverty

• Contribution to GDP, Growth
• Employment
• Wage Salaries-level share in output
• Backward linkage
• Domestic raw materials
• Value added Vs. Total Inputs
• Import intensity of manufacturing products
• Regional distribution share of manufacturing
  employment by Regions.

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Table 1 Sectoral Contribution to Gross Domestic
Product (in )
Source Economic Survey, MOF (various issues).

• 90s fastest growth due to export oriented
  industries liberalization,
• From 5 in 80s to 9 in 90s
• Share declined in recent years

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Pop. Census 2 in 1991, 9 in 2001
Labour force
Manufacturing Census (97-2002)

• Number of Industry decline by 9.7
• Employment declined by 2.5
• Wages went up by 57.5 ( Inflation ?)
• Share of wages in output from 7.4 to 6.7
• Share of wage cost in total value added from
  18.6 in 1997 to 19.6 in 2002.

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Table 2 Composition of Merchandise Trade (Share
in )
Source NRB Quarterly Economic Bulletin (various
issues).

• Manufactured goods export from 30 in 1980 to 70
  in 2004
• Import share of capital goods stable- not much
  growth in manufacturing, not much industrial
  deepening

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Table 3 Major Merchandise Export Items (Rs in
Million)
Source Nepal Rastra Bank.

• Share of woolen carpets and readymade garments
  down from 73 to 29 in 2004
• Pashmina also in decline
• (a) (b) imply decline in jobs. Some 300,000
  jobs at risk
• WTO Opportunity -
• Constraints
• Small scale of production
• Old technology
• Unskilled less productive labour
• Lack of innovation entrepreneurship
• Comparative advantage ?
• Labour intensive natural resource based,
  indigenous skill related.

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Table 4 Output and Investment Growth in
Manufacturing Sector
Source MOF (2002). Economic Survey 2003/04.

• Impact of Policy reforms
• Manufacturing output growth
• Employment
• Poverty

• Immediate after policy reforms (90-95), output
  grew by 14 much faster than later 80s
• Then down to 7.6 in 1996-2000
• Then negative 0.4
• Could not compete after liberalization import
  increased
• Investment did not increase to ensure output
  growth
• Problems
• Narrow commodity composition
• Dependence on a few export markets
• Inability to compete with imports.

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Table 5 Allocation Pattern of Public
Expenditure (in growth rates and shares)
Source Economic Survey 2004, MOF.

• What is happening to public investment ?
• Economic services receiving less and less
  investment
• See industry, dramatic decline in both share and
  growth rate !!!

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Table 6 Structure of Foreign Aid (Share in
Percent)

• What is happening to Foreign Aid ?
• Again dramatic reduction in industry and commerce

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What happened to Poverty ? 1997 2002

• Number of Industry decline by 9.7
• Employment declined by 2.5
• Wages went up by 57.5 ( Inflation ?)
• Share of wages in output from 7.4 to 6.7
• Share of wage cost in total value added slightly
  increased from 18.6 to 19.6 in 2002.
• Share of domestic raw materials to total raw
  materials used by establishments declined from 54
  to 34 .
• Only 2 of manufacturing employment is shared by
  Far Mid western regions.

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NHDR 2004 says
Manufacturing exports have overtaken food
and animal products. However, because of weak
backward linkages, as well as concentration in a
few products based on imported raw materials, the
benefits produced by the sector have been
extremely uneven-indeed, limited largely to the
urban business community