Figure 29. Indicative value added per worker per province

Among the seven provinces in Nepal, Province 2 had the lowest gross value added per worker. This, perhaps, explain the high percentage of respondents who said that price competitiveness was a serious problem. The low productivity of workers in Province 2 compared to other provinces may be linked to the low human development index. Karnali had the highest gross value added per worker among the three focus provinces.

Figure 29. Indicative value added per worker per province

● High variable costs. High variable costs due to factors such as costly and unreliable electricity and high transportation costs.

Sector Specific Barriers to Growth

6 Sector Specific Barriers to Growth

The barriers to growth affect each sector differently. This section outlines the sector specific barriers to growth as identified by survey respondents. Findings from recent studies, whenever available, are presented to further provide contextual background and information to the issues.

Key Takeaways: barriers to growth disaggregated by sectors Agribusinesses

Inconsistent application of customs and trade regulations: The problems faced by enterprises were not on the regulations itself but rather on procedural obstacles and inconsistencies as well as inadequate warehousing facilities, which caused delay in cargo clearance and increased the cost of transaction.

Lack of testing laboratories: Many of the testing laboratories are located in Kathmandu and majority do not have international accreditation. Enterprises are not generally aware of the testing facilities and services offered by the DoFTQC, which are recognized by India. Insufficient supply of raw materials: Many of the raw material problems can be traced to fragmented supply chains and information asymmetry. Likewise, given that many of the farmers are not organized, the costs incurred by agribusinesses when sourcing from hundreds of small farmers is high. Limited access to storage facilities: The most pressing problem among market actors is the lack of cold storage facilities for perishable products especially during peak harvest season. Need for higher end business development services: Services aimed at helping enterprises comply with tax obligations and those intended for start-up businesses appear to be welldeveloped. Respondents, however, were not satisfied with the more technical, strategic and technology-oriented services. Inadequacy of the financial services: Agribusinesses were satisfied with the services received from the banks. However, only about a third of the respondents have availed of financial services from venture capitalists and were generally not satisfied especially those from Lumbini and Karnali. Inadequacy of financial services is linked to the type of financial services and the location.

Manufacturing

Corruption is a key challenge: Key issues were the kickbacks and facilitation payments when getting permits and other business requirements. Business licensing and registration processes add to the burden of compliance: The introduction of the online business-registration system has reduced the time to register an enterprise. However, compliance with the various requirements appears to be still a bottleneck. Informal payments and hiring of intermediaries to fast track the registration process are among the procedural obstacles. Inadequate business development services: Except for accounting services, business continuity planning, and advertising services, manufacturing companies were not fully satisfied with the other existing services. Training services for workers did not also fully meet the expectations of companies.

Key Takeaways: barriers to growth disaggregated by sectors

Inconsistent access to financial services: Enterprises were happy with the services of the banks and fairly satisfied with venture capitalists. They were not satisfied with the services of the money lenders because of the high interest rates but appreciated the quick release of loans with very little paperwork.

Information & Communication Technology (ICT)

Inadequately educated or skilled workforce. The challenge currently faced by ICT enterprises is the limited availability of workers with higher level skills and management expertise. Employees also tend to leave after having been trained by the companies. Weak market penetration: This is attributed to: (i) lack of skilled workforce to expand services and markets beyond Nepal; (ii) poor infrastructure and internet connectivity limit the domestic demand for ICT services; and (iii) lack of adequate infrastructure and payment gateways. Inadequate business development services: Existing services related to technology transfer and training of workers appear to be not fully aligned with needs of the companies. Financial services: Companies were satisfied with the services received from the banks. Outreach of other providers such as venture capitalists in the ITC sector was low.

Construction

Unstable supply, quality, and price of construction materials: This was a serious problem at the height of the movement restrictions to curb COVID-19 restrictions. Even prior to the pandemic though, the quality assurance and control for construction materials was already fragmented. High tax rates: Tax rate on business profits is a flat 30 percent but when other charges on corporate profit are added, the total rate goes up to 45 percent, which is higher than neighbouring countries like Bangladesh, Bhutan and India. Inadequate business development services: Services geared for start-ups or early-stage businesses are well-developed and accepted by construction companies. Services that received low rating were those related to upgrading of workers and technologies and market diversification.

Financial services do not have a wide reach: Although respondents had access to banks, a high percentage still borrowed from informal sources, which may be an indication that enterprises require more flexibility and agility than the formal financial system is currently providing.

Tourism

Decline in tourist spending stem from deeper issues: Key factors that contributed to decline in tourist spending include: (i) inadequacies in destination level management; (ii) lack of higher quality services/products catering to higher value tourists; (iii) seasonality of tourism products/services; and (iv) weak integration in global value chains resulting to leakages in tourism earnings.

Limited and low quality of internet connectivity: The internet penetration in Nepal is primarily driven by 2G networks while broadband connectivity including mobile and fixed remains low. According to the World Bank 21% of the population was using Internet in 2017 compared to