nefport Issue 5 by Nepal Economic Forum

Contents Editorial

Fact sheet

Part I : General Overview Political Overview

International Economy

Macroeconomic Overview

Nepal Economic Forum P.O.Box 7025, Krishna Galli, Lalitpur - 3, Nepal T: 554-8400 E: info@nepaleconomicforum.org W: www.nepaleconomicforum.org June 2011, Issue 5 Editorial team: Pranab Singh and Ninamma Rai Contributors: Akira Dhakwa, Raju Tuladhar, Ashwin Joshi, Chandni Singh, Suman Rayamajhi beed invest and beed management Layout and Design: Aavishkaar Marketing Communication Bakhundole - 3, Lalitpur, Nepal T: 5010679 The document is solely the work of the Nepal Economic forum and the information documented in and the views expressed by this economic periodical do not necessarily reflect the ideas of the sponsor

Agriculture

Energy

Foreign Aid

Health & Education

Infrastructure & Real Estate

Manufacturing & Trade

Telecommunication & Media

Tourism

Remittances

Macroeconomic Outlook

Part II: Analysis Capital Market

The Forestry Sector

Endnotes

Docking Nepalâ&#x20AC;&#x2122;s Economic Analysis

2 Docking Nepalâ&#x20AC;&#x2122;s Economic Analysis

Editorial With our fifth issue of the nefport, we are happy to bring to you an overview of Nepalâ&#x20AC;&#x2122;s economy over the past three months starting 15th February 2011 to 15th May 2011. First off, we would like to thank all our readers for their invaluable feedback. Your input helps us develop this publication and better cater to your needs. With your support, we hope that this publication will prove to be an essential tool for business executives and development practitioners in Nepal. This issue builds upon the general structure established in previous issues and is divided into two sections. The first section provides a general overview of the overall macroeconomic state of Nepalâ&#x20AC;&#x2122;s economy. It goes into some depth within each sector and provides an overview of key stories that have developed over the last quarter. It also provides an outlook for the Nepali economy for the next quarter. Like with previous issues, the second part of nefport is more analytical. In this issue, we have decided to look into two specific areas - capital markets and the forestry sector. We provide a detailed analysis and assessment on each of these topics. We hope that this analysis will be beneficial for those who make critical decisions in these sectors, as well as those interested in the general economic well being of the country. While the US dollar has depreciated in value considerably over the past few months, we have used a USD conversion rate of NPR 72.58 to a dollar, the one year average. Nepal Economic Forum is a not for profit organization and a wing of beed management. We would like to thank beed invest and beed management for their support in making this issue possible. We thank all our readers who have encouraged us to continue and our sponsor, the Livelihood and Forestry Program (LFP), for assisting us in coming out with this issue. We are eager to receive your valuable feedback on how to make future issues of nefport more useful and user friendly. Please email us your suggestions at info@nepaleconomicforum.org

Sujeev Shakya Chairman Nepal Economic Forum

Docking Nepalâ&#x20AC;&#x2122;s Economic Analysis

Fact sheet

Government Budgetary Operation (On Cash Basis) Eight Months

(NPR in billion)

Amount Heads

2008/09

Sanctioned Expenditure ○

○

2.53

○

2.44

○

-27.2 ○

○

-225.9 ○

27.3 ○

○

27.3 ○

16.8 ○

○

260.2 ○

○

476.9 ○

○

100.0 ○

○

-100.0 ○

○

75.4

-41.9 ○

○

-51.6

-57.2 ○

○

-109.3

-100.0 ○

○

-6.6

○

16.5

-25.0 ○

○

9.9

-95.7 ○

○

-35.6

-72.9 ○

○

18.7

-47.3

○

10.8

-56.3 ○

○

13.4

-56.3 ○

○

9.2

-132.9 ○

○

431.8

219.5 ○

○

-24.1

434.8 ○

○

1.4

411.1

○

1.6

0.7 ○

○

-35.6

25.6 ○

○

33.6

22.6 ○

○

42.2

82.1 ○

○

-2.6

-6.9 ○

○

3.6

53.3

-0.28 ○

○

29.3

-16.94 ○

○

32.4

0.00 ○

○

-62.0

4.00 ○

○

5.8

3.00 ○

○

31.4

1.50 ○

○

15.9

8.50 ○

○

11.9

82.1

-8.73

-0.17

2.87

○

-6.29

-9.66 ○

○

6.29

0.00 ○

○

0.89

0.60 ○

○

-11.5

0.65

1.50 ○

○

42.7

0.05

0.26 ○

○

-0.44

2.36 ○

○

14.70

-7.47

○

123.04

-4.94 ○

○

138.88

4.94 ○

○

6.56

-0.71 ○

○

8.3 ○

39.9

11.20

0.89 ○

○

40.3

24.87

0.11 ○

○

89.97

4.76 ○

○

132.59

15.74 ○

○

1.88

105.58 ○

○

4.43

126.37 ○

○

11.04

10.18 ○

○

17.36

9.44 ○

○

29.6

6.56

22.45 ○

○

13.08

79.37 ○

○

5.50

121.43 ○

○

2010/11

30.1 ○

23.79

0.35 ○

○

29.30

5.84

-0.30

Foreign Loans

○

10.89

-22.58

Others@ ○

○

0.70

Overdrafts++ ○

○

0.00

d. Citizen Saving Certificates ○

○

17.08

2.00

c.National Savings Certificates ○

○

101.01

10.18

6.00

b.Development Bonds ○

○

8.70

a.Treasury Bills ○

○

-14.17

Domestic Borrowings ○

○

-11.30

Internal Loans ○

○

11.30

Sources of Financing ○

○

2.15

Deficit (-) Surplus (+) ○

○

9.79

0.28

Local Authority Accounts ○

○

3.87

0.02

V.A.T. ○

○

0.93

Others # ○

○

15.64

Non-Budgetary Receipts,net ○

○

84.04

Foreign Grants ○

○

103.05

Revenue ○

○

5.59

Resources ○

○

2009/10

149.94 ○

24.42

10.13

Others (Freeze Account) ○

○

28.29

14.65

Principal Repayment ○

○

61.38

Capital ○

○

91.75

Recurrent ○

○

0.93

Actual Expenditure ○

○

5.52

Principal Repayment ○

○

8.29

Capital ○

○

14.74

Recurrent ○

○

90.26

5.59

Unspent Government Balance ○

○

11.07

Others (Freeze Account) ○

○

2.71

Principal Repayment ○

○

2010/11 P

138.52 ○

17.45

b.Foreign Grants ○

○

20.16

a.Domestic Resources & Loans ○

○

69.67

Capital ○

2009/10

106.49 ○

Recurrent

Percent Change

○

-11.8

○

63.8 ○

○

-3.7

p= provisional + Based on the data reported by 8 NRB offices, 53 out of total 65 branches of Rastriya Banijya Bank, 30 out of total 43 branches of Nepal Bank Ltd, 5 branches of Everest Bank Limited and 1 branch each of Nepal Bangladesh Bank Limited and Global Bank Limited conducting government transactions.++ Minus (-) indicates surplus.# Change in outstanding amount disbursed to VDC/DDC remaining unspent.@ Interest from Government Treasury transaction.

4 Docking Nepal’s Economic Analysis

GENERAL OVERVIEW

Docking Nepalâ&#x20AC;&#x2122;s Economic Analysis

Political Overview All coalition governments formed after the Constituent Assembly election held in 2008 have been short lived. The current coalition between the United Marxist Leninists (UML) and the Unified Communist Party of Nepal-Maoists (UCPN-M) headed by Prime Minister Jhal Nath Khanal stands upon shifting sands. Among others, the current prime minister is openly criticized by rivals from his own party, KP Oli and Madhav Kumar Nepal, for pushing Maoist agendas. They have also criticized the prime minister for giving away the home ministry portfolio to Krishna Bahadur Mahara from the Maoist party.

Highlights NPC gets a new Vice Chairperson: Nepal Planning Commission (NPC), Nepal’s highest advisory board for policy making saw a change in its office bearers during the month of March. Vice chairperson (VC) Jagdish Chandra Pokhrel along with six other members of the NPC resigned following the formation of the Jhal Nath Khanal government. Following the resignations, Dinesh Chandra Devkota has been appointed as the acting VC of the Nepal Planning Commission. Pushpa Kamal Dahal heads the Constitutional SubCommittee: The Constitutional Committee (CC) formed a sub-committee of top political parties to resolve 75 contentious issues related to the constitution writing process. The subcommittee headed by Pushpa Kamal Dahal managed to solve many issues but key issues such as state restructuring remained unresolved. The sub-

6 Docking Nepal’s Economic Analysis

committee’s term is most likely to be granted an extension for the third time. Finance Secretary Rameshwor Khanal resigns: Following a disagreement with the newly formed Jhal Nath government over two main issues, a supplementary budget and political interference related to value added tax (VAT) evaders; finance secretary Khanal tendered his resignation on March 30, 2011. Khanal was conducting an investigation on fake VAT bills and wanted the government to take strong action against tax evading companies.

Outlook

side for going for a new round of elections, political parties have little choice but to give the Constituent Assembly another extension. As the May 28 deadline for drafting the constitution draws nearer, various parties will feel the need to assert their rights. Consequently, the country will see more strikes and bandhs. The deepening fissures between and within the major political parties are unlikely to be easily resolved and there is a high probability of things becoming increasingly factionalized. This will impair the formation of a broad basis for consensus which is critical for the peace process. The primary obstacles in drafting the constitution have been isolated. These are now limited to major conceptions of how Nepal as a nation should be articulated. The issue of army integration can be resolved if the political parties are willing to negotiate and adopt a flexible stance towards each other’s needs and aspirations. This will be a huge step towards concluding the peace process and drafting the constitution. However, major differences exist within how the state should be restructured and modalities of federalism. These differences will have to be resolved for all stakeholders to agree on a common constitution and allow for it to be drafted.

International Economy The GDP growth rate of the world is expected to experience a slight decrease to about 4.5% from the 5% growth achieved in 2010. As in the past, the Asian economies will be the drivers of economic growth.

Highlights Tensions in the Arab World: After successful uprisings in Tunisia and Egypt, revolts against their respective dictatorships occurred in Syria and Libya. Revolutions in Syria continue and protests have turned into a full-fledged civil war in Libya. Government forces are struggling to maintain control over rebel held townships as NATO puts pressure on Colonel Gaddhafi with regular airstrikes. The tensions have had severe ramifications on the global economy, with oil prices rising up to USD 114 (NPR 8,275). The bulk of the migrant workers in Libya, including those from Nepal, are facing the brunt – many have returned home, but many still lay stranded. Japan Tsunami and Nuclear Meltdown: On March 11, 2011, Japan was struck by a 9 magnitude earthquake, the largest one ever recorded in Japan. The quake also triggered a 10-metre high tsunami. The official death toll has climbed to 14,616 and 11,111 people are still missing.1 Preliminary reports suggest that reconstruction costs could cross USD 300 billion (NPR 21.78 trillion), making it the world’s costliest natural disaster ever. Although Japan has already approved a USD 48 billion (NPR 3.48 trillion) emergency budget for disaster relief, with a stuttering economy, near nuclear-meltdown, power shortages, appreciating currency and dwindling exports, Japan faces significant challenges. Afghanistan Violence: Four Nepali security guards were killed, along with other UN officials in an attack in the United Nations Assistance Mission (UNAM) office in northern Afghanistan.2 The bodies of the dead have been handed over to their families in Nepal.

India outpaces China: The Indian economy grew at a rate of 10.4% in 2010, outpacing China, which grew by 10.3%, according to the IMF’s recent report. India grew by 8.6%, as per government statistics, the discrepancy stems from the fact that India calculates its GDP at the end of the fiscal year, while the IMF uses the calendar year. The figure also got a boost from the fact that the IMF calculates GDP in USD, which means the 2010 appreciation of the INR gave it a push. However, the IMF projects that China will maintain the lead for 2011 and 2012.3 S&P threatens to downgrade US: Standard & Poor’s, one of the world’s most prestigious credit-rating agencies, has threatened to downgrade the United States coveted AAA credit rating, if the current trend of budget deficit continues. The US budget deficit in 2011 is estimated to be around USD 1.27 trillion (NPR 92.19 trillion) while the total US public debt is projected to be USD 0.21 trillion (NPR 15.3 trillion) in 2011.4

Outlook

n escalation in violence in the Middle East will have a negative impact on the remittances coming into Nepal. Migrant workers from conflict zones in the Middle East and Africa have returned to Nepal or find themselves jobless. However, with the Indian economy growing at double digit rates, many Nepali workers will be moving into India for work. The current construction boom in the state of Bihar is expected to draw in a considerable Nepali work force. The recent tsunami in Japan will also have a negative impact upon the Nepali economy as fewer Japanese tourists will come to Nepal this year. Imports from Japan will cost more as their manufacturing costs increase. Japanese demand for Nepali imports are also likely to go down. Additionally, a reduction in aid from Japan is expected as it channels its international development funds into reconstruction work in the country.

Docking Nepal’s Economic Analysis

Macroeconomic Overview Nepal’s economy continues to experience sluggish growth. The primary obstacle to unleashing Nepal’s economic potential is its turbulent political scenario. The past two decades of a turbulent political history has meant that a number of economic bottle necks have been created that include an energy crisis, lack of an adequate policy framework, and limited infrastructure. Aside from exporting labor, Nepal has not been able to really benefit from the rapidly growing Indian economy. This remains a largely untapped growth potential.

Center (TEPC), total exports of lentil during between midDecember and mid-January alone reached NPR 467.69 million (USD 6.44 million). Imports of staple food grains continue: Nepal continues to import staple food grains as production does not meet the requirements of the county.

Figure 1 National Cereal* Production

Agriculture The agriculture sector in Nepal contributes to 33.8% of the country’s GDP and employs 73.9% of the labor force.5 Agricultural growth can lift people out of poverty by improving farm incomes, demand for labor, and reducing food prices. However, in recent years, agricultural growth in Nepal has declined and an upward pressure on food prices has increased the threat of food security. Agriculture Sector given top priority by the government: According to the White Paper on Economic Condition of the Country and Policy Concept released on 12 April 2011, agriculture development was among the high priority areas of the Government to be included in the upcoming budget for the fiscal year 2011/12. The White Paper intends to incorporate modernization and commercialization within the agriculture sector to strengthen food security, increase employment, accessibility to agriculture inputs, easy availability of essential commodities, and market monitoring to discourage food adulteration. Lentil exports to Bangladesh see growth: Nepali lentils have regained popularity in Bangladesh. Lentil exports soared by 22.9% in the first half of the 2010/11 fiscal year. Nepal exported a total of 30,151 tons of lentil, valued at NPR 2.75 billion (USD 37.88 million) during the review period. According to the Trade and Export Promotion

8 Docking Nepal’s Economic Analysis

*Five major cereal grains of rice, maize, wheat, barley and millet, **Projections for 2010/11 made under the assumption that winter crop in 2010/11 will be at the same level as 2007/08

Source: Crop Situation Update, February 2011, MoAC, FAO, WFP

Rising food prices affecting the poor: Bad climatic conditions, increasing use of bio-fuels, restrictions on exports, and surging fuel prices have exacerbated global food prices for the poor. According to the International Monetary Fund’s 2010 World Economic Update, inflation in Nepal touched 10.5% of which food prices have the highest weight (53.2%), reducing the purchasing power of the poor.6 The cost of staple food items like rice, wheat, and maize have increased significantly along with global prices. Although food supply is improving, the high cost of food is a concern especially for the lower income brackets. There are alarms that rising international food prices will accelerate inflation even further.

Figure 2 Rise in Consumer Price Index

Source: Asian Development Bank (ADB), Key Indicators for Asia and the Pacific 2010, www.adb.org/statistics

Fertilizer imports and subsidies: Increasing fertilizer prices have reduced import quantities creating shortages and affecting agricultural productivity. Most of Nepalâ&#x20AC;&#x2122;s fertilizer demand is met through imports from India. Along with increasing prices, changes in the clearance provisions for imports of chemical fertilizers via Haldia have made matters worse. Imports are now required to be made in bulk instead of small bags (of 50 kgs), making the process cumbersome and costly. In the light of increasing prices, the government has put a ceiling on fertilizer subsidy at NPR 3 billion (USD 41.33 million) for the fiscal year 2011/ 12 to ease the pressure on farmers.

Figure 3 Fertilizer Imports into Nepal

Essential commodities for tax waiver: A draft policy on essential commodities by the Department of Commerce (DoC) envisions tax waivers on essentials like rice, pulses, grain, edible oils, sugar etc in the context of rising food prices. The availability of ration cards, subsidized rates for the poor, fixing of prices, and market interventions to control vegetables prices through mobilization of cooperatives and the elimination of middlemen is also mentioned in the draft. The draft will be sent to the Ministry of Commerce and Supplies (MoCS) and will then be forwarded it to the Ministry of Finance (MoF) for its consent. Dairy sector faces challenges: With the import of milk from India standing at around 50,000-75,000 liters a day, the imposition of a ban on the export of powdered milk by India has worsened the situation.7 Milk deficiency has increased as most dairy industries are reliant on powdered milk during the dry season. With the farmers also pushing for price hikes due to rising production costs and a rise in interest rates on bank loans, the Dairy Development Corporation (DDC) had to hike the prices of milk. There has been an increment of NPR 4 per liter (USD 0.06) of which the farmers will receive NPR 3 (USD 0.04) and the DDC NPR 1 (USD 0.01). Foreign aid increases in agriculture: A grant of USD 20 million (NPR 1.44 billion) has been pledged by the Asian Development Bank (ADB) to raise the income of farmers in 10 mid and far western districts. It also aims to increase the production of high value commodities and to intensify commercialization of agriculture to reduce agroimports and improve the balance of payment situation. Japan has also agreed to lend a grant assistance of NPR 888 million (USD 12.23 million) to the government for food aid and security in Nepal. The grant will be used exclusively for the procurement of rice and its shipping-related services (international transportation up to Nepalâ&#x20AC;&#x2122;s entry point). The rice will be supplied through the Nepal Food Corporation to food deficit areas.

Source: Nepal Rastra Bank

Docking Nepalâ&#x20AC;&#x2122;s Economic Analysis

Energy The state run Nepal Oil Corporation (NOC) is still dealing with its perennial financial problems. This has resulted in fuel shortages throughout the country. The energy crisis discourages private sector investments and enormously increases economic costs with industries forced to reduce or completely close operations. Power outages have also impacted the labor market by exacerbating the unemployment situation. Despite possessing massive hydro power potential sources, Nepal does not produce enough electricity to meet the country’s demand. Energy crisis declared: The Ministry of Finance has declared an ‘Energy Crisis’ in Nepal for the next four and half years. The Government of Nepal has committed NPR 8.8 billion (USD 121.23 million) as loans to Nepal Electricity Authority (NEA) over the crisis period. NEA has been unable to meet energy demand, which has resulted in 16 hours of daily power cuts. Experts say that even if NEA succeeds to produce 2,500 MW in the crisis years, Nepalis will still have to face 7-8 hours of daily power cuts during the dry seasons. NEA is also over staffed and under atrocious management, this is evident in the fact that it will spend NPR 1.5 billion (USD 20.66 million) of the government loan to meet the salary expense of it’s over 10,000 employees. NEA currently spends NPR 2.6 billion (USD 35.82 million) annually on salaries, an increase from the NPR 2.1 billion (USD 28.93 million) spent the previous year.

to investors. The tax breaks and benefits include waiving custom duties on solar power and thermal plants equipment. Energy Demand Increases Petroleum Imports: According to Nepal Oil Corporation (NOC), the country consumes 15,000 kiloliters of petrol and 70,000 kiloliters of diesel in a month. According to Nepal Rastra Bank, petroleum products worth NPR 44.22 billion (USD 609.17 million) have been imported from India during the first eight months of fiscal year 2010/11, a growth of 53.5%. Imports of petroleum products stood at NPR 28.80 billion (USD 396.75 million) during the corresponding period in fiscal year 2009/10 and NPR 27.91 billion (USD 384.49 million) in fiscal year 2008/09. Petroleum imports amount to over 60% of the country’s export earnings and exceeds the total export earnings from India. Frequent load shedding and the need for alternative sources of energy through generators and the rising number of private vehicles, particularly motorbikes, have been quoted as the main reason for the rise in the consumption of petroleum products.

Figure 4 Oil Imports into Nepal (USD millions)

Government’s initiatives to tackle the power crisis: The government has launched a USD 275 million (NPR 19.96 billion) initiative to end the energy crisis within the next five years. The government will build power plants that generate 2500 MW of electricity and give tax breaks Source: Nepal Rastra Bank

10 Docking Nepal’s Economic Analysis

Table 1 International price of Oil during Mid-March Mid-Mar

Oil ($/barrel)*

2009

2010

2011

45.18

79.43

110.25

*Crude Oil Brent ** Refers to past London historical fix.

Sources: http://www.eia.doe.gov/emeu/international/ crude1.xls and http://www.kitco.com/gold.londonfix.html Unemployment on the rise due to load-shedding: Due to the 98-hour weekly load-shedding schedule, around five dozens industries have closed down in the BirgunjPathaliya corridor. This has displaced around 20,000 workers. According to General Federation of Nepali Trade Unions (GEFONT), more than 50,000 workers have already been displaced from their work in the capital due to the 14 hours a day of load-shedding.8 Changing lifestyle causes a surge in demand for LPG: The consumption of Liquefied Petroleum Gas (LPG) increased by 16.2%, from 86,455 tonnes in the first eight months of fiscal year 2009/10 to 100,557 tonnes this fiscal year. Moreover, NOC statistics show that LPG consumption has increased eight-fold over the last 14 years.

Foreign Aid Foreign aid, as grants or loans, is a major source of funding for government expenditure and development projects in Nepal. New Foreign Aid Policy: The High Level Committee for Foreign Aid Coordination and Mobilization, 2067 (2010) is planning a long overdue amendment to the Foreign Aid Policy, 2002, which was drafted even before the “Paris Declaration on Aid Effectiveness – 2005.” It is expected that the new policy will incorporate the declaration.

Military aid: The Chief of General Staff of the People’s Liberation Army of the People’s Republic of China, Chen Bingde, visited Nepal in March, 2011. During his 3-day visit, the general and his Nepali counterpart signed an agreement in which the Chinese government committed NPR 1.41 billion (USD 19.42 million) in assistance to the Nepal Army. The grant includes NPR 1.08 billion (USD 14.88 million) worth of medical equipments to Birendra Sainik Hospital and equipments for rescue operations. It also includes NPR 0.33 billion (USD 454,608) worth of engineering equipments for the army. India and USA are also ready to resume military aid to Nepal. Budgetary provision for claiming reimbursements: Of the total NPR 87.57 billion (USD 1.21 billion) of foreign aid that Nepal is using to finance its budget, it has received NPR 49.58 billion (USD 683.01 million) in the form of cash and direct payments, while the remaining NPR 37.99 billion (USD 523.35 million) needs to be claimed by Nepal in the form of reimbursements. Generally, donors make payments to foreign suppliers directly and reimburse local expenditure on receipt of the withdrawal application. However, the failure to claim reimbursements had led to a rise in outstanding dues which stood at NPR 32.21 billion (USD 443.73 million) from the previous financial year. A budgetary provision withholding the budget of projects failing to claim reimbursements on time has acted as a much needed stimulus with the outstanding amount was brought down to NPR 9.5 billion (USD 130.87 million) as of mid-March. Expenditures on technical assistance not transparent: During the last fiscal year, Nepal received NPR 17.19 billion (USD 236.81 million) in technical assistance from foreign donors. Out of this sum, NPR 15.02 billion (USD 206.92 million) has not been accounted for in this year’s budgetary expenses. This accounts for 87.43% of the total technical assistance received by Nepal. The Ministry of Health and Population alone has not accounted for NPR 7.58 billion (USD 104.42 million) of the NPR 7.96 billion (USD 109.66 million) it received in technical assistance from foreign donors.

Docking Nepal’s Economic Analysis

Health & Education One of the primary roles of government is to provide and improve health care and education. In Nepal, delivery of health care remains inadequate due to a limited budget, a lack of qualified human resources, and the lack of a concerted effort by the government. Reforms in the education sector are also long overdue. The current education system is unable to produce labor that can meet the labor demands of a globalized world economy. Private education in Nepal continues to see high growth with the parents seeking to provide the best available education to their children. However, concerns of profiteering without delivering quality education have persistently been raised against private schools. Government reforms within the public education system remain stagnant and the phasewise government initiative to provide education for all still has not been implemented in all of Nepal’s districts. Disaster preparedness gains some importance: The recent earth quake in Japan has raised the importance of disaster preparedness in Nepal. The government has announced plans to speed up its plan for providing district health level contingency planning exercises, conduct a mapping of health facilities using GPS (Global Positioning System), plan disaster response with the WHO, and retrofit public service buildings like hospitals, blood banks, and schools. The South Asian Association for Regional Cooperation (SAARC) has prioritized the strengthening of its SAARC Disaster Management Centre in the upcoming SAARC Summit in November. Disastrous health impact resulting from negligence and immoral conduct: Recently, the distribution of drugs during the government’s drive against Elephantiasis/Filiaris gained bad publicity. Filiaris caused by the culex mosquitoes, is the second most paralyzing disease after leprosy in Nepal. The drugs, claimed to be WHO prescribed and recommended, allegedly caused a few fatalities and over 500 people fell ill as a result of taking these drugs in the districts of Banke, Bardia, Saptari and Dang. An investigation into the deaths and illness refuted

12 Docking Nepal’s Economic Analysis

such claims and pointed out that the deaths were not caused by the anti-elephantiasis drugs. However, doubts regarding the credibility of such an investigation arise as the study was carried out by the Epidemiology and Disease Control Division (EDCD) under the Department of Health. Incidents of unauthorized hepatitis B vaccines being administered have also been reported. Four fake vaccinators were recently apprehended in the city but the quality of the vaccines was yet to be tested. Contaminated drinking water poses health risks: Bottled water available in the market may impose severe health hazards like morbidity, stomach cramps, vomiting and diarrhea. Nepal Academy of Science and Technology (NAST) conducted a bacteriological investigation on the quality of processed drinking water sold in Kathmandu in 2009 and 2010. Out of 120 samples, 62 were found to be contaminated with coliform bacteria.9 According to international quality standards, a single colony of coliform bacteria in 100 ml is unacceptable. Over 300 colonies of the bacteria were found in 100 ml of the contaminated samples. Strikes, and more strikes: Strikes have been a common form of protest even in the health care industry. Indefinite strikes hit Manipal hospital in Pokhara as the Maoist affiliated health workers associations demanded the management give them minimum pay and permanent status after 240 days of employment as per government rules. Similarly, in Dharan, ambulance and hearse drivers at the BP Koirala Institute of Health Sciences (BPKIHS) called off their indefinite strike after four days of protest against a syndicate of private taxis (Ghopa Taxi Entrepreneurs´ Association) that disallowed them from picking up patients and parking on the hospital grounds.10 Lack of information dissemination: Ministry of Health and Population (MoHP) has been criticized for not disseminating the list of ineffective drugs prepared by National Public Health Laboratory (NPHL).11 This has led to continued prescription of ineffective drugs as doctors are not aware which antibiotics have lost their efficacy. The list is prepared by the NPHL every year after conducting

antimicrobial resistance surveillance and antimicrobial susceptibility testing. The NPHL gives recommendations after analyzing its laboratory reports along with the lab reports of 10 other major hospitals. Services for the poor and disabled: Physically disabled people have to now pay for their services at the Physical Rehabilitation Centre (PRC) as Handicap International has reduced its assistance. They have to pay for the implantation of artificial limbs, according to their financial standing. The cost of artificial limbs is very expensive as it needs to be modified (replaced or repaired) every three to four years and the cost of a prosthetic limb can cost up to one million rupees. The PRC, which falls under the Social Welfare Board, claims the government only bears its administrative cost. Health facilities in big factories: Considering the working conditions in big factories, the Family Health Revitalization Division (FHRD) at the Ministry of Population and Health (MoPH) has decided to provide primary health care services to factories employing more than 500 workers. The Ministry of Finance has allocated NPR 10 million (USD 137,760) for this purpose in the budget of the current fiscal year. The budget also announced different facilities for industries that provide direct employment to more than 100 workers. Bill on tobacco endorsed: As part of the WHO, Nepal translated its convention on tobacco smoking in public places into a law. The bill was endorsed by the parliament on 11 April, but its enforcement is yet to be seen. The law bans the sale of loose cigarettes and stipulates that tobacco companies must fill 75% of the packaging of the tobacco products with facts about health hazards from tobacco consumption and totally bans advertisements promoting tobacco. Nepal declared polio-free by WHO: The World Health Organization (WHO) has declared Nepal polio-free following a six-month period of no reported infections after its nation-wide polio drive reaching 4.5 million children

aged 0-5. Nepal had remained polio free until 2004 when this was interrupted by cross border transmission. Nepali pharmaceutical industry: The health care industry is a lucrative investment option for the private sector. Apart from increased investments in private hospitals, the drug industry is also moving to the next level. General drugs produced by Nepali companies will begin competing with the pricing and quality with those of India and Bangladesh. Five Nepali drug companies are preparing to export their drugs this fiscal year. Writ against high school fees and textbook scams: The commercialization of the private education has been mounting financial pressures on parents and guardians. Private schools have been found defying the Ministry of Education regulations by levying fees above the ceiling and selling unapproved and expensive textbooks not prescribed by the Curriculum Development Centre from syndicates of books stores. A writ was filed in the Supreme Court on 20th April demanding the government formulate laws to regulate the fees levied by private schools and check the sale of unapproved and expensive books. Number of SLC examinees rise, conditions during exams remain the same: 496,243 students (as compared to 412,081 last year) appeared across 1,675 exam centers to give their SLC exams.12 The Nepal Electricity Authority (NEA) reduced load-shedding by 2 hours from the existing 14 hours a day, giving some respite to the students preparing for the exams. Similar to last year, several cases of irregularity and cheating during the exam were reported. Over 70 students along with invigilators, guards, fake examiners were expelled on the very first day of the SLC. CPN-UML lawmaker, Kirandevi Yadav and CA member Kirankumari Ray were found assigning their daughters to write their exams. As per the Education Act, any person adopting unfair means and breaching the exam code can be jailed for six months or fined up to NPR 100,000 (USD 1,377) or both. However, due to political pressure, the lawmaker and the CA members were not expelled and were allowed to sit for the remaining papers.

Docking Nepalâ&#x20AC;&#x2122;s Economic Analysis

Stringent UK student visa rules: The Home Ministry of the United Kingdom has imposed new rules on student visa which may impact the number of students going for studies. According to this new rule, only students at universities and public-funded colleges will be allowed to work, not all foreign students will be able to bring their dependents to the UK and there will be a limit on the overall time that can be spent on a student visa in the UK.13 Earlier, all students were allowed to work for 20 hours a week to financially support their studies.

Infrastructure & Real Estate Although infrastructural development has been the government’s national priority, the country is yet to see the development of good road networks and improved connections to rural areas. According to the World Bank, 36% of Nepal’s population live at least a two-hours walk from the nearest all-season road, 15 out of 75 district headquarters are not connected by a road, and 60% of the main road network and almost all rural roads are dryseason tracks that cannot be operated during the rainy season. District Development Committees (DDCs) are responsible for the management and maintenance of rural roads but little has been achieved due to the DDC’s weak institutional and financial capacity. Nepal’s experiment with “build own operate and transfer” (BOOT) projects continues with foreign companies proposing various infrastructure development projects to the government. But this experimentation continues without much success as the capability and experience of the companies are not adequately analyzed. As per Nepal Rastra Bank’s (NRB) circular dated 18th March, 2011, only real estate loans for which the total outstanding interest has been duly paid, can be renewed once. In case of personal home loans, loans up to NPR 6 million (USD 82,656) are to be separated from real estate loans and need not be included in the calculation of real estate loans to comply with the cap set by the central bank. If personal home loans are more than NPR 6 million

14 Docking Nepal’s Economic Analysis

(USD 82,656), then such loans are to be included as real estate loans. Further, an individual bank can provide only one personal home loan per family.14 In a move to curb inflated asset valuation, NRB through a circular dated 3rd March, 2011 states that if a valuator evaluates unfit collateral as proper, then such valuators will be blacklisted by the Credit Information Bureau (CIB). Such blacklisted valuators will not be allowed to perform the collateral valuation for any licensed banks and financial institutions.15 International Airport at Nijgadh, Bara: Landmark Worldwide (LMW), a Korean Company submitted a Detailed Feasibility Study (DFS) to the Ministry of Tourism, Culture and Aviation (MOTCA) on April 10. The company has invested USD 3.55 million (NPR 257.69 million) for the study.16 It is proposed that the airport in Nijgadh, 150 kms from Kathmandu, be linked by a fast track road of 75 kilometers. Upon completion, the airport will be able to handle 15 million passengers per annum in the first phase. The first phase will require an investment of USD 650 million (NPR 47.18 billion) and will be completed by May 2015. The second phase of the airport with complete facilities and infrastructure will conclude by 2025, with an investment of approximately USD 1 billion (NPR 72.59 billion). The airport will be able to handle 60 million passengers annually. The study also mentions the Kathmandu-Terai fast track should be completed 6 months prior to the commencement of the airport. Fast Track Road delayed: The 76.2 km Kathmandu-Terai Fast track has hit another road block with the cancellation of the re-invitation of the Expression of Interest (EOI) by the Ministry of Physical Planning and Works (MOPPW) at the direction of Public Accounts Committee (PAC).17 As per the new directive of the PAC, international companies submitting an EOI must ensure at least 10% counterpart investment from Nepali companies.18 Previously, Landmark Worldwide and Reliance Infrastructure were shortlisted two years ago from among the companies submitting the EOI. Currently, construction is underway at Malta, Budhune, Nijgadh and three other places.

Waterway Development: The Ministry of Physical Planning and Works (MOPPW) on 16 March 2011 has called for an Expression of Interest to conduct a feasibility study for developing waterways in the Koshi, Gandaki and Bheri River.19 The Government has allocated NPR 5 million (USD 68,880) for this in fiscal year 2010/11.20 The study will focus on identifying the possibility and the cost of developing waterways of an estimated length of 450 Km on these different rivers. Possibilities of developing waterways on the Dolalghat-Chataraghat-Koshi Barrage, Devghat-Mirmi, Devghat-Triveni and Devghat-Mugling sections will be covered by the study. The study will also focus on how the Koshi barrage and Triveni waterways can contribute to Indo-Nepal trade. Upgrading of highway corridors: The Ministry of Physical Planning and Works (MOPPW) plans to upgrade four highway corridors to six-lane roads within this current fiscal year. The proposed six-lane roads are RaniBiratnagar-Itahari-Dharan (49 km), Birgunj-Pathlaiya (28 km), Butwal-Bhairahawa (24 km) and SuryabinayakDhulikhel (15.4 km). The government has allocated NPR 700 million (USD 9.64 million) in the current fiscal year. The draft report has been presented to the Department of Roads (DOR). The estimated cost is NPR 4 billion (USD 55.10 million) for Rani-Biratnagar-Itahari-Dharan, NPR 5 billion (USD 68.88 million) for Birgunj-Pathlaiya, NPR 2.6 billion (USD 35.82 million) for Butwal-Bhairahawa and NPR 3 billion (USD 41.33 million) for Suryabinayak-Dhulikhel sections.21 New port for trade: The Government of India (GOI) in 2009 had in principle given approval to Government of Nepal’s (GON) proposal for using Visakhapatnam port as its second trans-shipment point for the import and export of container cargo.22 Lately, the GOI has been pressing for a Double-Seal system for Nepal. As per the DoubleSeal system, India will check Nepali cargo and put another seal next to the seal placed by shipping agents. The system allows Indian authorities to unlock shipment and check goods at any place.

Collection of land ownership details: As per the Land Reform Act and the directive of the Supreme Court (SC) issued a year back, the Ministry of Land Reform and Management (MOLRM) is required to collect land ownership details from all land owners. The ministry citing difficulties has suspended its drive to collect land ownership details from all land owners until the Land Reform Act is amended. Revenue collections from Real Estate down: The revenue collection from land revenue during the first seven months of the current fiscal year shows signs of a downward spiraling realty market, compared to the revenue collection during the same period last year. A sampling of the decrease is shown in table 2.

Table 2

Land Revenue Figures

Land Revenue

Fy 2010/2011 (NPR

Fy 2009/2010 (NPR

Office

millions)

Dillibazar ○

○

328.5 ○

○

Chabahil ○

○

Total

○

(52.88) ○

○

346.1 ○

○

895.99

○

(63.23) ○

○

(62.44)

260.94 ○

○

(61.41)

369.42

101.71 ○

○

518.99

138.72

Bhaktapur ○

697.24 ○

127.25

Lalitpur ○

○

200.24

Kalanki ○

○

Change %

○

(61.02)

2192.69

○

(59.13)

Source: Land Revenue Office

Lending Restrictions on Cooperatives: The Department of Cooperatives has set a ceiling which restricts cooperatives from lending more than 25% of its total investment in land and housing.23 Despite the NRB’s restrictions, a study found that some cooperatives have lent as much as 93% of their investment in the realty sector. Cooperatives have also been restricted from lending more than 40% of the total project cost to members. Labor shortages in construction: An acute shortage of labor has hit the Nepali construction industry. Hardly 60% of the total demand is being met. The construction industry requires at least 1.1 million laborers but supply is limited to 600,000-700,000.24

Docking Nepal’s Economic Analysis

Manufacturing & Trade The total value of Nepal’s foreign trade increased by 2.6% during the first eight months of FY 2010/11 compared to the corresponding period the previous year, amounting to NPR 296.12 billion (USD 4.08 billion).25 The share of exports and imports stands at 14.6% and 85.4% respectively. Exports increased by 7.4% and reached a value of NPR 43.24 billion (USD 0.59 billion) while imports rose by 1.9% and reached a value of NPR 252.88 billion (USD 3.48 billion) during the review period. The trade deficit increased by 0.8% during the review period and reached NPR 209.64 billion (USD 2.89 billion). The country is still importing almost six times more than what it is exporting.

Table 3

Foreign Trade Figures of Nepal Imports Total trade Total Deficit Export: Import Ratio

Exports F.Y. 2009/10

40.25

248.27

13.9

86.1

share % ○

○

F.Y. 2010/11

○

Change%

○

7.4

○

208.03 ○

296.12

○

1: 6.2 ○

○

209.64

○

1: 5.8

85.4

14.6 ○

○

253.88

43.24

share % ○

○

288.52

○

1.9

○

2.6

○

0.8

India, Bangladesh, USA, Germany, UK, France, China are some of the major export destinations for Nepal. Similarly, some of the major countries Nepal imports from are India, China, Argentina, Malaysia, Japan, Indonesia and USA. Some improvement in Nepal’s traditional exports such as carpets and readymade garments was seen during the review period and the import of gold fell drastically. However, import of petroleum products, crude soybean oil, fertilizers, zinc and articles thereof have increased dramatically. Growth in manufacturing sector still sluggish: Recently released CBS statistics show that the Manufacturing Production Index (MPI) grew merely by 1.23% during the first quarter of FY 2010/11. Power shortages, a challenging business environment, strikes, labor problems, and a liquidity crisis all contributed to the decline in the country’s industrial activity. The manufacturing sector’s share in Nepal’s GDP has been declining over the years, dropping from over 9% in FY 2000/01 to just 6.25% in FY 2009/10.

16 Docking Nepal’s Economic Analysis

A drop in the production of construction material was reflected by a sharp decline in the index of fabricated metal products such as iron rods and GI pipes. Although the liquor industry witnessed growth, the overall beverage sector showed a decline due to a fall in the indices of beer and soft drinks. Similarly, the processed food production index dropped due to a fall in the biscuit production index. Power shortage reduces industrial production in Eastern Nepal: Factories in the Sunsari-Morang Industrial Corridor were forced to cut production by over 50% as load shedding increased from 10 hours to 16 hours. The power shortage resulted from renovations on electricity towers along the Purniya-Kataiya transmission line by India. Factory owners were forced to cut production as the use generators and diesel plants triples production costs. Factory owners incurred an estimated daily loss of more than NPR 200 million (USD 2.76 million).26 Industrialists have blamed the government’s apathy for their problems. Trade unions back different agreements regarding industrial workers’ salaries: Industries along the Sunsari-Morang and Birgunj-Pathalaiya Industry corridors were shut for several days as various trade unions backed two different trade union agreements. More than 1,500 industries were affected by the shutdown.27 On March 24, the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), Confederation of Nepalese Industries (CNI) along with representatives of three major trade unions - All Nepal Trade Union Federation (ANTUF), Nepal Trade Union Congress (NTUC) and General Federation of Nepalese Trade Unions (GEFONT) signed an agreement on industrial workers salaries. However, the Maoist affiliated trade union, All Nepal Revolutionary Trade Union Federation (ANRTUF), has been supporting the trade unions affiliated to the Madhesh-based parties to protest against this agreement. Nepal-US sign the TIFA: Nepal and the United States of America signed the long overdue Trade and Investment Framework Agreement (TIFA) on April 17, 2011.28 All the

negotiations regarding the agreement were finalized last year but the signing of the pact had been delayed until now. TIFA replaces the bilateral trade agreement signed by Nepal and the US more than half a century ago.

Telecommunication & Media Nepal has made significant improvements in the telecommunication sector since the 1970â&#x20AC;&#x2122;s, when only one out of 400 people had a phone in Nepal. This situation has dramatically improved with 160 out of 400 people owning their own telephone by 2010.29 Nepal currently has 43,928 internet hosts, 577,800 internet users, 820,500 main line telephones in use, 7,618,000 cellular mobiles in use and 9 television broadcast stations.30 Despite this rapid development, there is ample room for improving and strengthening the information and telecommunication infrastructure in the country. Ncell expanding: The first private sector mobile service provider in Nepal, Ncell has surpassed the 5 million subscribers mark. 31 The company had 2.36 million subscribers in the first quarter of the 2009/2010 fiscal year. The subscriber number accelerated to 4.78 million by March 2011 and 5 million by April 2011. The company also recorded an astounding 98.8 % growth in its net sales to NPR 4.61 billion (USD 63.51 million). Qatar and Nepal for better connectivity: Qatar Telecom and Nepal Telecom recently signed a Memorandum of Understanding (MOU) to provide support to international telecommunication at a subsidized rate.32 The agreement is the first of its kind to be signed between operators in Qatar and Nepal. The service came into existence since December last year however, a formal agreement was only signed on March 8th 2011. As per the agreement, voice traffic will be routed directly via a newly established cable connection. The high end NGN switches deployed by both companies will enable better connectivity for both wired and internet communications. Earlier, the applicable call rate to Qatar was NPR 20 (USD 0.28) per minute. With the new agreement in place, Nepal Telecom customers can make calls to Qatar at NPR 12 (USD 0.17) per minute.

Disaster planning on communication: Stirred by the recent 9.0 magnitude earthquake in Japan, Nepal Telecommunication Authority (NTA) is contemplating the creation of a special plan for emergency communications in the event of a natural disaster.33 The emergency communication plan will be devised based on the study being carried out by UNDP on Earthquake Risk Reduction and Recovery Preparedness Program (ERRRPP) for Nepal. The study revealed that the buildings, on which the mobile towers are installed, run the risk of destruction in the light of any natural calamity. Also, as the three major telecom service operators, Nepal telecom, Ncell, and UTL have their international gateways located only in Kathmandu, it is likely connections with the outside world would be completely severed in case of such a calamity. Hence, telecom operators need to build gateways in different locations to avoid a total communication breakdown during crises. Mobile Number Portability Feasibility Study: Nepal Telecom Authority (NTA) recently conducted a feasibility study to assess the implementation of Mobile Number Portability (MNP). MNP enables mobile users to retain their mobile numbers if they wish to switch from one mobile network operator to another. As per the survey, the telecom market of Nepal must have a penetration rate of at least 60% of the population for effective implementation of the MNP. Currently, the penetration stands at 40.30% of total population of which mobile phones account for 35.13%.34 Royalty dues of UTL: United Telecom Limited (UTL) owes more than NPR 900 million (USD 12.40 million) to the government as royalty for the fiscal year 2010/2011. UTL currently holds two licenses namely, basic telecom and limited mobility. As per the license agreement between NTA and UTL, for limited mobility services UTL must pay 4% of its annual income as royalty since the license was granted without calling a tender. For basic telecom service, UTL must pay either the committed royalty while obtaining license or 4% of the total annual income whichever is higher. UTL had committed to pay NPR 1.24 billion (USD 17.08 million) as royalty fee for eight years (2002/2003 â&#x20AC;&#x201C; 2009/2010) when it was granted a license for basic telecom Docking Nepalâ&#x20AC;&#x2122;s Economic Analysis

service. Till date UTL has paid NPR 160.57 million (USD 2.21 million) while NPR 189.45 million (USD 2.61 million) was waived in 2005.35 NTA as a warning on 24th March, 2011 renewed UTL’s license for limited mobility for only six months which is normally renewed for five years. On 25th March, 2011 NTA via a letter has demanded UTL clear its royalty dues within 35 days or face scrapping of its operating license if it failed to do so. However, the time has run out but the Government and NTA have not made any move.

the months of January-April 2011, tourist arrival by air was 168,958 as compared to 142,688 during the same review period last year.

Table 4 Tourist Arrtival Numbers Month

2010

2011

Jan ○

○

26,071 ○

○

Feb ○

○

March ○

○

April ○

○

Total

○

32,914 ○

○

33,492 ○

○

44,431 ○

○

38,694 ○

○

142,688

○

37,584 ○

○

46,491 ○

○

51,969 ○

○

168,958

Media and publicity for NTY 2011: The government of Nepal has allocated a budget of NPR 130 million (USD 1.79 million) for advertisement and publicity of the Nepal Tourism Year (NTY) campaign at the international level. From the total budget NPR 60 million (USD 826,560) has been set aside for promotion in India, NPR 30 million (USD 413,280) for China and the rest for other market sources.36 After negotiations, British Broadcasting Corporation (BBC) for its four month package has agreed to cut their advertising tariff from NPR 44 million (USD 606,144) to NPR 24 million (USD 330,624). Similarly Cable News Network (CNN) has also agreed in principle to reduce the tariff. An amount of NPR 36 million (USD 495,936) had been allocated by the promotion committee for CNN. The committee has requested CNN to decrease the charge to NPR 16 million (USD 220,416).

Source: Nepal Tourism Board

The NTY promotion committee plans to promote Nepal Tourism year through TV, newspapers, hoarding boards and online media in India. A package named ‘summer spender’ is planned to be marketed in India targeting the Indian holiday season. The NTY promotion campaign in India is slated to begin during summer (April-June). Popular media houses in India have also submitted their respective proposals to the NTY promotion committee.

The number of tourist arrivals by air could increase if there were direct flights from the U.S. and Europe to Nepal. Passengers traveling to Nepal from these destinations have to deal with long transit hours. Nepal Airlines Corporation (NAC) used to have direct flights to big cities like Frankfurt and London several years ago. Given the current corruption controversy NAC is mired in, it is not in a state to purchase a new aircraft and extend it flight destinations.

Tourism The first four months of 2011 witnessed a growth of 18.4% in the total number of tourists visiting Nepal by air. During

18 Docking Nepal’s Economic Analysis

Source: Nepal Tourism Board

Figure 5 Tourist Arrival Comparisions

Increase in tourist arrival but decline in tourism revenue:Nepal Tourism Board (NTB) statistics show an increase in the number of tourists as compared to last year. However, this increase has not translated into higher gains for the economy as tourism revenue has not risen

accordingly. Nepal Rashtra Bank (NRB) data shows a decline in revenue from tourism during the first seven months of FY 2010/11. During the review period, tourism income amounted to NPR 14.8 billion (USD 203.88 million), down from NPR 18.82 billion (USD 259.26 million) in the same period last year, representing a decline of 21.36%. Tourism entrepreneurs cite unhealthy competition resulting in low priced tour packages as the main reason for decline in tourism revenue. NRB officials, however, suspect that foreign exchange market players have been misreporting income from tourism. On one hand, this calls for better supervision and regulations of such companies. On the other hand, there is a need for developing better policies to attract high-end tourists, increase their spending per day and lengthen their stay. Travel and Tourism Competitiveness Report (TTCR) 2011 places Nepal at 112: For 2011, TTCR ranked Nepal 112th out of 139 countries surveyed.37 Nepal moved up six places from when it was last surveyed in 2009, showing a slight improvement in travel and tourism (T&T) competitiveness. Regionally, Nepal is ranked 22 (out of 26). The report states Nepal has a notable competitive advantage in areas such as World Heritage, natural sites, ticket taxes, airport charges, hotel price, attitude of population toward foreign visitors, and visa requirements. There are also aspects of policy environment that are supportive of T&T’s development such as timeliness of providing T&T data and government prioritization of T&T industry. However there are several areas of weakness that have contributed to Nepal’s overall low ranking. Just to name a few, safety and security is a matter of grave concern. Health and hygiene is ranked at 102 (out of 139). Nepal’s infrastructure is among the worst, ranking 135 for its ground transport infrastructure and 116 for the quality of its air transport. Non availability of qualified labor is the worst in travel and tourism (ranked at 129). Factors such as low ATM penetration, lack of car rental facilities contribute to the low rank in business environment and infrastructure (ranked at 128). TIA to start round-the-clock operation: Civil Aviation Authority of Nepal (CAAN) officials have announced plans

to start 24-hour operation at Tribhuwan International Airport (TIA) from October onwards. At present, although TIA is open for 24 hours, it operates only 18 hours a day. The increase in international flight frequency and the number of tourists have been causing air traffic congestion and delays in flight schedules. Over the past decade, TIA has witnessed more than a 50% increase in traffic and passenger movements.38 The Asian Development Bank (ADB) is assisting CAAN to upgrade the infrastructure at the airport and to strengthen its institutional capacity.

Remittances Remittances have shown great resilience during the political and global financial crisis with a very modest drop in the inflow of remittance. Nepal was the fifth highest remittance recipient in 2009 (as percentage of GDP) according to the World Bank Remittance and Migration Fact book 2011. Non-Resident Nepalis (NRNs) express interest to invest in Nepal: The signing of the Trade Investment Framework Agreement (TIFA) with the USA on April 15 has sparked an interest to invest in Nepal among Non-Resident Nepalis (NRNs). The NRN National Coordination Council of USA (NRN NCC) has urged the Nepali government to create new opportunities for investment in Nepal. Among other things, the longstanding demand for dual citizenship of nonresidential Nepalis was also discussed.39 Increase in death of migrant workers: In the first eight months of the FY 2010/11, the Foreign Employment Promotion Board of the Government of Nepal has distributed NPR 30.6 million (USD 421,546) as compensation to families of migrant workers who died abroad. The family of each deceased migrant worker received NPR 100,000 (USD 1,378) as per the Foreign Employment Act. The Nepali government has increased the compensation amount by 52% in the last year, from NPR 20.1 million (USD 276,898) to NPR 30.6 million (USD 421,546). The number of migrant workers who died abroad has also increased by 35%.40 The most number of deaths of Nepali workers occurred in Malaysia and Saudi Arabia.41

Docking Nepal’s Economic Analysis

Remittance flows to unproductive sectors: Remittance inflows to Nepal as a percentage of GDP is slightly higher than the estimated flows to South Asia. While remittance inflows grew at 11.5%, amounting to NPR 118 billion (USD 1.62 billion) in Nepal in the first half of the fiscal year,42 remittance flows to South Asia are estimated to grow by 10.3% amounting to NPR 6024.97 billion (USD 83 billion) in 2010. However, a large portion of money received in the form of remittance is being spent on unproductive sectors such as housing, clothing, healthcare, education, durables and luxurious consumer goods. 43 Political turmoil in the Middle East ebbs departures of migrants workers. Considering that 60% of emigrants from Nepal seek employment in the Middle East, political

turmoil in that region has significantly hurt the country’s foreign employment numbers. With rising incidents of violence in Bahrain and Libya, the departure of Nepali migrant workers has declined by 11%. According to the Department of Foreign Employment (DoFE), departures of Nepali workers during the eighth month of the fiscal year (mid-February to mid-March) dropped to 25,011 from 28,136 in the previous month as fewer Nepali workers seek employment in destinations such as the United Arab Emirates, Qatar and Bahrain. The Government of Nepal has also put a ban on sending workers to Libya, Yemen, Oman and Bahrain considering the unrest in these countries. Considering the gloomy prospects in the Middle East, foreign employment agencies are looking towards Malaysia in the construction and plantation sectors.44

Macroeconomic Outlook

uring the 2010/11 fiscal year, the Nepali economy is expected grow by 3.8%. Given the rate Nepal’s two neighbors are growing; this remains an abysmal rate of growth. Limited economic growth will exacerbate the impact of rising food prices and inflation. Sustained double digit food price inflation is of high concern to Nepal. The mid and far western regions remain particularly vulnerable to food scarcity. Inflation will reduce the purchasing power of lower income brackets of the population. This can impact Nepal’s poverty reduction targets as well as provide grounds for social unrest. Among other measures, migration will continue to be the primary mechanisms families will use to cope with food scarcity. The government needs to play a proactive role and address immediate economic needs. For instance, the removal of trade barriers in agricultural and food products will help ease food supply when faced with problems created by low yield, price shocks, and natural disasters. Such policy leadership can only be taken by a government that is proactive and responsive to a changing economic environment. At the very least, the government needs to define its priorities and respond the countries changing economic requirements. Given the time it has spent on the new budget, this should be reflected in it. Nepal continues to be dependent on foreign aid to finance many of its projects. The government should demand efficiency and transparency in project execution and the claiming of reimbursements from the bureaucracy. With a new foreign aid policy in the offing, Nepal can hopefully set a clear strategy to utilize foreign assistance to the fullest. A good sector to direct foreign aid is in major infrastructure projects including hydropower and transportation networks. The adoption of the build, own, operate, and transfer (BOOT) model with foreign construction companies makes it important to carry out detailed background checks on these companies. The West Seti Hydroelectricity Project license has stayed with an Australian Engineering company, Snowy Mountain Engineering Corporation (SMEC), for over a decade and a half without leading to implementation. Such a farce should be avoided at all costs with the international airport. While the government has to attract foreign direct investment is also necessary to have an effective regulatory framework in place. Background checks and capability studies are necessary, but they should be completed with due diligence on time. The inability and inefficiency of the government is apparent in the recent directive of the Public Accounts Committee (PAC) in regards to the construction of the Kathmandu-Terai Fast Track. This will delay the construction of the project, which is already behind schedule. These delays are costly for the nation both in terms of increasing costs and delays in productivity. In March 2008, the Fast Track was estimated at NPR 67.72 billion (USD 932.91 million) and NPR 43.65 billion (USD 601.32 million) for four lanes and two lanes respectively but with the initial delay, the project cost has already escalated to NPR 75.45 billion (USD 1.04 billion) and NPR 48.75 billion (USD 671.58 million) for four lanes and two lanes respectively. With the cancellation of the EOI, the project cost is expected to increase further and impact the construction of the second international airport at Nijgadh.

20 Docking Nepal’s Economic Analysis

The government’s lack of a clear vision and the influence of endemic corruption is apparent in the PAC’s directive allowing Nepali contractors, without any specific experience, to participate in the biding of major projects. This is illogical and serves only the interest of certain Nepali construction companies, who do not have the experience or the technological knowledge to take on a project of this scale. Ultimately, in the case of the Fast Track, this will affect the quality of the road, mean a higher cost burden on the tax payer, and lead to further delays. The PAC’s requirements are a source of concern for other infrastructure projects as well, including hydropower. Frequent power cuts and fuel shortages have emerged as bottlenecks to Nepal’s growth. There is an urgent need to address the energy crisis through regulatory reforms and create a more conducive environment for private sector investment and participation. Problems in the supply of fuel will continue as long as NOC is not able to clear all its dues. The government will have to continue lending a hand to bail NOC out unless serious measures to reform the sector are taken. With an increasing demand for energy, the government’s bid to end the energy crisis within the next five years will be difficult. Its response of employing fossil fuels is a myopic solution to the power crisis in Nepal. With no respite from load shedding, the manufacturing and industrial sector continues to face high costs of production. Industries will be forced to either reduce production or use very expensive alternative power sources such as generators and invertors. In addition to load shedding, political uncertainty and labor problems will continue to adversely impact the economy. As production slows down or stops, more laborers will be forced to move to the informal sector looking for employment. The enforcement of the new wage structure is also expected to cause more disruptions in the days to come as the private sector, various trade unions and the government seem unable to come to an agreement. Militant labor will continue discouraging investments in the manufacturing and industrial sector. The current liquidity crisis will also slow investment as industrialists find it hard to get loans from banks. The real estate market looks set to stagnate and prices will continue to fall. The NRB’s directive to banks and financial institutions to not include loans up to NPR 6 million (USD 82,656) in the calculation of total real estate exposure to comply with the cap limit is a breather for the cash strapped realty sector. The new directive was expected to increase the sale of housing units but contrary to this, consumers are shying away as the government now requires income disclosures for the purchase of homes. The communication sector has continued to see good growth numbers. The stiff competition between Ncell and Nepal telecom is a much awaited scene by general consumers. Ncell with its efforts of expanding network coverage and improving quality is slowly but steadily eating into the monopolistic market share of Nepal Telecom. Nepal Telecom with its efforts to retain its market share is going to distribute 0.6 million GSM SIM cards within 3 months and call a global tender to add 6-10 million new subscribers in the next fiscal year 2011/2012. A survey on “Quality of service” conducted by the Center for Economic and Development Administration, reveals Nepal Telecom’s landline had call quality rates of 81.10%, GSM had 69.60% and CDMA had 76.10%. Similarly, Ncell’s GSM mobile service had the rate of 84.5% and United Telecom’s CDMA had 80.80%. As per the survey, Nepal Telecom needs to invest in infrastructure and improve its quality and network if it is to retain its position as the market leader. The TIFA signed between Nepal and the USA has the potential to boost exports of readymade garments (RMG). However, Nepal’s exports need to be competitive in order to increase export revenues. TIFA merely provides the framework for trade and technical cooperation. In order to take advantage of the pact, it is up to the Nepali government to implement policies that encourage export diversification and create a favorable business environment to attract investment. However, in terms of imports, the Government of India’s press for a double-seal system for Nepali imports could create a lot of problems for Nepal. The system allows Indian authorities to unlock shipments and check goods at any place. This system could lead to important commodities being delivered late as well as the misappropriation of goods. One of Nepal’s major foreign currency earners, tourism, is set to be adversely affected by the political uncertainty in the days to come. There are increasing signs that the country will witness more strikes as the constitutional deadline of May 28, 2011 will not be met. Consequently, the likelihood of more international travelers canceling their travel plans and reservations to Nepal is high. The country will also receive fewer Japanese tourists due to the recent tsunami. Additionally, there have been no changes in the travel warnings issued by the U.S State Department and Americans are recommended to avoid or reconsider traveling to Nepal. Foreign Ministries of countries like Canada and Australia recommend their citizens to exercise a high degree of caution in Nepal while the UK Foreign Ministry states that there is a general threat of terrorism in Nepal. The political uncertainty coupled with such discouraging travel advice will deter tourists coming to Nepal in the upcoming days. Nepal is rich in natural resources, but the country’s natural heritage is not protected by well enforced environmental regulations. The government needs to be proactive in terms of its policy to ensure that the natural heritage is conserved but also utilized in a sustainable manner. As most foreign visitors come to Nepal for recreation and leisure purposes, the likelihood of Nepal continuing to be an attractive tourist destination in the absence of

Docking Nepal’s Economic Analysis

supportive policies is going to decrease. While tourism numbers have risen slightly, it seems unlikely that the Nepal Tourism Year target of one million tourists will be met. Nepal continues to see growth in the number of workers leaving for jobs abroad. However, continuing unrest in the Middle East will have an adverse impact on the growth rate of remittances. Deceleration in the inflows of remittance will further add to the current liquidity crunch. Apart from a drop in family income, at the macro level, the banking, retail and housing sectors will be directly hit by the decline in remittances. Despite unrest in the Middle East, desperate and poor Nepalis will continue to seek employment in these tense regions. The increase in death of migrant workers can be partly attributed to a lack of proper information about the destination country. It is the role of the government to protect the rights of these workers and ensure that they gain a proper understanding of their destination. The government has seen limited success with its health care facilities. The health care sector has been marred with poor management and haphazard regulations. Reduced donor support to health organizations has put an additional burden on the government. The government needs to reform its management practices and make a concerted long term health sector plan for Nepal. The government needs to prepare for the event of a natural disaster and make sure that critical services remain operational during such a crisis. The private sector will continue to invest in the health sector, which is seen as lucrative and profitable. A clear example is the pharmaceutical industry moving into international exports which will attract investors as well as boost research and development in the field of medicine. Differences in the education system will persist as the Government is unable to respond to the changing needs of education due to financial pressures. Privatization of education will put pressure on parents as educational expenses rise due to increasing costs. With the government unable to provide quality education, parents will continue preferring to send their children to private institutions. Should stringent controls over education be implemented by the government, there is a risk that parents will prefer to send their children abroad, draining the countries already precarious Balance of Payment. Additionally, a reliance on the present government school curriculum means that Nepal will not be able to produce a labor force that is competitive in todayâ&#x20AC;&#x2122;s global economy.

22 Docking Nepalâ&#x20AC;&#x2122;s Economic Analysis

ANALYSIS

Docking Nepalâ&#x20AC;&#x2122;s Economic Analysis

Nepal Capital Market Nepal Stock Market is stuttering after it dropped below its long term support level of 400 index points. The market lost 54.32 points as it further dropped from 404.47 on February 15, 2011 to 350.15 index points on April 22, 2011. The capital market has reached a level where booking losses is no longer possible as the transaction volume has decreased to an average NPR 21 million (USD 289,296) a day from NPR 100 million (USD 1.38 million). The future prospect of the capital market remains bleak and may become worse by the end of the fiscal year in mid-July 2011. There have been adverse signals on the fundamental performance of Banks and Financial Institutions during the current period. Research indicates that the bracket of institutions with a falling bottom-line is alarming.

Table 5 Sn

Institution

1 ○

○

% of Institutions having decreasing net profit

Commercial Banks ○

2 ○

Decreaese in net profits

○

26% ○

○

Development Banks ○

○

Finance Companies

○

42% ○

○

64%

Source: Beed Invest

Table 5 indicates that the coming year end will entail lower profits in Banks and Financial Institutions with increasing default rates, attributed predominantly to real estate stagnancy, unsustainable interest rates on lending and of course a bleeding capital market. Despite such an alarming scenario, credit should be given to regulators whose efforts are now focused on building a strong base for Nepal’s capital market. Such efforts include:

24 Docking Nepal’s Economic Analysis

1. Process of additional brokers completed: Securities Board of Nepal (SEBON) has completed the process of infrastructure inspection for five additional brokers from the new lot of broker licenses. With these five getting their licenses, the total number of licensed brokers in Nepal has reached 34. The entry of the five brokers will be a break-through in the monopolistic regime of the current stock brokers. Additional brokers are expected to create competition in the market and enhance service delivery. 2. Progress in Central Depository System(CDS): Nepal Stock Exchange has established a company called the CDS and Clearing Limited, a wholly owned subsidiary. After the installation of CDS, clearance and settlement of securities transactions will be executed electronically and will replace all physical certificates. Along with improving the efficiency of transactions, the system will boost the confidence of investors, augmenting the increased transaction volume. The introduction of the CDS is an important step towards ensuring the sustainable growth of the market. However, 17 commercial banks and CITs have backed out of this venture. Its scheduled operation cannot be ensured by Nepal Stock Exchange alone. 3. Credit Rating regulation in pipeline: Security Board of Nepal (SEBON) has taken a lead in drafting a Credit Rating Regulation, which is at an exposure draft level. This regulation will provide a platform for bringing in corporate governance with international levels of disclosure requirements. This will help investors make informed decisions. This will also supplement the requirement of the standardization approach as per Basel II that NRB will implement by 2014. The salient features of the regulation are as follows:

Rules

Contents

Remarks The existing provisions will not create a sustainable market

(1) Credit Rating is mandatory for the following public issues:

Rule: 3

size for Rating Companies, which cannot be more than NPR

· Any public issue or Right Share Issue of more than NPR 100

30 million (USD 413,280), hence the following changes are

million (USD 1.38 million)

Mandatory Rating

required:

· Issue of preferential shares

Criteria

· Any issue in premium that includes IPO, Further Public Issue,

right shares or any other issue

The minimum cap of NPR 100 million (USD 1.38 mil lion) should be done away with and all public issues should

(2) Any borrower taking loans more than NPR 100 million (USD 1.38

million) can also obtain credit rating (voluntary)

mandatorily

rated.

For the implementation of BASEL II, each institutional borrower taking loans of more than NPR 10 million (USD 137,760) should have a mandatory credit rating.

○

Rule: 12

○

Any foreign rating agency willing to carry out credit rating in Nepal should

○

This allows transfer of foreign technology in Nepal.

enter into a Consensus Letter and this Consensus Letter needs to be Approval of

approved by SEBON, wherein its equity commitment should be a minimum

Consensus letter

of 25% and can be a maximum of 75% of the total paid up capital of the

for Foreign Rating

Credit Rating Company.

Agency ○

○

The minimum capital requirement for a credit rating company is NPR 20

Rule: 13

million (USD 275,520) and its net worth should be 75% of its paid up capital. Minimum Capital Requirement ○

○

Rule: 14 (1)

(a) The Credit Rating company should be a public limited Company

Criterion for the

(b) The Major Shareholders (defined as shareholders having more than

○

10% holdings) should have at least 51% holding

Credit Rating Company

○

Rule: 14 (2)

The Major Shareholder can only be from the following:

Criteria for the

(a) Bank/Financial Institutions or Insurance Companies having net

○

The Regulation restricts the major shareholder i.e. entities having more than 10% holding to only 3 categories and all these

Major Shareholder

worth of upto NPR 1 billion (USD 13.77 million).

entities put together should hold at least 51% holding in the Credit Rating Company.

(b) Foreign Rating Agency with 5 years in operation, holding a credit rating license for more than 5 years in its own country and having a net worth up to NPR 500 million (USD 6.89 million). (c) Credit Information Bureau licensed by central bank

Docking Nepal’s Economic Analysis

4. Homework being done for mutual fund: Some Commercial Banks have already started their homework in preparation of launching mutual funds after Nepal Rastra Bank (NRB) issued a specific circular allowing Banks and Financial Institutions having a paid up capital of NPR 1 billion (USD 13.77 million) to act as sponsors for mutual funds. This is considered a positive step for resolving the earlier deadlock on this issue. The understanding reached between the two regulators, NRB and SEBON, has now been established and shows their commitment towards the revival of the capital market. The entry of mutual funds will create additional institutional demand in the market, but its key significance will be to stop the current bleeding of the market. This will help

26 Docking Nepal’s Economic Analysis

restore the confidence level of existing investors and hopefully create a turn around.

Outlook The present condition of the capital market is an outcome of various economic issues bundled with political uncertainty. There is no turn around that can be expected in the immediate period of six months. However, the base created from the above four factors will provide sufficient momentum for the market to call back the “bull”, when the overall economic crises streamlines. Investors should not forget the basic fundamentals of the market: “What goes down, should go up.”

The Forestry Sector The Nepali government nationalized all its forests in 1957 and established the Ministry of Forestry two years later to oversee the nation’s forests. Prior to this, forests were being managed by local village bodies. Nationalization allowed the state to clear large tracts of forestland, particularly in the Terai, for resettlement and farming. In the 1960s and 1970s, a number of national parks, conservation areas and hunting reserves were established. However, a weak state structure and a lack of ownership among locals meant that the state was largely unsuccessful in protecting its forests.

Figure 6

At present, forests cover 25.4% (36,360 sq. km) of Nepal’s land area, together with shrub-land, total coverage stands at 40% (58,300 sq. km). With 35 major forest types and 118 ecosystems across five ecological regions, Nepal’s forests are a wealth of diversity.45 Around 20% these forests are located inside protected areas. However, with an annual deforestation rate of around 0.40% (70 sq. km), forest coverage has decreased considerable from the 33% (48,170 sq. km) of total land area it occupied in 1990. Forests constitute an important part of a country’s natural resources. Not only do they represent complex ecosystems but provide substantial environmental benefits including storing carbon and mitigating the risks of natural disasters.

Protected Areas of Nepal

Source: Ministry of Forest and Soil Conservation, 2010

Docking Nepal’s Economic Analysis

The forestry sector’s contribution to Nepal’s GDP is quoted to be 4.3%. However this number is a gross underestimation as the methodology used does not take non-market production and environmental benefits into account. A study conducted by Department of Forest Research and Survey (DFRS) concluded that the tangible benefits of forestry sector such as timber, fuel wood, non timber forest products (NTFPs) alone contribute 9.45% to the GDP. If non-tangible benefits such as recreation and environmental values like carbon sequestration and soil erosion control are taken into account, then its contributions would add up to 27.55% of Nepal’s GDP.46 Unlike in countries like China, India, and Brazil, the forestry sector in Nepal has not been given an industry status. The sector’s contribution to the national treasury has been clubbed together with that of the agriculture sector. A large number of communities in Nepal depend on forests to meet their subsistence and commercial needs. Almost 80% of Nepal’s population is rural and agrarian based. Forests provide livelihoods and income generating opportunities to thousands of such households. Increasing involvement and participation of women in forest management for livelihood opportunities has helped them escape poverty. In particular, women are largely engaged in the NTFP sector. According to the Nepal Labour Force Survey (NLFS) 2008, 73.9% of the population is employed in the agriculture and forestry sector with women comprising of 60%.47 Increasing female participation is due to the increasing trend in male migration that compels women to take up both household as well as farm activities. In an attempt to reverse the breakdown of local ownership that was brought about by nationalization, community managed and run forestry projects were initiated. This initiative has met with considerable success and over 20% (12,192 sq. km) of Nepal’s total forested area is managed by around 14,400 Community Forest User Groups (CFUGs) which provide direct benefits to around 40% of Nepal’s population.48 However, the success of the CFUG model has been limited to the hill districts where forests and people exist together and forests are mainly used for

28 Docking Nepal’s Economic Analysis

subsistence purposes. In the Terai, due to the variations in the biophysical and social conditions, the CFUG model was not very successful. This is partly because the inhabitants residing close to the Terai forests are mostly recent dwellers, the majority of whom recently migrated from the hills. Few of them have land ownership and many are landless people encroaching upon the forests. The government’s present definition of ‘users’ as the residents of a nearby area from the forest includes squatters as the managers (users) of the forests. This has raised a prominent ethical question in the case of the Terai forests. Government Policies on the Forestry Sector: The government management of the forestry sector started with the Forestry Act of 1961, the main purpose of the Act was to regulate and systematize the forestry sector. However, a long term management plan materialized only after the Master Plan for the Forestry Sector (MPFS) was formulated in 1989. The Master Plan outlined an extensive strategy for 21 years: · To meet the peoples need for forestry products in a sustainable way · To conserve the eco system and genetic resources · To protect land against degradation and other effects of ecological imbalances · To contribute to local and national growth of forestry The Master Plan gained a legal status through the Forest Act of 1993 and the Forest Rules of 1995. The Forest Act 1993 governs the definition, management, production and sales of forestry products. It classifies forests into two broad categories of private forests and national forests. National forests are further classified into five divisions: 1. Government Managed Forests49 2. Protected Forests 3. Community Forests 4. Leasehold Forests 5. Religious Forests

In 2004, a national-level Non-Timber Forest Products (NTFP) Policy was developed by the Government of Nepal. The policy was formulated to address the holistic development

of the NTFP sector in Nepal. Its objective includes conserving high value NTFPs and establishing Nepal as a major international source of NTFPs by the year 2020.

Figure 7 Forest Ownership breakdown

Source: Ministry of Forest and Soil Conservation,The Future of Nepalâ&#x20AC;&#x2122;s Forests Outlook 2020, 2008 *FAO, The Global Forest Resources Assessment 2010 - Nepal, March 2009

Docking Nepalâ&#x20AC;&#x2122;s Economic Analysis

Table 6 Summary of major policy changes in Nepal’s Forestry Sector Time

Change

○

1959 ○

○

To utilize timber from resettlement areas.

Establishment of “Fuelwood Corporation.”

1967

○

To cover forest activities nationwide.

Forestry ActEstablishment of TCN

1966 ○

○

Establishment of Ministry of Forest (MOF)

1961 ○

Function

Nationalization of Forests.

1957

○

To supply fuelwood to Kathmandu. ○

○

Formulation of especial Forest protection act

○

To enable conservation & protection of Forets through District Forest Offices (DFO)

○

1989 ○

○

To match with decentralization Act.

Master Plan For Forestry sector

○

To improve the policy of Forestry sector. ○

○

New Forest Act.

1993

○

To empower the local level administration.

Establishment of 5 Regional Directorates (MFSC) and 75 DFO offices.

1983-88 ○

○

Decentralization Act.

1982

○

To handover national forest to adjoining forest users for accountable management.

○

1995

○

Forest Bylaws.

○

To launch the forest management programs according to the Forest act 1993 and transfer decision making power to Forest user groups

○

1998

○

Forest Bylaws

○

Legal provision placed on Forest user groups to contribute 40% of CF income as the government treasure.

○

2000 ○

2004

○

Forest Sector Policy ○

○

Revision of MPFS 1989

Non-Timber Forest Products (NTFP) Policy

Economic potential of the sector Sustainable management and utilization of timber and NTFPs has generated employment and income for rural people. More employment opportunities can be created if the full potential of the forests are utilized. It is estimated that the market size of the timber sector is worth NPR 12.78 billion (USD 176 million) with a total annual harvest of 1.66 million cubic meters. 50 Similarly the annual estimates for NTFPs at a national scale stand at NPR 5.31 billion (USD 73.16 million) for a total measuring 10,578.27 sq. km in the hills and mountains. With such assumptions, the timber and NTFP sub-sector can employ 236,632 and 147,500 people respectively for six months out of a year.51 Government Revenue Figure 8 shows the government earnings from Community Forests (CFs), protected forest areas, other government managed forests, and private forests (PFs) over the period of five years.

30 Docking Nepal’s Economic Analysis

○

To address the holistic development of the NTFP sector

Figure 8

Government Revenue from Forestry Sector

Source: Annual Report of Department of Forests for the period 2004/05 - 2008/09

Revenue from the forest sector has been increasing steadily over the past few years, reaching a total of NPR 728 million (USD 10.03 million) in FY 2008/09. Earnings from the conservation and wildlife area are included in the revenue from protected forests. Proceeds resulting from the sale of timber and Non Timber Forest Products (NTFP) of government managed forests constitute the revenue from government managed forests. Similarly, the government collects 15% of the revenue from the sale of forest produce from community forests. The contribution of the private forests to the government coffers is through the payment of 13% Value Added Tax (VAT). A more detailed analysis is provided in table 7.

earnings of the private forests have been derived from the 13% Value Added Tax (VAT) that it pays to the government. The government earnings from protected forests and other government managed forests are exactly same as the revenue the government receives from it.

The government revenue data have been taken from the annual report of the Department of Forest and the Department of National Parks & Wildlife Conservation for the period of five years. The government revenue from different types of forests has been used to extrapolate the earnings from each forestry type. The revenue earnings of CFs have been extrapolated by using its contribution (15%) to the government coffer. Similarly, the revenue

The efficiency of CFUGs in the management of forests was studied by the Community Forest Division (CFD) for the year 2002. According to that assessment, the CFs generated an annual income of NPR 747 million (USD 10.29 million) from the sale of forest produce.52 In the same year, the DoF earned an income of NPR 550 million (USD 7.57 million) and had a budget of about NPR 680 million (USD 9.36 million). With CF’s accounting for 25% of the

Table 7

These earning figures are mere indicators and can only be used to make indicative analysis of the importance and the revenue contribution of different types of forestry to the economy. In addition, the qualitative factors such as carbon capture, soil conservation, flood reduction and biodiversity should be put in perspective to draw balanced inferences to evaluate the performance of the respective forestry types.

Government Revenue from Different Forest Types

Coverage (sq. km)

Year

Amount in NPR million

2004-05

2005-06

2006-07

2007-08

2008-09

Government Revenue from Different Forest Typres ** Other government managed forests 17,290 ○

○

(Include production, protection and other forests)* ○

28,990 ○

○

12,000 ○

○

58,303

○

392 ○

○

Total

381 ○

○

492

○

427 ○

○

368

○

476 ○

○

478

○

27 ○

○

135

63 ○

2 ○

○

112

3 ○

○

4 ○

○

40 ○

Private Forests (13% VAT)* ○

291

○

Community Forests (15% Tax)* ○

23 ○

○

Protected Areas**

○

628

○

728

Earning of each Forest Typres Other government managed forests (Include production, protection and other forests) ○

○

392 ○

○

Protected Areas ○

○

Community Forests (15% Tax) ○

○

291 ○

○

381 ○

○

427 ○

○

476 ○

○

Total 746 438 497 * Source: Ministry of Forests and Soil Conservation, Annual Report 2061-66 of Department of Forests ** Source: Ministry of Forests and Soil Conservation, Annual Report 2061-66 of Department of National Parks and Wildlife Conservation Assumptions: The coverage of each forestry sector has been assumed to be constant in the period The earning of each forestry type has been extrapolated from the revenue paid to the government

○

438

204 ○

○

135

420

12 ○

○

112

27 ○

○

30 ○

○

268

Private Forests (13% VAT) ○

○

391

1,163

Docking Nepal’s Economic Analysis

○

1,440

total national forests and generating a higher income than that of other forests, it is clearly reflective of the ineffective management of other forests by the government. Timber and NTFP based enterprises registered in Nepal Timber based enterprises are involved in the production of furniture, veneer, wooden handicrafts, bit boards, among other things. NTFP based enterprises are involved in essential oil processing, incense making, lokta paper production, allo cloth production etc. Table 8 shows the number of registered timber and NTFP based enterprises in Nepal.

Table 8 No.of Timber & NTFP based Enterprises - Region Wise Region

Eastern

Timber ○

○

79 ○

○

NTFP ○

○

Total

○

Central

○

155 ○

○

62 ○

○

141

Western

○

793

Far -

Western

741 ○

○

638 ○

Mid -

○

836

○

121

○

987 ○

○

112 ○

Total

○

918 ○

○

1,905

Source: Data compiled from LFP, ANSAB, Department of Industries, Small & Medium Enterprises and Company Registrar Office.

As table 8 shows, there are a total of 987 timber based and 918 NTFP based enterprises in Nepal. About 64% of the total forest based enterprises are found in the Central region. The western region has comparatively more timber based enterprises (741 in total) than NTFP enterprises (total of 95). The opposite seems to be true for the Midwestern region that has more enterprises based on NTFP. Among the five development zones, the Far Western region has the least number of enterprises. In addition to these registered timber based enterprises, there are a number of livelihood opportunities that timber forestry provides which go unrecorded due to the presence of large unorganized informal vendors. Exclusion of such

32 Docking Nepal’s Economic Analysis

individual business in the formal market, presents a distorted picture of the potentials of the forestry sector in Nepal. Given proper training and investments, there would be a larger number of enterprises involved in the value addition and production of finished goods. Private Sector involvement Private sector refers to ‘private entities’ (enterprises, industries and investors). Due to the presence of CFUG based enterprises and their involvement in the sale of forest produce, CFUGs can be called a private sector player in forestry. However, they do not fully qualify as one and represent an inefficient private sector player due to their community mandate with a focus on equitable benefit sharing. The private sector of Nepal constitutes the most active segment and highest employer in the economy and is valued at around USD 8 billion (NPR 580.64 billion) in 2008.53 While the private sector is the most significant revenue earner per sq. km in the forestry sector, it has not been able to make use of the sector as a means for economic growth. The private sector is to a large extent not even present within the forestry sector. Even with high value products like timber, private sector engagement is seen only towards the end of the value chain. This is reversed in case of the NTFP’s, in which the private sector involvement is limited to the initial phase when semifinished goods are produced. At present, the private sector involvement in the forest sector in underdeveloped. This is largely due to the dominance of the government in forestry and the unwillingness of the private sector to invest in an economic activity that is bureaucratically heavy, environmentally sensitive and logistically problematic. Table 9 and 10 highlights some of the major factors discouraging private sector involvement.

Table 9 A Cross-section of constraints faced by entrepreneurs seeking to invest in the Forestry Sector Impact

Constraints

S.N Policy issues 1

Ban on collection and export of some commercial species of plants in

The imposition of such a ban has only increased illegal trade, smuggling, over harvesting which allows elites to capture the business.

crude/unprocessed form. ○

○

Exports are discouraged

Complex and restrictive procedures to get permits for collection, trade and export

○

FUG rights for NTFPs are withheld in forests where DOF has separate

○

transferred to the wholesale agents by the collectors

system to determine royalties. ○

○

Increases costs of final products, Royalty charges are sometimes

Arbitrary royalty rates for NTFPs and absence of a well-developed

○

Curtails access to local resources

agreements with other companies ○

○

Individual cultivators discouraged to grow and earn money

Distorted implementation of regulatory provisions – e.g. royalty for NTFPs from private forests and cultivation, wrong identification of species, etc.

○

6 ○

○

Increased costs

Excessive taxes by local as well as central government

○

High cost in addition to the high leasehold rental price, discouragement

Leasehold Forestry for industrialists entails cumbersome formalities

for private sector ○

○

Lost or reduced income of local communities

Bureaucratic hassles on forest resources from private land Stakeholder perspective

Difficult and reduce participation of the private sector

Government and public sector resistance towards private sector due to

their profit making motive and viewed as forest destroyers Market risks Reluctance to enter into the forestry sector.

Forestry being a long term venture with associate market risks of:

1. Fluctuation in the price of products due to market demand and sustained supply, hoarding by few traders 2. Changing costs of production due to demand for finished goods Political Factors Unfavorable business environment

1 ○

○

Cripples efficiency of production, lost/reduced incomes ○

○

Lack of commitment and support from the Government

○

Discouraged private sector; reduced involvement

Table 10 Constraints faced in the Timber and NTFP sub sector Timber 1

Non-Timber Forest Product

Short value chain and a market opportunities but presence of

Complex and restrictive procedures regarding trade and export

constraining regulations and bureaucratic hurdles ○

○

Long gestation period with long revenue cycles

○

Implementation of an arbitrary royalty rate system regardless of volume and market value

○

Though found in abundance in the high altitudes, it is inaccessible due to

Wholesale traders pay royalty in district centers and not the original

absence of road networks.

collection sites. Thus, there is little relation of volumes collected and sustainable harvesting rates. Products collected from various forests cannot be distinguished

○

High level of illegal logging and corruption in the trade and transport of

There is over-harvesting of most NTFPs due to their accessibility and

timber and fuelwood.

easier transportation resulting in depleting resources

Docking Nepal’s Economic Analysis

Value Chain: An Overview NEF was commissioned by LFP in 2010 to carry out a value chain analysis on a few forest based products. The value chain analysis was carried out on seven forest based products possessing high economic potential and market value. Table 11 highlights the important aspects related to each productâ&#x20AC;&#x2122;s value chain. The study found that most of the profits are made by players that come towards the end of the value chain. Use of traditional technology, lack of skilled manpower, absence of technical know-how, and no access to finance are some of the reasons why value cannot be added during the different stages of the value chain. There is also no proper pricing mechanism and prices are fixed arbitrarily. At present, private sector engagement is seen only towards the end of the value chain in timber based products. In the case of the NTFP, the engagement is seen during the initial phase when semi-finished goods are produced. However, this level of engagement is underdeveloped. The private sector has the capacity and business expertise to tap the producers at an early stage of the value chain. This will condense the long Producertrader-Wholesaler-Retailer-Customer value chain of the Nepali forestry sector. Hence the government needs to reform policies and create a business enabling environment for the private sector to enter the value chain and capitalize on the gains that can be made. Potential of Private Sector Engagement Private sector engagement has a direct relation to the incentives and profits that can be earned from a sector. There is no reason to doubt that a balance between profit making and sustainable development can be struck. The assurance of this balance is the primary role of government. A major increase in private sector involvement, however, will depend on the investment climate. This implies that the prevailing policies and regulation needs to be corrected so that factors discouraging the private sector are eliminated. The government thus needs to make clear regulatory policies on environmental protection but needs to make private sector entry and the ease of doing business within the forestry sector more accessible and transparent.

34 Docking Nepalâ&#x20AC;&#x2122;s Economic Analysis

While it could do more to reduce red tape and increase transparency, the Government of Nepal encourages and seeks to promote private sector involvement in forestry, this is evident in the by-laws and five-year plans. The forestry sector is given a special priority by the government in its industrial policy.54 These laws favor the local use of forests for generating employment and income in local communities. Within this enabling environment, the following opportunities exist for the private sector to capitalize upon: Community Forestry and collaboration with CFUGs: Community forestry programs have been successful in improving conservation and providing subsistence and livelihood to many people. CFUGs are now exploring various opportunities other than forest management which they may not be able to explore alone. Hence, the private sector can capitalize upon opportunities like identifying new non-wood products, adding local value to wood and non-wood products and services, developing agro-forestry initiatives, expanding direct marketing, exploring green certification, renewable energy, improving techniques of harvesting, reducing post-harvest, and encouraging landowner cooperatives. By forging partnerships, strategies for sustainable profitability will be successful in achieving benefits for all stakeholders. Through value additions, the private sector can develop better pricing and financial models for the mitigation of business risks and continuation of programs. It can bring in new applications and technology, making enterprises more energy and cost efficient. It can develop unique and recognizable brands and expand market access for various forest based products. It can shorten the value chain by tapping into producers at an early stage. They can directly engage them through financing and buy back guarantees and receive maximum value for their produce. Through the adoption of CSR roles, the private sector can help give continuity and sustain programs to alleviate poverty. Leasehold Forestry: The Master Plan for the Forestry Sector 1989, Forest Act and Forest Rules have provisions

○

Interventions

○

Deterrents

○

Business

Structure

Value Chain

○

Key Players

Features

○

lacks the quality and finish ○

○

associations

facilities) for increased

○

intermediaries

○

delivery mechanism.

establishment of Common

○

market. ○

○

lack of market access,

○

Financial and technical

○

distribution channels to provide market access

○

farming techniques

development, proper

Technology and skill

○

countries.

quality seeds and improved

○

priced products from other

quality and competitively

Government intervention risk crude technology, better

labor intensive, high

up of real time market price

○

drying and grading, setting

○

services to the locals

○

financial and managerial

○

cooperatives and

○

organized groups like

○

Facility Centers (CFCs) for

○

production capacity, provide

○

building, formation of

○

value addition at the source,

○

skill training and capacity

○

highly competitive sector,

○

financial access,

○

Long with numerous

Dwindling resource, no

○

valuation and collateral for

○

Low operational efficiency,

expertise on disease control, assistance in terms of better

○

extraction/cold storage

○

making process, vocational

○

transfer of technology,

○

Awareness and technical

○

Technological input (pulp

○

Mechanization of yarn

○

Nursery establishment,

○

addition opportunities, lack of

Growing resource shortage

○

in the market

and access

○

opportunities for a niche

products

○

Increasing market potential,

competitively priced

○

demand in global market

addition, depleting resource

○

Simple and short Export oriented, increasing

○

potential to fetch high prices

○

technology,

tapping methods and

Value addition, newer

○

product

○

no value addition of the

○

tapping, seasonal business,

Poor technical standards for

○

with exports to India

Few players in the market

Short; few players

○

processors (industry)

trader, lokta product maker, retailer/wholesaler, exporter

Resin tapper, carrier,

bark collector, paper maker,

Farmer, distiller, trader

Resin

Lokta

Chamomile Oil

Tradable commodity with

○

of illegal business, no value ○

○

Simple and organized

real time market information

packages and strategies,

Lack of technology, lack of

○

Increasing market potential

○

better quality and

○

Simple

financial services, high level

○

absence of cooperatives

○

technical standards, limited

○

not capitalize on the value

○

due to diseases, farmers do

○

services, weak promotion

○

financial and managerial

○

Export oriented product but

○

product, lack of skilled labor,

○

affects quality and end

○

Long

processing capacity, poor

○

which reduces the

○

Labor intensive which

○

Use of traditional methods

○

Low quality wood

Simple

○

exporter

wholesalers, exporters

weavers, product makers/

processors retailers, traders, exporters

trader, wholesale trader,

distributors, retailers/

makers, yarn traders,

Collector/farmer, village

timber dealers, secondary

Collectors, product makers,

Bark collectors, yarn

○

Products Cardamom

Tree growers/farmers,

Wood Apple Juice

Allo

Uttis

○

Table 11 Value Chain: An overview

Docking Nepal’s Economic Analysis

○

for leasehold forestry (LHF). The Leasehold Policy allows the government to grant leases of degraded forestland to private individuals, cooperatives, institutions and commercial enterprises. These are leased on 40-year leases, automatically renewable upon satisfactory adherence to the agreed operational plan, with exclusive rights to the produce of the land. According to the Leasehold and Livestock Program study being implemented for poverty alleviation, leasehold forests cover about 0.15 sq. km of land operating in 22 districts of the country.. Project financing: Another mode of engagement for the private sector can be the provision of project financing through various SME and social venture funds. Sound business plans could be financed in the form of equity, quasi equity or loan on non-collateralized basis with recoveries tied to the revenues that are generated. This would not only help existing players grow but also encourage new ventures that would help in the overall development of the sector. Outsourced management: Forest based micro-enterprises in rural communities are often run by individual who lack managerial and financial expertise. Private enterprises can take up the management of these micro enterprises to provide external expertise and trainings to the existing managerial team, which will result in, reduced costs, improved shareholder value, and increased productivity. Tax holidays: The Government of Nepal, under the Industrial Enterprise Act, provides facilities and concessions for setting up of industries. Entrepreneurs can obtain degraded forests on lease and establish forest based industries and enjoy concessions and tax holidays.55 Further, agro and forest based industries56 and traditional cottage industries57 are exempted from income tax and industrial setups in remote, undeveloped, and underdeveloped districts will be granted a rebate of 50%, 20% and 10 % of income tax and 25%, 15%, and 10% of excise duty respectively.58 Creation of sustainable market: The private sector can become an important stakeholder in the creation of

36 Docking Nepal’s Economic Analysis

sustainable markets for forest based products. The private sector can add value through branding, product development, marketing, and market linkages. The private sector can also take a stake in: · Development of cooperative societies for marketing · Proper storage management of the produce till they are handed to the collectors · Management of processing to ensure certain quality standards and process audits The private sector can also help in the obtaining registration and trademarks for forest products and thus protect them against potential risks. In addition, tie-ups with various national and international forestry based organizations can help in the creation of demand and develop a market for Nepali forest products.

Conclusion In conclusion, the forestry sector in Nepal has substantial untapped potential. Nepal has a comparative advantage in both timber and NTFPs, because of the geographic and ecological regions that it occupies. While the preservation of this rich biodiversity is critical, appropriate use of it will have a significant impact on Nepal’s economy and has the potential to change the lives of millions of Nepali people. To ensure that this potential is tapped into, reforms within the sector are essential. It is important to acknowledge that the present institutions were all setup with the best of intentions but have largely failed to ensure social justice. The problem is that of structure – the present structure does not provide stakeholders with an equal footing which in turn discourages them from active participation. Where the stakeholders feel they are on an equal footing, like in CFUGs, there has been remarkable improvements. The government needs to make a concerted effort in reforming institutions and policies to promote justice at all levels – be it the protection of the environment, local livelihood or private sector investment into forest based products. A balance between all these elements is essential; denying one for the sake of the other will ultimately lead to institutional failures similar to the ones we witness now.

Endnotes “Damage Situation and Police Countermeasures associated with 2011Tohoku district - off the Pacific Ocean Earthquake,” Accessed April 29, 2011, http:// www.npa.go.jp/archive/keibi/biki/higaijokyo_e.pdf 1

Koshi Raj Koirala, “4 Nepalis confirmed dead in Afghanistan attacks: Govt,” Republica, April 3, 2011, accessed April 28, 2011. http://www.myrepublica.com/ portal/index.php?action=news_details&news_id=29872 2

“World Economic Outlook - April 2011,” accessed April 29, 2011, http://www.imf.org/external/pubs/ft/weo/2011/01/ pdf/text.pdf

Sangam Prasain, “Second International Airport to be on the runway by 2015,” The Kathmandu Post, April 11, 2011 16

“Notice cancellation of EOI,” Ministry of Physical Planning and Works, accessed April 9, 2011, http:// www.moppw.gov.np/pdf/Notice_cancellation_of_EOI.pdf 17

“Fast Track Facing New Complexities,” Abhiyan, accessed April 9, 2011, http://abhiyan.com.np/article4_page_28_march 18

“OMB-2011 Budget-Summary Table S-3”, accessed April 28, 2011, http://www.whitehouse.gov/sites/default/files/ omb/budget/fy2012/assets/tables.pdf

“EOI Document Waterway,” Ministry of Physical Planning and Works, accessed April 9, 2011, http:// www.moppw.gov.np/pdf/EOI_document_waterway.pdf 19

National Labour Force Survey 2008, Central Bureau of Statistics 5

The World Bank, Nepal Economic Update, April 2010

Dairy Development Corporation (DDC) & National Dairy Development Board (NDDB), 2010/2011

“Possibilities of developing waterways to be explored,” The Kathmandu Post, March 13, 2011 20

“Four six lane roads on the cards,” The Himalayan Times, April 19, 2011 21

Prithvi Man Shrestha, “Vizag port: Nepal in catch -22,” Kantipur, 20th March, 2011 22

“Load-shedding shuts five dozen industries,” nepalnews.com, accessed May 3, 2011, http:// www.nepalnews.com/archive/2011/feb/feb13/news09.php

“Cooperative Guideline,” Department of Cooperatives, April 14, 2011 23

Arjun Poudel, “Over 50 pc bottled water contaminated,” Republica, April 3, 2011 9

Rohit Rai, “Ambulance drivers on strike,” Republica, 6 April, 2011 10

Arjun Poudel, “Docs prescribing ineffective drugs,” Republica, April 11, 2011 11

Nepali Times, “Knocking on the Iron Gate,” March 24, 2011 12

“UK to go tough on student visa,” Republica, March 23, 2011 13

“Circular no. 21,” Nepal Rastra Bank, March 18, 2011

“Circular no. 20,” Nepal Rastra Bank, March 3, 2011

“Manpower crunch hits construction,” The Himalayan Times, 6th March, 2011 24

Trade and Export Promotion Center, Trade Statistics, accessed April 2011, http://www.tepc.gov.np/tradestatistics 25

“Load Shedding hits trade, industry hard,” The Himalayan Times, April 13, 2011 26

“FNCCI bid to appease unions,” The Kathmandu Post, March 29, 2011 27

Bijaya Ghimire, “US promises to eliminate all trade barriers,” Republica, 17 April, 2011 28

Source: http://www.worldbank.org/wb/timeline-nepal

Nepal Communications 2011, CIA World Factbook, h t t p : / / w w w. t h e o d o r a . c o m / w f b c u r r e n t / n e p a l / nepal_communications.html 30

“Ncell subscribers base touches 5m mark,” The Kathmandu Post, April 19, 2011

Docking Nepal’s Economic Analysis

“Qtel and Nepal telecom join hands for better services,” accessed April 13, 2011 http://www.ameinfo.com/ 258616.html & http://www.mydcnepal.com/ news.php?nid=39923 32

“NTA mulls an emergency communications plan,” Kantipur, March 24, 2011 33

Nepal Telecommunication Authority, Management Information System, March 2011 34

“UTL drags heels on royalty dues,” The Kathmandu post, April 5,2011, accessed April 9, 2011 http:// www.ekantipur.com/2011/04/07/business/utl-must-comeclean-on-details-nta/332100.html 35

"BBC CNN agree to cut rates for NTY Promo,” The Kathmandu Post, April 11, 2011, assessed April 12, 2011 36

World Economic Forum, The Travel and Tourism Competitiveness Report 2011:Beyond the Downturn, 2011

Civil Aviation Authority of Nepal, CAAN News, January 2011

"NRN in US seek investment friendly environment in Nepal,” NepalNews.Com, accessed April 21, 2011. http:/ /www.nepalnews.com/archive/2011/apr/apr17/news09.php 39

Sherpa, Dechenla, “Case Study: Labour Migration and Remittances in Nepal,” ICIMOD, 2010 40

“Govt. doles out Rs. 30 m to families of 306 departed migrant workers,” NepalNews.Com, accessed April 21, 2011, http://www.nepalnews.com/archive/2011/apr/apr14/ news10.php 41

“BoP deficit increases again,” The Kathmandu Post, February 23, 2011, accessed April 19, 2011 42

http://www.ekantipur.com/the-kathmandu-post/2011/02/ 23/money/bop-deficit-increases-again/218761.html

“Tide ebbs by 11pc due to mid-east unrest,” The Kathmandu Post, March 20, 2011, accessed April 21, 2011, http://www.ekantipur.com/the-kathmandu-post/2011/ 03/20/money/tide-ebbs-by-11pc-due-to-mideast-unrest/ 219664.html 44

DFRS, 1999

Department of Forest Research and Survey (DFRS).Contribution of Forestry Sector to Gross Domestic Product in Nepal, 2008 46

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Government Managed Forests constitute national forests used for production and protection and all protected area systems such as National Park, Wildlife Reserve, Hunting Reserve, Buffer Zone, Conservation Areas and Strict Nature Reserve regulated and managed to achieve a specific conservation objective. 49

Estimates were calculated using the 1991 national forestry inventory data, assuming an annual 1.5% growth and 40% increment as allowable cut as per Forestry Inventory Guidelines issued by the DoF in 2001. An average value of all timber species were considered at Rs 250/cft for the altitude range of 0-1000m and Rs.150/cft for 1000-3000m. 50

Pandey, S.S, Subedi, B.P. and Dhungana.H, 2010, Economic Potential of Forest Resource in Nepal, Banko Jankari Vol 20, No.2, 51

Kanel,K.R. Ph.D, Twenty Five years’ of Community Forest: Contribution to Millenium Development Goals, Pg 6 52

Shakya, Sujeev. Making Private Sector an Engine for Growth (DFID, 2008) 53

“Traveling Blind,” The Kathmandu Post, March 20, 2011, accessed April 21, 2011, http://www.ekantipur.com/thekathmandu-post/2011/03/20/oped/travelling-blind/ 219656.html 43

Industrial Enterprise Act 1992 relating to Clause (c) of Section 15-National Priority Industries 54

The Industrial Enterprise Act 1992, Section 16 clause (a) 55

38 Docking Nepal’s Economic Analysis

Business mainly based on agriculture or forest products such as integrated sericulture and silk production, horticulture and fruit processing, animal husbandry, dairy industry, poultry farming, fishery, tea gardening and processing, coffee farming and processing, horticulture and herb processing, vegetable seed farming, mushroom, vegetable farming or vegetable processing, tissue culture, green house, bee-keeping, honey production, rubber 56

farming, floriculture and production and forestry related businesses such as lease-hold forests, agro-forestry. etc. The Traditional Industries mobilizing specific skill of local raw material or resources and labour intensive and related with national customs, arts and culture etc. 57

All forest based industries, other than sawmill and catechu industries. Industrial Enterprise Act 1992, Section 6. 58

Docking Nepalâ&#x20AC;&#x2122;s Economic Analysis

40 Docking Nepalâ&#x20AC;&#x2122;s Economic Analysis