Manufacturing & Poverty Reduction in Nepal Shiva Sharma National Labour Academy-Nepal

i.Contribution to GDP, Growth ii.Employment iii.Wage & Salaries-level & share in output iv.Backward linkage Domestic raw materials Value added Vs. Total Inputs Import intensity of manufacturing products v.Regional distribution: share of manufacturing employment by Regions. Concept- Link with Poverty

Table 1: Sectoral Contribution to Gross Domestic Product (in %) a.90 s fastest growth; due to export oriented industries; liberalization, b.From 5% in 80 s to 9% in 90 s c.Share declined in recent years Source: Economic Survey, MOF (various issues).

Pop. Census : 2% in 1991, 9% in 2001 a.Number of Industry decline by 9.7 % b.Employment declined by 2.5 % c.Wages went up by 57.5 % ( Inflation ?) d.Share of wages in output from 7.4 to 6.7% e.Share of wage cost in total value added from 18.6% in 1997 to 19.6 in Manufacturing Census ( ) Labour force

Table 2 : Composition of Merchandise Trade (Share in %) a.Manufactured goods export from 30% in 1980 to 70% in 2004 b.Import share of capital goods stable- not much growth in manufacturing, not much industrial deepening Source: NRB Quarterly Economic Bulletin (various issues).

a.Share of woolen carpets and readymade garments down from 73 to 29 in 2004 b.Pashmina also in decline c.(a) & (b) imply decline in jobs. Some 300,000 jobs at risk WTO Opportunity - Constraints Small scale of production Old technology Unskilled & less productive labour Lack of innovation & entrepreneurship Comparative advantage ? Labour intensive ; natural resource based, indigenous skill related. Table 3 : Major Merchandise Export Items (Rs in Million) Source: Nepal Rastra Bank.

Impact of Policy reforms: i.Manufacturing output growth ii.Employment iii.Poverty a.Immediate after policy reforms (90-95), output grew by 14% much faster than later 80s b.Then down to 7.6% in c.Then negative 0.4 % Could not compete; after liberalization import increased Investment did not increase to ensure output growth Problems: Narrow commodity composition Dependence on a few export markets Inability to compete with imports. Table 4 : Output and Investment Growth in Manufacturing Sector Source: MOF (2002). Economic Survey 2003/04.

What is happening to public investment ? a.Economic services receiving less and less investment b.See industry, dramatic decline in both share and growth rate !!! Table 5 : Allocation Pattern of Public Expenditure (in growth rates and shares) Source: Economic Survey 2004, MOF.

What is happening to Foreign Aid ? a.Again dramatic reduction in industry and commerce Table 6 : Structure of Foreign Aid (Share in Percent)

Number of Industry decline by 9.7 % Employment declined by 2.5 % Wages went up by 57.5 % ( Inflation ?) Share of wages in output from 7.4 to 6.7% Share of wage cost in total value added slightly increased from 18.6% to 19.6 in Share of domestic raw materials to total raw materials used by establishments declined from 54 % to 34 %. Only 2% of manufacturing employment is shared by Far & Mid western regions. What happened to Poverty ? [1997 – 2002]

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