1. 1 Role of Service Sector in the Economy of Nepal Presentation by Dr. Ramesh C. Chitrakar Rameshc977@yahoo.com Expert 1 At Second National Stakeholder Workshop on Services (27th – 28th October 2009) Co-organized by UNCTAD-Ministry of Commerce and Supplies Kathmandu, Nepal Kathmandu, Nepal October 27, 2009

2. 2 I. Importance of Service Sector to Nepalese Economy Emerged as major contributor to GDP in the world: more than 70 % in developed and around 50% in developing countries. Investment and growth associated with services can contribute to poverty alleviation and human development if the right policies are in place The GON’s increasing emphasis in services considering its contribution to GDP (> 51% in 2007/08), employment, international trade and balance of payments. CBS/ Nepal introduced a new series of National Accounts Statistics since 2006/07 taking 2000/01 as the base year Follows System of SNA 1993 adopted by a number of countries around the world. Prior to this, Nepal’s national income statistics was based on SNA 1968.

3. 3 Under SNA 1993: Economic activities classified into 15 sectors unlike 9 sectors in SNA 1968. The ISIC, Revision 3 has, in fact, classified the entire economy into 17 sectors. In Nepal, the classification brought down to 15 sectors as the contribution of workers in the private households and from activities of foreign mission, and INGOs to the GDP is found negligible & so these two sectors included in the Other Community, Social and Individual Services category. New series includes many activities not included before - like microbus, cable car services under transportation; PCO, mobile telephone, internet, cable television, communication; renting; services of employment agencies, cooperatives, consultancies, computer and photography, private postal services, private sector education services, community forestry and others. 9 Economic Sectors under service 30 new surveys and studies conducted to strengthen the national income statistics

4. 4 Figure 1: Sector wise contribution to GDP according to the new classification (FY 2007/08)

5. 5 Table : Sector wise GDP Composition in Percent, 200/01-2007/08

6. 6 Table: Sectoral contribution to GDP and GDP Growth Rate Source: GON/MOF, Economic Survey, Fiscal Year 2008/09 R: Revised. Note: Primary: Agri, Fisheries & Mining; Secondary: Industry, Energy & Construction.

7. 7 Service Trade FIows: Contribution to Trade The imports and exports of services in the world are at about the same levels, with developed countries exports being higher than imports & developing countries imports higher than exports In case of Nepal, exports exceeded imports until 2004 indicating importance of the sector to the economy. Deteriorated from 2005 onwards

8. 8 Table: Trade in Services in Nepal by Major Sectors (Million US$)

9. 9 Table : BOP Contribution (Rs. Million)

10. 10 Table: Industries Permitted for Foreign Investment by Mid-March 2009 Source: Department of Industries, Tripureshwore Of 1743 total industries permitted for foreign investment by Mid-March, 2009, the number of service industries including tourism services is 941 (54%).

11. 11 The social contribution Poverty reduction, employment including those of women, rural development, and development of transport and communication, education, health and cultural development. Source: GON/ CBS, Statistical Year Book of Nepal, 2007 Table: Employment in various services sectors, 2007

12. 12

13. 13 Table: Rural Employment in Various Services Sectors, 2007

14. 14 Note: 1.The employment number becomes much higher if indirect employment is included. Also does not include the contribution made by various services sectors in terms of trainings and capability building programmes. 2. More role played by education and transport and communication in urban areas compared to rural Source: GON/ CBS, Statistical Year Book of Nepal, 2007. Table: Urban Employment in Various Services Sectors, 2007

15. 15 Institutional Overview

16. 16 Contd… Transport, storage and communications Ministry of Information & Communication and line agencies Policy, planning, and regulation Ministry of Labour & Transport Management Policy, planning, and regulation Nepal Telecommunication Corporation To provide communication services for the promotion of service sector Radio Nepal, NTVTo provide comprehensive information about Nepal for the promotion of service sector Financial intermediation Ministry of Finance Policy, planning, and regulation Nepal Rastra BankCentral banking responsibilities including guiding the development of the embryonic domestic financial sector Commercial BanksTo provide various banking services like accepting deposits and providing loans Financial InstitutionsTo provide financial services including micro finances CooperativesTo provide micro finances Insurance CompaniesTo provide various types insurance facilities Security BoardApex regulator of Securities Markets in Nepal to offer advice to the Government on matters connected with the development of the capital market Nepal Stock Exchange To impart free marketability and liquidity to the government and corporate securities by facilitating transactions in its trading floor through member, market intermediaries, such as broker, market makers etc Citizen Investment Fund Operation of retirement schemes, unit trust schemes and the capital market services Employee Provident Fund To manage the provident fund of the government, public and private sector employees and to help them financially on retirement or separation from their jobs Real estate, renting and business activities FNCCIAn umbrella organisation of the Nepalese private sector. Its aims at socio-economic development of the country through the promotion of business and industry by protecting the rights and interests of business and industrial communities. Nepal Chamber of CommerceTo assist in the development of national economy through the promotion and protection of commerce and industries, both at the private and public sector Nepal Housing Finance CompanyTo provide detailed company information on Nepal housing development

17. 17 Contd….