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LEAP-Liberating Manufacturing Sector

According to the National Accounts of Central Bureau of Statistics (CBS) for the fiscal year 2016/17, the contribution of manufacturing sector in the Nepalese GDP is 5.67 percent. It is regarded as one of the major sectors that could help boost the Nepalese economy. With the development of manufacturing sector, it will not only increase national output and create more employment opportunities but will also complement agricultural and service sector through backward and forward linkages respectively. Therefore, the support it provides to the other economic sectors further necessitates its growth. There are a lot of microenterprises engaged manufacturing sector in Nepal. Out of these micro manufacturers, many of them have not even been formalised and many of them have not been able to grow to become medium and large-scale enterprises due to various problems/ challenges faced by them. This paper has selected five of the growing manufacturing sub- sectors, namely handicrafts, textile and readymade garments, iron and related, woollen carpet, and food and beverage and has analysed the problems that micro- entrepreneurs in these manufacturing sub- categories are currently facing. The paper has also tried to propose some potential solutions to the identified problems. Many of the microenterprises in the handicraft sector are operating informally. The entrepreneurs perceive formalisation will only increase the cost of doing business as it comes with having to pay taxes, meeting various regulatory compliances, and yearly renewal of the registration, among others. Therefore, they are reluctant to get formalised. The major problem faced by the iron and related enterprises is getting ‘no objection commitment’ from the neighbours. These enterprises are mandatorily required by the law to obtain a ‘no objection commitment’ from the neighbours before establishment of the industry. But, because of the negative externality (sound pollution) produced by these enterprises, it is very difficult to get the commitment from the neighbours. Therefore, the microenterprises in this sector are being forced to operate informally and they are not being able to upscale their operations. The major problems faced by woollen carpet manufacturers are the lack of clear set of standards that comply with the international standards and lack of standard testing mechanism inside the country. Because of these factors, there have been instances when the exported carpets had to be withdrawn as they could not pass the standard test in international market. Nepalese manufacturers not only stained their reputation but also had to withdraw their products incurring huge loss. In Food and Beverage industry, we have found that a standard mark is very important to reach out wider markets. Many retailers and traders do not accept the food and beverages without a standard mark. But, the procedure of getting license for Nepal Standard (NS) mark is very difficult and costly, due to which many micro entrepreneurs are not being able to expand their business. Textiles and Readymade garments industries specifically face problem while exporting their products. The border as well as documentary compliance to export a consignment takes as long as 100 hours and costs 398 USD, which is more than 50 percent of the GDP per capital of Nepal. Moreover, various monetary incentives provided to boost up exports do not seem to have benefitted micro and small manufacturers as they are not directly involved in international trade. In addition to these, the paper explains various other challenges faced by microenterprises in manufacturing category and also proposes potential solutions to these problems.

 

Download “Liberating Manufacturing Sector” LEAP-Reforming-Manufacturing-Sector-Final.pdf – Downloaded 0 times – 5 MB