‘Nepal's Private Sector Booms with Over 30-fold Growth in 30 Years

‘Nepal's Private Sector Booms with Over 30-fold Growth in 30 Years, Contributing Over 80% to GDP and Employment’

May 18, 2023, 6:48 p.m.

Nepal's private sector contributes significantly to the country's GDP, with the service and agriculture sectors playing a dominant role, according to a new report by the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) and the International Finance Corporation (IFC).

The report, titled 'State of Private Sector in Nepal: Contributions and Constraints,' analyzed data from fiscal year 2011/12 to 2020/21, evaluating the private sector's contribution and current context in Nepal. The report is first such attempt to create a comprehensive baseline for the entire private sector in Nepal. The report combines analysis of both published and unpublished secondary data to offer a snapshot of the private sector contributions to Nepali economy.

According to a comprehensive analysis of sectoral data published by the National Statistical Office, Ministry of Finance, and various public and private enterprises, it has been estimated that the private sector, which includes households contributes, 81.55 percent to the country's GDP, taking into account the value addition of all 18 sub-sectors that collectively drive Nepal's economy.

The number of private sector establishments has significantly increased over the past three decades, from 28,660 in 1983 to 923,356 in 2018. It is also the largest employer in Nepal, providing employment to 85.6 percent of the total labor force. A substantial portion of the country’s labor force is employed in agriculture, forestry, and fisheries (57%) and wholesale and retail trade, including vehicle repair (12.5%). Both industries are primarily driven by the private sector. In 2018, the private sector employed approximately 5.5 million people, while the public sector employed around 427,000 people.

"Based on solid evidence, this report further highlights the private sector’s vital contribution to the socio-economic development of Nepal. Our hope is that it will also help better inform and encourage the dialogue between the public and private sectors in order to formulate the best policies that will unleash the full potential of Nepal’s dynamic entrepreneurs.

The people of Nepal need jobs, products and services that can only come from a stronger and more productive private sector " said Babacar S. Faye, Country Representative for IFC in Nepal. “As the first of its kind in Nepal, this report certainly does not pretend to be comprehensive, and we look forward to constructive feedback from all stakeholders in order to enrich the discussions and also improve future editions.”

The study revealed that the private sector has played a critical role in Nepal's growth since the restoration of democracy in the 1990s and the implementation of liberalization, privatization, and globalization policies by the government. This has triggered remarkable progress in several industries, including finance, hospitality, tourism, education, and health.

However, the report highlighted certain areas that require improvement, such as simplifying bureaucratic processes, promoting transparency and accountability, improving the reliability and cost of transportation services, and reducing tariffs on crucial imported inputs.

"Nepal is currently going through a period of major social and economic changes and is having to deal with the challenges brought on by the COVID-19 pandemic. To progress economically, it is vital that stakeholders come together for consultations and discussions. This report can act as a helpful aid to those looking to get the most out of the private sector's contribution to Nepal, and to foster cooperation between the public and private sectors," said Chandra Dhakal, President of the FNCCI. “We hope that future editions of this report will aggregate and analyze all private sector-related data in one place—creating a robust baseline for data-driven policy dialogue.”

The report includes a survey of 517 Nepali firms to gauge the impact of COVID-19 and their awareness of sustainability and climate change. Half of the firms surveyed were in wholesale and retail trade, 13% were in the hotel and accommodation sector, and 12% were in manufacturing. Half of the firms had borrowed from commercial banks, and during COVID-19 restrictions, 87% were affected, with 63% fully closed. 79% experienced a loss of revenue during lockdown, but 50% reported being profitable after it was lifted.

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