Manufacturers operating below capacity due to poor conditions

KATHMANDU, JAN 31 -

Nepal’s manufacturing sector is having a hard time utilizing its capacity to the full despite a huge market potential as the government has not been able to create a business-friendly environment, said a report of Nepal Rastra Bank (NRB).

According to the central bank, the average capacity utilization of Nepali industry in the last fiscal year was 54 percent. A study of industrial performance in eight major cities — Kathmandu, Biratnagar, Janakpur, Birgunj, Pokhara, Siddharthanagar, Nepalgunj and Dhangadhi — revealed that operation was below capacity.

According to the survey, factories producing beer and electric wire were operating at 80 percent of capacity while leather processing factories were using just 7.85 percent of their capacity. The report stated that political instability, weak law and order, industrial strikes and shortage of workers due to labour migration to foreign countries resulted in low utilization of the production capacity.

NRB had conducted the research to judge the production capacity of different factories including, ghee, biscuit, sugar, noodle, refined tea, beer and cigarette, among others. The study has also included the production capacity of other manufacturing units like cotton textile, woollen carpet, pashmina, garment, paper, soap, brick, iron rod and processed leather, among others.

“During the study period, the production of banaspati ghee, edible oil, milk products, food commodities and animal feed, drinking products and electronic devices has increased while the production of cigarettes and tobacco products, plastic products, bricks, textiles and garments and metal products has gone down,” said the report.

As per the report, production of edible banaspati oil rose 15 percent while production of banaspati ghee fell 25 percent. “An increment in the production of mustard and soybean prompted a rise in the production of edible oils,” stated the report. The report also shows that during the review period in fiscal 2010-11, production of cereals and animal feed soared 95 percent while production of food commodity items plunged 72 percent.

The report shows a significant growth in the liquor and beverage industry. During the last fiscal year, beverage production climbed 24 percent. Among the beverages, liquor products recorded the highest growth in output of 54 percent while beer production rose 18 percent.

“Production of these items soared as the factories utilized their capacity as per the growth in market demand,” said the report.

Industrialists blamed the government for not according priority to the industrial sector and leading to the present gloomy situation. They said industry couldn’t use its full production capacity as the government couldn’t create an investment-friendly climate. Manish Agrawal, an industrialist, said that industrial units in the country couldn’t use their full potential mostly due to labour unrest.

Industries’ Capacity Utilization

Sectors    Capacity Utilization

Electric wire    79.99

Beer     79.63 pc

Bricks    75.05

Paper    74.48

Processed Tea    68.86 pc

Pashmina     68.75

Cotton textile    64.00 pc

Soap    63.96

Cement    61.76

Woolen carpet    50.58

Biscuit    49.73 pc

Garment    45.14

Noodles    43.76 pc

Cigarrette    40.71 pc

Sugar    39.06

Iron Rod    38.18

Banaspati ghee    19.30 pc

Leather processing    7.85 pc

Total Average    54.00

Source: Kantipur