Manufacturing industries see slump, service sector lures investors
KATHMANDU, FEB 20 -
Manufacturing industries have lost their charm among entrepreneurs amid load-shedding and labour unrest, while the service sector has attracted an increased number of entrepreneurs, records at the Department of Industries (DoI) show.
The trend is clearly visible in the registration pattern of industries in these two categories at the DoI.
In the fiscal year 2011-12, the registration of service industries exceeded the manufacturing ones by 71 percent. While the service-oriented firms accounted for 201, only 59 were registered under the manufacturing category in the last fiscal year.
The trend of manufacturing units being registered is in a downward trend over the last three years. There were 68 manufacturing firms registered at the DoI in FY 2010-11 and 78 in FY 2009-10. The number of service industries registered in FY 2010-11 was 149, while it was 175 the previous year.
Of the 4,831 firms registered with the DoI, 2,365 were service-related business ones as of 2011-12. These exclude the banking business . The number of service business exceeds the manufacturing companies, if the financial business is also included in the service oriented firms, DoI’s statistics reveal.
The department has considered workshop, printing, consultancy, cinema, public transportation, photography, hospital, nursing home, academic and training institutes, laboratories, aviation and cold-storage in the service business . However, banks, hydro, construction and tourism are under different segments. The firms registered in the DoI account only for medium and large ones. The Industrial Enterprise Act 1992 considers firms with investment of upto Rs 100 million as medium ones, while the ones with over Rs 100 million investment are taken as large firms.
Entrepreneurs have been saying that a lack of investment friendly environment in medium and large production business is forcing them to switch over to service business . Manufacturing units that produce crude goods, semi processed and processed goods have been categorised under the manufacturing segment.
The Act also says that anyone who registers a manufacturing firm in the DoI must start business as per commitments made. However, many of them have failed to start operations. Of the pharmaceutical companies registered with the Department of Drug Administration (DDA), 59 percent have failed to start their business .
According to the DDA, only 106 drug manufacturing companies of the 255 factories that it has registered in the last three decades are in operation.
Besides industrial environment, industrialists have said higher cost of production in Nepal as compared to neighbouring countries also affected the manufacturing industries here.
Pradeep Jung Pandey, vice-president of the Federation of Nepalese Chamber of Commerce and Industry, said high cost of production had made Nepali products incompetent among foreign goods. “Unfavourable government policy, increasing load-shedding, syndicate in shipping transport and labour problems are other reasons behind the high cost of production,” he said. “Investors here have to undergo a tough struggle from the production stage until they sell their products in the market.”
Pandey added that entrepreneurs failed to reap benefits from their investment in the manufacturing business . “As a result, the investment in the sector is going down.”
Load-shedding and labour problems have been identified as major reasons for the downward swing of the production business . According to industrialists, the use of generators increases production cost by 15 percent. Manufacturing industries consume more electricity.
Open border has also been attributed to the smuggling of cheaper goods from neighbouring countries, affecting domestic production. Udaya Raj Pandey, president of Garment Association of Nepal, said entrepreneurs are reluctant to invest in the manufacturing business , given the illegal inflow of foreign products.
“There is lack of favourable environment to do long-term business ,” he added. According to him, even banks have been attracted to investment in service sectors.
Investors are also reluctant to invest in the manufacturing business as the sector takes a relatively longer time to yield returns. Pandey sought the state’s support in creating a good business environment.
Source: The Kathmandu Post
