Services sector's growth belies contribution
KATHMANDU:
A large portion of the population has not been able to reap benefit from the robust growth witnessed by the services sector, as it has failed to generate adequate employment opportunities, a latest working paper of Nepal Rastra Bank (NRB) shows.
The contribution of the services sector to the gross domestic product has grown from 39 per cent in fiscal year 1998-99 to over 50 per cent at present. But the sector’s rapid growth belies its contribution to job creation.
The Nepal Labour Force Survey shows that the sector created 14 per cent of the total jobs in 1998-99.
But after a decade, the sector’s contribution to job creation stood at a mere 15 per cent, says the working paper ‘Structural Changes in a Small and Open Economy: Evidences from Nepal’ written by Guna Raj Bhatta, assistant director at NRB’s Research Department.
On the contrary, the agriculture sector, whose contribution to the GDP has currently fallen to around 30.28 per cent from 38 per cent in 1998-99, is still providing jobs to around 70 per cent of the workforce.
Greater number of jobs created by the agriculture sector, however, does not mean people are lured towards the sector because of attractive pay. In fact, many who depend on this sector are living from hand to mouth because of their engagement in subsistence farming.
“Most of the people are unnecessarily engaged (in agriculture sector) because of structural bottlenecks such as inability to make use of modern technologies, lack of proper infrastructure and geographical constraints,” says the paper, as it calls for the need to commercialise the agriculture sector.
“Since agriculture still allows many to earn a livelihood and plays a key role in ensuring food security, its contribution to social stability and environmental preservation cannot be undermined. Hence, the sector’s contribution to the economy and society outweighs its contribution to the GDP,” adds the paper.
“This is why developed countries still emphasise on modernisation and development of the agricultural sector. In this regard, the country must focus on farm mechanisation, development of agricultural infrastructure and creation of strong market mechanism.”
Likewise, the paper also calls for the need to create more job opportunities in the services sector, so that the sector can play a dominant role in employment generation as in developed countries.
The paper argues that robust sector-specific growth is not going to be sufficient unless new jobs are created, as better employment opportunities can only increase income level of people, which is a must for sustained economic development of the country.
“To increase employment opportunities in the services sector, huge investment must be made in physical infrastructure. Also, emphasis should be laid on strengthening education and health sectors so that healthy, educated and skilled human capital can be generated,” the paper says, adding, “As the country has ample tourist destinations, it should focus on churning out skilled manpower and developing sophisticated and secure transportation network throughout the country, which would attract international tourists, especially those from two most populous countries — India and China.”
A World Bank (WB) report published a couple of weeks ago had also indicated that the country’s services sector may not be able to drive the country’s economy in the long run if it fails to change its course.
The WB had given two reasons for this.
“First, unlike in India, the services sector here is overwhelmingly informal and unsophisticated with little potential for productivity growth or generating spillover effects,” said the WB’s Policy Notes for the Government titled ‘A Vision for Nepal’.
The services sector here is dominated by wholesale and retail trade, followed by community and social services, real estate and education services, which have limited growth potential unless they expand overseas or rope in foreign clients.
“Second, the expansion of the sector has been closely linked to the dramatic rise in remittance transfer, whose potential for growth is limited (considering already high level of money being transferred by Nepalis working abroad).”
Quick facts
• Contribution of services sector to GDP has grown from 39pc in 1998-99 to over 50pc at present
• The sector created 14pc of total jobs in 1998-99, while its contribution to job creation 10 years later stood at 15pc
• Though agriculture sector’s contribution to GDP has fallen to 30.28pc from 38pc in 1998-99, it is still providing jobs to around 70pc of workforce
