Capacity utilisation of Nepali industries slumps to 40pc


The industries in the country utilised only 40 per cent of their installed capacity in the six-month period between Mid-July 2019 to mid-January 2020, reveals the Economic Activities Study Report 2019-20 (Half Yearly) unveiled by Nepal Rastra Bank today.

The results reveal a slump of 20 percentage points in capacity utilisation of the industries compared to the capacity utilisation of 60 per cent in the corresponding period of previous fiscal 2018-19.

The findings are even more worrying as the study covers the period before the coronavirus pandemic, which means that the industrial capacity utilisation is expected to take a further hit in the study of this fiscal year.

Among the 154 industries included in the study, the liquor industry had the most capacity utilisation at 92.1 per cent.

Of the industries included in the study, the capacity utilisation of industries related to mustard oil, soybean oil, rice, flour, chocolates, noodles, liquor, synthetic clothes, jute goods, paint, medicines, cement, among others went up.

Conversely, the capacity utilisation of industries related to ghee, processed milk, animal feed, biscuits, processed tea, beer, cigarettes, threads, garments, processed leather, paper, soaps, plastic items, bricks, concrete, steel rods, aluminium, tyres and tubes, among others, decreased.

While ghee, oil, jute goods and cement are the top manufactured goods in Province 1, Province 2 had most production of paper, cigarettes, clothes, processed leather, medicines and steel rods.

Production of processed milk, animal feed, pashmina, readymade garments, medicines is high in Bagmati Province. In Gandaki Province, biscuits and noodles had high production, while in Province 5 there was high production of mustard oil, flour, beer and medicines and in Sudurpaschim Province, flour, among other items is mostly manufactured.

The study has revealed that the credit flow to various industries in the review period rose 17.3 per cent and reached Rs 1.06 trillion.

In the corresponding period of the previous year, credit growth had stood at 12.6 per cent. The share of credit flow to the industries stood at 33.9 per cent of all credit extended by banks and financial institutions, according to the central bank study.

Credit was mostly extended to industries involved in production of non-food items at 35.3 per cent, followed by those engaged in manufacturing of construction materials at 31.4 per cent.

Industries related to agriculture, forests and beverages got 15.9 per cent of the credit; those related to electricity, gas and water got 12.9 per cent; and mines got 0.7 per cent.

Out of the total credit extended to industries, the credit extended to industries in Province 1 was 11.7 per cent, 8.3 per cent to industries in Province 2, 63.5 per cent to industries in Bagmati Province, 4.7 per cent to industries in Gandaki Province, 9.5 per cent to industries in Province 5, 0.5 per cent to industries in Karmali Province and 7.8 per cent to industries in Sudurpaschim Province.

The study has pointed at the need of ramping up production and increasing capacity utilisation of the industries. It has also recommended enhancing the skills of the human resources employed in industries through training programmes.

Among the challenges, the study has said that the rise in the value of real estate has increased the cost of setting up industries which has become a major obstacle. The study also pointed out the lack of competitiveness of locally produced goods due to high production cost and quality issues as other challenges.

Among the various possibilities, the central bank has mentioned getting non-resident Nepalis involved in the development of industries and the likelihood of credit interest rates dropping due to ample liquidity in the market.

A version of this article appears in e-paper on September 22, 2020, of The Himalayan Times.