Nepal | May 29, 2020

EDITORIAL: Inefficient production

The Himalayan Times
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Manufacturing sector must remain robust because it is one of the biggest job creators

Nepal’s manufacturing sector, in general, is churning out only half of the goods that it should be producing, indicating inefficient use of machinery and plants installed in factories. The latest central bank report shows that the manufacturing sector, on average, utilised 57.1 per cent of its capacity in the last fiscal year, as against 59.7 per cent recorded in 2017-18. Ironically, average capacity utilisation of the manufacturing sector has taken a hit despite hike in production capacity. For example, cement factories enhanced their production capacity by 2.9 million tonnes last fiscal year. But their actual production went up by a mere 79,501 tonnes. Similar trend was seen in firms that produced steel. Their production capacity jumped by 94,500 tonnes in the last fiscal year, but their actual production went up by 40,640 tonnes. A number of other manufacturing firms have also seen discrepancy in production capacity and actual production. This shows fresh investments were made to set up new factories or add new machinery to existing factories, but those production facilities were not put to optimum use. This is not a good sign because inefficient use of available capacity eventually pushes up production cost as investors will price their goods after factoring in the cost of new machinery as well. This will unnaturally inflate prices of goods, fuelling inflation.

The central bank report has not provided reasons for low production despite jump in production capacity. But it comes at a time when binding constraints such as short-supply of grid electricity and labour-related problems have largely been removed. It is, thus, time for the Ministry of Finance and the Ministry of Commerce, Industry and Supplies to spring into action and identify problems that are crippling the manufacturing sector. Every country tries to keep its manufacturing sector robust because it is one of the biggest job creators. This is the reason why even a developed country like the US is doing all it can to bring back manufacturing jobs that have been moved to China and other countries. So, Nepal, which has seen large-scale outmigration of workers in the last two decades, cannot just sit back because low capacity utilisation of manufacturing firms also indicates erosion in job creation. Around 500,000 people join the job market every year, but the unemployment rate stands at 11.4 per cent, while the labour underutilisation rate hovers around 39 per cent. Nepal must fix these problems at the earliest as it will become an aged society after 2047 when fewer working-age people will have to support a greater number of elderly.

Many countries across the globe provide subsidies, reduce import taxes on raw materials and intermediate goods, and raise import duties on finished goods to stimulate domestic production and bolster competitiveness of domestic industries. The government should also offer incentives to the manufacturing sector for the time being to lure investors so that the problems of unemployment, underemployment and massive outmigration could be addressed. While providing incentives priority should be given to firms that export their goods as it would also help the country earn foreign currency. A country can only become prosperous if it is able to create as many jobs as possible inside the country.

Rhino deaths

Thirteen rhinos have died in the seven months of the current fiscal year at Chitwan National Park, and this is cause for worry. The female rhino in its early twenties that died on Tuesday was carrying a 10-month-old foetus in her womb, which again is a big loss. Most rhinoceroses live to be about 50 or more years. There was a time when poachers were very active in the jungle, especially during the critical insurgency period. Even a rhino in the central zoo in Kathmandu was not spared. The rhinos are killed for their horn, which fetches a heavy price in the aphrodisiac market. But with stricter patrolling, poaching is little heard of now.

For conservationists, the increasing number of deaths due to natural causes is just as worrisome, even alarming. As many as 43 rhinos are said to have died of natural causes last fiscal year, 26 in 2017-18, and 25 the year before that. Rhinos die due to old age, clashes between bulls during the mating season, getting caught in quicksand and epidemics. But no sign of contagious disease has been detected among the rhinos. The rhino is the principal attraction in the park, and the root cause of the deaths must be established soon before it starts impacting tourism.

A version of this article appears in print on January 31, 2020 of The Himalayan Times.

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