According to a recent report published by Nepal Rastra Bank.
According to Report on the economic activities of the province of Gandakiwhich is based on the figures for the first half of the fiscal year ended in mid-January, the capacity utilization of most industrial enterprises is very low due to multiple challenges.
Noodles and biscuits produced in Gandaki province are losing their competitiveness at a rapid pace due to soaring imports of manufactured food products and more expensive imported raw materials, according to the central bank report.
The tourist center has been struggling since the Covid pandemic as visitors have yet to return.
Pashupati Murarka, former president of the Federation of Nepalese Chambers of Commerce and Industry, says there are problems in the operation of factories due to record fuel prices, power shortages, low spending on government capital and high interest rates.
“Banks are facing a liquidity crisis, and this problem does not seem to be going away any time soon. As the government has not been able to spend the funds allocated for capital expenditure, orders from the industrial sector are at a low level,” Murarka said.
“A further rise in commodity prices is imminent. This will further erode the competitiveness of Nepalese industry as the cost of production will increase,” he said.
“Since consumers spend a large part of their household budget on food, inflation will lower their purchasing power, and this will have a direct impact on the demand for goods,” he added.
The industrial sector in Gandaki province is expected to contribute 18.4 percent to gross domestic product (GDP) in the current fiscal year, up from 17.7 percent last year.
There are 13,184 small and medium industrial enterprises in Gandaki, employing 55,182 people.
According to the report, the average industrial capacity utilization of the 14 industrial enterprises surveyed in the first half of the fiscal year rose 4.8 percent year on year to 42.7 percent.
This means that industrial capacity utilization is less than half, even though the Covid pandemic has subsided and the market has functioned normally.
Industrial loans declined by 17.5% to Rs 50.92 billion in the first six months of the current financial year compared to the same period last financial year.
“It is difficult to attract foreign investment in the industrial sector. Power supply is not sufficient and there are no reliable road facilities,” the report says. “Factories lack skilled labor,” the report said. More and more semi-skilled and skilled workers are leaving for jobs abroad, according to the central bank report.
The government has sought to increase domestic production to boost exports.
“It’s a noble idea. The goal of increasing domestic production and boosting exports in the given economic situation is unrealistic,” Murarka said. “We expected the budget to bring some relief to entrepreneurs.”
According to the report, it is difficult to increase the competitiveness of domestically produced goods due to their high cost and low quality compared to foreign products.
Due to rising land and construction costs and uncontrolled urbanization, it is not easy to establish new factories. There are bureaucratic hassles in setting up new industrial enterprises, renewing business registration and paying taxes and charges, according to the report.
Implementing one-stop service, utilizing technology and promoting digital payment remains a daunting task, according to the report.
“It is expected that cement production in Gandaki province will increase sharply by 145% in line with market demand. Gandaki witnessed an increase in the number of cement factories.
Pharmaceutical production in the province is expected to increase by 6.1% as it keeps pace with demand. As for beverage production, beer production is expected to increase by 5.5%, according to the central bank report.
Capacity utilization of industries such as chocolate, biscuits, beer, liquid and capsule medicines, bricks and edible oil reached over 50% during the review period.
The production of dry strips, tablets, beer, capsules and cement increased sharply during the review period, while the production of mustard oil, ointments and cigarettes experienced modest growth.
Gandaki province has great potential for industries producing agricultural and livestock products. The province can store, process and export apples, tangerines and coffee. Industries based on riverbed materials and other minerals, including iron mining, also have great prospects, according to the study.
The central bank’s report on economic activities covered the 11 districts of Gandaki province—Kaski, Syangja, Tanahu, Lamjung, Gorkha, Baglung, Myagdi, Manang, Mustang, Parbat and Nawalparasi (East).