Industrial Sector in Nepal

Nepal is a least developed country. The government has set an ambitious goal of uplifting it from the

least developed country to a developing country by 2022. This requires rapid economic development

in the country, and the role of the industrial sector is prominent in this regard.

The history of modern industrialization in Nepal began in 1936 with the establishment of the

Biratnagar Jute Mill. Following this, industries such as Morang Cotton Mill (1941), Morang Sugar

Factory (1946), Raghupati Jute Mill (1946), and Juddha Match Factory (1946) were established.

After the establishment of democracy in 1950, the pace of industrial development accelerated in

Nepal.

Industrial sector plays a pivotal role in reducing trade deficit by transforming the economy from an

import-based to a production- and export-oriented one. The industrial sector in Nepal has helped to

utilize local resources, means, and technologies to make goods and services available and create

employment opportunities.

Classification of Industrial Sector

According to the Industrial Enterprise Act, 2020, the industrial sector in Nepal is classified into the

following categories:

1. Classification Based on Nature of Output and Service :

a. Energy-based industries: Industries generating energy from water resources, wind, solar,

coal, natural oil, gas, biogas, or other sources.

b. Manufacturing industries: Industries that produce goods by utilizing or processing raw

materials, semi-processed materials, by-products, or waste products.

c. **Agro and Forest-Based Industries**:

- These industries are primarily based on agriculture or forest products, such as
integrated sericulture and silk production, horticulture and fruit processing, animal
husbandry, and forestry-related businesses (e.g., leasing forests and agro-forestry)

d. **Mineral Industries**:
- These industries focus on mineral excavation and the processing of these mineral

e. *Infrastructure Industries**:
- Industries involved in constructing infrastructure like ropeways, railways, trolley
buses, tunnels, bridges, industrial and residential complexes, and their operation.

f. **Tourism Industries**:
- Businesses related to tourism, such as hotels, restaurants, resorts, travel agencies,
trekking, gliding, cable car complexes, pony trekking, para-sailing, and sports like golf,
polo, and horse riding.

g. **Telecommunication and Broadcasting Industries**:

- These industries are responsible for providing information, knowledge, and
communication services using various technologies.

h. **Service Industries**:
- Industries providing services such as workshops, printing presses, consultancy
services, cinematography, construction businesses, photography, educational institutions,
hospitals, air services, cold storage, etc.

2. **Classification Based on Investment**:

a) **Micro Industries**:
- Industries with fixed assets of less than **Rs. 2 million** (excluding land and
buildings) and annual transactions of less than **Rs. 10 million**, with a workforce of up to
 **9 people** (including the owner).

b) **Cottage Industries**:
- These industries utilize specific skills or local raw materials and resources, often
connected with national tradition, art, or culture, and are labor-intensive.

c) **Small Industries**:
- Industries with a fixed asset of up to **Rs. 150 million**.

d) **Medium Industries**:
- Industries with a fixed asset value between **Rs. 150 million** and **Rs. 500
million**.

e) **Large Industries**:
- Industries with a fixed asset value of **more than Rs. 500 million**.

Key Issues in Nepalese Industrial Sector

1. Political Instability

2. Lack of Infrastructure

3. Lack of Security

4. Lack of Skilled Labor

5. Lack of Coordination between Industries

6. Limited Technological Advancements

Industrial Sector Performance in Nepal (as of March 2022)

1. **Growth Projections for FY 2022/23**:

- The growth of the manufacturing industry is expected to be **-2%**.

- Industrial sector contribution to GDP is estimated at **5.6%** for the year, with a 10-year
average
of **5.3%**.

2. **Industry Breakdown**:

- **Total Registered Industries**: **8,947** industries.

- **Large Industries** (1,352 industries): 61.8% share.

- **Medium Industries** (2,070 industries): 15.1% share.

- **Small Industries** (5,525 industries): 23.1% share.

3. **Financial Data**:

- **Total Investment**: **Rs. 27,830.35 billion**

- **Large**: Rs. 23,490.59 crore

- **Medium**: Rs. 2,776.60 crore

- **Small**: Rs. 1,563.13 crore

- **Fixed Capital**: **Rs. 24,449.71 billion**

- **Current Capital**: **Rs. 30,512.08 billion**

4. **Employment Projections**:

- **Total Proposed Employment**: **670,255 jobs** across all industries.

- **Large industries**: 183,836 jobs.

 - **Medium industries**: 136,072 jobs.

- **Small industries**: 55,347 jobs.

5. **Sectoral Investment Breakdown**:

- **Manufacturing**: Rs. 60,229.17 crore (354,046 jobs).

- **Energy**: Rs. 16,245.74 crore (40,971 jobs).

- **Agriculture and Forestry**: Rs. 3,998.49 crore (39,565 jobs).

- **Tourism**: Rs. 21,998.03 crore (81,247 jobs).

- **Service**: Rs. 22,636.34 crore (136,469 jobs).

6. **Capacity Utilization**:

- **49.8%** of Nepal's industrial capacity was utilized in FY 2022/23, down from **52.2%** in the

previous year.

*Source: Department of Industry, March 2022*

Special Economic Zones (SEZ) in Nepal

A Special Economic Zone (SEZ) is a designated area within a country where business and trade laws differ from
the rest of the country. These zones are established to attract foreign direct investment (FDI), boost exports, and
promote economic development by offering favorable conditions for businesses. Typically, SEZs provide
incentives such as tax exemptions, streamlined customs procedures, and improved infrastructure to encourage
investment and industrial growth.
History of Special Economic Zones in Nepal
Nepal's journey with SEZs began in 2000 with the establishment of the first zone in Bhairahawa, aimed at
manufacturing mineral-based products and kitchen utensils. Subsequently, an Export Processing Zone (EPZ) was
set up in Simara, primarily for garment processing. Recognizing the need to promote export-oriented industries
and reduce the growing trade deficit, the Nepalese government conceptualized the SEZ framework in 2013. This
led to the formulation of the Special Economic Zone Act in 2016, which was later revised in 2019 to enhance its
effectiveness.

Objectives of SEZs in Nepal

The primary objectives of establishing SEZs in Nepal include:

- Promoting Export-Oriented Industries: Encouraging the growth of industries that produce goods and services
for export to diversify and increase export markets.
- Attracting Foreign Direct Investment (FDI): Creating an environment conducive to foreign investment by
offering various incentives and facilities.
- Generating Employment Opportunities: Creating jobs through the establishment of industries within the zones,
thereby contributing to poverty alleviation.
- Developing Infrastructure: Enhancing infrastructure facilities such as roads, electricity, water supply, and other
amenities to support industrial activities.
- Encouraging Technological Advancement: Facilitating the transfer of technology and expertise to boost
industrial productivity and competitiveness.

Privileges Provided by SEZs in Nepal

Industries operating within Nepal's SEZs are entitled to several privileges, including:

- Tax Exemptions: Exemptions from customs duties, VAT, and other taxes on raw materials, machinery, and
equipment imported for production purposes.
- Income Tax Holidays: Industries can benefit from income tax exemptions for a specified period, typically
ranging from five to ten years, depending on the investment sector and scale of operations.
- Simplified Customs Procedures: Streamlined customs processes to facilitate the efficient import and export of
goods.
- Infrastructure Support: Provision of essential infrastructure such as roads, electricity, water supply, and other
amenities within the SEZs.
- One-Stop Services: A 'one-window' system for obtaining necessary permits and approvals, reducing
bureaucratic hurdles.

Examples of Special Economic Zones in Nepal

Nepal has established several SEZs across different provinces, including:

- Bhairahawa SEZ: Located in the Lumbini Province, this zone focuses on manufacturing and processing
industries.
- Simara EPZ: Situated in the Madhesh Province, it specializes in garment processing.
- Damak SEZ: Located in the Koshi Province, this zone aims to promote export-oriented industries.
- Surkhet SEZ: Situated in the Karnali Province, it focuses on industrial development to boost the regional
economy.
Industrial Estates in Nepal
Industrial estates in Nepal are designated areas where industries are established to promote economic
development, create employment opportunities, and enhance industrial growth. These estates offer
infrastructure, facilities, and incentives to attract both domestic and foreign investments.

Establishment and Development

The first industrial estate in Nepal, the Balaju Industrial Area, was established in 2016 B.S. with technical and
financial assistance from the United States. This initiative marked the beginning of organized industrial
development in the country.

List of Industrial Estates in Nepal

Over the years, the government has established several industrial estates across various regions to promote
industrialization. As of 2023, there are 11 industrial estates in Nepal:

1. Balaju Industrial Area, Kathmandu (Established in 2016 B.S.)

2. Patan Industrial Area, Lalitpur (Established in 2020 B.S.)
3. Bhaktapur Industrial Area, Bhaktapur (Established in 2035 B.S.)
4. Hetauda Industrial Area, Makawanpur (Established in 2020 B.S.)
5. Nepalgunj Industrial Area, Banke (Established in 2044 B.S.)
6. Pokhara Industrial Area, Kaski (Established in 2031 B.S.)
7. Butwal Industrial Area, Rupandehi (Established in 2032 B.S.)
8. Dharan Industrial Area, Sunsari (Established in 2029 B.S.)
9. Birendranagar Industrial Area, Surkhet (Established in 2038 B.S.)
10. Gajendra Narayan Singh Industrial Area, Saptari (Established in 2044 B.S.)
11. Dhankuta Industrial Area, Dhankuta (Established in 2040 B.S.)

Number of Industries in Industrial Estates

The total number of industries operating within these industrial estates varies. For instance, the Balaju Industrial
Area has the capacity to house 137 industries, with 97 currently operating and eight closed. there are 700
industries under industrial district, 33 are under construction and 30 are closed.

Challenges and Considerations

Despite the establishment of these industrial estates, several challenges persist:

- Infrastructure Issues: Many estates face inadequate infrastructure, including unreliable power supply, poor road
conditions, and insufficient water resources.
- Policy and Regulatory Hurdles: Outdated policies and complex regulatory procedures can impede the smooth
operation of industries.
- Human Resource Constraints: A shortage of skilled labor and the migration of youth for foreign employment
have led to a lack of skilled human resources within these estates.
- Natural Disasters: Events like the 2072 B.S. earthquake have caused significant damage to industrial estates,
affecting their operations and requiring substantial investment for reconstruction.

Industrial Estates in Nepal

Industrial estates in Nepal are designated areas where industries are established to promote
economic development, create employment opportunities, and enhance industrial growth. These
estates offer infrastructure, facilities, and incentives to attract both domestic and foreign
investments.

Establishment and Development

The first industrial estate in Nepal, the Balaju Industrial Area, was established in 2017 B.S. with
technical and financial assistance from the United States. This initiative marked the beginning of
organized industrial development in the country.

List of Industrial Estates in Nepal

Over the years, the government has established several industrial estates across various regions to
promote industrialization. As of 2023, there are 11 industrial estates in Nepal:

1. Balaju Industrial Area, Kathmandu (Established in 2017 B.S.)

2. Patan Industrial Area, Lalitpur (Established in 2020 B.S.)
3. Bhaktapur Industrial Area, Bhaktapur (Established in 2036 B.S.)
4. Hetauda Industrial Area, Makawanpur (Established in 2037 B.S.)
5. Nepalgunj Industrial Area, Banke (Established in 2037 B.S.)
6. Pokhara Industrial Area, Kaski (Established in 2038 B.S.)
7. Butwal Industrial Area, Rupandehi (Established in 2039 B.S.)
8. Dharan Industrial Area, Sunsari (Established in 2040 B.S.)
9. Birendranagar Industrial Area, Surkhet (Established in 2038 B.S.)
10. Gajendra Narayan Singh Industrial Area, Saptari (Established in 2043 B.S.)
11. Dhankuta Industrial Area, Dhankuta (Established in 2040 B.S.)

Number of Industries in Industrial Estates

The total number of industries operating within these industrial estates varies. For instance, the
Balaju Industrial Area has the capacity to house 137 industries, with 97 currently operating and eight
closed.

In the first nine months of the Fiscal Year 2023/24 (mid-July 2023 to mid-April 2024), Nepal
registered 286 new industries, attracting an investment of approximately NPR 165 billion and
creating employment opportunities for about 20,137 individuals.
Challenges and Considerations

Despite the establishment of these industrial estates, several challenges persist:

- Infrastructure Issues: Many estates face inadequate infrastructure, including unreliable power
supply, poor road conditions, and insufficient water resources.
- Policy and Regulatory Hurdles: Outdated policies and complex regulatory procedures can impede
the smooth operation of industries.
- Human Resource Constraints: A shortage of skilled labor and the migration of youth for foreign
employment have led to a lack of skilled human resources within these estates.
- Natural Disasters: Events like the 2072 B.S. earthquake have caused significant damage to
industrial estates, affecting their operations and requiring substantial investment for reconstruction.