Survival is a New Challenge

Survival is a New Challenge

‘Corona pandemic has been no threat to government officials & local governments, an opportunity to power brokers & playground for politicians in terms of survival. What about entrepreneurs & private-sector dependents? Are we only the tax producers? Survival is a new challenge.’– Raj Shrestha an entrepreneur.

This is a representative voice by an entrepreneur holding a private company, suddenly moved to a remote working mode with no timeline as to when-or if-they‘d be going back to the office. Lockdowns have spurred digital workarounds in some workplaces and schools but in countries like Nepal where internet access is very low many people are left behind. This global crisis is affecting citiesindustriessmall and large businesses, and the lives of vulnerable people globally. It is changing the world in unprecedented ways. The pandemic has supercharged the economic collapse caused by poverty and conflict and placed the largest burden on the vulnerable. There is weak social protection for working-class citizens in countries like Nepal. Government policies are favored by corporations. The gap between the richest and poorest is widening. Covid-19 pandemic has created plenty of problems for employees working on self and for various private companies. How could companies survive to maintain that intangible but powerful aspect of their regular business environment? 

new survey conducted by the research department of Nepal Rastra Bank (NRB), the central Bank of Nepalsought to understand how company culture had changed since Corona Pandemic began. The Federal Government of Nepal announced a lockdown on 24 March 2020. All social and economic activities were stoppedPeople all over the nation and in foreign were stranded where they were. On 15th June lockdown was lifted partially. But economic activities have not yet come to normal. The NRB survey shows the effects and concerns about reopening workplaces, employee‘s wagesnumber, and salary cut off, unemployment, etc. 
674 industries and companies from 52 districts participated in the survey. 61% of the companies were found fully closed, 35% were running partially and 4% were in full operation. 

Data Outlook

Companies and industries who participated in the survey have cut off (22.5%) One-fourth of their staff, many of them temporary and in contract.

73.8% decrease in production/business was reported during the survey by the 96.7% of the industries/companies who participated in the survey.

Debt to total assets ratio of the industries/companies is 48.7%.

74.3% has loan from banks and other financial institutions.

8.7% has loan from savings and credit cooperative.

12% has no loan

22.5% employees have lost their job. Most of them are from Hotel and Restaurant sector.

Salary reduction in an average of 18.2% (mostly hotel, restaurant, transport, education sector)

It will take 9 months for industries and companies to run normally as before.

82.3% industries and companies have decided to continue same business after lockdown.

Businesses Open during Corona Pandemic (in %)

Among the 674 industries and companies from 52 districts who took part in the survey.

Companies and industries that participated in the survey have cut off One-fourth of their staff (22.5%), many of them temporary and contract-based. 96.7% of the industries/companies that participated in the survey said there was a decrease of 73.8% in production/business. The debt to total assets ratio of the industries/companies was found to be 48.7%. 74.3% of companies/industries have a loan from banks and other financial institutions. 8.7% of companies/industries have a loan from savings and credit cooperative. 12% of companies are running without a loan. 22.5% of employees have lost their jobMost of them are from Hotel and Restaurant sector. On an average 18.2% Salary was reduced by mostly hotelrestauranttransport, education sector. It will take 9 months for industries and companies to run normally as before. 82.3% of industries and companies have decided to continue the same business after lockdown. 

The impact of the current crisis is not temporary but is likely to induce lasting changes in the way that economies operate says, Nepal Development Update (NDU), a report published by World Bank. Recently published NDU indicates that ‘economic support to firms will be important to generate employment and pivot them towards a greener economy while managing debt overhang. In the relief stage time-bound, liquidity support should be provided to the most affected firms to increase employment. The agriculture and tourism sectors could be prioritized, given their criticality for food security and employment. In the restructuring stage, continued support to firmsincluding through recapitalization, will be neededPrivate-sector recovery can be supported through targeted investments in digitization and by providing fiscal incentives for green investments. In the resilient recovery stage, efforts need to be aimed at strengthening physical, digital, and financial infrastructure to develop e-commerce platforms, enhance access to finance and promote green growth.’
According to WB, COVID-19 had three effects on the monetary and financial sector in Nepal- 

First, it led to a drop in private sector credit: new loans to the private sector decreased by 64.7 percent between March and May 2020 compared to the same period the previous year, reflecting a slowdown in economic activities and limited service hours of bank branches during the lockdown. 

Second, new deposits – driven by individuals – grew by 82.8 percentreflecting precautionary savings and a deferment of tax payments. 

Third, monetary aggregates increased in May 2020 due to substantial growth in net foreign assets as COVID-19 led to a further decline in imports and an increase in foreign exchange reserves. 

The impacts of lockdown were felt across the economy. Industrial capacity utilization dropped from a pre-COVID baseline of 75-80 percent to 46 percent in June 2020. Daily peak energy consumption, which is closely correlated with industrial production, dropped from pre-COVID level of 1000 megawatts (MW) to 700 MW in June 2020 (NDU/WB). As per the NRB survey, 46.6 percent of companies/industries had 75 percent less energy consumption, 19.2 percent had 50% less energy consumption and 18.1 percent had 25 percent less energy consumption during the lockdown. 

According to NDU; remittance has dropped by 43.3 percent between mid-March to mid-May 2020 compared to the same period in previous years. This has affected private consumption and import of goods. There are millions of migrant workers in Arab Gulf countries. Global reports say almost 14% of the world‘s migrant workers live in the Middle East, where they are at high risk of exploitation as they have no guarantee of social security or pensions. The infection rate is highest among migrant workers, many who had already lost their jobsdue to the Coronavirus. Thousands of jobless Nepalese workers have returned home, and many of them are still waiting for the regular international flights to open in Nepal. The return of Migrant workers‘ has directly affected the country‘s economy as returned labor migrants have increased unemployment and created an excess supply of labor in the domestic labor market. 

The budget for FY 2021 has announced relief and recovery measures. As per the budget
A fund of NPR 50 billion will be created to provide concessional loans at the interest rate of 5 percent for the operation of business and payment of salaries for small and medium-sized industries and COVID-19 affected tourism sector. 

A discount of 25 percent on the electricity fee for individuals consuming electricity up to 150 units in a month and a discount of 15 percent for individuals consuming electricity up to 250 units in a month. The fee will be waived for individuals consuming electricity up to 10 units a month. A 50-percent discount will be provided on demand charges for industries during the lockdown period.

A provision will be made through the Nepal Rastra Bank (NRB) to provide a refinance facility of up to NPR 100 billion at the interest rate of 5 percent for COVID-19-affected industries in the agriculture, cottage, small and medium-sized enterprise, hotel, and tourism sectors.

The insurance policies of COVID-19-affected industries and transportation will be extended until the lockdown ends. Social security contribution waived for workers and firms during the lockdown period: The government will make contributions (on behalf of workers) to the contribution-based Social Security Fund during the lockdown period. Discounts will be provided on parking fees, airline licensing renewal fees, flight qualification certification charges and the infrastructure tax on aviation fuel.

According to the NRB survey, concessional loans at the interest rate of 5 percent as provisioned in the budget will be a good relief to the industries and companies. 

This will motivate the industrialists and entrepreneurs to operate and continue their business without cutting off the number of employees. Concession in interest rate, Flexible EMI, Tax rebate,

Additional loan facility for running capital, Flexibility to extend loan period is few other demands of the industries and companies to survive and continue their business fluently.

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Investment Gap in Agriculture

Investment Gap in Agriculture

Agriculture in Data

An agricultural holding is defined as an economic unit of agricultural production under single management comprising all livestock and poultry kept and all land used wholly or partly for agricultural production purposes. According to Nepal Sample Census of Agriculture 2011/12 there are 3,831,093 such agricultural holdings in Nepal. Compared to 2001/02 census there is an increase of about 13.89% (466993) holdings. This increase is very low than previous censuses, 23% in 2001/02 and 25% in 1991/92. In a span of 60 years, from 1961/62 to 2011/12 the number of holdings increased by 2.29 million. Nepal Outlook has taken this effort to bring together agricultural scenario and challenge in data.

However, there is a huge change in number of agricultural holdings; Nepal’s agriculture sector is still far behind from being commercialized and mechanized. Commercialization and mechanization of agriculture needs investment. Looking in to the data enumerated by the agriculture census the proportion of holdings availing agricultural credit to finance their farming is very low. Comparing previous year’s data there is no visible change seen in agriculture financing. In 1991/92 out of total holdings only 23% availed agricultural loan. Similarly in 2001/02 it was 24%. In 2010/11 it further dropped to 21.82%.

Growth of Financial Institutions (numbers) as of 21 August 2020

Financial Institutions 1990 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Commercial Banks 5 18 20 25 26 27 31 32 31 30 30 28 28 28 28 27
Development Banks 2 28 38 58 63 79 87 88 86 84 76 67 40 33 29 20
Finance Companies 70 74 78 77 79 79 69 59 53 48 42 28 25 23 22
Micro-finance Financial Institutions 11 12 12 15 18 21 24 31 37 38 42 53 65 90 85
Total 7 127 144 173 181 203 218 213 207 204 192 179 149 151 170 154

If we look at the table above we can see increase and decrease in its number of financial institutions. In 1990 there were only 7 financial institution including 5 commercial banks and 2 development banks. In 2011 there were 218 financial institutions. Currently there are 154 financial institutions, including 27 banks, 20 development banks, 22 finance companies, 85 micro finance development banks. These data do not include Insurance Companies, Infrastructure Development Bank, Citizen’s Investment Trust, Employ’s Provident Fund, Cooperatives and Other financial institutions licensed for financial intermediary operations. The existing provision requires commercial banks to disburse minimum 10 percent of their total credit to agriculture sector and minimum 15 percent to energy and tourism sector. Similarly there is policy provision for the development banks and finance companies to extend at least 15 percent and 10 percent of their total credits respectively to the priority sector. But table below shows that commercial and development banks are far below central bank’s mandate. Last three years data shows that agriculture sector loan did not exceed 6 percent in commercial banks.

Sector wise loan and advances of Commercial and Development Banks (mid  July 2019)


S.NSectorPercentage of Total Loan
201720182019
1Agriculture Forest4.234.65.26
2Fishery0.120.110.14


  Percentage of Total Loan
201720182019
1Agriculture Forest5.55.966.24
2Fishery0.130.130.21

These data’s show that however, number of financial institutions is increased in last two decades, agricultural financing is not satisfactory. Agriculture Census data shows that farmers had most of the source of credit from non-institutional or informal types of source likes relatives, private lenders and others. If we observe sources of credit we can see 34.57% of holdings borrowed agricultural credit from relatives, 5.78% from undisclosed sources, while 8.68% borrowed from commercial banks, 12.61% borrowed from Agricultural Development Bank/Nepal and 15.68% from savings and credit cooperatives. In total scenario, only 21.82% of agricultural holdings borrowed agricultural credit. That means still 78.18% of agricultural holdings have no agricultural credit or investment.

Number, area of holdings and number of holdings reporting agricultural credit by total area of holding


Number, area of holdings and number of holdings reporting agricultural credit by total area of holding

ProvinceHoldings with credit by main source (%)
No. of holdingsHoldings without agricultural credit %CooperativesADB/N Commercial Bank/financial institutionFarmer's groupWomen's groupRelativesOther
Province 171714879.4816.6216.7612.29.6412.3129.712.76
Province 267292773.769.6618.7511.023.978.4239.129.05
Bagmati65877679.5425.237.424.5412.7616.11312.93
Gandaki41330085.8419.9712.0410.557.0615.3133.221.86
Province 569729378.4514.8413.739.9510.1514.0132.454.87
Karnali26177072.1416.923.874.3413.319.342.929.34
Sudurpaschim40987976.669.67.484.9214.5517.4736.489.51
NEPAL383109378.1815.6812.618.689.7412.9534.575.78

Examining Provincial data, we can see 27.86% of holdings in Karnali Province have agricultural credit, the highest among the Provinces. Province 2 comes second with 26.24% and Sudurpaschim Province with 23.34%. Similarly, 14.56% of holdings in Karnali province have agricultural credits from relatives and individuals and only 7% of credit from financial institutions like commercial banks, ADB/N and cooperatives. Sudurpaschim province is among the provinces having least agricultural credit from financial institutions, which is 5.13%.

Investment in agriculture is directly related to production and food security. Less investment in agriculture results less production and high food insufficiency. Agriculture Census report reveals food insufficiency in various provinces, among all Provinces Karnali province has the highest insufficiency of own produce for household consumption, which is 74.71%. Similarly, Gandaki Province has 67.80%, the second highest insufficiency of own produce for household consumption. Overall scenario showed that 59.91% of holdings reported that they are insufficient in food from their own produce. So, how are farmers coping with year round insufficiency of food? Income earned through own non-agricultural business, wage earnings (within district and outside district), pension, borrowings and other means of earning are adopted by many of the farmers for livelihood.

Province Total number of holdings Percentage of holdings reporting insufficiency of own produce for  household consumption
Province 1 717148 57.01
Province 2 672927 57.69
Province 3 658776 54.28
Province 4 413300 67.80
Province 5 697293 56.66
Province 6 261770 74.71
Province 7 409879 65.85
NEPAL 3831093 59.91
Source: NATIONAL SAMPLE CENSUS OF AGRICULTURE 2011/12

 ‘A declining long term trend in public investment particularly in agricultural support and productivity limits the productive capability in the agriculture and its ability to benefit from the rise in output prices.’ (Prof. Dr. Pyakuryal Bishwamber ; ‘Nepal’s Development Tragedy Threats and Possibilities’)

However declining, Nepal’s agriculture sector still has highest share in GDP. And there is still huge number of population depending on agriculture for livelihood. To fill the investment gap in agriculture and productivity an urgent review of investment financing strategy is needed.