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Role of Service Sector in the Economy of Nepal

Presentation byDr. Ramesh C. Chitrakar

Rameshc977@yahoo.comExpert 1

AtAtSecond National Stakeholder Workshop on ServicesSecond National Stakeholder Workshop on Services

(27th – 28th October 2009)(27th – 28th October 2009)

Co-organized by UNCTAD-Ministry of Commerce and SuppliesCo-organized by UNCTAD-Ministry of Commerce and Supplies Kathmandu, NepalKathmandu, Nepal

October 27, 2009October 27, 2009

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I. Importance of Service Sector to Nepalese Economy

Emerged as major contributor to GDP in the world: more than 70 % in developed and around 50% in developing countries.

Investment and growth associated with services can contribute to poverty alleviation and human development if the right policies are in place

The GON’s increasing emphasis in services considering its contribution to GDP (> 51% in 2007/08), employment, international trade and balance of payments.

CBS/ Nepal introduced a new series of National Accounts Statistics since 2006/07 taking 2000/01 as the base year

Follows System of SNA 1993 adopted by a number of countries around the world. Prior to this, Nepal’s national income statistics was based on SNA 1968.

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Under SNA 1993: Economic activities classified into 15 sectors unlike 9 sectors in SNA 1968. The ISIC, Revision 3 has, in fact, classified the entire economy into 17 sectors.

In Nepal, the classification brought down to 15 sectors as the contribution of workers in the private households and from activities of foreign mission, and INGOs to the GDP is found negligible & so these two sectors included in the Other Community, Social and Individual Services category.

New series includes many activities not included before - like microbus, cable car services under transportation; PCO, mobile telephone, internet, cable television, communication; renting; services of employment agencies, cooperatives, consultancies, computer and photography, private postal services, private sector education services, community forestry and others.

9 Economic Sectors under service

30 new surveys and studies conducted to strengthen the national income statistics

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Figure 1: Sector wise contribution to GDP according to the new classification (FY 2007/08)

Sectorwise GDP Contribution, 2007/08

48.8

13.9

1.5

9.6

4.9

8.8

1.8

6.01.3 3.4 Non-service Industry

Wholesale & retail t rade

Hotels & restaurants

T ransport , storage &communicat ions Financial intermediat ion

Real estate, rent ing & businessact ivit ies Public administrat ion & socialsecurity Educat ion

Health & social work

Other community, social &personal act ivit ies

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Table : Sector wise GDP Composition in Percent, 200/01-2007/08Sector 2002/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08

Agriculture and Forest 36.15 36.92 36.03 35.45 34.71 33.09 32.04 32.11 Fishery 0.43 0.49 0.46 0.48 0.47 0.49 0.47 0.49 Mining and Quarrying 0.43 0.48 0.49 0.48 0.49 0.50 0.49 0.49 Manufacturing 9.03 8.50 8.20 8.05 7.92 7.59 7.48 7.16 Electricity, Gas & water 1.82 2.06 2.42 2.31 2.26 2.09 2.13 2.01 Construction 6.01 6.49 6.54 6.42 6.47 6.50 6.46 6.53 Wholesale and retail trade 16.44 14.59 14.51 15.29 14.09 14.31 13.43 13.94 Hotels and restaurants 1.99 1.61 1.59 1.73 1.57 1.49 1.44 1.49 Transport, storage and communications 7.39 7.87 8.31 8.94 9.06 9.72 9.91 9.58 Financial intermediation 2.69 2.75 2.72 2.65 3.06 3.49 4.08 4.86 Real estate, renting and business activities 8.29 8.23 8.08 7.72 8.69 9.53 10.15 8.77 Public administration and social security 1.24 1.63 1.70 1.55 1.69 1.74 1.75 1.83 Education 4.08 4.69 5.19 5.08 5.59 5.55 5.81 6.00 Health and social work 0.98 1.04 1.14 1.12 1.24 1.24 1.26 1.29 Other community, social and personal activities 3.03 2.66 2.63 2.73 2.69 2.67 3.12 3.44 Sub-total (Non-service Industry) 53.87 54.94 54.14 53.19 52.32 50.26 49.07 48.79 Sub-total (Service Industry) 46.13 45.07 45.87 46.81 47.68 49.74 50.95 51.20

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Table: Sectoral contribution to GDP and GDP Growth Rate

Description 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08R Annual GDP (constant price) Growth Rate

0.16 3.77 4.41 3.23 3.73 2.74 5.26

Primary Sector 3.15 3.33 4.75 3.54 1.86 0.98 4.68 Secondary Sector

0.66 3.09 1.48 2.91 4.37 4.02 1.82

Tertiary Sector -1.78 3.68 6.82 3.33 5.63 4.49 7.00 Composition of GDP (in percentage)

Primary Sector 37.01 37.89 36.98 36.42 35.67 34.08 33.00 33.09 Secondary Sector

16.86 17.05 17.15 16.78 16.65 16.18 16.07 15.70

Tertiary Sector 46.13 45.06 45.87 46.81 47.68 49.74 50.93 51.21 Source: GON/MOF, Economic Survey, Fiscal Year 2008/09R: Revised.Note: Primary: Agri, Fisheries & Mining; Secondary: Industry, Energy & Construction.

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Service Trade FIows: Contribution to

Trade

The imports and exports of services in the world are at about the same levels, with developed countries exports being higher than imports & developing countries imports higher than exports In case of Nepal, exports exceeded imports until 2004 indicating importance of the sector to the economy.Deteriorated from 2005 onwards

Nepal’s Exports and Imports of Services (Million US$)

Year Export Import Net Export 2000 506 200 306 2001 413 215 198 2002 305 237 68 2003 372 266 106 2004 461 385 76 2005 380 435 -55 2006 386 493 -107 2007 477 657 -180

Source: UNCTAD Handbook of Statistics, 2008(www.stats.unctad.org/Handbook/TableViewer/tableView.aspx

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Table: Trade in Services in Nepal by Major Sectors (Million US$)

Sectors Year Export/Import

Total Services Transport Travel Other Services Export 505.9 61.4 157.8 286.8 Import 199.9 64.8 73.3 61.9

2000

Net Export 306.0 -3.4 84.5 224.9 Export 413.3 47.3 143.8 222.2 Import 214.7 71.6 79.7 63.3

2001

Net Export 198.6 -24.3 64.1 158.9 Export 305.2 36.2 103.5 165.5 Import 236.8 110.9 69.2 56.7

2002

Net Export 68.4 -74.7 34.3 108.8 Export 372.1 35.9 199.5 136.7 Import 266.2 115.0 81.2 70.0

2003

Net Export 105.9 -79.1 118.3 66.7 Export 460.9 32.5 230.3 198.2 Import 385.0 141.5 153.8 89.8

2004

Net Export 75.9 -109 76.5 108.4 Export 380.4 32.6 131.3 216.4 Import 434.7 160.8 163.2 110.7

2005

Net Export -54.3 -128.2 -31.9 105.7 Export 385.7 35.1 127.8 222.7 Import 492.8 186.3 185.3 121.2

2006

Net Export -107.1 -151.2 -57.5 101.5 Source: UNCTAD Handbook of Statistics, 2008 (www.stats.unctad.org/Handbook/TableViewer/tableView.aspx?ReportId=1914)

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Table : BOP Contribution (Rs. Million)

Fiscal Year Supply of Services 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08

Net 9302.3 3938.4 7049.7 9074.9 -2034.2 -6818.3 -8377.3 -11393.4 Credit 29821.7 23508.2 26518.9 34315.9 26001.9 26469.7 32078.9 42236.1 Debit -20519.4 -19569.8 -19469.2 -25241.0 -28036.1 -33288.0 -40456.2 -53629.5 Credit: Travel 11717.0 8654.3 11747.7 18147.4 10463.8 9555.8 10125.3 18653.1 Government Services 7614.2 8894.5 6624.0 7143.9 6804.9 7441.5 12336.4 13301.8 Other Services 10490.5 5959.4 8147.2 9024.6 8733..2 9472.4 9617.2 10281.2 Debit: Transportation -9308.7 -8854.4 -8618.4 -9382.1 -10602.2 -12592.3 -14557.4 -22969.2 Travel -5520.4 -5731.1 -6171.5 -10021.5 -9691.9 -11960.8 -15785.0 -20862.0 Other Services -5690.3 -4984.3 -4679.3 -5837.4 -7742.0 -8734.9 -10113.8 -9798.3 Remittances 65541.2 97688.5 100144.8 142682.7

Source: Quarterly Economic Bulletin, Various Issues, Nepal Rastra Bank

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Table: Industries Permitted for Foreign Investment by Mid-March 2009

Source: Department of Industries, Tripureshwore

Of 1743 total industries permitted for foreign investment by Mid-March, 2009, the number of service industries including tourism services is 941 (54%).

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The social contribution

Employed Population

Sector M

F

Total % of

Total (M) % of

Total (F) % of Total

Construction 229,464 48,321 277,785 4.4 1.3 3.1 Wholesale and retail trade 441,811 182,154 623,965 8.5 4.9 7.0 Hotels and restaurants 77,991 40,565 118,556 1.5 1.1 1.3 Transport, storage and communications 153,997 5,689 159,686 3.0 0.2 1.8 Financial intermediation 39,645 6,769 46,414 0.8 0.2 0.5 Real estate, renting and business activities 25,398 3,433 28,831 0.5 0.1 0.3 Public administration and social security 262,499 34,651 297,150 5.0 0.9 3.3 Education 166,814 58,151 224,965 3.2 1.6 2.5 Health and social work 43,172 17,936 61,108 0.8 0.5 0.7 Other community, social and personal activities 60,379 9,947 70,326 1.2 0.3 0.8 Sub-total (Service Industry) 1,501,170 407,616 1,908,786 28.8 11.0 21.4 Total (All industry) 5,212,329 3,689,065 8,901,394

Poverty reduction, employment including those of women, rural development, and development of transport and communication, education, health and cultural development.

Source: GON/ CBS, Statistical Year Book of Nepal, 2007

Table: Employment in various services sectors, 2007

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Tourism and Poverty

Pro-poor growth Non-farm livelihood

opportunities

Education and Training

Enterprise, development and micro, small and medium-

sized enterprises

Health care, infrastructure and services

Source of L ivelihood

Growth and diversification in marginal or remote areas

Access to markets for the poor

J obs: employment and empowerment

Sustainable environment management

Revitalization of local culture & preservation of

traditional skills

Reduction in isolation

Corporate social responsibility

Global partnership for development

` Source: Modification of Sheet No 3: Tourism and Poverty Reduction Making the Links, Pro-poor

Tourism Partnership 2004, adapted from UN (2007), Study on the Role of Tourism in Socio-Economic Development.

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Employed Population

Sector M F Total

Per Cent of Total

(M)

Per Cent of Total

(F)

Per Cent of Total

Construction 184,216 39,949 224,165 4.1 1.2 2.9 Wholesale and retail trade 305,996 138,231 444,227 6.9 4.1 5.7 Hotels and restaurants 50,189 28,206 78,395 1.1 0.8 1.0

Transport, storage and communications 104,520 3,182 107,702 2.4 0.1 1.4 Financial intermediation 24,209 3,278 27,487 0.5 0.1 0.4

Real estate, renting and business activities 15,653 1,871 17,524 0.4 0.1 0.2

Public administration and social security 177,170 20,057 197,227 4.0 0.6 2.5 Education 132,734 37,425 170,159 3.0 1.1 2.2 Health and social work 30,634 11,334 41,968 0.7 0.3 0.5

Other community, social and personal activities 43,823 6,538 50,361 1.0 0.2 0.6 Sub-total (Service Industry) 1,069,144 290,071 1,359,215 24.1 8.7 17.5 Total (All industry) 4,443,476 3,343,113 7,786,589 100.0 100.0 100.0 Source: GON/ CBS, Statistical Year Book of Nepal, 2007

Table: Rural Employment in Various Services Sectors, 2007

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Employed Population

Sector M F Total Per Cent of Total (M)

Per Cent of Total (F)

Per Cent of Total

Construction 45,248 8,372 53,620 5.9 2.4 4.8 Wholesale and retail trade 135,815 43,923 179,738 17.7 12.7 16.1 Hotels and restaurants 27,802 12,359 40,161 3.6 3.6 3.6

Transport, storage and communications 49,477 2,507 51,984 6.4 0.7 4.7 Financial intermediation 15,436 3,491 18,927 2.0 1.0 1.7

Real estate, renting and business activities 9,745 1,562 11,307 1.3 0.5 1.0

Public administration and social security 85,329 14,594 99,923 11.1 4.2 9.0 Education 34,080 20,726 54,806 4.4 6.0 4.9 Health and social work 12,538 6,602 19,140 1.6 1.9 1.7

Other community, social and personal activities 16,556 3,409 19,965 2.2 1.0 1.8 Sub-total (Service Industry) 432,026 117,545 549,571 56.2 34.0 49.3 Total (All industry) 768,853 345,952 1,114,805 100.0 100.0 100.0

Note: 1.The employment number becomes much higher if indirect employment is included. Also does not include the contribution made by various services sectors in terms of trainings and capability building programmes. 2. More role played by education and transport and communication in urban areas compared to rural

Source: GON/ CBS, Statistical Year Book of Nepal, 2007.

Table: Urban Employment in Various Services Sectors, 2007

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Institutional

Overview Sector Institution Major Responsibilities

Ministry of Physical Planning and Works and line agencies

Policy, planning, and regulation

Nepal Housing Finance Company

To provide detailed company information on Nepal housing development

Construction

Department of Urban Development and Building Construction

To protect and promote tourist and historical places and to modernize infrastructures

Ministry of Commerce and Supplies

Policy, planning, and regulation

Handicraft Association of Nepal Focuses on the promotion and popularization of handicrafts locally and abroad

Export and Trade Promotion Centre

Advise the Government of Nepal in formulating policies for the development and expansion of trade and export

Ministry of Tourism and Civil Aviation and line agencies

Policy, planning, and regulation

Wholesale and retail trade

Nepal Tourism Board To promote Nepal as quality tourism destination in the international arena with specific brand image and offers information on tourism attraction and products

Hotel Association of Nepal (HAN)

To promote hotel industry in Nepal

King Mahendra Trust for Nature Conservation

To preserve the natural heritage, species of animals and plants

Department of Wildlife and National Parks

To conserve and manage the rich and diverse biological diversity of Nepal with much emphasis on wildlife and protected areas

Nepal Academy of Tourism and Hotel Management

To produce skilled manpower to develop the hospitality and tourism industry

Nepal Mountaineering Association

To promote the mountaineering activities in the Himalayan region: to promote mountain tourism, climbing sports, protect mountain environments and preserve and promote cultural heritage of mountain people.

Nepal Association of Rafting Agents

To assist the government and private sector in enhancing Nepal's river tourism industry

Nepal Association of Tour and Travel Agents

Conduct various activities to promote Nepal’s tourism

Trekking Agents Association of Nepal

To assist the government by providing suggestions to make trekking business to generate revenue and also to provide employment opportunity to the locals

Airlines Operators Association of Nepal

Association of Helicopter Operators Nepal

To promote remote corners of national heritage easily accessible

Restaurant and Bar Association of Nepal

To promote the tradition of providing almost every kind of food for tourists

Tourist Guide Association of Nepal

To assist the government in promotion of tourism industry

Freight Forwarders Association of Nepal

To facilitate of export and import trade, in Nepal and all over the world. It caters information, gives consultation, produces ports through work shop, seminars, interactions, trainings etc

Nepal Association of Tour Operators

To make major tour operators such as hotel, airlines, golf course or the cable cars to promote tourism industry

Nepal Entrepreneurs Association of Tourism

To promote entrepreneurship in tourism industry

Hotels and restaurants

Non-Star Hotel Association of Nepal

To assist the government in promotion of tourism industry

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Contd…

Transport, storage and communications

Ministry of Information & Communication and line agencies 

Policy, planning, and regulation

Ministry of Labour & Transport Management 

Policy, planning, and regulation

Nepal Telecommunication Corporation

To provide communication services for the promotion of service sector

Radio Nepal, NTV To provide comprehensive information about Nepal for the promotion of service sector

Financial intermediation

Ministry of Finance  Policy, planning, and regulation

Nepal Rastra Bank Central banking responsibilities including guiding the development of the embryonic domestic financial sector

Commercial Banks To provide various banking services like accepting deposits and providing loans

Financial Institutions To provide financial services including micro finances

Cooperatives To provide micro finances

Insurance Companies To provide various types insurance facilities

Security Board Apex regulator of Securities Markets in Nepal to offer advice to the Government on matters connected with the development of the capital market

Nepal Stock ExchangeTo impart free marketability and liquidity to the government and corporate securities by facilitating transactions in its trading floor through member, market intermediaries, such as broker, market makers etc

Citizen Investment Fund Operation of retirement schemes, unit trust schemes and the capital market services

Employee Provident FundTo manage the provident fund of the government, public and private sector employees and to help them financially on retirement or separation from their jobs

Real estate, renting and business activities

FNCCI An umbrella organisation of the Nepalese private sector. Its aims at socio-economic development of the country through the promotion of business and industry by protecting the rights and interests of business and industrial communities.

Nepal Chamber of Commerce To assist in the development of national economy through the promotion and protection of commerce and industries, both at the private and public sector

Nepal Housing Finance Company To provide detailed company information on Nepal housing development

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Contd….

Public administration and social security

Ministry of General Administration and line agencies

Policy, planning, and regulation

Ministry of Education Policy, planning, and regulation University Grants Commission

To advice the government, to formulate policies, to coordinate among universities, allocate and disburse government grants to universities and higher educational institutions and take appropriate steps for the promotion and maintenance of standards of higher education

Universities To produce skilled manpower essential for the overall development of Nepal

Higher Secondary Education Board

To produce the middle level manpower and imparting necessary knowledge and skills to the students pursuing further education

CTEVT National autonomous body for the development of human resources concerned with basic and middle level technical education and vocational training

Education IGOs, NGOs To assist the government organizations in implementing

education programmes Ministry of Health and Population and line agencies

Policy, planning, and regulation

Hospitals and Nursing Homes

To provide medical, nursing and surgical treatments

Health Institutions To provide medical academic training programs and to render medical care and services

IGOs, NGOs To assist the government organizations in implementing the programmes

Ministry of Physical Planning and Works and line agencies

Policy, planning, and regulation

Ministry of Local Development and line agencies

Policy, planning, and regulation

Ministry of Women, Children and Social Welfare

Policy, planning, and regulation Health and social work

Social Welfare Council Promotion, facilitation, coordination, monitoring and evaluation of the activities of the NGOs in Nepal

Central Children Welfare Committee

To assist the government in building capacity of child rights and protection

Association of International NGOs in Nepal

To promote mutual understanding, exchange information and share experiences and learning of work among INGOs in Nepal for more effective collaboration

Other community, social and personal activities

Association of NGOs To promote mutual understanding, exchange information and share experiences and learning among NGOs in Nepal