Nepal’s growth trajectory has been fairly unstable, especially given the economy’s heavy reliance on agriculture and remittance. However, despite wavering growth, there has been little doubt over the potential for higher growth given political stability is achieved, along with increased domestic production; particularly through modernization in the agriculture sector, and improved infrastructure.
The year 2014 saw a growth rate of 5.47%, an improvement by almost 2% in comparison to the previous year. The lackluster growth in 2013 was predominantly attributed to poor monsoons and shortage in fertilizers alongside other factors such as the continued slowdown of the industrial sector and delayed full-budget allocations. Meanwhile, a great monsoon season and high remittance inflow led to an increased growth rate in 2014.
Over the last five years contribution of the agriculture sector to GDP has decreased to 34.3% in 2014 from 36.5% in 2010. Meanwhile the share of the services sector has increased from 47.8% to 50.4% during the same timeframe, whereas the industrial sector has remained more or less the same at 15%. Labor force participation, however, is seen to be significantly higher in the agriculture sector as compared to service sector, which figures at 75% and 18% respectively. Therefore, growth has primarily been pushed by the services sector but hinges worryingly on remittances (an external factor) and agricultural production, which appears to be largely dependent on weather conditions.
About 75% of the workforce is engaged in the agriculture sector which contributes nearly 34% (as of 2014) to the GDP. In the past few years, agricultural growth has been fairly steady ranging from 4.5% – 4.7%. However, in 2013, the growth took a sharp dip to 1.09% as a result of untimely and inadequate rainfall coupled with shortage of fertilizers. This further lowered the overall growth from 4.8% in 2012 to 3.7% in 2013. Since the agriculture sector holds a substantial share of the GDP along with a majority of the workforce, its development is pivotal to economic growth. Large benefits could be derived from increase in agricultural production through adoption of modern technologies and irrigation systems, which would also reduce strain on food imports.
The prevalence of poor infrastructure, especially in relation to transportation, is a key barrier to growth. In terms of road networks, while the total network has increased from about 7000 km in 1990 to 20,000 km in 2008, there is still a lack of safe, paved, vehicle accessible roads to various rural areas. Similarly, in hydropower sector, the current power generation is currently at 700 MW out of the 40,000 MW potential which, for the most part, goes to the urban population. The already inadequate power generation is further perpetuated by annual consumption growth of around 12%.
Given these infrastructural cornerstones are addressed adequately, certain disincentives to investments could be removed which should potentially create an investor friendly environment. In connection to this, however, lack of skilled labor will still pose to be a bottleneck towards encouraging investments.
The aftermath of Gorkha earthquake is expected to hold back growth to about 3% in 2015. However, although infrastructural damages were massive as several hydropower projects, heritage monuments and accommodation services were affected, the reconstruction phase could likely usher in increased economic activity. This also provides an opportunity to strengthen irregularities especially in infrastructure related activities which could potentially lead to improved infrastructural integrity. In addition to this, the recent political consensus has put the country on the edge of hope for major strides towards progress.