Travel & Tourism sector supported 3.3 percent of total employment in 2011 in Nepal

According to a latest report Travel and Tourism Economic Impact 2012 Nepal published by the World Travel and Tourism Council (WTTC), travel and tourism sector supported 412,500 direct jobs in 2011. It represented 3.3 percent of total employment in 2011.

By 2022, Travel & Tourism will account for 562,000 jobs directly, an increase of 2.8% pa over the next ten years. It is forecast to support (direct, indirect and induced) 1,341,000 jobs (8.3% of total employment), an increase of 3.1% pa over the period. The direct employment provided by the sector includes employment by hotels, travel agents, airlines and other passenger transportation services (excluding commuter services). It also includes the activities of restaurants and leisure industries directly supported by tourists.

The direct contribution of Travel & Tourism to GDP was Rs 53.5 billion (4 percent of total GDP) in 2011, and is forecast to rise by 4.7 percent in 2012, and to rise by 3.7 percent per annum, from 2012-2022, to Rs 80.8 billion in 2022 (in constant 2011 prices). Its total contribution is equal to 8.8 percent of GDP (Rs 119.1 billion) in 2011 and is expected to rise by 4.1 percent per annum to Rs 185.5 billion in 2022.

Visitor exports generated Rs 28.6 billion (24.5 percent of total exports) in 2011. This is forecast to grow by 2.8 percent in 2012, and grow by 3.9 percent per annum, from 2012-2022, to Rs 43.2 billion in 2022 (22.3 percent of total). By 2022, international tourist arrivals are forecast to total 1,083,000.

Travel & Tourism investment in 2011 was Rs 12 billion, or 4.9 percent of total investment. It should rise by 5.4 percent in 2012 and by 4.9 percent per annum over the next ten years to Rs 20.4 billion in 2022 (5.8 percent of total). Travel & Tourism’s share of total national investment will rise from 5.0% in 2012 to 5.8% in 2022.

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FYI, tourism sector is the second highest foreign exchange income earner in Nepal.

The biggest contributor to total convertible foreign exchange income is remittances, which comes under the services trade heading. In 2010/11, the share of remittances, tourism and investment in total convertible foreign exchange income of services trade was 85.27 percent, 11.35 percent, and 3.38 percent respectively. In numbers, these translate to Rs Rs 214 billion, Rs 29.39 billion, and Rs 5.42 billion respectively. The total convertible foreign exchange income of merchandise trade and services trade was Rs 38.45 billion and Rs 248.80 billion respectively.

Employment, sales and productivity growth in Nepal

The labor unions have been a serious drag to the development of industrial sector in Nepal. Their demand for wage hike and other services are never-ending, leading to closure of many domestic as well as foreign companies. When the militant labor unions were shutting one firm after another by raising unreasonable demands, I argued if the they would ensure that labor productivity increases with wage hikes. Though some of the union bosses were angry at me for allegedly being insensitive to their demands, they could not furnish a credible answer.

Now, lets see if labor productivity has increased in Nepal. The data from Enterprise Survey 2009 shows that it hasn’t. Real annual sales growth was 2 percent, annual employment growth was 7.6 percent, but annual labor productivity growth was negative 3.9 percent (wages increased by substantially more than the inflation rate). In Bhutan and Sri Lanka, employment, sales and labor productivity growth have been positive. Nepal already has unusually high wage overheads.There is evidence that when real wage growth outpaces labor productivity growth, employment creation is suppressed. We might soon see this happening in Nepal as firms start closing down due to rise in labor cost without a proportional increase in labor productivity.

Looking at sector-wise performance, it appears that labor productivity was negative in manufacturing, retail and services sectors. In small, medium and large firms as well, though real annual sales growth and annual employment growth were positive, annual labor productivity growth was negative.

Enterprise Survey 2009
Subgroup	Subgroup level	Real annual sales growth (%)	Annual employment growth (%)	Annual labor productivity growth (%)
	Overall	2	7.6	-3.9
Sector	Manufacturing	-0.9	0.9	-1.8
	Retail	-1.3	14.1	-13.3
	Other Services	5.6	9.5	-1.4
Size	Small (5-19)	0.5	6.8	-4.2
	Medium (20-99)	11.3	13	-2.7
	Large (100+)	2	2.5	0

Nepal’s pathetic readiness in information technology

The latest Global Information Technology Report 2012 ranks Nepal 128 out of 142 countries in terms of network readiness. Insufficient development of ICT infrastructure has limited its ability to leverage information and communications technologies to boost country competitiveness. It has stifled entrepreneurship and innovation.

Out of a total score of 7, Nepal scored 2.9. Overall, Nepal’s technology readiness is lower than the average of low income countries (except for in affordability--in mobile cellular tariffs PPP $/min, Nepal is eighth competitive in the world).

The Networked Readiness Index 2012
Rank	Country	Score	Rank	Country	Score
1	Sweden	5.94	69	India	3.89
2	Singapore	5.86	71	Sri Lanka	3.88
3	Finland	5.81	102	Pakistan	3.39
4	Denmark	5.70	113	Bangladesh	3.20
5	Switzerland	5.61	128	Nepal	2.92
6	Netherlands	5.60	138	Chad	2.55
7	Norway	5.59	139	Mauritania	2.55
8	United States	5.56	140	Angola	2.49
9	Canada	5.51	141	Yemen	2.41
10	United Kingdom	5.50	142	Haiti	2.27

The index is composed to ten pillars. Nepal’s ranking (out of 142 countries) in each category is listed in brackets.

• Political and regulatory environment (123)
• Business and innovative environment (122)
• Infrastructure and digital content (135)
• Affordability (74)
• Skills (128)
• Individual usage (136)
• Business usage (130)
• Government usage (128)
• Economic impacts (132)
• Social impacts (126)

The report notes that ICT readiness in sub-Saharan Africa is still low, with most countries showing significant lags in connectivity due to insufficient development of ICT infrastructure, which remains too costly, and displaying poor skill levels that do not allow for an efficient use of the available technology. Even in those countries where ICT infrastructure has been improved, ICT-driven impacts on competitiveness and well-being trail behind, resulting in a new digital divide.

Under the theme Living in a Hyperconnected World, the report explores the causes and consequences of living in an environment where the Internet is accessible and immediate; people and businesses can communicate instantly; and machines are interconnected. The exponential growth of mobile devices, big data and social media is a driver of this process of hyperconnectivity and, consequently, fundamental transformations in all areas of society are being witnessed. This year’s report tracks how societies leverage ICT to derive important competitive advantages and increase social well-being.

Nepal: Aid at a glance (2010)

Net ODA to Nepal amounted US$821 million in 2010, down from US$854 million in 2009. Austerity in the donor countries is squeezing ODA as well. The UK seems to be the largest bilateral donor (US$107 million). A major portion of the ODA went to education (almost 20 percent), followed by health and population, other social sectors, and economic infrastructure and services, among others. For more, see here

What happens when real wage growth outpaces labor productivity growth?

Well, it suppress employment creation. Klein assesses the South African labor market and employment creation in this paper, whose abstract is copied below.

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The paper looks at the dynamics of employment in South Africa and examines the factors that contributed to the job-shedding observed during the recent financial crisis. The paper finds that the rapid growth of the real wage, which outpaced the labor productivity growth in most sectors, played an important role in suppressing employment creation. The paper also finds that while there is a co-integrating link between the real wage and labor productivity, the deviations from equilibrium are persistent and thus contribute to a weak link between real wage growth and labor productivity growth in the short term. This finding is also supported by a cross-country analysis, which shows that in South Africa the link between the real wage and labor productivity is substantially weaker than in other emerging markets, even after controlling for labor market tightness indicators.

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May be the unruly trade unions in Nepal should have a look at the findings of this paper.

Links of Interest (2012-04-03)

Nepal clears China plan for $1.6 bn hydroelectric dam

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A parliamentary panel cleared the way for a Chinese company to build a $1.6 billion hydroelectric plant in Nepal, the Himalayan republic's biggest foreign investment programme, Nepali officials said on Monday. Nepal's Maoist-led government signed an agreement with China's Three Gorges International Corp in February allowing the firm to construct the 750-megawatt West Seti dam in the northwest.The project, set to be completed in 2019, is expected to ease the crippling power shortage in Nepal whose economy is still emerging from a decade-long civil war - conflict that scared away investors and slowed infrastructure projects.

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China boosts trade with Nepal

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China will provide Nepal with technology and assistance to build a border land port that will boost trade and serve as a transit point on a proposed railway line, Chinese officials have said. […] Last year, China also opened a port of entry at Gyirong in TAR to make it a major passage for land trade with Nepal. China plans to make Gyirong a 44.5-sq.km. “cross-border free trade zone” with Nepal, according to Chinese media reports, with 1.2 billion yuan ($190 million) spent to upgrade its infrastructure. A five-year plan for TAR's development announced in January detailed measures to build highways and rail links to boost connectivity to border regions. Part of the plan is upgrade the 318 National Highway, also known as the “friendship highway”, that runs to Gyirong and to Zhangmu, a border town where much of the trade between China and Nepal takes place. […]Trade between China and Nepal grew by 61 per cent last year to $1.2 billion. Chinese officials say they see potential for supporting infrastructure and hydropower projects in Nepal with the country facing deficits in both areas.

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Transport syndicates rule the roads in Nepal

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Though the government has scrapped syndicate in transportation, Prithvi Highway Bus Entrepreneurs Committee (PHEBC) -- a syndicate of transporters operating along the Prithvi Highway -- on Monday foiled attempt to start direct tourist coach services between Pokhara and Chitwan. The Pokhara Chapter of Nepal Association of Tours and Travels Agents (NATTA) and Regional Hotel Association, Chitwan had announced the service to facilitate tourists traveling between the two tourist destinations. The service was scheduled to begin from Monday itself. Shankar Koirala, president of PHEBC, said they protested because the green-plated buses are meant to carry foreigners only. “Who will travel in our buses if green-plated buses started carrying Nepalis in the name of domestic tourists?” questioned Koirala. “As the green-plated vehicles enjoy tax exemption, they should carry only the foreigners.”

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Another sad result on aid effectiveness: Herzer and Nunnenakamp argue that “foreign aid could help improve economic conditions of the poorest population segments and narrow income gaps. However, the data seems to indicate aid has actually widened the gap between the rich and the poor.”

Do sanctions work? van Bergeijk argue that “the sanction cases reveals that the probability of a sanction succeeding against a democracy is two times as high as that against an autocracy.” Three reasons why sanctions might work now:

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First, globalisation has increased the importance of undisturbed international trade and investment for potential targets of economic sanctions: countries that three decades ago were more or less self-reliant can now be hit much harder by economic sanctions.

Second, the decision-making processes, especially in the United Nations, have been streamlined, increasing the speed of implementation.

Third, the world is much more democratic than during the Cold War.

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Why is Haiti so poor?

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Haiti was one of the most extractive colonies Europeans set up, with the majority of its population working as slaves in plantations for their French masters.

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Low tax rates and economic growth

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I believe this issue is of the utmost importance given the urgency with which many legislators and economists in various countries advocate tax cuts. This advocacy is regrettable because neither the theoretical nor the empirical grounds for it are sound. It may even be the case that low tax rates have unwanted harmful consequences instead of the assumed beneficial ones.

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Cost of economic non-cooperation in South Asia

Here is a presentation from an event held in Kathmandu yesterday. It is basically a summary of this report prepared by CUTS International. Here is the draft report.

Note: I did not do the data analysis. So, the figures quoted in the presentation are not mine. Attribute them to CUTS International. Read the full paper here.