GDP by district and region in Nepal

What is the size of regional economies in Nepal? Better what is the size of each district in terms of economic activities and what is its share in total GDP? Such disaggregated data is pretty hard to get as the CBS does not publish them in its annual (and now quarterly) national accounts estimate. Well, this blog post will shed some light on this front by distilling the share of each district and region in the national economy.  The Nepal HDR 2014 estimates the district and regional level GDP data using a variety of proxy indicators and survey datasets. Again, these are only estimates, which is the closest you can get to right now in pursuit of regional and district level disaggregated data. Earlier, a NRB study estimated that Kathmandu Valley contributed between 23.4% and 31% to GDP. This new estimate puts the figure at 20%. Data on poverty by district is covered here. District-wise household size, population growth rate, migrant population and remittance inflows data here.

Being the industry and services sectors hub of the nation, Kathmandu district’s share of total GDP is the highest—at 15.8%. It is followed by Morang (3.9%), Bara (3.3%), Jhapa (3.2%), Rupandehi (3.2%), Lalitpur (2.9%), Sunsari (2.7%), Kaski (2.5%), Nawalparasi (2.4%) and Parsa (2.4%).  The five districts with the lowest share are Mugu, Humla, Dolpa, Mustang and Manang (all 0.1% except 0.2% for Mugu).

Decomposing GDP by geographic region, Hills contribute to 48.8% of GDP, followed by 45.6% by Tarai and the rest 5.6% by Mountains. By development region, central development region contributes the most to GDP-- 45% (not surprising since the major industrial and services activities happen in this region), followed by eastern development region (20.6%), western development region (17.6%), mid-western development region (10.4%) and far-western development region (6.3%).

In terms of share of total agriculture sector, the Tarai districts top the list as this region is also the breadbasket of Nepal. Jhapa district’s share of total agriculture sector is 4%, followed by Morang 3.6%, Kailali 3.2%, Bara 3.1% and Rupandehi 3%. The lowest contributors are the districts in the mountain region.

Tarai region contributes 51.2% of total agriculture sector, followed by Hills 40.7% and Mountains 8.1%. In terms of development region, central development region is the top contributor (29.8%) followed by eastern development region 26.7% and western development region 20.2%.

Regarding industry sector, Kathmandu district contributes the highest (13.9%), followed by Bara (9%), Morang (5.3%), Nawalparasi (4.2%) and Dhanusha (4.1%). It is concentrated in Tarai region. The lowest contributors are from the mountains region. The Tarai region contributes 52.4%, Hills 43.3% and Mountains 4.4%. The central development region’s share is 53.7%.

In services sector, Kathmandu contributes 27.6%, followed by Lalitpur 4.1%, Morang 3.7%, Chitawan 3.4% and Kaski 3.3%. Tarai region’s share of total service sector is about 57.1%, followed by Tarai 38.9%, and Mountains 4.1%. The contribution of central development region is 54.7%.

Let us look the district-wise share of major sub-sectors in total of those sub-sectors (agriculture sector covered above) that drive GDP: manufacturing; construction; retail and wholesale trade; and real estate, renting and business activities.

Bara and Kathmandu districts contribute 18% and 10.7%, respectively, of total manufacturing activities, followed by Nawalparasi and Morang (7.6% each), Dhanusha 6.2% and Parsa 5.9%. Most of the districts are in the Terai region, which collectively contribute 67.2% of total manufacturing activities in the country. Hills region contribute 30.9%. Central and eastern development region together contribute two-thirds of total manufacturing activities.

In construction, Kathmandu tops the list with 15.8% contribution, followed by Lalitpur 4.6%, Morang 3.1%, Dhanusha 3%, and Jhapa 2.8%.  Hills region contribute almost 53.3% of total construction activities in the country, followed by Tarai 39.8% and mountains 6.9%. Central development region contributes 49.2%.

In retail and wholesale trade, Kathmandu tops the list with 19.9% contribution, followed by Morang 4.7%, Rupendehi 3.6%, Jhapa 3.4% and Lalitpur 3.4%. Tarai tops the list with 49.2% contribution.  Central development region contributes 46.6%.

In real estate, renting and business activities, Kathmandu tops the list with 19.4% contribution, followed by Lalitpur 5%, Chitawan 4.7%, Kaski 4% and Sunsari 3.8%. Hills region contribution is 52.4% and Tarai 43%. Central development region contributes 49.8%.

So, what is the relationship between district per capita GDP and poverty rate. Well, the chart above shows that there is an overall negative relationship, i.e. higher district per capita GDP is associated with lower district poverty rate (the red line shows a liner fit). Now, Manang and Mustang seem to be an outlier as the population there is the lowest (Manang 6,538 and Mustang 13,452), but economic activities seems to be moderately good. It is interesting that poverty rate, however, is pretty high (Manang 37% and Mustang 40%). It might have to do with the high seasonal fluctuation in economic activities (trekking season means robust value added economic activities, but heavy snowfall means a slowdown).  Construction, and hotel and restaurant activities are relatively bigger than other economic activities. [District per capita corresponds to FY2013 and poverty rate corresponds to FY2011.]

Macro messages:

1. The Tarai and Hills remain central to the economy. Tarai is particularly important for agriculture sector as a majority of the agricultural land and population live there. Being close to the Indian borders and housing major manufacturing firms, it also remains an important industrial hub. Hills region drive the services sector, which contributes the most to GDP growth and is also the largest employment provider. As an administrative hub endowed with probably the best quantity and quality of infrastructure (though still at poor standing compared to similar cities in comparator countries), Kathmandu district tops the list in its contribution to overall industry and services sectors.
2. Manang, Mustang, Humla, Mugu, and Dolpa consistently come at the last on economic activities, understandably due to the difficult terrain, harsh weather and the lack of adequate infrastructure to stimulate economic activities. Also note that the cost of physical and social infrastructures in these regions is also high.
3. Obviously, the quickest route to poverty reduction is the stimulation of local economies, thus generating gainful employment opportunities and higher per capita income. This means districts with relatively low economic activities need more attention. However, this has to be done in sync with other investment projects so that robust value chains (in all sectors) are created and districts are interlinked based on their comparative (and competitive) advantages. A sensible idea would be to promote niche products, nurture them and eventually link them to national value chains. Investments and development interventions done in silos and without a coherent, sensible strategy to link up various value added activities across the country are not going to yield the desired results, i.e. sustainable poverty reduction and employment generation. This applies to all sectors and thematic focuses.

It is pretty difficult to see the relevant stuff on the figures above. One way to see full size version is to right click on the figure, select 'copy image URL' and then paste it in browser. Also, it was not possible to include all the figures in this blog post. Below is a slideshow for interested folks.

 

Bill Gates on Jeff Sachs and international development

Bill Gates writes:

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In the end, I hope poverty fighters will not let what they read in this book stop them from investing and taking risks. In the world of venture capital, a success rate of 30 percent is considered a great track record. In the world of international development, critics hold up every misstep as proof that aid is like throwing money down a rat hole. When you’re trying to do something as hard as fighting poverty and disease, you will never achieve anything meaningful if you’re afraid to make mistakes.

I greatly admire Sachs for putting his ideas and reputation on the line. After all, he could have a good life doing nothing more than teaching two classes a semester and pumping out armchair advice in academic journals. But that’s not his style. He rolls up his sleeves. He puts his theories into action. He drives himself as hard as anyone I know.

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NEPAL: Major findings of Annual Household Survey 2012/13

The CBS is publishing annual household survey (AHS) data (no online link to the document yet) starting FY2013 to compliment the low frequency surveys (NLSS, NLFS). These high frequency survey data on key household characteristics could play an important role in steering public policy and development debates in the right direction. Basically, data on demography, housing, consumption and employment/economic activity are included. The household consumption data may also used to estimate final consumption figures in the national accounts estimate. Exercise caution while comparing annual household survey data with that of NLSS and NLFS. The latter ones are standard surveys that are used to compare various indicators (poverty, inequality, labor force participation, etc) within and across countries. The annual survey may not be as forceful as the periodic surveys. That said, they can still be used to capture changing expenditure and employment dynamics.

The average nominal per capita consumption in 2012/13 was NRs44,596, with the share of poorest 20% population at 7.6% and the richest 20% population at 45.8%. In urban and rural areas, per capita consumption was NRs84,134 and NRs.36,694, respectively.

Regarding consumption pattern, 59.2% of household expenditure was spent on food, followed by 11.6% in rent, 4% in alcohol and tobacco, 3% in education, 1.1% in durables, 0.8% in utilities, and 20.4% in non-food items. Looks like households spent more on alcohol and tobacco than education and durables combined! As a share of consumption, the poorest quintiles consume more alcohol and tobacco than the richest quintiles. Also, high inflation is particularly going to be severe in the case of poorest households because they spend about 67.1% of income on food and 17.2% on non-food items. For households in the richest quintile, this is 40.6% and 26.4%, respectively.

The AHS 2012/13 puts unemployment rate at 3.3% and labor force participation rate at 81.1%. Labor force participation includes the population employed (at least for an hour) in the past 7 days and those actively searching for jobs. Discouraged workers are not included in the labor force. Male and female unemployment rate stood at 3.2% and 3.4%, respectively. While urban areas had the highest unemployment rate (8%), folks between 20 and 24 years had unemployment rate of 7.7%. Also, unemployment was highest in the richest quintile (5.3%).

Labor underutilization rate stood at 27.8%, which includes unemployment rate (3.3%), time related underemployment (13.4%), skills mismatch (4.2%), and inadequate earnings (6.9%). Labor underutilization rate is highest in urban areas and also among households in the highest consumption quintiles. Those people who are willing to work for more than 40 hours in a week, but are not getting that much of work hours are clubbed under time related underemployment. Those folks whose skills are not fully utilized in the present job are clubbed under skills mismatched. Those people earning is less than half of the mean income are clubbed under inadequate earnings.

Agriculture, forestry and fishery accounted for about 66.5% of total employment in 2012/13, followed by 6.8% in wholesale and retail trade, 5.2% in manufacturing, and 3.4% in education.

A majority of the population is of working age (15-59 years) — almost 57%. There are 88.5 males per 100 females (partly reflective of the large number of males who go abroad) and average household size is 4.6.  About 15.4% of households have 1-2 persons and 37.9% have 3-4 percent, meaning that 53.5% of households have less than or equal to 4 persons. About 36.6% of households are headed by less than 40 years old. About 25.3% of households are headed by females.

While a majority of the households owns a house, just 10.2% households take it on rent for living. But, the renter households are higher in urban areas (38.8%) than rural areas (just 3.6%). In urban areas, 57.5% households own a house. Now, the richest quintile appears to rent more than the lower quintiles. A general trend is that the richer your household is, the higher the probability that you will be living in a rented place. Quite surprising!

Furthermore, while a majority of dwelling of households in rural areas is mud bonded, in urban areas the majority of dwelling is pillar bonded. Given the large number of households in rural areas, the overall average for Nepal is 49.5% dwellings that are mud bonded. Also, the poorest quintiles tend to have more mud bonded dwelling (58.7%) and the richest quintiles tend to have pillar bonded (45.3%). Sounds obvious, but it is always good to get the near-exact  numbers.

About 43.7% of households have toilet with flush connected septic tank and just 6.1% of households have toilet with flush connected to public sanitation. About 20.2% of households in the richest consumption quintile have toilet with flush connected to public sanitation. Overall, 31.6% of total households do not have toilet facility (among lowest consumption quintile households, the figures is 63.4%).

In terms of access to ICT, 82.1% of households have access to mobile phone, with households in the richest quintile have 95.4% access to mobile phone. About 60% of households in the poorest quintile have access to mobile phone.

Trip to Manang (& Pokhara)

Post by Chandan Sapkota.

Road

Road

Mini waterfall.

Lamjung Himal

Commercial sheep farming in Timang.

Dhukurpokhari, Manang, @3060 meter

Phewa Lake

Begnas Lake

Snapshot of what living standards survey tells us about remittances in Nepal

Understandably, there is a lot of interest on the impact of migration and remittances on the Nepalese economy, which receives remittances to the tune of 25% of GDP and was the third largest recipient (% of GDP) in 2011. I see a lot of numbers thrown around to justify various points (including illogical and inconsistent arguments), and I too get a lot of questions on the data and the impact on Nepalese economy.

Below is a chart showing remittances data sourced from Nepal Living Standards Surveys (NLSS). And yes, there are internal remittances as well!

More on remittances in Nepal here (dig in the archives for information, data and analysis!). A recent Al Jazeera news story here. And, here is a link to a research paper titled 'Remittances in Nepal: Boon or Bane?'.

Nepal and the knowledge economy

As economies shift workers and economic activities from low productivity to high productivity sectors, especially when they are near the middle-income threshold, advancing the knowledge economy helps them overcome the ‘middle income trap’— crucial for a continued and meaningful structural transformation. A knowledge economy not only propels high value added services activities, but also contributes to moving manufacturing activities up the value chain. Think of it as follows: With cheap labor cost a country can competitively produce normal garments and light machinery goods—all require either copying already existing techniques or importing intermediate raw materials and technology to produce these goods. But, to climb up the value chain and to not get stuck at lower middle- to middle-income levels, there has to be progress on four fronts so innovation and mastery of management skills takes place domestically, and these are readily absorbed by the backward firms in the value chain— contributing to a continual build up of competitiveness.

The four essential elements of a knowledge economy, according to WB’s Knowledge Economy Index, are:

1. Economic and institutional regime: tariff and non-tariff barriers, regulatory quality, rule of law
2. Education and skills: adult literacy rate, gross secondary enrollment rate, gross tertiary enrollment rate
3. Information infrastructure: Telephones per 1,000 people, computers per 1,000 people, internet users per 1,000 people
4. Innovative systems: royalty payments and receipts ($ per person), technical journal articles per 1 million people, patents granted to nationals by US Patent and Trademark Officer per 1 million people

So, where does Nepal stand in the cross-country knowledge economy indicators? Well, it stands well below the average for Asia and the Pacific. Below is a chart from ADB’s highlights from a forthcoming report titled “Asia’s Knowledge Economies: Next Policy Agenda”.

Below is a chart, sourced from Kenichi Ohno’s discussion paper on middle-income trap, showing how countries can move up the value chain and avoid the middle-income trap.

Now, what can be done to promote the knowledge economy? Some of the recommendations from the road map outlined in the ADB report are as follows:

Innovation:

• Increase investment in R&D (at least 1.5% of GDP)
• Create knowledge hubs and focus on gaining IPR for inventions
• Pursue imported technologies and adaptation of R&D to build the base for domestic capabilities
• Green innovation in energy and agriculture
• Expand quantity and quality of innovation infrastructure (IT parks, innovation hubs, R&D labs, incubators)
• Support start-up entrepreneurial firms
• Expand financing for innovation by promoting capital markets

Education:

• Increase tertiary education enrollments and access to technical and vocational education and training and skills development
• Revitalize established and large university campuses with greater financial and administrative autonomy
• Promote a diversified education system
• Incentivize industry giants to set up leading research labs in universities
• Support establishment of technology incubation centers and technology accelerators

ICT:

• Improve network readiness and invest in backbone ICT infrastructure
• Invest in next-generation mobile broadband infrastructure
• Promote market competition and liberalization in telecom sector
• Augment use of ICT to strengthen e-governance and service delivery

Economic and institutional regime:

• Better coordination across various agencies to promote knowledge based economy
• Accelerate commercialization of innovation in key sectors with high social impact (off-grid solar and wind power technologies)
• Promote high tech start-ups with a range of incentives and support mechanisms
• Provide financing for R&D of SMEs
• Strengthen IPR regimes
• Promote spread of broadband connectivity through affordable and reliable models
• Develop capital markets

NEPAL: CBS forecasts FY2014 GDP growth rate to be 5.2%

The Central Bureau of Statistics (CBS) has come up with preliminary estimates of national accounts for FY2014. It projects real GDP growth (basic prices) at 5.2% in FY2014, up from 3.5% revised estimated for FY2013 but lower than the government’s target of 5.5% targeted in the FY2014 budget. The main driver of growth is projected to be services sector (growth of 6.1%), followed by agriculture sector (growth of 4.7%, up from a sluggish 1.1% in FY2013) and industry sector (growth of 2.7%).

The size of the economy is projected to be US$19.4 billion in FY2014, slightly up from US$19.2 billion in FY2013. In Nepalese rupee, the size of the economy in FY2014 is projected to be NRs1.9 trillion.

GDP_NEPAL	FY2012	FY2013R	FY2014P
GDP growth rate (basic prices)	4.6	3.5	5.2
Agriculture	4.6	1.1	4.7
Industry	3.0	2.5	2.7
Services	5.0	5.2	6.1
Composition of GDP (%)
Agriculture	35.8	34.5	33.7
Industry	14.4	14.6	14.0
Services	49.8	51.0	52.2
GDP (current producers prices)
GDP, NRs billion	1527.3	1692.6	1928.5
GDP, $ billion	18.9	19.2	19.4

In terms of contribution to GDP growth, 62% is expected to come from services sector, followed by 31% from agriculture sector and the rest 7% from industry sector. In FY2013, the unfavorable monsoon and the shortage of chemical fertilizers brought down agriculture sector’s contribution to 11%, the same as industry sector’s contribution. The rest 78% was of FY2013 GDP growth came from services sector. 

Among the sub-sectors, wholesale and retail trade is projected to grow by 8.8%, up from 6.8% in FY2013. It is followed by other services sub-sectors such as transport, storage and communication (7.5%), hotels and restaurants (7.1%), and education (6%) among others. Real estate, renting and business sub-sector is projected to grow by 3%, marginally up from 2.7%. Agriculture and forestry sub-sector is projected to grow by 4.7%, up 1.1% in FY2013.

While manufacturing growth is projected to slow down to 1.9% from 3.7% in FY2013, construction growth is projected to recover, albeit slowly, to 2.9% from 2% a year earlier. The share of manufacturing in GDP is continuing to decline, reaching an estimated 6.1% of GDP in FY2014. Similarly, industry sector is also projected to shrink to 14% of GDP from 14.6% of GDP in FY2013.

While gross national savings are projected to increase (46.4% of GDP in FY2014) on account of the high remittance inflows, gross domestic savings are declining (8.9% of GDP in FY2014) reflecting the high consumption (91.1% of GDP in FY2014). Exports of goods and services are projected to recover slightly to 12.1% of GDP from 10.7% of GDP in FY2013, but the larger increases in imports of goods and services further widened trade deficit (goods and services).

Per capita GDP in local currency is estimated to grow by 12.4%, up from 9.4% in FY2013. However, due to the depreciation of Nepalese rupee against the US dollar, per capita GDP in US$ terms is projected to decline. In FY2014, per capita GDP is projected to be US$703 (NRs69,919). The high inflow of remittances is seen in the large different between per capita GDP (and also per capita GNI, which includes net factor income from abroad as well) and per capita GNDI (which includes net transfers from abroad on top of per capita GNI). In FY2014, per capita GNI and per capita GNDI are projected to be US$717 and US$967 (NRs71,305 and NRs96,155, respectively).

Few explanations to note here:

• Real estate sector is struggling to grow as the 25% lending cap to real estate and housing fixed by central bank is helping to lower BFIs exposure to this sector.
• The high growth of services activities are primarily driven by remittances-backed consumer demand of mostly imported goods. Hence, services sector activities are the largest contributor to GDP growth and also a major revenue generator for the government.
• The favorable monsoon and timely availability of agricultural inputs jacked up agriculture sector growth. The MOAD projected paddy, maize and millet production to grow by 12%, 9.9% and 6.1%, respectively. In FY2013, while paddy and maize production decreased by 11.2% and 9.3%, respectively, millet production grew by a mere 2%.
• The less than expected growth of construction sector indicates the slow capital expenditure despite the timely full budget in FY2013.
• Despite the improving political environment, the manufacturing sector failed to pick up. In fact, its growth rate is projected to decline to 1.9% from 3.7% in FY2013. It reflects the structural bottlenecks and persistent supply-side constraints.

Starting this year, the CBS has also come up with quarterly estimates of GDP. It is supplying seasonally unadjusted and seasonally adjusted quarterly data. This is a good initiative. Now, the CBS should work on producing timely quarterly data (for FY2104, the first two quarters data are produced so far) and the annualized growth rate based on these.

Earlier, the ADB, the WB, and the IMF projected GDP growth at 4.5%.