Economy Risk assessment Economic Poor Political Poor Regional stability Poor Nepal is one of the poorest countries in the world. The economy is based on small subsistence farming and is slow to develop, inhibited by lack of resources, lack of power supplies and inadequate internal and external road links. Tourism is an important source of foreign exchange. The rugged terrain makes transportation, communications, power supplies and social infrastructure difficult. Nepal relies heavily on foreign aid to finance its trade deficit and development plans. Only about 40 per cent of outstanding public debt has actually been distributed, indicating a limited ability to implement those development projects in hand. Under the Eighth Five-Year Plan (1992-97), several important economic reforms were introduced by the government in view of promoting an open market-oriented system: a privatisation programme was initiated; industry was freed from licensing restrictions; price reform was implemented in public utilities; the rupee was made partly convertible in 1993. The Ninth Five-Year Plan (1998-2001) aims to reduce poverty by 10 per cent by the end of the plan period. As a result of agricultural recovery and a more dynamic industrial sector, GDP grew by 6.4 per cent in 2000. Inflation, at 3.5 per cent, was cut by a third in 2000 compared to 1999. A production surplus in the agricultural sector led to lower food prices, which offset higher fuel prices. The short-term outlook for the Nepalese economy was good, with many analysts expecting stability and 5 per cent annual growth for 2001 and 2002. However, the June 2001 massacre of the Royal Family and subsequent unrest, has meant these figures are unlikely to be reached. Much will also depend on the climatic conditions which affect harvests, and on the health of the Indian economy, which is Nepal's principal trading partner. top External trade Nepal's foreign trade position is constrained by increased imports of equipment needed to meet the chronic power shortages and inadequate infrastructure, particularly transport. The signing of a new trade and transit treaty between Nepal and India in 1997 increased exports to India. It allows Nepal to use the transit route through Bangladesh, which cuts through Indian territory, and offers Nepal the opportunity to use the alternative port of Mongla in Bangladesh, as opposed to the port at Kolkata (Calcutta). Exports Principal exports are garments and woollen carpets, jute products, hides and skins, raw jute, ghee, leather goods, spices and handicrafts. Main destinations: Germany, India, USA, UK, Japan, China, Republic of Korea, Singapore, Hong Kong, Canada Imports Principal imports are machines and transportation equipment, manufactured goods, food and live animals, chemicals and drugs, mineral fuels and lubricants and raw materials. Main sources: India, Japan, Singapore, Thailand, France, Germany, UK, USA, Australia, New Zealand, Canada top Agriculture Nepal's agricultural production expanded in 2000, led by an 8.6 per cent rise in rice output. A favourable monsoon season contributed to the positive results. Agriculture accounts for approximately 40 per cent of GDP, providing most foreign exchange earnings and 76 per cent of employment. Cultivated areas occupy 18 per cent of total land area, with pasture occupying another 12-14 per cent. Production is extremely vulnerable to adverse weather conditions, with little irrigation. Severe soil erosion is becoming a problem. The inability of the government to supply adequate fertiliser on a timely basis has been a major constraint on growth, as has the unsatisfactory standard of large scale irrigation projects. Deforested plains and lower hilltops are terraced for rice production. Maize, wheat, millet, barley, sugar-cane, jute, oil seeds, tobacco, fruit, vegetables and medicinal herbs are grown in higher valleys. Cattle, buffaloes, goats, sheep, pigs, yaks and poultry are also raised. River fish are an important source of protein. Forestry Forests occupy 37 per cent of total land area, but will mostly disappear within 15-25 years at present rates of land clearance and exploitation. Consequently, afforestation programmes are being implemented and a public awareness programme is under way. top Industry and manufacturing Industry, mainly small-scale cottage enterprises, accounts for some 20 per cent of GDP and employs 8 per cent of the workforce. The industrial sector expanded by 8.7 per cent in 2000. Manufacturing was the most dynamic sub-sector, recording 13 per cent growth. Jute and sugar processing are the main sectors. Other products include leather goods, footwear, pharmaceuticals and agricultural tools. The government offers various incentives to foreign investment in industry and has established industrial estates in Balaju, Patan Dharan, Hetaunda and other towns. Industrial licensing has been abolished for most new and modernisation projects. The supply of electricity has been improving, although there are still power shortages. The exploitation of Nepal's abundant hydroelectric potential remains an important element in the country's development strategy. Tourism In 1999, 492,000 tourists visited Nepal, which is a doubling of figures from a decade earlier. Tourism revenue for the year was US$168 million, equivalent to 14.6 per cent of exports. Tourism directly or indirectly employs over 6 per cent of the labour force. Environment The Sagarmatha (Mount Everest) Pollution Control Committee (SPCC), set up in 1991, had a US$30,000 grant from the Worldwide Fund for Nature to remove waste from the Sagarmatha National Park. On average, the SPCC spends US$15,000 cleaning up the park every year. The government charges a minimum of US$50,000 for each expedition to Mount Everest, and ploughs back 30-40 per cent of this and other tourist fees to support the SPCC's work. Mining By the end-1990s Nepal had begun to exploit its impressive reserves of lead, zinc, iron ore, marble, limestone and magnesite. Major limestone sources have been discovered at Kathmandu, Hetauda and Surkhet. Over 10 million tonnes of high-grade deposits of lead and zinc have also been discovered. Hydrocarbons The government has invited foreign companies to explore for oil. Energy Timber resources account for over 75 per cent of energy used. The Asian Development Bank (ADB) is helping to fund the establishment of a national electricity grid. A World Bank report has estimated that Nepal has 83,000MW in hydropower potential, about half of which is shown to be economically viable. Since an agreement signed in 1996 with India to promote the financing of hydroelectric projects by private investors and lending agencies, an Australian company, Snowy Mountain Engineering, has received approval for a US$1 billion, 750MW project at West Seti in northern Nepal. top