Is manufacturing really expensive in Nepal?

Nepal's trade deficit reached a record Rs1.78 trillion in the last fiscal year, a stark indicator of its economic imbalance. Imports surged by 16.2 percent while exports grew by a lesser 13.8 percent, widening the deficit by 16.6 percent. This trend highlights a nation that buys far more from the world than it sells, importing goods worth Rs2.1 trillion against exports of Rs315 billion.

The country is experiencing premature deindustrialization, with manufacturing's contribution to GDP falling to 4.37 percent, less than half its 1996 share. While services now dominate the economy at 62 percent of GDP, this growth is insufficient to absorb Nepal's large youth population, fueling significant out-migration. The economy is losing its manufacturing base before it has fully developed one.

A closer look at exports reveals a reliance on processed soybean oil, which constitutes about 41 percent of total exports. This oil is refined from imported crude, making it an arbitrage-driven trade rather than a product of indigenous Nepali industry. Excluding this, Nepal's true exports are significantly lower, with a ratio exceeding 10 to one against imports.

Conversely, imports include many items that could potentially be manufactured domestically. The article points to substantial imports of soap, cosmetics, packaged foods, paper, and plastic goods, none of which are technically demanding. Even agricultural imports, such as cereals, vegetables, and fruits, are alarmingly high, despite Nepal's agricultural identity. This pattern suggests a missed opportunity for domestic production and a reliance on consumption rather than robust manufacturing.