Factories holding back production despite easing of virus restrictionsBusiness conditions have improved, but demand remains low to warrant raising output, entrepreneurs say.
Many factories in the Sunsari-Morang Industrial Corridor in the country's eastern region have not increased production despite the easing of coronavirus restrictions as demand remains subdued.
Business conditions in the manufacturing sector have improved since August, but factory owners say that there have been few new orders to warrant raising output.
Many factories are operating at less than 40 percent of their production capacity even though three months have passed since the strict lockdown was lifted.
Aarti Strips was producing 110,000 tonnes of zinc sheets, 60,000 tonnes of coloured sheets and 50,000 tonnes of black pipes annually before the pandemic that led to a complete lockdown from March 24 to prevent the spread of the virus.
“Production has now dropped to 40 percent,” said Diwas Nepal, chief of the administration of the factory. “Even though there is no lockdown now, there are no new orders.”
Nepal said that his factory had stopped producing steel pipes, and they were selling inventory remaining from the past. "There is no demand in the market. And even though goods have reached the market, cash flow is not good as sales are being done on credit," he said. “So we were compelled to stop production of some goods and cut output of others by half.”
Reliance Spinning Mills at Khanar in Sunsari district, which was producing 75 tonnes of yarn daily, has halved its output. According to the mill, it was difficult to get factory workers due to the coronavirus pandemic. And even if workers are available, there has been no demand from the market. The mill said that there have been no new export orders either.
Bhim Ghimire, chairman of the Industries Association of Morang, said that only manufacturers of food products, masks and sanitisers were operating at full capacity. Other plants have cut their output by more than 50 percent. Due to the subdued demand, imports of industrial raw material have also dropped, he said.
According to the half-yearly Economic Activities Study Report 2019-20 of Nepal Rastra Bank, industries utilised only 40 percent of their installed capacity during the period mid-July 2019 to mid-January 2020, down from 60 percent utilisation in 2018-19.
Among the 154 surveyed factories, the liquor industry has registered the highest capacity utilisation of 92 percent. Manufacturers said that production further dropped after March 2020 when the government imposed the lockdown.
Prakash Mundhra, president of the Morang Merchants Association, said that though the lockdown had been lifted, the condition of the industrial sector had not improved. “As demand has dropped sharply, many factories are not in a position to increase production.”
With the number of Covid-19 cases and virus deaths increasing every day, consumers fear to go out of their homes due to which there is no demand for industrial products.
Rajendra Raut, vice-president of the Federation of Nepalese Chambers of Commerce and Industry representing Province 1, said that the industry could not run at full capacity due to lack of a new investment environment.
Revenue collection at Biratnagar Customs has also been affected as the factories in the industrial corridor are not operating at full capacity and the import of raw materials and export of finished goods has fallen as a result. This slowdown in commerce has hit revenue collection.
The import of industrial raw materials has declined by 50 percent, said traders.
Shiva Bhandari, chief of the customs office, said that customs revenue mostly came from the import of industrial raw materials. “The overall revenue collection has been affected as the import of raw materials has declined significantly.”
The customs office had set a target of collecting Rs4.59 billion between mid-August and mid-September, but collection fell short by 30 percent.