Nepal’s private sector provides jobs to around 4.93 million persons, according to a study report released on Thursday.

The figure translates to 85.6 percent of the total labour force.

Of the total jobs, micro and small enterprises accounted for 4.56 million, small and medium enterprises accounted for 333,077 and large industries accounted for 41,449 jobs.

The study, titled State of Private Sector in Nepal: Contributions and Constraints, the first of its kind, jointly produced by the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) and the International Finance Corporation (IFC), shows that the number of private sector establishments in Nepal increased significantly over the past three-and-a-half decades, from 28,660 in 1983 to 923,356 in 2018.

“The private sector has been a major contributor to gross fixed capital formation (GFCF), also called investment. While the public sector’s GFCF increased by 0.6 percent, the private sector’s GFCF grew by 6.1 percent,” said the report.

“The private sector’s contribution to job creation, enhanced productivity and wealth creation have helped many developing and the least developed countries improve their economies,” it added.

But in Nepal, private sector investment is lagging. Economists say the political instability that causes frequent changes in the policies is the major reason behind the sluggish investment growth in the private sector.

Private sector participation in infrastructure projects in emerging and developing markets is projected to reach $3.7 trillion by 2030. Developing countries like Bangladesh, Vietnam and Cambodia are examples of how the private sector has helped countries to grow.

In Bangladesh, the private sector accounts for 87 percent of GDP, and private sector investment in infrastructure totalled $48.7 billion until 2020, resulting in an average growth of 5.88 percent over the past 20 years, reaching an all-time high of 8.15 percent, in 2019.

Vietnam’s private sector has invested $116.2 billion over the past decade.

Private businesses account for 84 percent of Cambodia’s GDP and more than 80 percent of the country’s exports. These countries, which were once economically vulnerable, have now emerged as among the world’s most promising growth markets.

The transformations were mainly driven by the private sector’s contributions to their economies, demonstrating the potential for sustained and inclusive growth through private sector development.

“The people of Nepal need jobs, products and services that can only come from a stronger and more productive private sector," said Babacar S Faye, Country Representative for IFC in Nepal. “Our hope is that it will also help better inform and encourage the dialogue between the public and private sectors in order to formulate the best policies that will unleash the full potential of Nepal’s dynamic entrepreneurs.”

“As the first of its kind in Nepal, this report certainly does not pretend to be comprehensive, and we look forward to constructive feedback from all the stakeholders in order to enrich the discussions and also improve our future editions.”

“Nepal needs to continue strengthening its competitive private sector to achieve its goal of becoming a middle-income country by 2030,” the report said.

To graduate to a middle-income country by 2030, the 15th Periodic Plan (2019-20 to 2023-24), has laid out a roadmap that requires an investment of more than $79 billion over the plan period.

The private sector is expected to contribute 55.6 percent of this investment, including through foreign investments.

The private sector is Nepal’s largest exporter; it contributes almost everything, except earnings from electricity export. The share of its total consumption in the gross domestic product decreased from 92.3 percent in 2020-2021 to an estimated 90.7 percent in 2021-2022.

The private sector contributed around 87 percent of intermediate consumption in the economy between 2012-13 and 2021-22, and also 83 percent of national GDP at a constant price during the same period.

The study revealed that the private sector in Nepal has played a critical role in Nepal's growth since the restoration of democracy in the 1990s and the implementation of liberalisation, privatisation, and globalisation policies by the government.

This has triggered remarkable progress in several industries, including finance, hospitality, tourism, education, and health.

The history of the private sector in Nepal dates back to ancient times when the country was a transit point for trade from South India, East Asia and Tibet. The major source of income then was customs revenue collected from the traders and businessmen transiting through the ancient silk route.

More recently, Biratnagar Jute Mill, Nepal’s first industry, was established in 1936 as a joint stock company with public and government participation.

At that time,14 joint stock companies were established; involved in hydroelectricity, cotton textiles, glass, and furniture. The government further established 35 joint stock companies, the majority concentrating on rice, pulses, and oil mills.

In 1956, the government launched the country’s first five-year plan. Under it, public enterprises (PEs) were established to operate in the infrastructure, industrial estates, banking, trading, and other commercial sectors, catering to the large and small manufacturing businesses.

Until now, Nepal has had 66 PEs, including public corporations, companies, and banks.

Realising the importance of businesses, trading and savings, the government established Nepal Bank Limited in 1936 to help traders and factories operate in the country.

As the Nepali economy modernised and industrialised in the latter half of the 20th century, the private sector grew to include a broader range of industries, including manufacturing, construction, and services.

The private sector continued to evolve and expand over the following decades with

several businesses venturing into new markets and industries.

Over the years, there has been an increase in credit to the private sector. The total credit to the private sector increased by 17.5 percent in 2020-2021, while it increased 13.9 percent until mid-March 2021-2022.

The private sector contributes to all the major areas of the economy and has invested

Rs19.5 billion in industrial estates, and generated 742.45 megawatts of electricity.

The report includes a survey of 517 Nepali firms to gauge the impact of Covid-19 and their awareness of sustainability and climate change. Half of the firms surveyed were in wholesale and retail trade, 13 percent were in the hotel and accommodation sector and 12 percent were in manufacturing.

Half of the firms had borrowed from commercial banks and during the Covid-19 restrictions, 87 percent were affected, with 63 percent fully closed. As many as 79 percent experienced a loss of revenue during the lockdown, but 50 percent reported being profitable after the restrictions were lifted.

Chandra Dhakal, president of the FNCCI, said that the report could act as a helpful guide to those looking to get the most out of the private sector's contribution to Nepal, and to foster cooperation between the public and private sectors.

“To progress economically, it is vital that the stakeholders come together for consultations and discussions,” said Dhakal. “We hope that the future editions of this report will aggregate and analyse all private sector-related data in one place—creating a robust baseline for a data-driven policy dialogue.”