Nepal - ECONOMY

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Nepal - The Economy

NEPAL IS ONE OF THE POOREST COUNTRIES in the world and was listed as the eleventh poorest among 121 countries in 1989. Estimates of its per capita income for 1988 ranged from US$158 to US$180. Various factors contributed to the economic underdevelopment--including terrain, lack of resource endowment, landlocked position, lack of institutions for modernization, weak infrastructure, and a lack of policies conducive to development.

Until 1951 Nepal had very little contact with countries other than India, Tibet, and Britain. Movement of goods or people from one part of the country to another usually required passage through India, making Nepal dependent on trade with or via India. The mountains to the north and the lack of economic growth in Tibet (China's Xizang Autonomous Region after 1959) meant very little trade was possible with Nepal's northern neighbor.

Prior to 1951, there were few all-weather roads, and the transportation of goods was difficult. Goods were able to reach Kathmandu by railroad, trucks, and ropeways, but for other parts of the country such facilities remained almost non-existent. This lack of infrastructure made it hard to expand markets and pursue economic growth. Since 1951 Nepal has tried to expand its contacts with other countries and to improve its infrastructure, although the lack of significant progress was still evident in the early 1990s.

The effects of being landlocked and of having to transit goods through India continued to be reflected in the early 1990s. As a result of the lapse of the trade and transit treaties with India in March 1989, Nepal faced shortages of certain consumer goods, raw materials, and other industrial inputs, a situation that led to a decline in industrial production.

<> ECONOMIC SETTING
<> ROLE OF GOVERNMENT
<> MONEY AND BANKING
<>LABOR
<>AGRICULTURE
<> LAND REFORM
<>FORESTS
<>INDUSTRY
<>TOURISM

Nepal

Nepal - ECONOMIC SETTING

Nepal's economy is irrevocably tied to India. Nepal's geographical position and the scarcity of natural resources used in the production of industrial goods meant that its economy was subject to fluctuations resulting from changes in its relationship with India. Trade and transit rights affected the movement of goods and increased transportation costs, although Nepal also engaged in unrecorded border trade with India. Real economic growth averaged 4 percent annually in the 1980s, but the 1989 trade and transit dispute with India adversely affected economic progress, and economic growth declined to only 1.5 percent that year as the availability of imported raw materials for export industries was disrupted.

The Nepalese rupee was linked to the Indian rupee. Since the late 1960s, the universal currency has been Nepalese, although as of 1991 Indian currency still was used as convertible currency. During the trade and transit dispute of 1989, however, Kathmandu made convertibility of the Indian rupee more difficult.

Agricultural domination of the economy had not changed by 1991. What little industrial activity there was largely involved the processing of agricultural products. Since the 1960s, investment in the agricultural sector has not had a parallel effect in productivity per unit of land. Agricultural production continued to be influenced by weather conditions and the lack of arable land and has not always kept pace with population growth.

Nepal suffered from an underdeveloped infrastructure. This problem was exacerbated by a weak public investment program and ineffective administrative services. Economic development plans sought to improve the infrastructure but were implemented at the expense of investment in direct production and resulted in a slow growth rate. Further, economic growth did not keep pace with population growth. Largely dependent on agriculture, economic growth also was undermined by poor harvests. The growth of public expenditures during the first half of the 1980s doubled the current account deficit of the balance of payments and caused a serious decline in international reserves.

Nepal

Nepal - ROLE OF GOVERNMENT IN THE ECONOMY

Government participation (or interference) in the economy was very strong, beginning with the Rana period, which lasted from the mid-nineteenth century until the mid-twentieth century. During Rana rule, there were very few industries other than cottage type, and they were under strict government supervision. After the fall of the Ranas in 1950-51, economic planning as an approach to development was discussed. Finally, in 1956 the First Five-Year Plan (1956-61) was announced.

The Five-Year Plans

Economic plans generally strove to increase output and employment; develop the infrastructure; attain economic stability; promote industry, commerce, and international trade; establish administrative and public service institutions to support economic development; and introduce labor-intensive production techniques to alleviate underemployment. The social goals of the plans were improving health and education as well as encouraging equitable income distribution. Although each plan had different development priorities, the allocation of resources did not always reflect these priorities. The first four plans concentrated on infrastructure--to make it possible to facilitate the movement of goods and services--and to increase the size of the market. Each of the five-year plans depended heavily on foreign assistance in the forms of grants and loans.

The First Five-Year Plan (1956-61) allocated about Rs576 million for development expenditures. Transportation and communications received top priority with over 36 percent of the budget allocations. Agriculture, including village development and irrigation, took second priority with about 20 percent of budget expenditures. The plan, which also focused on collecting statistics, was not well conceived, however, and resulted in actual expenditures of about Rs382.9 million--two-thirds the budgeted amount. In most cases, targets were missed by a wide margin. For example, although approximately 1,450 kilometers of highways were targeted for construction, only about 565 kilometers were built.

After Parliament, which had been established under the 1959 constitution, was suspended in 1960, the Second Plan failed to materialize on schedule. A new plan was not introduced until 1962 and covered only three years, 1962-65. The Second Plan had expenditures of almost Rs615 million. Transportation and communication again received top priority with about 39 percent of budget expenditures. Industry, tourism, and social services were the second priority. Although targets again were missed, there were improvements in industrial production, road construction, telephone installations, irrigation, and education. However, only the organizational improvement area of the target was met.

The first two plans were developed with very little research and a minimal data base. Neither plan was detailed, and both contained only general terms. The administrative machinery with which to execute these plans also was inadequate. The National Planning Commission, which formulated the second plan, noted the difficulty of preparing plans in the absence of statistical data. Further, as was the case with the first plan, the bulk of the development budget depended on foreign aid--mostly in the form of grants. The failure of these plans was indicated by the government's inability to spend the budgeted amounts.

The Third Five-Year Plan (1965-70) increased the involvement of local panchayat. It also focused on transport, communications, and industrial and agricultural development. Total planned expenditures were more than Rs1.6 billion.

The Fourth Five-Year Plan (1970-75) increased proposed expenditures to more than Rs3.3 billion. Transportation and communications again were the top priority, receiving 41.2 percent of expenditures, followed by agriculture, which was allocated 26 percent of the budget. Although the third and fourth plans increased the involvement of the panchayat in the development process, the central government continued to carry most of the responsibilities.

The Fifth Five-Year Plan (1975-80) proposed expenditures of more than Rs8.8 billion. For the first time, the problem of poverty was addressed in a five-year plan, although no specific goals were mentioned. Top priority was given to agricultural development, and emphasis was placed on increasing food production and cash crops such as sugar cane and tobacco. Increased industrial production and social services also were targeted. Controlling population growth was considered a priority.

The Sixth Five-Year Plan (1980-85) proposed an outlay of more than Rs22 billion. Agriculture remained the top priority; increased social services were second. The budget share allocated to transportation and communication was less than that allocated in the previous plan; it was felt that the transportation network had reached a point where it was more beneficial to increase spending on agriculture and industry.

The Seventh Five-Year Plan (1985-90) proposed expenditures of Rs29 billion. It encouraged private sector participation in the economy (less than Rs22 billion) and local government participation (Rs2 billion). The plan targeted increasing productivity of all sectors, expanding opportunity for productive employment, and fulfilling the minimum basic needs of the people. For the first time since the plans were devised, specific goals were set for meeting basic needs. The availability of food, clothing, fuelwood, drinking water, primary health care, sanitation, primary and skillbased education, and minimum rural transport facilities was emphasized.

Because of the political upheavals in mid-1990, the new government postponed formulating the next plan. The July 1990 budget speech of the minister of finance, however, implied that for the interim, the goals of the seventh plan were being followed.

Foreign aid as a percentage of development averaged around 66 percent. The government continually failed to use all committed foreign aid, however, probably as a result of inefficiency. In the Rs26.6 billion budget presented in July 1991, approximately Rs11.8 billion, or 44.4 percent of the budget, was expected to be derived from foreign loans or grants.

Other Development Programs

The government launched the Structural Adjustment Program and the Basic Needs Program in 1985. These programs stressed selfreliance , financial discipline, and austerity as goals through the year 2000. The Structural Adjustment Program sought to confront some of the longer-term constraints to economic growth. Its measures included increasing domestic resource mobilization, reducing the growth of expenditures and domestic bank borrowings, and strengthening the commercial banking and public enterprise sectors.

The Structural Adjustment Program initiative focused on sustainable growth through balance in different sectors of the economy. Rural development in particular was targeted in order to raise the standard of living and increase agricultural production. Funds for education and health services, electricity and power, irrigation, and transportation and communications were provided. Government subsidies were supposed to be removed, new and improved standards of government efficiency were issued, and privatization of government enterprises was increased. Further, domestic resources were more fully used, and domestic bank borrowings and the growth of expenditures were decreased. The initial response to the Structural Adjustment Program was good, as gross domestic product (GDP), exports, and agriculture showed growth.

The objective of the Basic Needs Program was also to improve the standard of living by increasing food production, as well as to provide clothing, health services, and education. Six goals were to be achieved by the year 2000. Daily food consumption was to be raised to 2,250 calories per capita. Each person was to have the equivalent of eleven meters of clothing and a pair of shoes per year. Housing requirements were estimated at thirty square meters per urban household and at forty to sixty square meters per rural household. Essential utilities and sanitation were to be furnished by the government. Universal primary education for all children between five and ten years of age also was to be provided. The government was responsible for supplying teachers, classrooms, and educational materials, although villagers pitched in with labor and supplies to build schoolhouses. The population growth rate was targeted at 1.9 percent by 2000 (down from 2.6 percent in the 1980s), and life expectancy was to increase to 65 years of age by 2000 (up from almost 51 years in the late 1980s). The infant mortality rate was to be reduced to 45 deaths per 1,000 by the year 2000; World Bank figures placed infant mortality at 171 per 1,000 in 1965 and at 126 per 1,000 in 1988. Universal primary health services also were to be ensured, primarily by the government, improved social services provided to handicapped people, law and order maintained, and an environment conducive to development established.

Nepal

Nepal - MONEY AND BANKING

Nepal's first commercial bank, the Nepal Bank Limited, was established in 1937. The government owned 51 percent of the shares in the bank and controlled its operations to a large extent. Nepal Bank Limited was headquartered in Kathmandu and had branches in other parts of the country.

There were other government banking institutions. Rastriya Banijya Bank (National Commercial Bank), a state-owned commercial bank, was established in 1966. The Land Reform Savings Corporation was established in 1966 to deal with finances related to land reforms.

There were two other specialized financial institutions. Nepal Industrial Development Corporation, a state-owned development finance organization headquartered in Kathmandu, was established in 1959 with United States assistance to offer financial and technical assistance to private industry. Although the government invested in the corporation, representatives from the private business sector also sat on the board of directors. The Co-operative Bank, which became the Agricultural Development Bank in 1967, was the main source of financing for small agribusinesses and cooperatives. Almost 75 percent of the bank was state-owned; 21 percent was owned by the Nepal Rastra Bank, and 5 percent by cooperatives and private individuals. The Agricultural Development Bank also served as the government's implementing agency for small farmers' group development projects assisted by the Asian Development Bank and financed by the United Nations Development Programme. The Ministry of Finance reported in 1990 that the Agricultural Development Bank, which is vested with the leading role in agricultural loan investment, had granted loans to only 9 percent of the total number of farming families since 1965.

Since the 1960s, both commercial and specialized banks have expanded. More businesses and households had better access to the credit market although the credit market had not expanded.

In the mid-1980s, three foreign commercial banks opened branches in Nepal. The Nepal Arab Bank was co-owned by the Emirates Bank International Limited (Dubai), the Nepalese government, and the Nepalese public. The Nepal Indosuez Bank was jointly owned by the French Banque Indosuez, Rastriya Banijya Bank, Rastriya Beema Sansthan (National Insurance Corporation), and the Nepalese public. Nepal Grindlays Bank was co-owned by a British firm called Grindlays Bank, local financial interests, and the Nepalese public.

Nepal Rastra Bank was created in 1956 as the central bank. Its function was to supervise commercial banks and to guide the basic monetary policy of the nation. Its major aims were to regulate the issue of paper money; secure countrywide circulation of Nepalese currency and achieve stability in its exchange rates; mobilize capital for economic development and for trade and industry growth; develop the banking system in the country, thereby ensuring the existence of banking facilities; and maintain the economic interests of the general public. Nepal Rastra Bank also was to oversee foreign exchange rates and foreign exchange reserves.

Prior to the establishment of Nepal Rastra Bank, Kathmandu had little control over its foreign currency holdings. Indian rupees were the prevalent medium of exchange in most parts of the country. Nepalese currency was used mostly in the Kathmandu Valley and the surrounding hill areas. The existence of a dual currency system made it hard for the government to know the status of Indian currency holdings in Nepal. The exchange rates between Indian and Nepalese rupees were determined in the marketplace. Between 1932 and 1955, the value of 100 Indian rupees varied between Rs71 and Rs177. The government entered the currency market with a form of fixed exchange rate between the two currencies in 1958. An act passed in 1960 sought to regulate foreign exchange transactions. Beginning in the 1960s, the government made special efforts to use Nepalese currency inside the country as a medium of exchange.

It was only after the signing of the 1960 Trade and Transit Treaty with India that Nepal had full access to foreign currencies other than the Indian rupee. Prior to the treaty, all foreign exchange earnings went to the Central Bank of India, and all foreign currency needs were provided by the Indian government. After 1960 Nepal had full access to all foreign currency transactions and directly controlled its exports and imports with countries other than India.

As a result of the treaty, the government had to separate Indian currency (convertible currency because of free convertibility) from other currencies (nonconvertible currency because it was directly controlled by Nepal Rastra Bank). In 1991 government statistics still separated trade with India from trade with other countries. Tables showing international reserves listed convertible and nonconvertible foreign exchange reserves separately.

Nepal

Nepal - LABOR

Workers' rights and organized labor were in transition in mid1991 . During the late 1940s and early 1950s, some labor disputes led to strikes and lockouts and labor unions sprang up in various factories. In 1957 the government announced the Industrial Policy of Nepal, under which it undertook the responsibility of promoting, assisting, and regulating industries.

The Factories and Factory Workers' Act of 1959 established rules and regulations to govern labor-management relationships and working conditions in factories. The 1977 amended version of the act provided for a six-day, forty-eight-hour work week, thirty days annually for holidays and fifteen days annually for sick leave, and some health and safety standards and benefits. Implementation of the act, a responsibility of the Ministry of Labor and Social Services, was not always forthcoming, however, and was only somewhat affected by the success of the prodemocracy movement.

A revision of the body of labor laws was pending in mid-1991; it was to include a code that defined and regulated workers' rights. Labor unions, restricted prior to the July 1991 repeal of the Organization and Control Act of 1963, still were limited. Estimates suggested that only approximately 3 percent of the economically active population, or 30 percent of nonagricultural workers, were union members.

Because of limited industrialization, unemployment and particularly underemployment were quite high. In 1977 the National Planning Commission undertook a survey, which determined unemployment to be 5.6 percent in rural areas and almost 6 percent in urban areas. Underemployment was estimated to be about 63 percent in rural areas and about 45 percent in urban areas. In 1981 the Asian Regional Team for Employment Production estimated the unemployment and underemployment rates to range from 21 to 28 percent in the Tarai Region and from 37 to 47 percent in the Hill Region. The availability of nonagricultural employment opportunities in the labor force was reported at approximately 600,000 positions in 1981. Underemployment for all of Nepal was reported to range from 25 to 40 percent in 1987; unemployment nationally stood at 5 percent.

Nepal

Nepal - AGRICULTURE

Agriculture dominated the economy. In the late 1980s, it was the livelihood for more than 90 percent of the population--although only approximately 20 percent of the total land area was cultivable--and accounted for, on average, about 60 percent of the GDP and approximately 75 percent of exports. Since the formulation of the Fifth Five-Year Plan (1975-80), agriculture has been the highest priority because economic growth was dependent on both increasing the productivity of existing crops and diversifying the agricultural base for use as industrial inputs.

In trying to increase agricultural production and diversify the agricultural base, the government focused on irrigation, the use of fertilizers and insecticides, the introduction of new implements and new seeds of high-yield varieties, and the provision of credit. The lack of distribution of these inputs, as well as problems in obtaining supplies, however, inhibited progress. Although land reclamation and settlement were occurring in the Tarai Region, environmental degradation--ecological imbalance resulting from deforestation--also prevented progress.

Although new agricultural technologies helped increase food production, there still was room for further growth. Past experience indicated bottlenecks, however, in using modern technology to achieve a healthy growth. The conflicting goals of producing cash crops both for food and for industrial inputs also were problematic.

The production of crops fluctuated widely as a result of these factors as well as weather conditions. Although agricultural production grew at an average annual rate of 2.4 percent from 1974 to 1989, it did not keep pace with population growth, which increased at an average annual rate of 2.6 percent over the same period. Further, the annual average growth rate of food grain production was only 1.2 percent during the same period.

There were some successes. Fertile lands in the Tarai Region and hardworking peasants in the Hill Region provided greater supplies of food staples (mostly rice and corn), increasing the daily caloric intake of the population locally to over 2,000 calories per capita in 1988 from about 1,900 per capita in 1965. Moreover, areas with access to irrigation facilities increased from approximately 6,200 hectares in 1956 to nearly 583,000 hectares by 1990.

Rice was the most important cereal crop. In 1966 total rice production amounted to a little more than 1 million tons; by 1989 more than 3 million tons were produced. Fluctuation in rice production was very common because of changes in rainfall; overall, however, rice production had increased following the introduction of new cultivation techniques as well as increases in cultivated land. By 1988 approximately 3.9 million hectares of land were under paddy cultivation. In 1966 approximately 500,000 tons of corn, the second major food crop, were produced. By 1989 corn production had increased to over 1 million tons.

Other food crops included wheat, millet, and barley, but their contribution to the agricultural sector was small. Increased production of cash crops--used as input to new industries--dominated in the early 1970s. Sugarcane and tobacco also showed considerable increases in production from the 1970s to the l980s. Potatoes and oilseed production had shown moderate growth since 1980. Medicinal herbs were grown in the north on the slopes of the Himalayas, but increases in production were limited by continued environmental degradation. According to government statistics, production of milk, meat, and fruit had improved but as of the late 1980s still had not reached a point where nutritionally balanced food was available to most people. Additionally, the increases in meat and milk production had not met the desired level of output as of 1989.

Food grains contributed 76 percent of total crop production in 1988-89. In 1989-90 despite poor weather conditions and a lack of agricultural inputs--particularly fertilizer--there was a production increase of 5 percent. In fact, severe weather fluctuations often affected production levels. Some of the gains in production through the 1980s were due to increased productivity of the work force (about 7 percent over fifteen years); other gains were due to increased land use and favorable weather conditions.

Nepal

Nepal - LAND REFORM

Nepal was long under a feudal system where a small number of landlords held most of the agricultural land. The state extended its control over the land by the administrative device of making land grants and assignments and raising revenues. Most of the landlords who were granted state lands were not directly involved in farming but contracted with tenant farmers on a customary, and hereditary, basis. The basic purpose of land reform was to protect the tenant farmers, take away excess holdings from landlords, and distribute property to farmers with small landholdings (holding one to three hectares) and landless agrarian households.

Efforts at land reform began with the enactment of the Land and Cultivation Record Compilation Act in 1956 and continued with the Lands Act in 1957 when the government began to compile tenants' records. Although these acts facilitated land reform, the lot of the small farmer did not improve, and further efforts were made. The Agricultural Reorganization Act, passed in 1963, and the Land Reform Act, passed in 1964, emphasized security for tenant farmers and put a ceiling on landholdings. There were several loopholes in the acts, however, which continued to allow large landholders to control most of the lands. There was some success in protecting the rights of tenant farmers, but not much was achieved in land redistribution. As of 1990, average landholdings remained small.

Nepal

Nepal - FORESTS

From 1950 to 1980, Nepal lost half of its forest cover. The first scientific measurement of forest resources was done in a 1964 survey, which estimated about 6.5 million hectares of forest area. Studies indicated that as of 1987 the forest area in the hills had remained the same but that elsewhere forests had been degraded. By 1988 forests covered only approximately 30 percent of the land area. Deforestation was typical of much of the country and was linked to increased demands for grazing land, farmland, and fodder as the animal and human populations grew. Further, most of the population's energy needs were met by firewood. All these factors exacerbated deforestation.

Fuelwood needs of the population mainly resulted from the lack of alternative sources of energy. This fact was particularly evident during the 1989 trade and transit impasse with India when the dispute resulted in a shortage of domestic cooking fuel. Because of the decreased availability of kerosene during this period, the demand for fuelwood rose sharply in the Kathmandu Valley, and fuelwood consumption increased by an estimated 415 percent.

Deforestation caused erosion and complicated cultivation, affecting the future productivity of agricultural lands. Although several laws to counter degradation had been enacted, the results were modest, and government plans for afforestation had not met their targets. The government also established the Timber Corporation of Nepal, the Fuelwood Corporation, and the Forest Products Development Board to harvest the forests in such a way that their degradation would be retarded. In 1988-89 the Fuelwood Corporation merged with the Timber Corporation of Nepal, but forest management through these and other government agencies had made very little progress. In FY 1989, more than 28,000 hectares were targeted for afforestation, but only approximately 23,000 hectares were afforested that year.

A twenty-one-year forestry master plan was devised in FY 1989 to stem deforestation. Implemented with the help of the Asian Development Bank, the program targeted reforestation and education. It sought to maintain the forestation level at 37 percent of land area.

Nepal

Nepal - INDUSTRY

During the 1950s and 1960s, Kathmandu received aid commitments from Moscow and Beijing. During the 1960s, Soviet and Chinese aid also supported development of a few government-owned industries. Most of the industries established used agricultural products such as jute, sugar, and tea as raw materials. Other industries were dependent on various inputs imported from other countries, mainly India.

As a result of the 1989-90 trade dispute with India, many inputs were unavailable, causing lower capacity utilization in some industries. During the same period, Nepal also lost India as its traditional market for certain goods. Because of the lack of industrial materials, such as coal, furnace oil, machinery, and spare parts, there was a considerable adverse impact on industrial production.

Industry accounted for less than 20 percent of total GDP in the 1980s. Relatively small by international standards, most of the industries established in the 1950s and 1960s were developed with government protection. Traditional cottage industries, including basket-weaving as well as cotton fabric and edible oil production, comprised approximately 60 percent of industrial output; there also were efforts to develop cottage industries to produce furniture, soap, and textiles. The remainder of industrial output came from modern industries, such as jute mills, cigarette factories, and cement plants.

Manufacturing

Among the modern industries were large manufacturing plants, including many public sector operations. The major manufacturing industries produced jute, sugar, cigarettes, beer, matches, shoes, chemicals, cement, and bricks. The garment and carpet industries, targeted at export production, have grown rapidly since the mid1980s whereas jute production has declined. Industrial estates were located in Patan (also called Lalitpur), Balaju, Hetauda, Pokhara, Dharan, Butawal, and Nepalganj. The government provided the land and buildings for the industrial estates, but the industries themselves were mostly privately owned.

The 1986-87 Nepal Standard Industrial Classification counted 2,054 manufacturing establishments of 10 or more persons from 51 major industry groups, employing about 125,000 workers. That same year the total output from these industries amounted to about Rs10 billion; value added was estimated at almost Rs3.6 billion. It was nearly Rs5.1 billion in FY 1989. By FY 1989, there were 2,334 such establishments recorded, employing about 141,000 persons.

Private Industry

The history of incorporated private firms in Nepal is short. The Nepal Companies Act of 1936 provided for the incorporation of industrial enterprises on joint stock principle with limited liability. The first such firm, Biratnagar Jute Mills, was a collaborative venture of Indian and Nepalese entrepreneurs. It was formed in 1936 with initial capital of 160,000 Indian rupees.

In response to shortages of some consumer goods during World War II (1939-45), fourteen private companies emerged in such diverse fields as mining, electrical generation, and paper and soap production. The initial capital invested in each of these industries was small. In 1942 two paper mills emerged as joint ventures of Nepalese and Indian entrepreneurs. Industrial growth gained momentum after 1945, although the end of World War II had reduced the scarcity of goods and caused many of these companies to incur losses.

Under the Nepal Companies Act, there was no provision for private limited companies. In 1951, however, a new act was implemented with provisions for private limited companies. This act encouraged the establishment of ninety-two new private joint stock companies between 1952 and 1964. Most of these companies were much smaller than existing companies. Under the provisions of the 1951 act, public disclosure of the activities of the firms was not required, whereas the 1936 act allowed substantial government intervention. The Industrial Enterprises Act of 1974 and its frequent amendments shifted the government's emphasis on growth from the public to the private sector. However, discrepancies between policy and practice were evident, and the public sector continued to be favored.

Public Companies

Public companies also had varied success. Between 1936 and 1939, twenty public companies were formed, of which three failed. Between 1945 and 1951, thirty-five public firms were incorporated, six of which went out of business. Between 1936 and 1963, fiftyfour firms were incorporated, but at the end of 1963 only thirtyfour remained in operation. The success of public companies continued to be erratic.

Minerals

Because only a few minerals were available in small quantities for commercial utilization, the mineral industry's contribution to the economy was small. Most mineral commodities were used for domestic construction. The principal mineral agency was the Department of Mines and Geology. Geological surveys conducted in the past had indicated the possibility of major metallic and industrial mineral deposits, but a poor infrastructure and lack of a skilled work force inhibited further development of the mineral industry.

The most important mineral resources exploited were limestone for cement, clay, garnet, magnetite, and talc. Crude magnetite production declined from a high of approximately 63,200 tons in 1986 to approximately 28,000 tons in 1989; it was projected to decline further to 25,000 tons in 1990.

In 1990 mineral production decreased significantly, largely because of political unrest. Production of cement fell approximately 51 percent over 1989--from approximately 218,000 tons to about 107,200 tons. Production of clays for cement manufacture dropped from 7,206 tons to 824 tons. Lignite production decreased 19 percent, and talc production fell 73 percent. Ornamental marble production, however, increased in 1989--by 100 percent in cut marble and 1,560 percent in marble chips.

Nonetheless, the mining industry had the potential to become a more important part of the economy, as new mines were being planned or were being developed. Two cement plants already were in operation, and a third one was being planned. It was expected that with full production in the three plants, Nepal might become selfsufficient in cement. A magnetite mine and pressuring plant east of Kathmandu had completed its construction phase and began production of chalk powder (talcum powder) on a trial basis in 1990. A highgrade lead and zinc mine was being developed north of Kathmandu in the region of Ganesh Himal and was expected to become operational in the 1990s, although raising enough capital for the project was problematic. Production of agricultural lime in 1989 doubled that of the previous year, suggesting that progress was being made towards meeting requirements of the agricultural sector.

Nepal

Nepal - TOURISM

Tourism was a major source of foreign exchange earnings. Especially since Mount Everest (Sagarmatha in Nepali) was first climbed by Sir Edmund Hillary and Tensing Sherpa in 1953, the Himalayas have attracted foreigners to Nepal. Mountaineering and hiking were of considerable interest as were rafting, canoeing, and hang gliding. Tourism was facilitated with the opening of airways to Kathmandu and other parts of the country and the easing of travel restrictions.

In the 1950s, there was a shortage of hotels. Beginning in the 1960s, the government encouraged the building of hotels and other tourist facilities through loans. According to government statistics, between 1985 and 1988 the number of hotel rooms increased from under 22,000 to more than 27,000.

Prior to the trade impasse with India beginning in March 1989, tourism had grown by more than 10 percent per year for most of the 1980s. Between 1985 and 1988, the number of tourists increased from approximately 181,000 to about 266,000. More than 80 percent of the tourists arrived in the country by air.

In FY 1985, more than US$40 million worth of foreign exchange was earned through tourism. By FY 1988, this amount had increased to more than US$64 million. In FY 1989, tourism accounted for more than 3.5 percent of GDP and about 25 percent of total foreign exchange earnings. The 1989 trade and transit impasse with India negatively affected tourism because the transport and service sectors of the economy lacked supplies. Beginning in FY 1990, however, Kathmandu initiated a policy to allocate fuel on a priority basis to tour operators and hotels.

Nepal