Comments on Manufacturing Sector and Poverty by ctj41530

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									Comments on Manufacturing
   Sector and Poverty
      Narayan Manandhar
      11 November, 2005
Manufacturing Sector & Poverty
        + Plus Points                      - Minus Points
• Fairly extensive presentation     • Some other data sources could
  of macro level (available) data     have been used e.g., NLSS I &
  – trends, patterns,                 II, NLFS and other research
  composition, disaggregation
                                      studies on manufacturing
• This is probably the second
  attempt in linking                  sector performance
  manufacturing sector and          • Not much explanation on
  poverty in Nepal.                   linkages other than
• “The benefits of the sector has     generalization
  been uneven and limited to the    • It would be interesting to
  urban sector.”                      observe macro level data with
• What really is this                 micro level analysis
  manufacturing sector
  manufacturing? Could it be
  poverty?
              Puzzle: TFP Growth in
                 Manufacturing
                         Export                Import                 TFP
                        Oriented            Substitution
                       Industries            Industries
Pre-Reform
1972-1986                  3.45                  -1.13                -0.96
Post Reform
1987-1996                  -0.82                 2.02                 -0.11

  Source: Industrial Sector Perspective Plan: Vision 2020, Jan 2002
              IPP: Vision 2020
• Although the industrial sector does not seem to
  play a big role in poverty alleviation program, per
  capita income in different development regions
  is highly correlated with number of industrial
  establishments (r=.99) (comment: too small
  observations to have a meaningful conclusion)
• Exportable industries are paying higher wages
  compared to import substitution industries
• Industrial sector can contribute towards poverty
  alleviation through increasing internal
  remittances.
      Vision 2020: Conclusion
• Industrial development can play a crucial role in
  poverty reduction. A two-pronged approach of
  rural industrialization and urban based industrial
  development will maximize the short-term impact
  of the industrial sector on alleviating poverty.
• Industrial development will affect poverty
  through increasing employment, productivity,
  and incomes, directly as well as indirectly
  through remittances.
     Vision 2020: Conclusion
• Higher incomes will lead to higher demand
  for all productive sectors. Higher demand
  for labor will tend to increase wage rates,
  leading to efforts to increase labor
  productivity further by employing more
  capital. A strong economy will also
  contribute to women empowerment
  through increased economic
  independence, eventually also reducing
  the wage gap.
          No. of          No. of     Workers Per
 Year     Establishment   Workers    Establishment
1991/92      2,575         347,164      134.82
1992/93      2,598         346,659      133.43
1993/94      3,113         355,058      114.06
1994/95      3,582         370,316      103.38
1995/96      4,014         374,860       93.39
1996/97      4,195         382,845       91.26
1997/98      4,292         385,960       89.93
1998/99      4,282         387,200       90.43
1999/00      4,274         392,421       91.82
2000/01      4,296         394,541       91.84
2001/02      3,617         359,323       99.34
2002/03      3,630         307,536       84.72
2003/04      4,186         306,430       73.20
2004/05      3,414         309,900       90.77
              Labor Absorptive Capacity of Nepali Enterprises
160
140
120
100
80
60
40
20
 0
      1   2     3    4    5    6     7    8    9    10   11     12   13   14
Human Capital, Physical Capital and Labor Intensity: 1972/73-1993/94



                                                      Capital Intensity



                                                           Labor Intensity

                                                      Human Capital
                                                      Intensity




Kishore Sharma, Industrial Strategies, Foreign Trade Regime and
Structural Change: An Analysis of Nepalese Manufacturing, Latrobe
University, Australia, 1997
        Manufacturing Censuses and Labor
Particulars               1991/1992   1996/97   2001/02
(A) Number of Units           4,271     3,557     3,210
(B) Number of               213,653   187,316   181,695
   Employment
(C) Wage Bills                3,348     4,058     6,429
    (Rs in Millions)
(D) Value Addition           13,650    21,875    38,364
    (Rs in Millions)
Ratios/Percentages
Employment/Unit (B/A)           50        53        57
Average Wage (C/B)(Rs.)      16,000    22,000    35,000
Wage Bills/VA (C/D) (%)         25        19        17
VA/Employee (D/B)(Rs.)       64,000   117,000   211,000
    Manufacturing Sector: Some
           Paradoxes
• The policy of employment generation and
  productivity improvement does not go hand in
  hand.
• Manufacturing sector is important but less
  significant in poverty reduction
• SMEs are beautiful but dangerous in Nepal
• Government’s perverted employment policy will
  not help poverty reduction program
 Manufacturing Sector and Poverty
• Employment & Wage Dimension
   – Labor absorptive capacity is going down
   – Wage level is higher than in agriculture sector
   – However, minimum wage is till low

• SMEs, Productivity and Poverty Reduction

• Gender Dimension
   – Women employment is increasing
   – Still wage disparity between male and female workers
   – Women are the first to be dispensed when it comes to closing
     units
             Minimum Wage in Nepal (in Rs./Month)

      3000




                                                                                                         2910
                                                                                                  2720
      2500




                                                                                           2620
                                                                                    2560
                                                                          2466
                                                                   2276
      2000

                                       2150




                                                            2166
                                                     2116
                                1960
                         1850
                1800
Rs.




      1500

      1000

      500

         0
                        1997                                2000                           2003

                       Unskilled              Semi-Skilled         Skilled       Highly-Skilled
Manufacturing Sector and Poverty
• Labor Productivity
  Determinants of productivity are: workers
  training, foreign ownership, foreign licensing and
  technical assistance as well as export business
  which is highly correlated with foreign know-how
• Social Security
  Increased risk of being redundant (units being
  closed plus demand for flexible labor law)
  Role of voluntary retirement scheme (VRS)
• Occupational Health and Safety (Accidents and
  health hazards, working conditions)
• Issue of Child Labor/Foreign workforce
         Biggest Obstacles to Doing Business in Nepal

                              1%
                             4%
                          7%
                        7%
                                         36%
                        9%

                        14%
                                   22%
Government                         Demand
Finance                            Infrastructure
Labor                              Business Support
Inputs                             Trade Policy of Foreign Govt
    Major Business Problem
Categories Identified in the Survey
Labor
• Shortage of Skilled Labor
• Low Labor productivity/High wages
   and benefits
• Attitude of workers, work ethics of
   workers
• Labor strikes/Unions
• Labor turnover
                             Best of both worlds
1000


           Transfer line
100
                                                  “Magic Kingdom”
  10                       Dedicated
                           automation

 1.0
                              Flexible
                              manufacturing   Manufacturing
 0.1                          system          cell

                                                   N C machine tools
0.01
       1               10           100                   1000
           Variety, number of products (log scale)

								
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