Remittance supporting real estate and retail trade

Kathmandu, Sept. 27: The Asian Development Bank (ADB) has said that non-tradable sub-sectors of the economy, like real estate and renting business, including wholesale and retail trade, were flourishing on the back of the remittance income.

In its Macroeconomic Update of Nepal,a report published the other day, the multilateral donor stated that the remittance income had propelled higher growth of wholesale and retail as compared to education, health, communication and other related services.

“While the services sector has boomed, there is a growing inclination towards non-tradable versus tradable aspects of the services sector, induced by remittance income. This illustrates that, unfortunately, productivity-enhancing tradable sectors like health, education, travel and communication have failed to take off as expected,” the ADB said.

The contribution of the services sector to the Gross Domestic Product (GDP) has been steadily increasing since the early 2000s, reaching 56 per cent last fiscal year 2016/17.

But gross value addition to the economy by agriculture has sharply declined, while the industrial sector’s contribution has stabilised at 10-15 per cent.

The contribution of the agriculture sector to the economy was 29.37 per cent while the industrial sector contributed about 14 per cent.

The ADB report said that although with income growth, consumption pattern changed from goods to services, prompting a growth in the services sector while, at the same time, jump from manufacturing to services sector was due to productivity gaps between the two sectors. It added empirical analyses, identifying the root causes of such structural shifts, are lacking in case of Nepal.

“But the increased integration of Nepal’s economy with the rest of the world has helped propel growth in services sector,” reads the report.

Likewise, the ADB expected a boom in the tourism sector in the coming years with the recent surge in foreign direct investment inflows in hotels and restaurants, owing to increased political stability and favourable business climate.

But it cautioned that much is needed to be done to expand the tourism sector in order to increase the export of travel services.

“Poor infrastructure is the major constraint to expansion and development of tourism in Nepal. The road networks across the country are sub-standard and air connectivity with the country is not only limited but also unreliable,” reads the report.

The ADB has suggested developing skilled manpower to produce quality service products in order to reap the advantages in the service sector.

It has pointed towards the need to formulate better health policies, provide incentives and address the infrastructure bottlenecks to spur private investment in the health sector.

Likewise, it has recommended improving the business climate and implementing sector-specific reforms to support the growth of the information technology sector.

Saying that greater economic benefits could be achieved via diversification of tourism-related products along with the development of tourism infrastructure, the ADB suggested improving the quality of roads, airports and domestic transportation facilities, and expanding the road networks.