The business environment and manufacturing performance in Nepal

33696 The Business Environment and Manufacturing Performance in Nepal Tyler Biggs, John Nasir, Kiran Pandey and Lan Zhao World Bank Regional Program for Enterprise Development Federation of Nepalese Chambers of Commerce and Industry December 2000  The Business Environment and Manufacturing Performance in Nepal Tyler Biggs, John Nasir, Kiran Pandey and Lan Zhao World Bank Regional Program for Enterprise Development Federation of Nepalese Chambers of Commerce and Industry December 2000 2  Contents Acknowledgments........................................................................................................iv Executive Summary......................................................................................................1 I. The Sample Frame ....................................................................................................6 1 The Sample ....................................................................................................................................................7 1.1 Sample Selection ........................................................................................................................................7 1.2 Characteristics of the Selected Sample.....................................................................................................11 1.3 The Entrepreneurs ....................................................................................................................................14 II. Business Environment ..........................................................................................18 2 Obstacles to Doing Business in Nepal........................................................................................................19 2.1 Biggest Obstacle to Doing Business in Nepal ..........................................................................................19 2.2 Variations in Business Problems across Enterprise Size Classes and Location .......................................23 2.3 Bureaucratic Burden of Government........................................................................................................27 2.4 Government Policy, Laws and Regulations..............................................................................................35 2.5 Demand ....................................................................................................................................................41 2.6 Other Business Problems..........................................................................................................................43 3 Infrastructure ..............................................................................................................................................45 3.1 Greatest Infrastructure Problem................................................................................................................45 3.2 Adequacy of Specific Infrastructure Services...........................................................................................48 3.3 Electricity .................................................................................................................................................50 3.4 Transportation Services (Roads and Trucking Services)..........................................................................52 3.5 Water ........................................................................................................................................................56 3.6 Security, Law and Order...........................................................................................................................58 3.7 Other Services ..........................................................................................................................................58 4 Business Support Services ..........................................................................................................................63 5 Resolution of Disputes.................................................................................................................................65 5.1 Collecting from Customers.......................................................................................................................65 5.2 Disputes with Labor .................................................................................................................................65 III. Manufacturing Firm Performance........................................................................67 6 Firm Productivity and Determinants ........................................................................................................68 6.1 Productivity in Nepalese Industry ............................................................................................................68 7 The Dynamics of Enterprise Growth in Nepal..........................................................................................79 7.1 Growth Rates............................................................................................................................................79 7.2 Firm Mobility in Nepal.............................................................................................................................84 7.3 Theories of Firm Growth: What Determines Employment Changes?......................................................87 IV. Finance and Investment.......................................................................................93 i  8 Finance and Investment..............................................................................................................................94 8.1 Access to Credit........................................................................................................................................94 8.2 Investment ..............................................................................................................................................108 8.3 Determinants of Investment....................................................................................................................113 8.4 Investor Confidence................................................................................................................................122 V. Labor..................................................................................................................... 126 9 Labor Market in the Nepalese Manufacturing Sector...........................................................................127 9.1 Composition and Characteristics of the Labor Force .............................................................................127 9.2 The Structure of Cash Remuneration .....................................................................................................134 9.3 The Determinants of Remuneration........................................................................................................137 9.4 Estimation of an Earnings Function .......................................................................................................146 9.5 Training ..................................................................................................................................................150 9.6 Summary ................................................................................................................................................161 X. CONCLUSIONS AND RECOMMENDATIONS ..................................................... 163 10 Conclusions and Recommendations ........................................................................................................164 10.1 The Business Environment.....................................................................................................................164 10.2 Productivity ............................................................................................................................................167 10.3 Finance ...................................................................................................................................................168 10.4 Infrastructure ..........................................................................................................................................169 10.5 Labor Market..........................................................................................................................................169 11 Recommendations