Nepal - Industrial Development Project

Doumn of The Wold Bank FOR OMCIA US ONLY Rest No. P-3902--NEP REPORT ADD RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATTON TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 7.5 MILLION TO THE IINGDOM OF Ni.PAL FOR AN INDUSTRIAL DEVELOPMENT PROJECT Noveuber 20, 1984 Tis do_me bes ba ruxieu duRims and may be usd by recpiemI emly in the dN.. of tder fci d dla ft co1law ay hewwue be discloud io Wod BDk no,_s I  CURRENCY EOUIVALENT Currency Unit = Nepalese Rupees (Rs) US$1 R is 17.30 Rs I US$0.0578 Rs 100,000 = US$5,780 Rs 1,000,000 = US$57,800 FISCAL YEAR July 16 - July 15 ABBREVIATIONS BANSBARI - Bausbari Leather and Shoe Factory, Ltd. FITA - Foreign Investment and Technology Act BLI - Hetauda Leather Industries 3MG - His Majesty's Government of Nepal ICICI - Industrial Credit and Investment Corporation of India IDA - International Development Association IDP - Industrial Development Project IRA - Industrial Enterprises Act IEF - Import/Export Facility iSC - Industrial Services Center KfW - Kreditanstalt fur Wiederauftan LICC - Leather Industries Coordination Cell 'i3 - Ministry of Industry NsL - Nepal Bank Ltd. NIDC - Nepal Industrial Development Corporation NRB - Nepal Rastra Bank BBB - Rastriya Banijya Bank RRCDC - Raw Hide Collection and Development Company RRAC - Royal Nepalese Airlines Compar.y TPI - Tropical Products Institute UNDP - United Nations Development Programme USAID - United States Agency for International Development  FOR OMCIAL USE ONLY NEPAL INDUSTRIAL DEVELOPMENT PROJECT Credit and Proiect Summary Borrover: The Kingdom of Nepal Beneficiaries: Nepal Industrial Development Corporation (NIDC) and private industrial enterprises and leather/leather goods manufacturers and exporters. Amount: SDR 7.5 million (US$7.5 million equivalent) Terms: Standard Relendina Terms: Government would on-lend US$6.5 million to NIDC at minimum interest rates of 7Z for fixed investment sub- loans and at IOZ for permanent working capital sub-loans repayable over 18 years including a grace period of 5 years; NIDC would on-lend to sub-borrowers at 12Z and 15% for fixed investment and working capital sub-loans, respectively. The maturity and grace period of NIDC loans for fixed investment would not exceed 15 years and 3 years respectively; maturity and grace period of sub-loans for working capital would not exceed 7 years and 3 years respectively. During the first two years of project implementation, the Government would utilize US$1.0 million of the US$6.5 million to be on-lent to NIDC as its contribution to an Tmport/Export Facility to be established in the Nepal Rastra Bank. Foreign exchange risk would be borne by the Government. US$1.0 million in technical assistance would be provided to implementing agencies as grants. Proiect Description: The Project is part of IDA's continuing efforts in assisting the Government to promote industries in Nepal with greater private sector participation. ' = Project components are: (a) a line of credit to MIDC to finance industrial investment projects; (b) technical assistance and training to NIDC in strengthening operational standards and procedures particularly in project implementation and super- vision and management information; (c) consultancy and advisory services to improve formulation and implementation of industrial and export incentives, tourism promotion, and efficiency and quality of leather goods production and to assist in formulating a development program for the light engineering This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  -ii- subsector; and (d) foreign exchange funds to establish an Import/Export Facility for export oriented enter- prises. The project does not contain any unusual risk. Estimated Cost: USS Million Eouivalent Foreinn Local Total w A. Subloan Component 6.5 2.8 9.3 B. lmportlExport Facility 1.5 - 1.5 C. Technical Assistance 1.0 0.2 1.2 Total 9.0 3.0 12.0 Financinx Plan: US$ Nillion Equivalent Foreign Local Total A. Government 1.5 0.2 1.7 B. IDA 7.5 - 7.5 C. Sponsors - 2.8 2.8 9.0 3.0 12.0 Estimated USS Million Eauivalent Disbursement: IDA FY FY85 FY86 FY87 FY8 FY89 FY90 FY91 Annual 1.0 0.7 1.4 1.7 1.2 0.9 0.6 Cumulative 1.0 1.7 3.1 4.8 6.0 6.9 7.5 Staff Aypraisal Report: No. 4982-NE? dated November 12, 1984 Map: IBRD 18038  IATERNATIONAL DEVELOPHENT ASSOCIATION REPORT AND RECOMMENDTI1ON OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE KINGDOM OF NEPAL FOR AN INDUSTRIAL DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed credit to the Kingdom of Nepal (EHG) in an amount of Special Drawing Rights (SDRs) 7.5 million (US$7.5 million equivalent) on standard IDA terms to help finance an Industrial Development Project. Of the proceeds of the credit, US$6.5 million would be on-lent to the Nepal Indus.: ial Development Corporation (NIDC) at minimum interest rates of 7% for fixed investment Eub-loans and at IOZ for permanent working capital sub-loans, repayable over 18 years including a grace period of 5 years. NIDC would on-lend the proceeds to eligible industrial enterprises at 12% for fixed investment sub-loans and at 15% for working capital sub-loans. HHG would bear the foreign exchange risk. E1G would initially utilize US$1.0 million of the NIDC sub-loan component to establish an Inport/Export Facility for export-oriented enterprises. The remaining US$1.0 million of the credit proceeds would be utilized for con- sultancy and training services to improve NIDC's operations and assist HMG in promoting efficient industrial enterprises focussing on leather and light engineering subsectors. PART I - THE ECONOMY 1/ 2. The most recent economic report, Nepal: Recent Developments and Selected Issues in Trade Promotion (Report No. 4663-NEP), was distributed to the Executive Directors on October 19, 1983. The principal features and recent performance of the economy a-e described below. Country data are shown in Annex I. 3. Nepal is one of the least-developed countries in the world. Per capita income is estimated at US$170 (1983) and health and education standqrds are below the average for South Asia: life expectancy at birth is only about 46 years; infant mortality, about 145 per thousand; and adult literacy, only 19 percent. The population, estimated to be 15.8 million (1983), grew at a rate of about 2.6 percent per year between 1970 and 1982. About 94 percent of the population live in rural areas. 4. Population density with respect to arable land (356 per sq km) has reached very high levels, and cultivation has been extended on to marginal I 1/ Substantially unchanged from Third Highway Project (Report No. P-3867-NEP), of August 9, 1984.  -2- lands and forests. Forests have been denuded further to meet the growing dpmand for fuelwood, on which Nepal depends for over ^-0 percent of its energy consumption, mostly for household cooking and heating. Because of deforesta- tion and excessive grazing on the hills and mountains, with high rainfall, there is accelerated soil erosion leading to silting of rivers, downstream flooding and loss of agricultural productivity all along. 5. Agriculture, largely rainfed, still accounts for nearly 60 percent of Nepal's GDP and 80 percent of merchandise exports, and provides the main source of livelihood to over 90 percent of the population. Crop production accounts for about 60 percent of agricultural output, livestock for 30 percent, and forestry for 10 percent. Paddy is the principal food crop (planted on about half of the total cropped area), followed by maize, wheat, millet and barley. Cash crops (oilseeds, jute, sugarcane and tobacco) are grown on about 10 percent of the cropped area. About 15 percent of total rural income arises from non-agricultural activities, of which the cottage industry sub-sector is one of the more important generating employment for over one million people on a part-time basis. 6. Apart from agricultural land, Nepal-s only other important exploitable resources are hydropower and tourist attractions. The exploita- tion of the vast hydropower resources beyond that required to satisfy the country's own power demand, however, will depend crucially on Nepal's ability to enter complex financial, exploitation and export agreements with neighbor- ing countries. The tourism sector, based primarily on Nepal/s mountain environment and its rich cultural heritage, has been dynamic, though it accounts for only about I percent of GDP. Tourism now provides about 20 percent of the country's foreign exchange earnings. About 60 percent of earnings from tourism are retained in Nepal. 7. Following centuries of self-imposed isolation, efforts to develop the economy of Nepal began in the mid-1950s against extremely heavy odds. The country had virtually no physical infrastructure, an ancient administrative system, and very limited educational and health services. The resource base is relatively narrow and its development hindered by the difficult topography and landlocked positioin. Against this background, Nepal's primary develop- ment objective for 20 years, between 1955 and 1975, was to build basic infrastructure and lay the groundwork for future economic growth. The country has made good progress in pursuit of that objective. It now has a basic road network linking many economic centers. Kathmandu and a few other towns have basic utilities and public transport. Schools have been built for almost half of the primary school age children and there are a number of secondary schools and a national university. A rudimentary hospital system, including rural health posts, has been built. Some progress has also been made in establishing the institutional framework for agricultural and industrial development, including extension and research activities, finan- cial institutions and industrial enterprises. Yet in all these areas, the country has a long way to go to achieve a level of development comparable to other developing countries; for example, public and private institutions  -3-. in Nepal must continue to expand and upgrade essential physical facilities, acquire the necessary expertise in handling economic and financial affairs, build up adequate technical and managerial cadres, and establish merit-based systems of personnel management. B. The Fifth Plan (FY76-FY80) marked a shift in development objectives, with increased emphasis being placed on acceleration of economic growth, employment creation, and raising the living standards of the population. These objectives have been reiterated in the Sixth Plan (FY81-FY85). Moreover, the stated strategy of the Sixth Plan appropriately (a) accords high priority to developing agriculture, small-scale industries and Nepal's abundant vater resources; (b) stresses soil conservation and population control; and (c) emphasizes full utilization of existing infrastructure and alleviation of absorptive capacity constraints, including human resource development. The development strategy also calls for increased involvement of the private sector in agriculture, manufacturing, trade, tourism, con- struction and transport operations. Investment expenditures, supported by growing foreign assistance, have increased rapidly over the last two Plans, from US$146 million (9 percent of GDP) in FY75 to about US$500 million (20 percent of GDP) in 1982/83, and there have been substantial shifts in the composition of spending away from transport to agriculture, power and social services. GDP growth, however, has barely kept up with that of population. 9. Part of the explanation for this stagnation lies in factors beyond Nepal's control such as the difficult topography and the poor resource base. But factors within Nepal's control have also contributed. Severe project implementation problems have been encountered by Government and donors alike in most sectors of the economy, thereby lowering the rate of growth of capital formation. In addition, the expected returns on investments which took place often did not materialize largely because necessary complementary investments or current spending were lacking, and because of managerial deficiencies. A good example is the agriculture sector. In the past, insuf- ficient attention was paid to bringing water down to the farm level and this was compounded by inadequate support services such as extension and research, by the lack of timely supplies of improved seed, fertilizer and other inputs such as credit, by the lack of farm-to-market roads, and by low producer margins. Future development of irrigation and agriculture would therefore need to emphasize complementary investments, improvements in agricultural input supplies and adequate producer margins. 10. The shortage of funds for current spending needs to be addressed by further efforts at domestic resource mobilization. In recent years, Nepal's efforts to mobilize resources have focused on tightening income tax assess- ment and collection; on discretionary measures largely in the area of indirect taxes; and on reducing subsidies to public enterprises. While there has been, as a result, a steady increase in revenues, the tax structure remains inelastic. Some scope exists for increasing Nepal's tax elasticity by shifting items on the indirect tax schedules from a specific to an ad  -4- valorem basis. There also seems to be scope for increasing yields from the land tax, urban property taxes and income taxes. 11. Over the past two years, several positive steps have been taken to strengthen public sector management. These steps have included increases in the traditionally low civil service salaries, establishment of public service training facilities, simplification of budgetary procedures accompanied by stricter enforcement of expenditure accounting, and granting of more autonomy to public enterprises in matters concerning personnel and pricing policies. The implementation of these administrative reforms would have to be pursued by high-level monitoring of important administrative issues such as appoint- ment of competent staff, job security and decision-making authority. Also, public enterprise reform needs to be pursued by measures aimed at reducing costs and increasing efficiency. In this regard, the Government has taken initial steps, subjecting public enterprises to increased competition from the private sector through liberali_ation of licensing in industry, transport and small-scale hydropower generation. At the same time, the Government has involved the private sector in the ownership and control of some public enterprises through the sale of shares to private investors. 12. Because of slow economic growth, Nepal's balance of payments has been characterized by widening trade deficits, partly offset by surpluses from invisibles. The current account deficit (averaging US$100 million annually during FY80-Fz82) has traditionally been more than matched by inflows of official grants and concessional loans (averaging US$128 million annually during FY80-FY82), leading to surpluses in the overall balance of payments in most years. Nevertheless, foreign exchange reserves had declined from being equivalent to about one year of imports in the early 1970s to six months in 1982, and four months in mid-1984. 13. To sustain and further develop its economy, Nepal must mobilize additional free foreign exchange through export promotion and efficient import substitution. Improving agricultural production, rural incomes and food distribution within the country is a major way of doing so, if only to avoid the need to import and distribute large quantities of foodgrains in the future. Agricultural development also remains the key to a gradual expansion of Nepal's traditional merchandise exports. In addition, development of energy resources is a major means to strengthening the balance of payments by reducing the need to import fuel and opening up an export potential. Recently, Nepal has leg.sisted a wide range of fiscal and administrative incentives for industrial investors and exporters, particularly in the private sector. The implementation of these incentives in a cost-effective manner, and the alleviation of the severe transport and transit constraints facing the country's trade sector, must constitute essential elements of a trade promotion strategy for Nepal. 14. Nepal is faced with highly challenging prospects and tasks in addressing its multiple long-term development problems. While it attempts to mobilize domestic resources to finance about 40-50 percent of development  -5- expenditures, external assistance, at concessional terms, will continue to be a vital factor in financing investment and effecting economic growth. In the last three years, aid commitments to Nepal have averaged about US$250 million per year, almost entirely in the form of grants and concessional credits vith grant elements in excess of 70 percent. Aid disbursements grew from about US$110 million in FY80 to an estimated US$150 million in FY84. Nearly 70 percent of total aid disbursements have come from members of the Nepal Aid Group, formed in 1976 and now comprising eight DAC countries and four multi- lateral agencies. 15. At the end of FY84, Nepal's official foreign debt outstanding amounted to about US$350 million. As virtually all loans have been concessional, debt-service payments, including payments to the IMF, have rpmained small in relation to exports of goods and services. In FY84, debt- service payments amounted to about US$18 million, equivalent to 6 percent of exports of goods and services. Over the medium term, these payments are projected to remain at less than 10 percent of Nepal's exports of goods and services. PART II - BANK GROUP OPERATIONS 16. Bank Group operations in Nepal began in 1969 with an IDA credit of US$1.7 million equivalent for a telecommunications project. Since then, 36 additional credits have been approved, bringing total IDA assistance to Nepal to US$547.7 million equivalent, net of cancellations. In view of Nepal's many development needs, this assistance has been for projects in a wide variety of sectors. Six of these sectors account for about 90 percent of IDA credits by original amount: irrigation/agriculture (US$173.0 million for 14 projects); water supply and sewerage (US$46.8 million for 3 projects); power and energy (US$168.0 million for 4 projects); telecommunications (US$21.7 million for 3 projects); highways (US$67.0 million for 3 projects); and rural development (US$19.0 million for 2 projects). The proposed credit would be the third approved in FY85. No Bank loans have been made to Nepal. IFC has made three investments in Nepal, the first in FY75 (US$3.1 million) for the expansion of the Soaltee Hotel in Kathmandu, the second in FY82 (DM14.5 million) to Nepal Orind Magnesite Company for the mining and produc- tion of dead burnt magnesite, and the third approved in FY84, but not yet signed, to Nepal Metal Company (DM7.8 million), a zinc/lead mining and con- centrates project. Annex II contains a summary statement of IDA credits and IFC operations as of September 30, 1984. 17. Bank Group lending to Nepal so far has been modest compared to the country's need for external assistance. The international community has shown considerable interest in Nepal's economic development and, to date, the shortage of funds has not been a major bottleneck. The main constraint on the utilization of increased aid has been Nepal's limited absorptive capacity, affecting the pace of project preparation and implementation. The  -6- Bank Group has provided assistance to the Government in project preparation through two Technical Assistance Credits (Credits 659-NEP and 1379-NEP) and by acting as Executing Agency for a number of technical assistance projects financed by UNDP. Furthermore, the Resident Representative in Kathmandu has had a significant impact in improving project implementation performance. As a result, the rate of disbursements is improving: during FY82, FY83 and FY84, US$28.5, US$37.4 and US$26.0 u.illion equivalent, respectively, was disbursed compared to an annual average disbursement of about US$17 million during the previous five fiscal years. Project completion reports have been prepared for six projects: First Telecommunications (Cr. 166-NEP), First Highways (Cr. 223-NEP), Tourism (Cr. 291-NEP), Birganj Irrigation (Cr. 373-NEP), Settlement Project (Cr. 505-NEP), and Bhairawa-Lumbini (Cr. 654-NEP). 18. The Bank Group's current lending strategy places emphasis on assist- ing the Government in its efforts to contain the high level of population growth, address major constraints in the country's development of human resources and promote agricultural development. Selected infrastructure investments, mostly in transport, telecommunications and power, will also be undertaken to alleviate serious development constraints. In population, a project is being prepared by the Government and there is donor interest to co-finance various components. For the development of human resources, projects under preparation include engineering education, vocational and secondary education projects. For agriculture, the basic objective is to assist Nepal maintain overall foodgrain self-sufficiency and, where possible, promote exports of agricultural products and encourage afforestation efforts. Projects under preparation would extend the assistance provided so far by building irrigstion infrastructure mainly in the Terai to increase paddy production and help reduce the food deficits in the Hills. Both would be accomplished through irrigation and rural development projects which would emphasize increased food production and through specific Hill food projects. For industry, IDA assistance would be channeled through the Cottage and Small Industries projects and the proposed Industrial Development Project. The major objectives of this assistance would be to promote the Government's efforts to generate additional foreign exchange and create employment oppor- tunities both in the rural and urban sectors. PART III - THE INDUSTRIAL SECTOR Industrial Structure 19. About 70% of industrial value-added comes from formal manufacturing and mainly from public sector enterprises, producing construction materials, textiles, footwear, processed food and some simple assembly items. The other 30% comes from mainly rural, household-level, cottage and smal'. industries. Available data indicate that the formal private sector constitutes approximately 3,600 manufacturing establishments employing over 60,000  -7- vorkers. About 75% are classified as small-scale establishiaents, employing on average about 10 workers and fixed assets of about Rs 500,000. Industrial productivity is low, partly due to the labor intensity of most processes, coupled with sbortages of raw material, spare parts and technical and managerial knowhov. These private sector enterprises are predominantly in agro-processing, furniture manufacturing, printing and brick/tile processing. The Sixth Plan envisages greater private sector participation and investment in the development of other industrial products such as pharmaceuticals, * concrete blocks, light metal products, and agricultural implements. Export Patterns 20. Nepal's merchandise exports in the period FY76 to FY82 grew at an average of about 32 in nominal terms; the highest exports were achieved in FY81, when exports totalled Rs 1.6 billion (US$134 million equivalent) which was an increase of 40% over FY80. However, exports decreased by 7% in FY82 to Rs 1.5 billion, due to market difficulties for most of Nepal's exports as well as difficulties with input supply. Exports have remained a small por- tion of GDP, and declined from 6.8% in FY76 to 4.8% in FY82. Sales to India still account for the bulk of Nepal's exports. India's share declined from about 84% in FY75 to about 45X in FY80, but increased to about 66Z in FY82 due to an overall decline in exports to other countries and a 75% increase in food, live animal, and crude material exports to India. 21. Although total exports showed a fluctuating and low average growth, manufactured exports grew at a higher rate of 14% p.a. reaching Rs 282.5 million (US$21.7 million) in FY82. Consequently, the proportion of manufac- tured exports to total merchandise exports grew from 11 in FY76 to 19Z in FY82 and was as high as 30% in FY80. Three product groups account for the bulk of manufactured exports: leather, handicrafts and carpets. These products were also exported to countries other than India. IDA's Cottage and Small Industries Project (CSI) is focusing on the development of handicrafts and carpets, and the proposed Industrial Development Project (IDP) has as one of its objectives the development of the leather and leather goods subsector and the promotion of exports. Industrial Policy 22. In 1981, HMG adopted a new Industrial Policy which provides for a greater participation of the private sector in industry including private e c foreign investments and joint ventures. Compared to previous policy statements, the new Industrial Policy also provides clearer definition of industry groups and clarifies institutional arrangements for licensing and registration. To help implement this policy, KMG promulgated two Acts - the Industrial Enterprises Act (lEA) and the Foreign Investment and Technology Act (FITA). These Acts provide fiscal and monetary incentives to private industry. These include: income tax holidays, sales tax and excise duty exemptions; provisions for repatriation of profits and dividends by foreign investors; and some simplification of licensing and documentation procedures.  The Industrial Promotion Board, headed by the Minister for.4ndustry and Commerce, continues to coordinate and monitor the industrial development policy with the Department of Industries acting as the Board's Secretariat. The Director General of the Department of Industries coordinates a separate committee, consisting of high-level officers of various ministries, whose main function is to design operating rules and procedures and to ensure the efficient implementation of the services and facilities provided under the Acts. H1MG has initiated the process of formulating these rules and proce- dures and has recently announced additional incentives such as duty drawback and tax rebate on export profits to promote exports. These new schemes could assist in correcting the anti-export bias present in other measures. 23. While HMG through the IEA and FITA, has provided for an overall framework to implement its industrial policy, much more needs to be done in the development of the rules and procedures to ensure effective implementation. It is important also to reevaluate policy alternatives in relation to their impact on HVIG's revenues and resources and on private sector investments and exports. Given the physical constraints and undeveloped state of industry in Nepal, the package of incentives needs to be redefined and focused to effectively promote efficient import-substitution and exports; under the proposed Project, technical assistance would be provided to re-examine Nepal's industrial and export-incentives. To comple- ment the incentive package, the IDP would also provide adequate credit facilities to industry as well as technical assistance to promote and improve operations of specific s-,sectors with potential, including light engineering, tourism and leather goods. Industrial Finance 24. Nepal's organized financial sector consists of: two commercial banks; two specialized financial institutions, one for agriculture and one for industry; and a provident fund corporation and an insurance company. The two commercial banks (Nepal Bank Ltd. and Rastriya Banijya Bank) dominate the financial sector, accounting for 75X of total assets and virtually all deposits. Deposits of the commercial banks showed a high growth rate of about 22% over FY78-FY83, reaching Rs 5.6 billion or 16% of GDP. Over 45% of deposits have been in maturities of 2 years and longer which provides a reasonably stable deposit base. Commercial banks have been the major source of working capital to industry while NIDC has been the primary source of term credit for fixed investments. 25. Commercial banks are mandated to finance priority sectors (agriculture, cottage and village industries, services) to the extent of 7Z *of their total deposits. While commercial banks are improving their financ- ing for cottage industry, they are still conservative and reluctant to make term loans on the basis of project evaluation rather than collateral. Commercial banks still have limited exposure to and expertise in industrial lending, particularly for term loans to larger firms. As recommended by IDA, HMG recently abolished the registration fee on collateral for industrial  -9- loans by the commercial banks. which had discouraged industrial borrowings. In line with M117s Industrial Policy of 1982. MIS has agreed to take appropriate measures to allow joint mortgages and registration of second mortgages_ Tbis should assist in promoting co-financing schemes between financial institutions which would help meet NIDC-s local currency requirements, and encourage commercial banks to lend to industries without relying on guarantees of ENG, Nepal Rastra Bank (CRB) or NIDC. 26. Lending rates in Nepal range from 11% to 17% depending on the purpose of the loans and size of borrowers. These rates have been effective since June 15, 1983 and reflect an across-the-board increase of IZ from prior rates. NIDC-s interest rates for term loans to industry are 12Z for fixed investment and 15X for working capital and these would be applicable under the Project and are consistent with rates charged by the comercial banks. Between FY79 to FY83, inflation in Nepal averaged about 1OZ. Current projec- tions of Nepal-s inflation are in the range of 6Z to 9Z p.a. for 1984 to 1989. Thus, present lending rates are expected to remaic positive in real terms. 27_ Recent developments in the financial sector include the initiatives to allow branches of foreign banks, establishment of privately owned commer- cial bank, studies on export credit and export guarantees. These moves are consistent with HMG-s continuing efforts to improve resource mobilization, foreign trade services, and the overall efficiency of financial institutions. Past Bank Group Lending to the Sector 28. The first credit line to NIDC (Cr. 705-NEP) of US$4.0 million was made in 1978 to finance NIDC sub-loans to private industrial enterprises. IDA also executed UNDP financed technical assistance projects involving a policy advisor and an accounting/management information advisor who were assigned to NIDC for two years each. The Bank Group is supporting a Cottage and Small Industries (CSI) Project, through a US$6.5 million IDA Credit (1191-NEP) and a US$2 million UNDP financed, Bank executed technical assistance component. The CSI project provides credit to CSIs and related commercial concerns through the two commercial banks and the Agricultural Development Bank. It also involves product development and export promotion services focusing on promising CSI product groups. Training and technical services to upgrade CSI production skills are also provided. IFC has assisted a botel project and a magnesite mining project with financial com- mitments of US$3.1 million and US$5.6 million respectively; an IFC commitment of US$3.0 million was recently approved for a lead/zinc project; and IFC currently is considering a pulp/paper project and small iron/steel foundries. Nepal Industrial Development Corporation 29. NIDC was established in 1959, under a special Act, to promote and develop industries in the private sector. The first IDA Credit line to NIDC was approved on May 3, 1977, became effective on February 17, 1978 and was  -10- committed fully by March 31, 1982. With the assistance of HUG and IDA, NIDC has improved its operating capability significantly and continues to take appropriate actions to further upgrade its performance. Its management in monitoring operations closely, particularly disbursements and colle .ions. The current general manager who has been in place since 1981, has initiated important changes in NIDC-s policies and organization. These include: diversifying its portfolio by promoting industries other than tourism/hotel projects and certain agro-based projects; amending NIDC's charter to strengthen its legal powers against defaulting clients; introducing intensive case by case follow-up of clients in arrears, and establishing a special cell for problem projects; and ensuring coordination and assistance from zonal and district administrators in NIDC-s collection efforts. Also, NIDC recently has made an arrangement with Industrial Credit and Investment Corporation of India (ICICI), the strongest development bank in India, in vhich selected NIDC staff will receive on-the-job training at ICICI in project appraisal, supervision and accounting systems and ICICI staff will provide on-the-job training for NIDC staff in Kathmandu. These aspects have been incorporated in NIDC's Statement of Operational and Financial Policies and its Strategy Statement for FY85-FY88 which provide satisfactory and appropriate guidelines for its operations. These Statements and the related institutional upgrading measures to be financed under the project (para 40 below) were confirmed and agreed dizdng negotiations, and formal approval by NIDC's Board would be a condition of credit effectiveness (Section 6.01(b) of the draft Development Credit Agreement (DCA)). 30. NIDC's authorized capital is Ks 250.0 million of which paid-in capital is Rs 190.0 million accounting for about 36Z of its resources. NIDC-s shares are ovned by BIG (95%) and NRB (5%). Its Board sf Directors consists of eight members, two of whom are non-government officials repre- senting trade and industry. NIDC-s foreiga currency resources have been provided mainly by KfW and IDA while its local currency resources are com- posed of its share capital and reserves and loans from and debentures held by the NRBE Since inception, NIDC has assisted about 800 projects requiring Rs 585 million of which 85% was in loans aud 15Z in equity investments and guarantees. Net of sub-loans to about 400 cottage and village industries, NIDC-s average sub-loan is about US$95,000 equivalent; average fixed cost per job is about US$5,700 equivalent. Under IDA-s first credit line to NIDC, subprojects showed an ex-ante financial and economic rates of returns of above 15% and 17% respectively. 31. During the last five years, NIDC showed reasonable profits although it only managed an average of 3.0% return on equity, due to a large equity base which averaged about 42% of total resources; in FY84 total income and net income reached Rs 51.4 million and Rs 11.6 million respectively; its gross spread averaged about 4.5% while its administrative expenses and provi- sions for bad debts were about 3.0% of total assets and this provides NIDC an average net profit margin of about 1.0-1.5Z of total assets. Its collection performance is satisfactory; the level of arrears is increasing but has been contained to less than 30% of total portfolio; as provided in the draft  -ll- Project Agreement, except as the Association shall otherwv'ge agree, NIDC shall maintain, in each of its fiscal years after its fiscal year ending on July 15, 1984, a ratio of not less than 1.1 to 1 of che sum of its cash generated from operation and cash repayments of its debtors for loan principal, to the sum of all debt service requirements of its debts then incurred and outstanding, calculated on the basis of the actual figures for the preceeding twelve months (Section 3.08 of the draft Project Agreement (PA)). IDA has the right to withhold subloan approvalfauthorization until * NIDC shall have taken steps satisfactory to IDA which would ensure the attainment of such ratio. NIDC appropriates about two-thirds of its annual income to provisions for doubtful debts; at the end of FY84, the accumulated * provisions were 5% of loan portfolio or 15% of total arrears which are ade- quate considering NIDC's equity base, low dividend payout, improving collections, and adequate collateral coverage. The operational and financial forecasts for NIDC anticipate a growth of about 13% per annum in its level of business; during the period FY85-FY8S, total approvals, conmitments, and disbursements are projected at Rs 575 million, Rs 487 million and Rs 340 million respectively. The subloan component of the proposed Credit would represent about 65Z of NIDC's loan commitments in foreign currency. NIDC's net income is expected to remain at Rs 3.5 zillion level representing about 1.6Z of equity. Hovever, its debt service cover ratio (DSCR) would be above 1.6 times and its provision for doubtful debts would increase slightly to 7X of total portfolio which is adequate. Its contractual debt:equity ratio is projected to reach only 1.8 by FY88 which is low compared to the maximum of 5:1 allowed under the Project Agreement (Section 3.03 of the draft PA). IDA Stratety 32. As the figures above (para 19) show the industrial sector in Nepal is still very small and prospects for growth in industrial output and exports (paras 20, 21) are constrained mainly by the country's geographic -location, limited resources including industrial manpower, and a small domestic market. Our experience in our industrial sector and lending operations shows that there is scope for industrial development in selected product groups including leather and leather goods, light engineering, handicrafts, agro- processing, building materials and some consumer ,roduc=s. As part of our strategy we provided HBG with assistance in formulating both the new IEA and the FITA (para 22). While these Acts have provided an initia. framework for HBN's industrial policies we find that they have so far had little impact in promoting private industrial investments and exports. There is still a c strong preference among Nepalese investors for trade, real estate and con- struction which yield more attractive and rapid results than industrial projects particularly export projects. Our strategy therefore is three-fold: -i) to continue to carry out sub-sector studies as a means of identifying specific opportunities for private investment while at the same timr. review- ing the efficacy of related legislation in providing adequate incenti-v..s for private -articipation; (ii) to continue to provide financial resources and technical &ssistance to NIDC as the main promoter of private industries in  -12- Nepal; and (iii) to provide financial resources and techbscal assistance to assist in generating foreign exchange resources. PART TV - TEE PROJECT 33. The proposed project was appraised in October/November 1983. Follow up discussions were held in March 1984. A timetable of key events relating to the project and special conditions are given in Annex III. A staff appraisal report (Report No. 4982-NEP dated November 12, 1984) is being distributed separately to the Executive Directors. Negotiations were held in Washington, D.C. from October 31 to November 6, 1984. The Nepalese delegation was led by Mr. Heet Singh Shrestha, Additional Secretary, Ministry of Finance and NIDC was represented by Mr. R.N. Dhungel, General Manager. Scope and Obiectives 34. In accordance with IDA strategy (para 32), the proposed project is designed to promote private industrial investment and assist in generating foreign exchange earnings. MIDC, which is the only industrial development bank in Nepal, would be supported with IDA's financing of eligible sub- projects and technical assistance to achieve further improvements in NIDC-s operations. The project would make financing available for an integrated leather development pr-gram which would help improve efficiency and quality of output at each processing stage, expand hide and skin collection capacity, and enhance value added in this important export sub-sector. Under the project, vork will be initiated to develop investment opportunities in the light engineering sub-sector, which could be pursued in a subsequent project. Technical assistance would be provided in implementing EBG's industrial and export incentive schemes and in strengthening promotion of tourism. In addition, the project would support existing export industries by providing funds to establish an Import/Export Facility in the Nepal Rastra Bank (Nfl). Summary Components and Costs 35. An IDA Credit of US$7.5 million is pro?osed for an Industrial Development Project in Nepal with the follo:ving components: . a~~~~~.  -13- I. Cre0it Components CUSS 000) A. NIDC Subloans: 6.500 Sub-Total 6.500. L II. Technical Assistance A. Industrial Incentive Study 100 B. Light Engineering Study 50 C. Tourism Promotion Study 50 D. TA Program for Leather Sector 550 E. NIDC Technical Assistance 85 F. Contingencies 165 Sub-Total 1.000 Total Credit US$7.500 The total project cost is estimated at US$12.0 million equivalent broken down into US$7.5 million from IDA (68Z), US$2.8 million from prospective sub- project sponsors (272), and US$1.7 million from HW1/3 (5Z). Out of IDA-s US$7.5 million, US$6.5 million will be provided for sub-loans to industry and for the import/export facility for exporters, and US$1.0 million for technical assistance. Proiect Comnonents 36. The Credit Component. An amount of US$6.5 million would be made available to NIDC for relending to private industrial enterprises. Eligible activities would include the establishment or expansion and modernization of enterprises in manufacturing, agrobased industries, mining, and industrial services (e.g. engineering repair workshops). New tourism/hotel projects in the Katbmandu Valley would not be eligible in accordance with NIDC's strategy to diversify its portfolio. However, two public sector enterprises in the leather sector would be eligible under the NIDC sub-loan component for their expansion and modernization projects identified under HE's leather develop- ment program. Sub-loans for permanent working capital would be available only if made in conjunction with a fixed investment sub-loan. The minimum sub-loan size is expected to be US$20,000 equivalent as in Credit 705-NEP which would avoid duplicating coverage by the commercial banks under TDA's Cottage and Small Industries Project. The maximum sub-loan under the IDA credit would be US$1.5 million. This would provide for a reasonable coverage of industries and encourage financing from bilateral sources and joint ven- ture partners. I/ For the first two years of the project US$1.0 million of this sub-total would be made available to the Nepal Rastra Bank to fund an Import/Export Facility (para 37).  -14- Import Export Facility (IEF) 37. The project would assist HNG's efforts to generate additional foreign exchange by setting up an IEF which would be designed to assist eligible existing exporting enterprises to finance necessary imported inputs to facilitate their production for exports. The facility would make available the convertible foreign exchange required. Initial capital for the facility would be US$1.5 million of which US$1.0 million eould be funded from the proposed IDA credit; this amount would be available to the facility for two years after which MGQINepal Rastra Bank (NIB) would replenish the IEF with its own foreign currency resources. Thereafter the US$1.0 million of the IDA credit would become available and would be drawn as needed to finance eligible NIDC sub-loans. It is expected that the IEF would be maintained as a permanent revolving source of foreign exchange for exporters. The Ministry of Industry (MOI) in conjunction with NRB and the Ministry of Commerce would be responsible for developing and implementing appropriate policies and procedures for the utilization =-6 operation of the IEF. During negotiations it was agreed that the policies and procedures would cover the following principles and guidelines: (i) the facility would be used exclusively to fund convertible foreign cirrency required to import inputs for the manufac- ture of exports; (ii) the processing of applications of exporters for the allocation of convertible foreign exchange and corresponding import licences would be streamlined. It waV also agreed that eligibility and conditions for the use of the facility would include (i) evidence of potential foreign exchange earning in the form of- a letter of credit or firm export contract for settlement in convertible foreign currency; (ii) foreign exchange advanced to an eligible exporter would not exceed six months of imported input requirements; (iii) foreign exchange advanced by the IEF would be net of amounts provided out of foreign loans. It was understood that as part of the operating procedures MDI could establish a working list of eligible exporters whose foreign exchange requirements could be funded by the IEF. During negotiations it was agreed that HMG and NRB would enter into an agree- ment by which HMG would make available to NRB the US$1.0 million out of the proceeds of the proposed credit. It-was further agreed that the conclusion of such a satisfactory agreement would be a condition of IDA disbursement of the funds for the IEF (Schedule 1 para 4(a) and (b) of the draft DCA). 38. Technical Assistance Component. The technical assistance component of the project would involve a total of 164 man-months of advisory! consultancy services, training, and export promotion. The following studies would be carried out under this component: (i) Industrial and Export Incentives: The study is intended to review the existing package of industrial and export incentives as well as analyze its impact on industry, recommend more effective incentives, devise measures to improve institutional arrangements and procedures, and provide necessary training for effective implementation (paras 22,23).  -15- (ii) Light Enzineering Sub-sector: The sub-sector'consists of small unorganized units producing simple metal products such as handtools, utensils, construction hardware and general engineering workshops which fabricate agricultural implements, water turbines, suspension bridges, roof trusses etc. Development of the sub-sector is impeded by inter alia inadequate raw materials, shortage of skilled manpower, obsolete equipment and poor product design and quality. Consistent with our objective of carrying out sub-sector studies as a means of identifying specific opportunities for private investment, this study will review inter alia the status of the industry and policies affecting the sub-sector, recommend meaus of alleviating major constraints, identify potential viable product groups, required ancillary services. In addition, the study would assess and recommend further incentives which would be needed to promote entrepreneurial interest and institutioaal support needs i.e. credit, manpower and technical services. The outcome of this study will be the identification of a number of viable projects and an institutional framework which would attract both Nepalese and foreign investment to this area. The terms of reference have been discussed and agre'd with NWG. The selection and appointment of consultants is expected to be completed by June 1985. The study should be completed within five months thereafter. (iii) Tourism Promotion Study: The objective of this study is to produce a blueprint which would provide the basis for a more aggressive marketing of Nepal's tourist potential. In FY83 the tourism sector generated about Rs 950 million equivalent in foreign exchange receipts increasing by 11% from FY82 compared to 28% increase in the previous year. The receipts in convertible currencies decreased from Rs 617 million in FY82 to Rs 494 million in FY83. Since FY79 the total number of tourists arriving in the country has remained at about 160,000. In the meantime investments in tourist-related projects notably, hotels, had been increasing in anticipation of growth of tourist arrivals which did not materialize. Since its inception in 1959 NIDC has approved total financial assistance amounting to Rs 584.6 million of which tourism/hotel investments accounted for Rs 226.9 million (39Z). Both through WDA i previous line of credit to NIDC and IFC's investment in one major hotel, the Bank Group has made significant investments in the tourist sector. The proposed study is designed to seek ways to expand the flow of tourists to Nepal which would lead to generating foreign exchange and higher returns to the tourism related investments. Given the underutilization of hotel capacity and the relatively adequate state of infrastructural services for the sector the immediate need is to increase the flow of visitors through a more aggressive promotion and marketing program and by improving  -16- air access to Nepal. The proposed study woul&eanalyze the major factors causing slow growth in tourism arrivals, review and assess the adequacy of air passenger services, recommend specific measures to promote an expanded tourist flow, outline a program for tourism marketing with estimated financirg requirements for sbch a program. The terms of reference of the study have been discussed and agreed with the Secretary of Tourism and the selection and appointment of consultants would be completed by June 19B5 and the study would bp completed five months thereafter. 39. The project would provide selective technical assistance support to the Government's integrated development program for the leather/leather zoods subsector. The project would focus on key aspects of leather collection, processing and footwear manufacture, and export market promotion. Training would be provided to upgrade footwear design and production techniques of rural cobblers as vell as organize courses in the manufacture of leather goods such as belts, bags, and garments. Credit under the NIDC sub-loan component would also be available for two companies to expand and improve rawhide collection facilities and to modernize tanning and footwear machinery and equipment. These subprojects would be undertaken with advisory services to be financed under the project. The objectives of the program are to upgrade the quality of leather and encourage efficient domestic processing with higher value-added. 40. Technical assistance aud training would be provided to NIDC to build on the institutional improvements made under IDA's first credit line (paras 28 and 29). With the assistance of a consultant funded under the Project, a projects course using Nepalese cases would be developed in NIDC to provide practical training in project preparation, evaluatiou and implementation. On-the-job training of selected NIDC staff with DFCs such as ICICI experienced in follow-up activities and rehabilitation of problem projects would also be financed under the Project. These would complement an institutional assistance agreement between NIDC and the Industrial Credit and Investment Corporation of India (ICICI) which would focus in improving NIDC's management information, systems of project evaluation and monitoring, financial planning, and problem project analysis. The technical assistance component would be provided by EHM as grants to the implementing agencies; implementation of specific sub-components would be initiated by June 1985. Proiect Implementation 41. *Lendinp Terms and Conditions. NMG would on-lend to NIDC at the .minimum interest rates of 72 for fixed investment sub-loans and 1OZ for working capital sub-loans (Section 3.01(b) of the draft DCA). In accordance with the existing interest rate structure in Nepal, NIDC's interest charges vould be 12Z for fixed investment sub-loans and 15Z for working capital sub-loans and a commitment fee of at least 0.51 per annu (Section 2.02(e) and (f) of the draft PA). NIDC's lending rates are positive in relation to  -17- medium term inflation projections. There is an understanding with HMG that NIDC's on-lending rates to industrial borrowers would be revieved annually, and would be revised if necessary to ensure that the rates remain positive in relation to medium-term inflation projections and consistent with the commercial bank rates for industry. NIDC would pay HIM a commitment fee of 0.5Z per annum of the undisbursad balance payable from the date of commitment to the date of disbursement of each sub-loan (Section 3.01(b) of the draft DCA). 42. Exchange Risk. Under the proposed project, HMG would directly absorb the foreign exchange risk (Section 3.01(d) of the draft DCA) and no exchange risk fee would be charged in line with HMG's current policy. 43. Free Limit and Sub-loan Size. NIDC's sub-loan free-limit is set at US$150,000 equivalent (Section 2.02(c) of the draft DCA). This should allow IDA to review about 25% of the subprojects by number and about 70Z by amount. The minimum sub-loan size is expected to be US$20,000 equivalent as was the experience with NIDC's first IDA Credit. The maximum sub-loan size would be US$1.5 million which would provide a reasonably broad coverage of subprojects, and encourage financing from bilateral sources and joint venture partners (Section 2.02(d) of the draft PA). 44. Amortization Schedule. Repayments from NIDC to HMG would be based on a fixed amortization schedule of 18 years including a grace period of 5 years. (Section 3.01(b) of the draft DCA). The maturity and grace period of NIDC loans for fixed investment would not exceed 15 years and 3 years respectively; maturity and grace period of sub-loans for working capital vould not exceed 7 years and 3 years respectively (Sections 2.02(e) and (f) of the draft PA); this repayment period is the same as in NIDC's first credit line which showed that the proposed repayment period is appropriate to meet the needs of industrial enterprises in Nepal. 45. Procurement and Disbursement. The goods and services to be financed out of the proceeds of the Credit shall be purchased in accordance with NIDCs procurement regulations which are satisfactory in that they take into account factors, such as time of delivery, efficiency and reliability of the goods as well as availability of maintenance facilities and spare parts of the same; in the case of services, quality and the competence of the parties would be considered (Section 2.04(a) of draft PA). IDA's disbursements for eligible sub-loans would be against 100% of the foreign exchange cost of imported goods and services, 70X of goods and services locally procured and initial permanent working capital in the form of imported materials inputs. For technical assistance components, IDA would finance 100% of expenditures for consultancy/advisory services, overseas training, and foreign exchange cost of imported goods (Schedule 1 of the draft DCA). 46. Disbursements for the Import/Export Facility (IEF) would be made in two tranches of US$500,000 each; disbursement of the first tranche would be made after HNG/NRs have established the IEF by contributing its minimum share  -18- of US$500,000 and HHG through the Ministry of Industry hasbadopted eligibility criteria and procedures for the IEF satisfactory to IDA; disbursement of the second tranche would be made after IDA's satisfactory review of the utilization of the first tranche (Section 3.04 and Schedule 1, para 4(b) and (c) of the draft DCA). IDA's contribution to the IEF vould be made available for eligible NIDC sub-loans by June 30, 1987 (Section 3.08 of the draft DCA). 47. ReDorting. Accounts, and Auditing. The Borrower shall maintain, or cause to be maintained, separate records and accounts adequate to reflect in accordance with zonsistently maintained appropriate accounting practices the operations, reeources and expenditures, in respect of the Project, of NUB and the departmentu or agencies of the Borrower responsible for carrying out the various components of the Project. In addition the Borrower shall have the respective accounts prepared and audited for each fiscal year in accordance vith appropriate auditing principles by independent auditors acceptable to the Association (Section 4.01(b) of draft DCA). The implementing agencies would be required to submit quarterly progress reports on the implementation of components under their jurisdiction. NIDC will continue to submit audit reports in a fora satisfactory to IDA no later than 5 months after the end of its fiscal year, i.e. by December 15 (Section 3.02 of draft PA). It will continue to submit quarterly progress reports on its operations and institutional developmeut. Benefits 48. The IDP is expected to result in additional investments and improved efficiency in industrial enterprises in Nepal. Direct benefits of the lending components are expected to result in about Rs 160 million in incremental productive investments in about 40 enterprises; roughly 2,300 additional jobs would be created at a fixed cost per job averaging-US$4,000. The Import/Export Facility expects to generate exports in convertible foreign exchange of about US$10.0 million annually equivalent to about 30X of total merchandise exports in 1981/82. In addition, productivity and exports of the leather group vould be increased through key investments and technical services at various stages of leather collection, processing, and footwear manufacture. New projects would be promoted particularly in light engineering and selected agroprocessing groups, vhich could result in nev technology and foreign investments. The technical assistance components of the project are expected to assist ENC in-implementing selected industrial policies and export promotion efforts. NIDC would be assisted to improve its operations vhich should result in an improved quality of industrial projects in Nepal'. Risks 49. The usual risk in the sub-loan component is that an adequate number of identified and eligible subprojects may not materialize due to inadequate entrepreneurial interest, the multiple constraints to industrialization and  -19- difficulties in incentives and their administration. The proposed IDP has been designed to help address these constraints by providing a conservative sub-loan amount; entrepreneurial training courses in preparing and promoting viable industrial projects; assistance in the development and implementation of appropriate incentives for industry and exports through training and technical assistance; and incorporation of subsector development components in key product groups. Success of the leather development program would depend primarily on the recovery of the leather market, the actual structuring of the investment projects, and the ability of consultants to influence the upgrading of methods and designs. PART V - LEGAL INSTRUMENTS AND AUTHORITY 50. The draft Development Credit Agreement between the Kingdom of Nepal and the Association, the draft Project Agreement between the Nepal Industrial Development Corporation and the Association, and the Recommendation of the Committee provided for in Article V, Section l(d) of the Articles of Agreement are being distributed to the Executive Directors separately. 51. Special conditions of the project are listed in Section III of Annex III. Conditions of effectiveness include (a) execution of a satisfactory subsidiary loan agreement between EMG and NIDC (Section 6.01(a) of draft DCA) and (b) adoption of NIDC's amended Policy and Strategy Statements by NIDC's Board of Directors (Section 6.01(b) of the draft DCA). The signing of an agreement between HMG and NRB (Schedule 1, para 4(b) of the draft DCA) satisfactory to IDA, is a condition of disbursement for the SDR 1.0 million allocated for the IEF. 52. I am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 53. I recommend that the Executive Directors approve the proposed Credit. A. W. Clausen President Attachments November 20, 1984 Washington, D.C.  -20- ANNEX I T A LE I3A Page 1 of 5 *sAL -OIAl INDICATOIS DATA, BSN1 Sin EEPERAL Scull (WEIIND AVRUUJ mOST (T RET EITDEATL) ft RECENT LOW iICON MI ULE xENCO iu.otk 1970a1k STIH ASIA U PACIFIC ASIA & PACIIC AREA CIIUMS SQ U) TOTAL 140.8 140.3 140.8 ACRICULTURAL 35.3 36.3 41.2 crC pM SOn (uI) 60.0 80.0 170.0 273.6 1091.2 mmumc Oien.T IR CAPIT (KILOGRMS OF OIL EQUIVALKNT) 3.0 10.0 10.0 272.0 567.3 IOPMAIT11 AND rZL 8UTZIC POPULATIONMlID-TEAR CTOUSA) 9404.0 11350.0 15428.0 UR8A1 POPUATION CZ OP TOTAL) 3.1 3.9 6.4 21.7 34.i POPULATION PROJECTIONS POPULATION IN TEAR 2000 (MILL) 24.3 . STATIONARY POPULATION (MILL) 71.1 POPULATION NOUINTOC 1.9 POPULATION DNSmTY PER Sq. MM. 64.8 30.6 101.7 166.6 261.9 PE sq. M. AGRI. LAND 266.2 308.4 363.1 345.5 1735.1 POPULATION AGE STRUCTIUE (Z) 0-14 YIRS 39.1 42.0 42.2 35.8 39.0 15-64 YS 57.4 55.0 54.7 59.8 57.6 65 AND AWV 3.5 3.0 3.0 4.3 3.3 POPULATION ROWTH RATE CZ) TOTAL 1.4 1.9 2.6 1.9 2.3 UlESA 4.5 4.2 5.0 4.1 4.3 CRUE BIRTH RATE (PM TNOVS) 45.9 46.3 42.9 27.7 30.1 CRUDE DEATH RATE (PU TlS) 25.6 23.0 18.6 10.1 9.5 GROSS REPRODUCTION RATE 2.7 3.1 2.9 1.8 2.0 FAMILY PLANING ACCEPrORS, AUSUAL (TUOUS) .. 29.7 223.2 USERS ( Or KAt O) .. .. 7.0 .. 52.7 ImNDE O FOOD PROD. PER CAPITA (1969-71-100) 106.0 101.0 83.0 112.8 123.0 PER CAPITA SUPPLY OF CALORIES (2 OF REQUIESS) 95.0 96.0 86.0 97.7 114.4 PROMEIS (GRAS PR DAY) 51.0 51.0 45.0 56.8 57.0 OF WHICH ANIMAL AS PULSE 10.0 9.0 6.0 Le 14.9 14.1 WILD (ACS 1-4) DEATH RATE 32.6 27.8 22.0 9.8 7.2 LIF EXPECT. AT BIRTH (TEARS) 38.5 41.5 45.7 60.0 60.4 IWANT NMMT. RATE (PER TROUS) 194.5 172.5 145.2 83.3 66.3 ACCESS TO SAFE WATER (%POP) TOTAL ,, 2.0 9.0 32.9 37.0 URN 47,7 53.0 81.0 7& 70.9 54.8 RURAL .. .. 5.0 f 22.1 26.4 ACCESS TO EXORETA DISPOSAL (C OF POPULATION) TOTAL .. 1.0 1.0 a 13.1 41 .3 URJAN '' 14.0 14.0 Jj 72.8 47.6 RURAL .. .. .. 4.6 33.3 POPULATION PER PNYSICIN 73470.0 51360.0 /f 30060.0 3484.2 77'9.4 POP. PER NRING PERSN 70500. 0 f 33420.0 4793.1 2460.4 POP. PI HSPpITAL IS TOTAL 8260.0 6930.0 5780.0 1066.5 1044.2 UN 290.0 330.0 450.0 IC 298.0 651.2 RURAL .. .. .. 5993M. 2594.6 ADMISSIONS PE HOSPITAL BED .. .. .. .. 27.0 warn AURAS SIZE OF HOUSEHDLD TOTAL 5.5 URRAN 5.6 .. AL .. .. AVERAGE N. OF PERSONSIR| TOTAL .. .. URBAN 2.0 .. a~~~~~ '. .. ACSS TO ELECT. (Z Or DWELINGS) TOTAL ,. ., 3.0, URAN 30.2 .. RL .. ..  -21- ANNEX I Page 2 of 5 NEPAL _ _OCIAL _NDICATORDATA INlND HOST (MT RICNT 257THATE) L 19601k 1970 RECENT uW mcmi HIDDIA INCOME 9yL siiTDiATiLk. ASIA & PACXFIC ASIA & PACIFIC XDKWN ADJUSTED EISOLWENT PATIOS PRINARTs TOTAL 10.0 26.0 91.0 97.4 102.0 MALE 19.0 43.0 126.0 110.5 105.9 FULZ 1.0 S.0 53.0 83.7 9S.2 SECONDARY: TOTAL 6.0 10.0 21.0 35.9 46.0 KALE 11.0 16.0 33.0 44.6 48.7 FmIUA 2.0 3.0 9.0 26.1 43.1 VOCATIONAL (2 oF SEONDART) 0.2 5.6 6.6 /e 2.2 17.5 PUPIL-TEACHER RATIO PRIAIUT 33.0 22.0 38.0 38.5 31.6 SECOUDART 32.0 A .. 31.0 16.7 23.5 ADULT LERACT RATE CZ) . 13.0 19.0 53.4 72.9 PASSENGR CARS/THOUSAND POP 0.1 0.4 . 0.9 10.1 RADIO RECEIVERSP/TOUSAND POP 3.0 4.6 20.5 112.1 113.6 TV RSCEIVERS/TROUSAND O .. .. .. 15.7 50.1 NEWSAPERA ("DAILY GENERAL INTEZRST") CIRCULATION PER THOUSAND POPULATION 0.7 2.4 7.3 /d 16.2 53.9 CIND(A ANNUAL ATTENIMNCE/CPITA .. .. .. 3.6 3.4 LABOR PODEM TOTAL lABOR FORCE (THOUS) 4853.0 5534.0 7316.0 FEM (PERCENT) 40.5 39.2 3B.9 33.3 33.5 AGRICULTURE (PERCENT) 95.0 94.0 93.0 69.6 52.2 INDUSTRY (PERCENT) 2.0 2.0 2.0 15.6 17.9 PARTICIPATION RATE (PERCENT) TOTAL 51.6 48.8 47.4 42.6 38.7 fALE 61.5 58.B 57.6 54.7 50.9 FEKALE 41.8 38.6 37.1 29.6 26.6 ECONMIQC DEPENDENCY RATIO 0.8 0.9 1.0 1.0 1.1 TIII pDIEUDUIO PERCENT OF PRIVATE IRCME RECEIVED BY HIGUEST SE OF HOUSEIIDLDS .. .. 35.3 /c .. 22.2 HIGBEST 201 OF IOUSEODLDS .. .. 59.2 77 .. 46.0 LOWEST 20S OF HOUSEODLDS .. .. 4.6 .. 6.4 L1tESr 40S OF HOUSEHOLDS .. .. 12.6 ic .. 15.5 POT1012 TAinT -RO ESTIMATED ABSOLUTE POVERTY INCQIE LEVEL (US$ PER CAPITA) URBAN .. .. 95.0 /i 133.9 186.6 RURAL .. .. 45.0 7 111.6 152.0 ESTIMATED RELATIVE POVER INOE LEVEL (USS PER CAPITA) URBAN .. .. .. .. 177.9 RURAL .. .. 41.0 /I .. 164.6 ESTIMATED POP. BELOW ABSOLUtrE POTIRYC INCOME LEVEL (S) URBJU .. .. 55.0 /c 43.6 23.4 RURAL .. .. 61.0 & 51.7 37.7 NOT AVAILABLE lNOT APPLICABLE N OT E S /a The group averages for each Indicator are population-weighted aritbmtlc ua. C. eraer of contries aon the indicators depands on availability of data and Is not uniform. /b bleme otherwise noted, "Data for 1960" refer to ay year betuen 1959 and 1961; "Data for 1970" betwee 1969 mud 1971; and data for flout Recent Estlate' between 1980 and 1982. Ic 1977; /d 1976; 1. 1975: If Personanl in govenment *ervices only; /L Perentae of population; lb 1963; JUNE. I96  _Pw age A. - .43 - see3g3e" e693 1A 3 33 . p a 91eseea1 3.019) - 9133 Image p l3- se30130 "a3 .01-, La .-.S93p .1-ox .w dedl ena23lese 31193 P l43 -Iv69 33113 .*'tllej m.9309339 s 9 a. 544.133223d.i.1 * ..4 .3 -e s- Fu9eq-q 19. P -re -l.-sa9 el2 seek SAid pi- e-l .tq.013, see13 pn .1 -.3- 33 P MU-5 "flts.fla k - P-wi-a .q La a.3 . - 11933.3 53348 *3391d~ P-"--90 - r3les 31 IftI p. 914 31i6 993=31 =.wos - M- 39i 9i903 -u.s.a .a.- P. 93.3. i." n.a4 -. *r 9 s n.1 ni i. 3 q.*ynaq.de- ...P NMt 3- Ons gomt vel.a" oil Pa-.. -34 9 3 3633 33 39 (398353- 339395 *.iS.4 - 3133395 - 33*91 993ti-3d 9333 333.-' P - 993- 3`- 36.B3e3 ' 119 - -