Capacity utilization of industries in Q1 declined amid the economic slowdown

The capacity utilization of industrial enterprises in Nepal stood at 61.53 percent in the first quarter of the current fiscal year 2022/23. According to the Industry Status Report published by the Confederation of Nepalese Industries (CNI), capacity utilization of the service industry declined in the first quarter while that of the manufacturing industry increased. As per the CNI report, the service industry's capacity utilization stood at 78.9 percent in the first quarter of this fiscal year compared to 81.66 percent in the final quarter of the last fiscal year 2021/22.

The manufacturing industry fared marginally better in the review period with capacity utilization of 53.63 percent compared to 47.54 percent in the last quarter of FY 2021/22.

The acute shortage of liquidity in the financial system, rising interest rates, and the slowdown in demand have hit the revenue of the industries, according to CNI. The across-industry-average revenue growth was negative by 10.63 percent in the first quarter of this fiscal. The average revenue growth in the last quarter of the last fiscal was 10.97 percent. "The revenue generation has shrunk sharply in the first quarter of FY 2022/23," states the report. The CNI report shows that 45.06 percent of working capital was met through credit from banks and financial institutions in the first quarter of FY 2022/23. "With the implementation of the Working Capital Loan Guideline, 2079, the drawing power of enterprises for working capital has been limited. This can bring unforeseen challenges to operate businesses, particularly for manufacturing companies," says the report. As per the report the average interest rate on bank loans stood at 12.75 percent in the review period. The report says the average interest rate on loans increased by one percentage point in the first quarter of the current fiscal year compared to the last quarter of the last fiscal year. According to CNI, the average share of imported raw materials by the manufacturing industry in the review period stood at 51.98%. Similarly, CNI has highlighted that getting a reliable power supply is still a major issue for industries in the country. According to the report, 56.25 percent of the industries still use generators as the electricity supply is not reliable. Industrialists say that the electricity provided by Nepal Electricity Authority (NEA) is from a common feeder for an area which reduces the reliability so a separate feeder is essential for commercial purposes. Those manufacturing industries using generators as alternative sources of energy stated that an additional 18.43 percent cost has increased due to the use of generators. According to CNI, the report was prepared based on a survey of 45 industries belonging to manufacturing, financial, trade, communication, IT and agriculture.