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JOBS SERIES Issue No JOBS SERIES Issue No. 22 Public Disclosure Authorized Public Disclosure Authorized DIAGNOSTIC NEPAL Public Disclosure Authorized Elizabeth Ruppert Bulmer, Ami Shrestha, and Michelle Marshalian Public Disclosure Authorized DIAGNOSTIC NEPAL Elizabeth Ruppert Bulmer, Ami Shrestha, and Michelle Marshalian The publication of this report has been made possible through a grant from the Jobs Umbrella Trust Fund, which is supported by the Department for International Development / UK AID, and the Governments of Norway, Germany, Austria, the Austrian Development Agency, and the Swedish International Development Cooperation Agency. © 2020 International Bank for Reconstruction and Development / The World Bank. 1818 H Street NW, Washington, DC 20433, USA. Telephone: 202–473–1000; Internet: www.worldbank.org. Some rights reserved This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. Rights and Permissions This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) http://creativecommons.org/licenses/by/3.0/igo. Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following conditions: Attribution —Please cite the work as follows: Elizabeth Ruppert Bulmer, Ami Shrestha, and Michelle Marshalian. 2020. “Nepal Jobs Diagnostic.” World Bank, Washington, DC. License: Creative Commons Attribution CC BY 3.0 IGO. Report Number: P163141. Translations — If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by The World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation. Adaptations — If you create an adaptation of this work, please add the following disclaimer along with the attribution: This is an adaptation of an original work by The World Bank. Views and opinions expressed in the adaptation are the sole responsibility of the author or authors of the adaptation and are not endorsed by The World Bank. Third‑party content — The World Bank does not necessarily own each component of the content contained within the work. The World Bank therefore does not warrant that the use of any third‑party‑owned individual component or part contained in the work will not infringe on the rights of those third parties. The risk of claims resulting from such infringement rests solely with you. If you wish to re‑use a component of the work, it is your responsibility to determine whether permission is needed for that re‑use and to obtain permission from the copyright owner. Examples of components can include, but are not limited to, tables, figures, or images. All queries on rights and licenses should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202–522–2625; e‑mail: [email protected]. Images: © World Bank. Further permission required for reuse. Page 20, Woman carrying produce in Nepal, World Bank. Page 20, Nepalese schoolgirl carrying her backpack, World Bank. Page 42, Agricultural workers walking across a field in Nepal, World Bank. Page 72, Sidewalk market stalls in Nepal, World Bank. ACKNOWLEDGMENTS This Jobs Diagnostic report was prepared by a team led by Elizabeth Ruppert Bulmer (Lead Economist, Jobs Group, World Bank) and comprising Ami Shrestha (Consultant, Jobs Group, World Bank) and Michelle Marshalian (Consultant, Jobs Group, World Bank). A key input was the background study by IMC Worldwide entitled “Market Study to Understand Job Growth Potential in SMEs in Nepal”, and the accompanying SME survey carried out by IMC Worldwide and local partners Antarprerana and FACTS Research & Analytics. The SME survey component benefited from both technical collaboration and financial support from the World Bank’s Rural Economic and Enterprise Development Project (P170215) team, notably Mio Takada, Bradford Roberts and Anupa Aryal Pant. The report was carried out under the guidance of Idah Pswarayi‑Riddihough (Country Director, Sri Lanka, Maldives and Nepal), Faris Hadad‑Zervos (Country Manager, Nepal) and Ian Walker (Manager, Jobs Group). The team also benefited from the generous collaboration of colleagues across the Nepal Country Team including those from Agriculture, MTI, FCI, IFC, Health, Education, Transport, Energy and Poverty, and most notably the Social Protection team, especially Jasmine Rajbhandary who guided consultations in country. The team is grateful for all the comments provided during the review process, with particular thanks to peer reviewers Wendy Cunningham (Lead Economist, Social Protection and Jobs Global Practice, East Asia), Sjamsu Rahardja (Senior Economist, Equity, Finance and Investment Global Practice (Macro‑Fiscal), ECA) and Sailesh Tiwari (Senior Economist, Equity, Finance and Investment Global Practice (Poverty), East Asia). The team would like to express its thanks to the National Planning Commission and to the Central Bureau of Statistics of the Government of Nepal for their assistance and feedback related to the labor force survey data. The report benefited from productive consultations with and input from officials in the Ministry of Labor, Employment and Social Security, the Ministry of Industry, Commerce and Supplies, the Ministry of Finance, and the National Planning Commission, for which the team is especially grateful. The analysis was made possible through the financial support of the World Bank’s Jobs Umbrella Multidonor Trust Fund (MDTF), which is supported by the Department for International Development / UK AID, the Governments of Norway, Germany, Austria, the Austrian Development Agency, Italy, and the Swedish International Development Cooperation Agency. i ABBREVIATIONS ADB ..................Agriculture Development Bank BSO ..................Business support organization CBS ..................Central Bureau of Statistics DoFE .................Department of Foreign Employment EPI ....................Economic Policy Incubator FDI ....................Foreign direct investment FITTA ................Foreign Investment and Technology Transfer Act FY .....................Fiscal year GCC .................Gulf Cooperation Council GDP ..................Gross domestic product GoN .................Government of Nepal ICLS ..................International Conference of Labor Statisticians ILO....................International Labour Organization IRR ....................Internal rate of return LFP ...................Labor force participation LLC ...................Limited liability company LMIC ................Lower middle income country MFI ...................Micro‑finance institution NEET .................Not employed or in education or training NGO .................Non‑governmental organization NLFS .................National Labor Force Survey OECD ...............Organisation for Economic Cooperation and Development SCC ..................Savings and credit cooperative SDG ..................Sustainable Development Goal SIF ....................Special Investment Fund SSF ...................Social Security Fund WDI ..................World Development Indicators ii CONTENTS PREFACE iv EXECUTIVE SUMMARY 1 1. OVERVIEW OF THE ECONOMY AND STRUCTURAL TRANSFORMATION 11 2. IMPACT OF STRUCTURAL AND DEMOGRAPHIC TRANSITION ON LABOR MARKET OUTCOMES 21 3. INTERNATIONAL MIGRATION 43 4. PRIVATE SECTOR DEMAND FOR LABOR 51 5. BUSINESS ENVIRONMENT AND LABOR REGULATIONS 73 6. CONCLUSIONS AND POLICY CONSIDERATIONS 83 REFERENCES 90 ANNEXES 93 PREFACE The analysis for this report was carried out during 2019, relying primarily on data collected during 2018 and 2019, prior to the outbreak of Covid‑19. The analysis therefore does not address the shocks experienced by Nepal’s economy and its people beginning in March 2020. Not only is the Covid‑19 pandemic having dire effects on the health of populations worldwide, it has severely disrupted day‑to‑day economic activity in all corners of the world. The global nature of the crisis and the imposition of mobility restrictions to limit contagion has in most economies resulted in work stoppages, self‑quarantining at home, and return migration. This impact is not only wide—most countries, most sectors, most households—but also very deep. A large share of workers have experienced income loss and temporary or permanent job separation. As workers are laid‑off, many migrants must make their way back home, whether internally (from cities back to rural villages) or from destinations abroad. What began as a severe supply‑side shock for labor markets has become a joint supply and demand crisis, and this interaction risks deepening the crisis and significantly delaying recovery. Global and local supply chains have broken down,
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