A report on

External analysis of Construction in Nepal

Submitted to
Prof. Dr. Pushkar Bajracharya
Faculty, School of Management
Tribhuvan University

Submitted by
Anjana Lamsal
Nischal Kumar Subedi
Rashmi Bharati
Subash Upreti
MBA 14th Batch, SOMTU

In partial fulfillment of the requirements for the degree of

Masters in Business Administration (MBA)
Kirtipur, Kathmandu
October, 2019
1. Introduction

Construction is the process of making anything such as building, bridges, roads, and any such
infrastructures. Nepal is a land-locked, rugged topography country situated between China
and India. Till 1950, the country was isolated from the rest of the world. Means of
transportation and communication did not exist. After the commencement of First Five Year
Development Plan (1956), Nepal's planned economic development started. This is the period
of Tenth Five Years Development Plan but the success in hand is very negligible in
agricultural and industrial development. It has a population of about 23.21 million with
annual population growth rate of 2.24 percent, and literacy rate of 48 percent. Almost 90
percent of the population lives in the rural areas and most of them depend upon agricultural
sector. This sector provides around 40 percent contribution to GDP. On the other hand, due to
lack of appropriate policy, plans, stable political environment, infrastructures, technology and
adequate investment, the industrial sector remains still at infant stage. It provides very
negligible contribution to GDP and employment opportunity.

In the last two decade there has been considerable progress in the construction industry.
During the period the Nepalese contractors have been able to develop their management skill,
improve working capacity, financial and technical capabilities, and acquire suitable
construction equipments. As a result local contractors have been able to compete and
participate in mega construction project.

Nepalese Construction Industry contributed around 10 to 11 percentages to GDP and it uses

around 35 percent of government budget. It is estimated that this sector is creating
employment opportunities to about one million people so it generate employment next to
agricultural sector in the country. Similarly about 60 percentages of the nation's development
budget is spent through the use of contractors. From this, it is clearly seen that construction is
a major sector and any productivity enhancement activity in this sector will have a positive
impact in the overall improvement of the national economy.

At the moment with a lot of people going abroad, we have an acute shortage of skilled
manpower. Even though we have some domestic supply of cement and reinforcement (steel),
the prices shoot up during the working season. This hampers the cost of construction. The
households that have been prepared to rebuild their homes after the earthquake are severely
hit by this crisis.
The other main ingredients of construction, river and quarry sand and aggregates are
abundant in Nepal but due to improper regulations, it is only extracted by few people hence
making it scarce and expensive for the public.

2. Political Environment
The political structure of a country exerts a powerful influence on the form of business
political relationship. Both these institutions use this relationship for their mutual advantage.
Hence, business-government relationship has emerged as one of the central issues in
contemporary politics. The ideological differences among different political parties in Nepal
effect the business.

The political factors which affect the construction industry are regarding the permits and
documentation which have to be obtained during the various stages of construction.
Political factors take into account the degree to which the government most probably may
change or influence a certain industry or the economy.  For example, A new tax or duty
which may result in a change of the revenue generating structure of the organisation. The
government may impose these regulations on the particular industry.   

There had been a long political instability in Nepal for decades. However, we have been able
to see political stability in the recent government of KP Sharma Oli. This political stability is
one of the good sign for the construction industry to groom it. The recent movements of this
government has created favourable environment for commencing business in Nepal. As we
can see lots of construction project going on in this government such as Upper tamakoshi,
roads construction, on going airport construction in Nijgadh, future plan of trailways from
China to Kathmandu, Kerung, Kathmandu Tunnel ways, these efforts can lead construction
sector to a different height. Thus, political factor is one of trhe most important and very
promising now a days in context of Nepal.

3. Economic Environment
Construction is the process of constructing a building or infrastructure. Construction differs
from manufacturing in that manufacturing typically involves mass production of similar
items without a designated purchaser, while construction typically takes place on location for
a known client. Nepal being underdeveloped country has lots of construction work and there
are many construction companies that are providing the services to construct building,
flyover, bridges, roads, and many more. Construction as an industry comprises six to nine
percent of the gross domestic product of developed countries. Construction starts with
planning, design, and financing; it continues until the project is built and ready for use.
GDP From Construction in Nepal increased to 55121 NPR Million in 2018 from 50595 NPR
Million in 2017. GDP From Construction in Nepal averaged 36923.28 NPR Million from
2001 until 2018, reaching an all time high of 55121 NPR Million in 2018 and a record low of
27225.05 NPR Million in 2001.

The construction company in Nepal is progressing.Here, most of the construction companies 

are concentrated in the major cities like Kathmandu, whereas there is little access in the rural
areas.

Nepal is an underdeveloped country and like all underdeveloped and developing countries,
infrastructure development is the key for economic boom.  Hence, I would say that Nepal has
a very good scope in the construction industry for years to come. However, lack of skilled
manpower and slow development in this sector due to various factors has held it back.
GDP From Construction in Nepal is expected to be 53574.96 NPR Million by the end of this
quarter, according to Trading Economics global macro models and analysts expectations. In
the long-term, the Nepal GDP From Construction is projected to trend around 59630.26 NPR
Million in 2020, according to our econometric models.

The prices of cement and steel rises up during the working season and most of the skilled
manpower are abroad working and there is a lack of skilled human resources in our own
country. The households that have been prepared to rebuild their homes after the earthquake
are severely hit by this crisis.
The other main ingredients of construction, river and quarry sand and aggregates are
abundant in Nepal but due to improper regulations, it is only extracted by few people hence
making it scarce and expensive for the public.

4. Socio-Cultural Environment
Social and cultural environment refers to the formation and change of social structure, social
customs and habits, beliefs and values, codes of conduct, lifestyle, cultural traditions,
population size and geographical distribution. Any enterprise is in a certain social and
cultural environment, and the marketing activities of enterprises are bound to be influenced
and restricted by the social and cultural environment. Therefore, enterprises should
understand and analyse the social and cultural environment, formulate different marketing
strategies and organize different marketing activities according to different cultural
environment.
In Nepal everyone wants a quality of life which is obtained through various facilities like
education, healthcare system, hotels, department store near to the residential area and it is
only possible if these are constructed. Tourists are also attracted to Nepal because of its
development in roads, hotel and lodges, trekking route.
The deadlines of construction works never meet in Nepal as everything gets passed to
“tomorrow”. Work starts late during monsoon and deadlines don’t get to meet. The pace of
change in Nepal is slow. Traditionalism is deep-rooted. Environmental adaptation by
organization is slow. However, the advent of new information technology is transforming
attitudes towards change. Achievement-orientation is lacking in the Nepalese society. Lack of
opportunities and capabilities has been largely responsible for such attitudes. The tendency to
‘live for today’ among workers is pronounced.
Nepalese people are deficient in modern skills. They have mostly agricultural-based
traditional skills. This affects the pace and tempo of business environment of the
organization. Access to technical education is very limited. Due to education and increased
mobility, the traditional class structure has been slowly disappearing. The emerging and
distinctive class structure , which is mainly based on social status, education and wealth, has
opened up new frontiers if economic and business activities. Even women are working in
construction work nowadays.

5. Technological Environment
With technology growing and innovating year on year, most industries have been affected by
some sort of industry disruption. That paired with uncertain and complex economic and
political times has forced business either to adopt or change their ways or resulted in failure. 
In the past decades in Nepal, the construction industry has seen many changes from the
construction materials used, type of builders, to methods used to design and build new
facilities –all because of advancements in technologies.

The massive destruction after the earthquake (April, 2015), change the whole scenario of
Nepal. Nepal was drastically changed and many monuments, buildings, roads were
destroyed.  Many projects that were on hand were postponed. After four years of destruction,
Nepal Government is making a lot of improvements in rebuilding monuments, roads and
many other projects.
Although traditional materials such as bricks, wood, mud , mortar and steel are still important
components of most buildings , technology is also changing how materials are created and
used. Since few years, many modern apartments’ buildings and hotels are built using paneled
walls which are designed by computers and made in factories, using the materials which
prevent against earthquake instead of making promptly on site. The methods of creating these
materials reduce labor cost and waste.

The handbook on brick with cement motor construction technology has been prepared to
support the skilled masons working to construct the earthquake resilient rural building under
Gorkha housing construction projects. The designs, models have been published in
accordance with the Nepal government’s building construction code. Not only that the Nepali
Army opened Mailung – Syaphrubesi track in Rasuwa and handed it over to the government.
However, the fast track is something different as it is a 72-km four lane expressway.

Since various technologies and modernized equipments have made construction work easier
in Nepal. Since the earthquake many countries are supporting Nepal for the developmental
activities in Nepal.  By the next year, Nepal is all set to bring two technologies for road
maintenance. As per the information provided by the OMCN (Office of the Millennium
Challenge Nepal) work on road maintenance will start as a pilot project as early as May next
year. As a unique approach to the maintenance, two new technologies- full depth recycling
with soil cement stabilization and super pave asphalt will be used.

Cable car is becoming new business attraction to people and ultimately supporting the
development of the country technically and economically. Cable Car facilities by Annapurna
Cable Car Pvt. Ltd from Sedibagar to Saangkot , Gaidakot to Maulakali  and Maulakali to
Devghat by Maulakalika Cable Car. Similarly, Sagarmatha Ropeway Project has already
made feasibility study for the transportation of material from Lukla to Namche Bazar for
protecting environment and promotion of tourism. Built with Austrain technology , the
Manakamana Cable Car is the first and longest in the country. A mechanized bridge
constructed in a cable car model is also an operation over the Kaligandaki River connecting
Kushma and Balewa of Baglung District. The Immediate Technological Development Group
(ITDG) now known as Practical Action  is working on developing river crossing ropeways
bridges known as tuins, ropeways transport for mountain regions and in the flat regions of the
country there is an emphasis on bicycle technologies. Wire Bridges (Tuin) are an
indigenous technology and one of the most common structures for river crossing in the hilly
region of rural Nepal. There are more than fifteen tuin in operating along the Trishuli River. [
Pratical Action, Aerial Ropeways of Nepal]

Cement Industries,the industry among the country's most flourishing business sectors as the
demand for cement is constantly rising. Cement is the glue that holds the concrete together,
and is therefore critical for meeting society's needs of housing and basic infrastructure such
as bridges, roads, water treatment facilities, schools and hospitals.The government has
prioritised cement industries declaring it as a policy to provide access roads and power
transmission line facilities to mining and plant sites to set up new industries. There are around
10 clinker plants in Nepal at present. The total production of these plants is about 15,000 MT
per day which is equivalent to 3.5 million MT annually. The current production amount does
not even meet 50 percent of the requirement. But there are 4-5 more clinker plants which are
under construction currently. But still it will take another 10-12 years to become self-reliant
in clinker as the demand has also been increasing. 

The manufacturing process of cement consists of mixing, drying and grinding of limestone,
clay and silica into a composite mass. The mixture is then heated seventy seven and burnt in a
preheater and kiln to be cooled in an air-cooling system to form clinker, which is the semi-
finished form. This clinker is cooled by air and subsequently ground with gypsum to form
cement. Technically, cement is made by heating calcium carbonate (limestone) with clay to
14500C in a process whereby a molecule of carbon dioxide is liberated from the calcium
carbonate to calcium oxide. The calcium oxide is then blended with some other materials
which results in a hard substance, called ‘clinker.’ Then clinker is mixed and blended with a
small amount of gypsum in a process which ultimately generates a powder that commonly
called ordinary Portland cement  

Along with the technology, it is necessary to the construction workers to improve their skills
and learn new methods of operations for achieving competitive advantages.

6. Legal Environment

The business legal environment plays a very important role in determining the success of any
businesses around the globe. The government taxes that are being imposed among other
regulatory measures help to promote economic growth and to protect consumers from
exploitation and other illegal factors.
 Thus, Construction Business Act, 2055 (1999)  enacted by the Parliament in the twenty-
seventh year of the reign of His Majesty King Birendra Bir Bikram Shah Dev.  Beginning the
first chapter with the definitions of all construction types the act is intended to follow
properly by all people.

Construction Business Act ,2055 

Defines public construction works “ Any kinds of construction related works to be carried out
by the Government of Nepal and anybody corporate  fully owned by Government of Nepal,
and this term also includes reconstruction and maintenance works.”

Defines the term "construction entrepreneur" means a firm or company registered under the
prevailing law with an object to carry out construction business.

 Defines the term "foreign construction entrepreneur" means a firm or company which is
registered in a foreign country and carries out construction business related works.

Defines the term "license" means a license to be issued pursuant to Section 4 to carry out
public construction works.

The second chapter of Construction Act covers provisions relating to license.

1. Prohibition on carrying out construction without a license: No person shall carry out
or cause to be carried out public construction works without having obtained a license
pursuant to this Act.
2. License: (1) A construction entrepreneur who intends to carry out public construction
works shall make an application, accompanied by such fees and in such format as
may be prescribed, to the committee for the license to carry out public construction
works.
3. Validity period and renewal of license: A construction entrepreneur who intends to
get the license renewed within six months of expiration of the time limit as referred to
in Sub-section may get the license renewed as prescribed by paying the prescribed
fees.

The third section of Construction Act consists of Classification and Obligation of

Construction Entrepreneur. 
 1. Classification of Construction entrepreneurs: The construction entrepreneurs
who carry out public construction works shall be classified as follows based
on the prescribed grounds:

(a) Construction entrepreneur of class "A";

(b) Construction entrepreneur of class "B";

(c) Construction entrepreneur of class "C";

(d) Construction entrepreneur of class "D".

2. Obligation of construction entrepreneur: It shall be the obligation of the construction

entrepreneur to carry out public construction works, subject to the terms and
conditions mentioned in the contract agreement and submit statements of each
construction works completed by him to the committee as prescribed.
2. Grouping of construction entrepreneurs: Government of Nepal may, based on the
prescribed grounds and on the recommendation of the council, group the construction
entrepreneurs classified pursuant to Section 8.

Construction Act 2055 includes the Construction Business Development

Council and Execution Committee in its fourth chapter.

Construction business development council: (1) The following Construction

Business Development Council shall be formed to prepare the necessary
policies and give direction to the concerned bodies in order to carry out the
construction business in a consolidated and systematic manner: 

(a) Minister for Works and Transport -Chairperson

(b) Member, National Planning Commission (looking after works and

transport sector) -Member

(c) Secretary, Ministry of Works and Transport - Member

(d) Secretary, Ministry of Water Resources -Member

(e) Secretary, Ministry of Housing and Physical Planning -Member

 (f) Chairperson of Nepal Construction Entrepreneurs' Federation or
representative designated by him/her -Member

(g) Chairperson, Society of Consulting Architectural and Engineering Firm

(SCAEF) -Member

(h) Technical Joint Secretary designated by the Ministry of Works and

Transport -Member Secretary

The chapter five of Construction Act consists about fund and audit.

Construction entrepreneur fund: (1) A construction entrepreneur fund is hereby established to

render necessary services and assistance to the construction entrepreneurs in order to enhance
the quality standard of public construction works and the efficiency of construction
entrepreneurs.

(2) The following amounts shall be credited to the fund as referred to in

Sub-section (1):

(a) Amounts obtained from Government of Nepal,

(b) Fees obtained from construction entrepreneurs,

(c) Amounts obtained from native or foreign organizations.

(3) Expenditures shall be made from the fund as per the decision of the council.

(4) The fund as referred to in Sub-section (1) shall be operated and audited as prescribed.

The last chapter of Construction Act consists of miscellaneous part like  contracts documents
to be forwarded ,details of goods imported under facility to be set out, prohibition in the use
of machinery, tools etc. imported by foreign construction entrepreneur under facility for
another purpose, prevalence of agreement concluded with foreign government or
organization, punishment, power to form sub committee, issuance of duplicate copy of
license, delegation of authority and saving.
7. Ecological Environment
Construction works are carried in the environment we live in. So, we can say the construction
work directly affects the ecological environment we live in. There are various pre and post
ecological planning to be done before a construction work is carried out. Construction uses
resources extracted from the environment and release it to the environment which makes
ecology very vulnerable. One prime example of ecological disturbance in Nepal is Nijgadh
international Airport, which will take about 7,63,480 trees to be cut in first phase along with
destruction of animal pathway used for seasonal migration by animals.

           Construction and ecology in Nepal

According to new research by construction blog Bimhow, the construction sector contributes
to 23% of air pollution, 50% of the climatic change, 40% of drinking water pollution, and
50% of landfill wastes. In separate research by the U.S. Green Building Council (USGBC),
the construction industry accounts for 40% of worldwide energy usage, with estimations that
by 2030 emissions from commercial buildings will grow by 1.8%.
So, this all sums up how much the construction affects the overall environment we live and
the depth it has on plants and animals as well.
References

https://www.b360nepal.com/leadership/the-construction-business-is-a-very-tough-business-
especially-in-nepal.html
http://engineeringhint.com/list-of-10-top-construction-companies-in-nepal/
https://en.wikipedia.org/wiki/Construction
https://tradingeconomics.com/nepal/gdp-from-construction
https://www.quora.com/What-are-some-examples-of-socio-cultural-environment-that-affect-
a-companys-marketing

https://www.b360nepal.com/leadership/the-construction-business-is-a-very-tough-business-
especially-in-nepal.html

http://santoshbaral.blogspot.com/2009/12/nepalese-construction-industry.html

https://www.blackdownenvironmental.co.uk/ecological-considerations-prior-to-construction/

https://glocalkhabar.com/construction-sector-in-nepal-is-full-of-opportunities-tara-bahadur-kuwar/