Historical background:
The history of use of cement in Nepal started in 1950 AD by importing it from neighbouring country, India. Later on, after the establishment of the first cement factory in 1975, the development phase kicked off. Another milestone for industrial development was the establishment of Ministry of Industry in 1981 and promulgation of the Industrial Enterprises Act, 1992 which promoted and coped with the industrial activity. In 2008 Nepal became republic after a long political exercise and following this there has been industrial development change through industrial policies reforms and increased in capital investment and development of industries which is evident from the figure 1: growth of cement production as well. The growing pace of infrastructure development and urbanization led to the evolution of the cement industry and is now one of the major manufacturing industries in Nepal.
Products:
The main products of cement manufacturing industries are Ordinary Portland Cement (OPC), Portland Pozzolana Cement (OPC) and Portland Slag Cement (PSC) and clinker.
Source: https://jagdambacement.com/
Current Situation and Development:
A total of 114 cement industries were registered with the Department of Industries (DoI). Out of 114 only 65 industries have received a National Standard (NS) license. There are 171 licenses for limestone mines by the Department of Mines and Geology (DMG). With the development and urbanization, the consumption and production of cement is increasing year by year. In the past five years the trend is exponentially increasing as shown in the figure 1. In 2018, the production of cement industry was 10.5 million tonnes. According to the Kathmandu post, its production is expected to increase to 26 million tonnes in 2025.
Business Environment:
According to Business Report 2020, Nepal ranks at 94 worldwide. Nepal is at third position in the SAARC region after India and Bhutan. This indicator shows the ease of starting a new business. In Nepal due to administrative huddles and political issues, the rank is poor. After the formulation of the new constitution in 2015, there is ongoing administrative reform of government into three levels; central, province and local units. This early stage of administrative reform is creating hassles because of the ambiguous role of province and local governments. There is duplication and conflicts in some administrative procedures between three levels of government. However, the registration and licensing of Industry in central level is done by DoI. DoI is responsible for implementation of industrial acts and policies and monitors the industry. DMG does registration of mining firms.
Nepal is a developing country and many infrastructures development and construction works like roads, rails, hospitals, houses, electricity facility, etc are going on. Even though the infrastructures like road construction and electricity supply is improving, because of insufficient road network in rural areas and lack of effective power supply as per the requirement of manufacturing industries, the industries are not being able to perform in full capacity and not able to provide profit margin. Moreover, the political situation is unstable and there is frequent change in government and the policies. So, it is seen that people tend not to invest huge amounts in manufacturing industries.
The next issues with the cement industry are environmental impact. Cement production causes air pollution so many national and international agencies are concerned with it which adds more constrained in the establishment and development of manufacturing industries. Thus, manufacturing firms need to consider the corporate social responsibilities and sustainability also.
Demand Factor
Apparently, the consumption of cement is increasing year by year and now in the past five year the demand is increasing rapidly. The government of Nepal is accelerating the growth and aims to graduate to a middle-developed country within 2025. The mega infrastructure development projects such as hydropower projects, road network, and reconstruction work after post earthquake (April 2015), development and construction of other commercial industries, and constructions of apartments in urban areas have accelerated the demand of cement in recent years. Government has plans to develop 27 small towns, 13 small cities and 5 trans Himalayan cities. Such demand growth is an opportunity for the manufacturing industry. It is because cement is one of the main ingredients for construction works. New
technologies like fabricated materials can reduce the demand but can not replace cement completely. At present only 70 % of demand is fulfilled by domestic production while the remaining 30% is fulfilled by imports specially from India. So, if imports can be controlled then increasing market size would promote the domestic industries.
Competition Factor
There is both internal competition and external threat to cement firms. The number of cement industries in small countries like Nepal is very high. It is even in an increasing trend. Figure 2 shows that almost all firms are small to medium size. Since consumers have high buying power because of a variety of choices, the firms have to compete with lower prices in the market.
Similarly, there are external threats as well. Being neighbours to big economies like India and China, Nepal has a big threat. In terms of production capacity and technology development these countries are ahead of Nepal. In 2020 AD India has 340 and China has 2200 million tonnes of production. It is about 30 and 200 times the production of Nepal. 
However, Nepal has an upper hand in case of labour cost compared to them. Chinese companies entering Nepali market with more than 3000 tons per day (TPD) are putting pressure on existing domestic industries in terms of price and technology.
Raw Materials:
Limestone, iron ore and coal are main raw materials to produced clinker which is then mixed with gypsum, supplementary cemetery materials (SCM) to produce final product cement. About 96% of raw material is limestone which is estimated to be 1.39 billion tonnes reserved in mid Himalayas according to DMG in Nepal. Similarly, DMG has estimated that around 10.5 million tonnes of iron ore are reserved. Coal is almost imported from India. This shows Nepal has abundant resources for cement production.
Technology Factor:
a. Production: There are basically two different types of cement industries. One is fully integrated mine based and another is clinker based. Fully integrated mine based industries extract the raw materials and prepare clinker and then cement as final product while clinker-based factories produce cement from clinker supplied by other firms. The number of integrated industries is about 23% only as shown in the figure 3 which shows that very few industries are capable of producing final product cement from raw materials. Thus, only few companies are cost effective and able to produce at demand time. While clinker-based factories need to depend on clinker produced by others. The landing (transportation) cost of clinker is high which makes production cost high for these industries. The positive point about production is that the capacity utilization has been improved to 75% (global average is around 80%) in past five years due to improved road network and power supply in past years which are the essentials infrastructure for manufacturing firms like cement.
b. Core Technology: Rotary system and Vertical shaft kiln (VSK) technology are commonly used
in cement production in Nepal. Rotary system is more advanced but requires large investment. In
terms of production capacity rotary has high capacity compared to VSK technology. More advanced technology like mini grinding unit, cement grinding unit (roll press) and blending unit (Fly ash) can be used for mass production which these industries need to procure to improve their production capacity, utilization factor and cost effectiveness. At present energy efficient and environment mitigation technologies are absent in Nepal. Similarly, there is no collaboration between the industry for core technology development and accumulation of knowledge and technology.
Source: https://Shivamcement.com/
c. Quality Control and Assurance: The firms have different ISO certificate for environment, energy, occupational health and safety, and quality assurance management requirement. Further based on type of demand distinct quality of cement are produced.
There are three types of grading of cement like 33 grade, 43 grade and 53 grade to assure the customer requirement.
Human Resources:
The initial work done is mining which needs foreman. While in the factory VSK and rotary system are operated for production which employees electrical and mechanical engineers. Similarly, the final product is cement which is used in construction so to verify the product the civil engineer and to assure product quality chemists are necessary. Similar to providing security and safety from fire, human manpower with those skills is necessary. Similarly, to maintain the administrative work, marketing, accounting and overall functions of departments some IT technicians, administrative personnel are also mandatory. The universities like Tribhuvan, Kathmandu, Pokhara and Paschimanchal Universities are producing adequate human resources. About 2500 electrical, mechanical and civil engineers are graduated from those university per year which is adequate for these industries. However, the main issue with human reource is implementation of minimum on-job training and self development programmes within the organization. It has reduced the motivation of youth to work in such industries. In addition, the brain drain is another emerging issue in Nepal. It is because of low labour charge and incentives in the domestic market while that manpower gets a better salary in foreign market.
Capital Investment:
Total capital investment required for a development of a cement industry in Nepal is estimated to be around $200 million. DoI had categorized the cement industry into three types in terms of initial investment. As shown in the figure 4 we can find that most of the industries have less than $250 thousand investment in the initial phase which is very low. This shows that either business man is not investing much in these industries or the investment is divided in many small to medium firms. According to DoI, the total FDI in manufacturing industries (including cement industry) in Nepal is about 58 billion Dollar (17% of total FDI) in 2019/20. In overall industries 45% of FDI contribution is from China (including Taiwan) and 30% from India. This indicates higher FDI investment.
Critical Issues:
Figure 5: Overall Analysis of Cement Industry in Nepal
The figure 5 shows overall supply chain of cement industry in Nepal. It indicates the raw materials, human and capital resources, technology and production, demand, competitor, and business environment factors associated from left to right. It shows the strengths in green colour and issues in red colour while yellow coloured represents a situation which is changing and can be regarded as an intermediate point.
There are plenty of raw materials like limestone and ion core which account for more than 96% of total ingredients while coal is imported from India. In terms of technology used, new green technology is not used in Nepal instead rotary and VSK are only used. The production capacity utilization is about the global average. Improvement of Power supply and road network would help in improving the production capacity more and make cost effective products. Similarly in the case of Human resources, there is a need for regular on job training. While the production of graduates from the university is sufficient. It is better if Nepal gets foreign support in terms of technology. At present the FDI in cement industry is adequate. The internal investment also seems to be sufficient but they are dispersed in the form of a number of small firms.
Today the demand of cement is almost fulfilled but Nepal being a developing country the demand can be expected to grow which is an opportunity for these industries. The main issues are the large number of small firms. There is internal competition and no collaboration in core technology accumulation or knowledge gaining. The external business environment compared to South Asian countries is good but poor in global rank. Due to frequent change in government, bureaucracy and political instability many feel fear in investing in Nepal.
Another problem with these industries is that the location of raw materials are remote mid Himalayas whereas the factories are situated in city or town areas. This has increased landing cost and eventually product price and delay in supply. Another factor associated with this industry is air pollution emitted during the production of final products which need to be controlled.
Based on the above overall explanation of different factors and diagrams showing critical issues, we can identify major critical issues as crowded small and medium sized firms. This issue is related to low capital investment, dispersed investment, no collaboration in technology development between firms, poor industrial policy and even demotivated employees. Even though the production capacity utilization is good in Nepal but because of the crowded firm’s economic sales are hard to improve. They have to be competitive with price and cannot earn much profit.
Actions / Solutions:
1. Role of government:
i) As the crowded firms are the major issues to solve this problem the government, industry itself and the third party can play a significant role. The Government should initiate collaboration with the company in the similar way the MITI did in the case of Japanese industry. There must be some policy changes so that firms will merge and become giant companies. This will help in research and development collaboration, mass production and ultimately cost-effective product output and growth of profit margin.
ii) Three levels of government units like central, province and local unit and spread departmental agencies makes business time consuming in registration and licensing. The government should provide one door system service to the industry.
iii) As the domestic demand is almost fulfilled, the government should focus on G2G negotiation with other countries to open new opportunities in foreign market.
iv) Improving road network and power supply by establishing hydropower will help in better supply chain and logistics.
2. Role of Industry:
i) The industry should focus on foreign market expansion. Increase in collaboration with foreign companies to learn and adapt better technology to become competitive in foreign market.
ii) To motivate employees, they should focus on employee development by providing job training or job rotation like in Japanese industry. This would also benefit in accumulation of knowledge and technology throughout the firms.
iii) Although the 75 % capacity utlization is almost equals to global standard (about 80%), the industry can improve it using lean production system as in Toyota Production System (TPS) for continous improvement. (Tourki, 2010).
3. Recommendations:
For better manufacturing production and capacity utilization the industry can transform to the digital industry. It can used new technology like drone for logistics and supply. It can implement Internet of things (IoT) to manage inventory and use of green technology (mckinsey, 2020) in production to achieve sustainability (Connected Industry Cement 4.0).
References:
1. Doing business report 2020, World Bank Group
2. Economic Survey 2019/20, Ministry of Finance, Government of Nepal
3. World Investment Report 2020, UNCTAD
4. Industrial Statistics 2019/20, Department of Industry, Government of Nepal
5. Nepal will require 26 million tonnes of cement annually by 2024-25, report says, The Kathmandu Post, Retrieved from https://kathmandupost.com/money/2021/05/21/nepal- will-require-26-million-tonnes-of-cement-annually-by-2024-25-report-says
6. T. Tourki, 2010, Implementation of lean within the cement industry, De Montfort University
7. The 21st-century cement plant: Greener and more connected, Mckinsey&Company, Retrieved from https://www.mckinsey.com/industries/chemicals/our-insights/the-21st-century-cement-plant-reener-and-more-connected
8. Connected Industry Cement 4.0, Oficemen collaboration
Good research
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