Although the furniture industry has been expanding in line with the construction boom in the country, the government's restrictions on logging and timber as part of its forest conservation policy have increased the industry's dependence on imported wood. Despite the potential for import substitution and export in the long run, the shortage of wood in the domestic market has forced the industry to rely on imports for raw materials as well as furniture. Furniture industry leaders argue that the government should strike the right balance between its conservation policy and trade policy.
--BY PRIYANKA MANDAL
The domestic furniture market is expanding with every passing year. However, the share of domestic production has been declining as the market is flooded with imported products and raw materials. Although Nepal is considered rich in forest, the country still relies heavily on imports to keep up with the rising demand for furniture and furnishings. Both finished furniture items and raw materials such as wood are imported in large quantities to support the production of furniture-based products in the country.
The growing reliance on imported products is not because the domestic furniture industry is not fully capable of meeting the growing demand in the market. Industry leaders cite a number of issues, including the government's restrictive approach to timber extraction, as key factors hindering the growth of the furniture and furnishing industry in the country.
Despite the abundance of timber resources in Nepal's natural forests, the manufacturing industry that utilises timber for building, furniture, and allied industries faces a high demand for softwood that cannot be readily sourced from local resources and must be imported. The government's forest conservation policy not only prohibits the cutting of trees and selling of timber in the forest, but also makes it extremely difficult for the furniture and furnishing industry to acquire and transport fallen logs. This restrictive policy not only impacts the furniture sector but also the overall construction industry, forcing some people to resort to smuggled wood for construction purposes.
According to the National Industrial Survey conducted by the Nepal Statistics Office, Nepal has a total of 6,696 furniture manufacturers and 1,679 wood product manufacturing businesses. The furniture manufacturing industry alone has contributed Rs 8.4 billion to Nepal's economy, while the lumber industry has added Rs 11.5 billion to the country's economy.
Reversing the trend
Nepal heavily relies on imports of wood and wood products, including wooden logs, timber, wooden frames, ply boards, and other related items. According to the Department of Customs, the country imported wood and wood products worth Rs 15.18 billion in fiscal year 2020/21, which increased to Rs 17.82 billion in 2021/22. The import of wood alone was valued at Rs 7.45 billion. Nepal has already imported Rs 2.76 billion worth of wood in the first six months of 2022/23.
These figures highlight that despite Nepal's 42% forest cover, the country still heavily relies on imports to meet its wood-related needs.
The high import of wood and furniture is driven mainly by the government restriction on supply of timber and the high cost of domestic timber. While data on the wood and furniture industry is scarce, industry leaders estimate that 70% of demands, both raw materials, and furniture and furnishing products, are met through imports.
The furniture and furnishing industry in Nepal is doing business of around Rs 50 billion annually. However, only 40 percent of the raw materials used are sourced from the domestic market, with the remaining 60 percent being imported.
This high level of wood and furniture imports is not only surprising but also a serious concern for the government which has been struggling to reduce the country's ballooning trade deficit.
Industry leaders believe that the current trend can be reversed if the government implements favourable policies to support the industry. They argue that Nepal has the potential to export its furniture and furnishing products to nearby Indian and Chinese markets if the government lifts its legal and administrative constraints on timber supply and allows domestic industries to access the country's vast forest resources.
As part of its forest conservation policy, the government has made it extremely difficult for the furniture industry to source wood. The administrative procedures involved in harvesting and selling timber from community and private forests are cumbersome, exhaustive, and costly, creating a major bottleneck in timber supply. Even community forest user groups seeking to legally harvest and commercially sell timber must seek permissions for both felling and selling trees from government forest offices. These legal procedures and requirements are so time-consuming, duplicative, and expensive that they make timber harvesting and trading very risky and cost-ineffective. The rules and processes are not so different for the supply of timber from private forests.
Business leaders are urging the government to strike the right balance between its current conservation policy and trade policy. Such a balancing act could help Nepal maintain its greenery while also narrowing its huge trade imbalance.
However, the restrictive policy on timber management is largely guided by the characterization of timber harvesting as destructive extraction of natural resources, deforestation, and environmental degradation. What is intriguing and disappointing for the furniture industry is that the government's restriction has been leading to the wastage of thousands of cubic feet of timber annually. Due to strict policies on logging, collection, and sale of timber nationwide, thousands of cubic feet of timber reportedly rot in the forest.
The government's approach towards allowing cutting trees in forests has largely remained inconsistent. While it mostly resorts to a complete ban on cutting trees, sometimes it also introduces a more lenient policy. After imposing a nationwide ban for a long time, the government, in June 2020, decided to allow the cutting of trees except for Sal (shorea robusta) in forests managed or owned by community user groups.
The growth of the real estate and hospitality industries significantly drives the growth of the furniture market. Nepal's furniture market is benefiting from the construction boom that the country has been witnessing in recent years.
Ongoing infrastructural development is also said to be significantly contributing to the demand for furniture in residential and commercial sectors. With the changing times and the growing popularity of apartments and housing units in Nepal, people are starting to furnish their homes and offices in a more modern style.
According to industry observers, the reconstruction after the earthquakes in 2015 has also spurred demand for furniture and furnishing products. Although furniture is not something that people would immediately buy after an earthquake, its demand picked up gradually when households started to buy new furniture either to replace broken ones or to furnish their new homes once construction was completed. Over 600,000 houses were completely destroyed in the 2015 earthquakes.
It is not only the retail (residential) side that is increasing demand for furniture and furnishing products in the country. Furniture industry leaders say that growing hospitality, housing, banking, manufacturing, and education sectors are all fueling the furniture business. According to their observations, the growth in the furniture sector is largely based on the demand originating from offices, schools, and restaurants along with residential houses.
Dozens of new four- and five-star hotels are being constructed across the country that will add thousands of rooms and create a market opportunity for the furniture and furnishing industry. Similarly, there is a demand for furniture for decoration in colleges and other educational institutions as well as other companies. The growth of the real estate sector and increasing residential and commercial construction are some of the factors that will boost the demand for furniture in the coming years.
According to various estimates, the furniture market is observing an expansion at a rate of 20-25% annually.
Domestic Furniture Mandatory in Govt Offices
A recent government decision requiring public offices to prioritise Nepali products has made the domestic furniture industry optimistic. Industry leaders are hopeful that the decision will contribute to market expansion.
In line with the recent instruction of Prime Minister Pushpa Kamal Dahal, the Ministry of Industry, Commerce, and Supplies has urged all government or public offices to purchase Nepali products as long as they are available. If domestic products are not available, at least 50% of the products they procure should be locally manufactured.
The Public Procurement Regulations 2008 requires public offices to give priority to domestic products. Further, a directive enforced in 2015 also sought optimum utilisation of domestic products through effective implementation of the law. However, the government rule has remained only on paper as the public authorities themselves are reluctant to abide by the law.
The ministry has asked the Trade and Export Promotion Center and the umbrella organisations of the private sector that include the Federation of Nepalese Chambers of Commerce and Industry, the Confederation of Nepalese Industries, and Nepal Chamber of Commerce to publish the details of locally produced goods on their websites regularly. These organisations have been authorised to issue certificates of origin for Nepali products to the concerned traders.
Though the existing regulations require government agencies to procure domestic products even if their cost is 15% higher than imported products, they have not been implemented effectively. Many government offices have been found preparing purchase specification documents in such a way that only the imported furniture products meet the requirement.
The new decision is expected not only to promote "Made-in-Nepal" products but also help to boost their businesses. In its common minimum policy and program, the government has said that its priority would be to reduce the growing trade deficit by promoting the use and consumption of domestic products.
According to industry leaders, the government's decision could further stimulate furniture demand. Thousands of government offices - from federal to local levels - will now have to procure furniture items manufactured in Nepal. This will help the local products find the market as well as stop the outflow of foreign currency for the imports of furniture.