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Nepal is one of the poorest countries in the world. Various factors contributed to the economic underdevelopment - including terrain, lack of resource endowment, landlocked position, lack of institutions for modernization, weak infrastructure, and a lack of policies conducive to development.

Agriculture and Forests
Agriculture dominates the economy. It is the livelihood for about 80 percent of the population although only approximately 20 percent of the total land area is cultivable. Rice is the most important, corn the second major food crop. Other food crops include wheat (millet and barley), sugarcane and tobacco. From 1950 to 1980, Nepal lost half of its forest cover. Deforestation was typical of much of the country and was linked to increased demands for grazing land, farmland and fodder as the animal and human populations grew. Further, most of the population's energy needs were met by firewood. A program targetsed reforestation and education and maintains the forestation level at 37 percent of land area.

Industry accounts for less than 20 percent of total GDP. Traditional cottage industries, including basket-weaving as well as cotton fabric and edible oil production, comprises approximately 60 percent of industrial output. There also are efforts to develop cottage industries to produce furniture, soap, and textiles. Among the modern industries were large manufacturing plants, including many public sector operations. The major manufacturing industries produced jute, sugar, cigarettes, beer, matches, shoes, chemicals, cement, and bricks.

The mining industry has the potential to become a more important part of the economy, as new mines were being planned or were being developed.

Water is an important natural resource of Nepal which represents a source of potential wealth even the domestic electricity supply system is small. Current, total installed electric power generating capacity is dominated by hydropower, which constitutes 88 percent of installed capacity.

Traffic system
Most of the goods traffic is still done by porters and pack animals. Only 31 percent are paved roads. There are only two short railways between Kathmandu and India. Kathmandu and Biratnagar have international airports.

Tourism is a major source of foreign exchange earnings. Especially the Himalayas have attracted foreigners to Nepal. Mountaineering and hiking were of considerable interest as were rafting, canoeing, and hang gliding. More than 80 percent of the tourists arrived in the country by air. Tourism was facilitated with the opening of airways to Kathmandu and other parts of the country and the easing of travel restrictions. The government encourage the building of hotels and other tourist facilities through loans.

Foreign trade
Nepal had very little contact with countries other than India and China. Movement of goods or people from one part of the country to another usually required passage through India, making Nepal dependent on trade with or via India. There are few all-weather roads, and the transportation of goods is difficult. Goods are able to reach Kathmandu by railroad, trucks, and ropeways. This lack of infrastructure makes it hard to expand markets and pursue economic growth. Nepal is trying to expand its contacts with other countries and to improve its infrastructure.