Introduction

Nepal is a sovereign, independent land-linked country located in South Asian region. It is located in the southern slope of Himalayas. Two gigantic countries frame Nepal from all four sides; China in North and India in East, West and South, keeping it away from any sea or ocean.

Geographically, Nepal lies between 26° and 31°N latitudes and 80° and 89°E longitudes. Its length runs 885 kilometers from East to West and breadth varies from 145 to 241 kilometers from North to South. Nepal’s altitude ranges from about 59 meters in South to over 8,848 meters above sea-level in North. Nepal is the 94th largest nation in the world with a total area of 147,516 km2.

The geographical position of the country plays a significant role for its development as a business hub as it lies in between the world’s two giant economy – India and China. Nepal is one of the world’s lesser developed countries and has immense potential for development, especially in the natural resource, tourism and hydroelectricity sectors.

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Nepal Fact Sheet

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Economic Indicators

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Economic Growth rate (%) in South Asia and China

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Approved Foreign Direct Investment

Investment Board Nepal (IBN)

Till mid July 2022 Investment Board Nepal (IBN) has approved total investment equivalent to NPR 1,040.26 billion in 33 mega projects.

Out of those projects approved by Investment Board Nepal, 18 projects with a combined cost of NPR 853.47 billion involves foreign investment. The projects involving foreign investment are as below:

During the year 2022.23, The Investment Board Nepal has approved investment in further nine hydropower projects (with combined capacity of 1133.77 MW) involving total investment of NPR 203.96 billion. This includes foreign investment of NPR 146.22 billion in 3 hydropower projects as listed below.

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Department of Industries (DOI)

Till 2024 mid-January 9,296 industries have been registered in Department of Industries with a total investment proposal of NPR 2,973 billion.
Till mid-July 2023, Department of Industries has approved foreign direct investment equivalent to NPR 449.97 billion in 5,859 industries.
During financial year 2023.24, DOI has approved FDI equivalent to NPR 22.33 billion in 226 industries till mid-January 2024.

Country-wise Approved FDI from DOI (till mid-July 2023)

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Industry-wise Approved FDI from DOI (till mid-July 2023)

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Why Nepal?

• Nepal is strategically located between two large and rapidly growing economies China and India, with easy access to markets of more than 2.6 billion people.
• Nepal has large pool of capable workers (out of total population, about 57% are of working age i.e.15-59 years). Nepal has relatively low cost of labor compared to other peer countries.
• Nepal is ranked 94th in the world and 3rd in South Asia in “Ease of Doing Business Report 2020” by the World Bank Group.
• Foreign investors are allowed 100% ownership of a company in a majority of sectors. Repatriation of capital and profits are allowed by law.
• Minimum threshold for foreign investment has been reduced to NPR 20 million (earlier it was NPR 50 million).
• Land ownership is allowed in company’s name.
• On arrival tourist visa allowed for visitors. Business visa for investors, simplified process.
• Various bilateral investment protection and double tax avoidance arrangements are in place.
• Nepal has signed Bilateral Investment Promotion and Protection Agreement (BIPPA) with India, Finland, Germany, Mauritius, UK, and France.
• Double Taxation Avoidance Agreement signed with Austria, Bangladesh, China, India, Korea, Mauritius, Norway, Pakistan, Qatar, Sri Lanka and Thailand.
• Compared to other countries in South Asia, Nepal offers the lowest tax burden in the region. Some of the reasons for comparatively high ROI in Nepal include:
• Huge investment potential in tourism, hydro-power, agriculture, and mine and mineral sectors;
• Abundance of natural resources;
• General income tax rate of 25% (20% in priority sector like Energy, Transport Infrastructure and Manufacturing), Value Added Tax (VAT) of 13%;
• Tax Holiday for specific sectors;
• Income tax concession on profits from exports;
• Tax concession of 50% to the income in foreign currency from export of Business Process Outsourcing, Software Programming, Cloud Computing and similar IT based services upto FY 2084/85 (2027-28).
• 100% Tax exemption for 15 years and 50% Tax exemption for further 6 years for reservoir based and semi-reservoirbased hydropower with capacity more than 40 MW as well as to Lower Belt Hydro power projects operating with Tandem operation under such projects
• Withholding tax rate of 15% on royalties and technical & management fees;
• Customs, excise duties, and VAT levied on raw materials and auxiliary raw materials of export-oriented industries is reimbursed to the exporter on the basis of the amount of exports within 60 days of application.
• Nepal has open boarder access to India. Nepal has duty free access to China for around 8,000 products. Nepal has duty free access to US market for 77 items for 10 years starting from 2016.

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Socio-Political and Economic Environment

• Nepal’s economy is projected to grow by 2.16 percent in base price in the fiscal year 2022.23 according to the preliminary report of the Central Bureau of Statistics (CBS). The economic growth rate was 5.26 in fiscal year 2021.22. IMF has projected the growth rate of Nepal to be 4.4% in 2023. It was 5.8% in 2022.
• Annual Inflation remained at 6.32 percent in 2022 and is expected to be 7.8 % in 2023. The average annual inflation rate of Nepal from 2017 to 2022 has remained at 4.94%.
• Contribution of Agro and Non-agro sector to the GDP expected to be 24.1% and 75.9 % in 2022.23. The ratio was 24.7 % and 75.3% in 2021.22.
• Development of the country being the major agenda of the Government.
• Legal reforms going on to attract investors; Companies Act, Labor law, Industrial Enterprise Act, Foreign Investment and Technology Transfer Act (FITTA), Special Economic Zone Act, have either been revised or in process of revision.
• Government focusing on improving infrastructures. The construction of Dry Port at Chovar Kathmandu has already been completed. After completing the Feasibility study, DPR and EIA is in progress for Korala Dry Port.
• The construction of Gautam Buddha International Airport at Bhairahawa has been completed and the airport is already in operation. The construction of International Airport at Pokhara is also complete and is already in operation.
• Annual Investment estimated NPR 2025 Billion Per Year to meet Sustainable Development Goals (SDGs) by 2030 AD.

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Potential Areas/Sectors for Investment

Energy

• Rich in water resources with multiple sources of water, including glaciers, snow melt from the Himalayas, rainfall and groundwater. Theoretical capacity of hydropower is around 80,000 MW, out of which 43,000 MW is estimated to be economically feasible.
• As per the government policy to encourage the production and use of electricity, the production and consumption of electricity is increasing. The access to electricity of the population has reached 95.0% in the fiscal year 2022.23 with the increase of the electricity production.
• The total installed capacity has increased to 2,666 MW in mid-March 2023 that includes 2,449 MW from Hydropower, 75.04 MW from Solar, 53.4 MW from Thermal Plant, 82 MW from Renewal Energy and 6 MW as the by-product of the Sugar Mills. Similarly, the Nepal Electricity Authority (NEA) owned hydropower’s 661 MW and private investors owned hydropower’s 1,527 MW have been added to the national grid.
• As of mid-March of 2023, the electricity imported from India was 1011 gigawatt hours and exported 1053 gigawatt hours. In fiscal year 2021.22, the import of electricity was 1,543 gigawatt hours and the export was 493 gigawatt hours.
• As of Mid-March of 2023, National Transmission line (66 KV or higher) has reached 5,669 Circuit Kilometer and distribution line (33 KV or lower) has reached 136,595 kilometer.
• To meet the target of graduating from Least Developed Country (LDC) status to developing country status by 2022 CE and become a middle income country by 2030 CE, additional 6,000+ MW (which requires investment of approximately USD 10 billion) is required, consequently huge opportunities.
• Investment opportunities in the up-gradation and expansion of distribution systems (for which investment of approximately USD 2 billion is required) and transmission systems (for which investment of approximately USD 4.45 billion is required).
• The Power Trade Agreement (PTA) signed with India has opened up a large market for export.
• The SAARC Framework agreement on Energy Cooperation signed during the 18th SAARC Summit in 2014 has paved the way for the eventual formation of a regional energy market.

Electricity Production, Demand and Infrastructure Status

Tourism

• With the world’s highest mountain range, the Himalayas, and 8 of the 10 highest peaks in world, popular among mountaineers, trekkers and adventure seekers.
• Offers beautiful lakes, steep rivers and gorges, unique wildlife, historic monuments, impressive fine arts, significant religious sites and exotic cultures attracting a wide array of travelers for a variety of reasons.
• A destination for religious tourism and pilgrimages. Lumbini, the birthplace of Lord Buddha, and Pashupatinath and other Hindu pilgrimage sites are the main attractions for people following Buddhism and Hinduism.
• Opportunities in developing tourism infrastructure (hotels, restaurants, roads, airports, cable car etc.), also great potential for expanding the market for Meetings, International Conferences and Events (MICE).
• Construction of international airports at Bhairahawa and Pokhara are already complete, which will help to increase the tourist traffic significantly.
• Number of airlines operating international flights has reached to 32 and the number of airlines operating domestic flights has reached to 22. Out of 53 airports in Nepal, 33 are in operation.
• As of mid- March 2023, the number of Star hotels has reached 173 and other hotels, resort and lodge 1228. Total number of beds in Star hotels has reached 16,335 and in other hotels lodge and resorts 37,030.
• As of mid-March 2023, 28 Casinos are in operation in Nepal. Similarly No. of travel agencies has reached 4,057 and trekking agencies 2,900, rafting agencies 88 and tourist transportation services 85.
• As of mid-March 2023, number of tour guides has reached to 4665, trekking guides 19,534 and river guides 387.

Tourists arrival data of Nepal

Infrastructure

• As the country is focusing on the development of infrastructures, lots of opportunities to expand the road network in PPP models.
• As of Mid-March of 2023, the total length of the road including all roads constructed by central government and local authorities has reached 66,057 kilometers including 47,320 kilometers blacktop (including strategic and local road networks), 14,000 kilometers graveled and 4,737 kilometers fair weather. The total length of road constructed by the central government has reached to 34,100 kilometers including 51.3%blacktop, 23.3% gravel and 25.4% fair weather.
• Nepal’s main highways require expansion to accommodate the increase in traffic, which is another area for public-private partnerships.
• In order to cater to the needs of the growing population, the development of mass public transportation systems – bus-rapid transport (BRT), railways, monorails, airports has been prioritized. To finance these projects, the government is looking at public-private partnerships.
• All over the country there are 53 airports. Of the total airports, 41 airports (Black topped) are feasible to operate in all weathers. The regular air services are being carried out in 33 airports in all weather. Three international airports are complete and in operation.
• Eight north-south corridors (roads) linking China and India through Nepal, a cross-border railway line connecting Kathmandu with China, five cross-border railway lines, ultimately connecting Kathmandu with India, a railway line along the East-West Highway, and cable cars in the hilly regions are planned.

Agriculture

• Economy is largely dependent on agriculture.
• The contribution of agriculture sector (agriculture, forest and fisheries) to GDP was 32.7% in fiscal year 2011.12 whereas it has been gradually decreasing in recent years and is estimated to remain 24.1% in fiscal year 2022.23.
• The Agro Production is expected to grow by 2.7% in fiscal year 2022.23. The growth was 2.2% in 2021.22.
• According to the Nepal Labor Force Survey of 2021, 50.4 % of the population is engaged in agriculture sector. According to the Nepal Labor Force Survey of 2018, 60.4% of the population was engaged in agriculture sector.
• About 28% of the total land area is cultivable land. 41.69% of the total land is covered by the forest.
• Government is focused on the modernization, diversification, commercialization and marketing of the agriculture sector.
• Government plans to make available agricultural inputs, such as irrigation, electricity, transportation and agro-credit.
• The Nepal Trade Integration Strategy 2010 focuses on the development of cardamom, ginger, honey, lentils, tea, noodles and medicinal herbs/essentials oil as priority export products.
• Good opportunities exist in agriculture production, processing, packaging and branding.
• Non-timber forest products, cardamom, ginger, aquaculture, vegetables, floriculture, tea, coffee and honey offer many opportunities.
• Good opportunities in input markets (such as for seeds, nurseries, fertilizers, agricultural infrastructure and technology, and agriculture financing).
• Due to favorable climatic conditions, the focus on high value organic crops is increasing.

Information and Communication Technology

• One of the fastest emerging sectors in the country, with huge potential for growth in the coming years.
• All areas are open to foreign direct investment except for media. For telecommunications, 80% foreign ownership is allowed.
• The Government has identified IT and Business Process Outsourcing (BPO) as one of the five priority potential export service sectors.
• Only two major telecommunications companies (NTC and Ncell) dominating the sector, ample room for new firms to enter the market.
• Foreign BPO companies can tap into the young English-speaking population and benefit from the cost advantages offered by the low wages and low establishment and operating costs.
• The time zone favorable for companies looking to outsource from America or Europe.
• Unmet needs for the use of ICTs in government agencies and the private sector.
• Long Himalayan range and cold climate in the surrounding area present opportunities for establishing data mining/warehouse industries in Nepal.
Some indicators related to ICT

Health and Education

• Opportunities exist in developing education infrastructure, including upgrading and building educational institutions and even education cities (medical, IT, engineering, management etc.), for which the government is seeking to engage in private-public partnerships.
• As of mid-March 2023, there are 215 hospitals, 201 primary health service centers, 3,820 health posts, 426 Aayurvedic health centers and 3,196 sub-health post or basic health service centers. There are 16,015 hospital beds, 6,138 doctors and 27,683 nurses.
• Every year, thousands of students go abroad for further studies spending large sums of money. With more and better education institutions within the country, this could be avoided.
• Government is looking to develop health infrastructure, including modernization, increasing the capacity of health facilities and mobilizing privately run hospitals by means of public-private partnerships.
• Persistent shortages of quality medicines in the market present opportunities for manufacturers of pharmaceutical goods.

Financial Sector

• Although the financial sector is growing at a rapid pace, a significant portion of Nepal’s population still has no bank accounts.
• As of mid-March 2023, a total of 120 banks and financial institutions are in operation including 21 commercial banks, 17 development banks, 17 finance companies, 64 microfinance companies and 1 infrastructure development bank.
• Banking services are heavily concentrated in urban areas.
• Financial sector of Nepal still has a large untapped market for banking and financial services.
• There are 31,373 Co-operatives operating in the country as of mid-March 2023.
• As of mid-March 2023, there are 18 life insurance companies, 16 non-life and 2 re-insurance companies operating in Nepal. 44.05% of the population has access to insurance.
• Electronic payment transaction has increased significantly due to the development of payment infrastructure, policy of encouraging electronic payments and gradual adoption of electronic payment instruments. As of mid-March 2023, apart from the banks and financial institutions, there are 10 electronic payment service operators and 27 payments service providers operating in Nepal.
• The total market capitalization of the security market as on mid-March 2023 has reached NPR 2,823.68 billion which is 25.4% low as compared to that of mid-March 2022. The market capitalization in mid-March 2022 was NPR 3,782.79 billion. The banking and insurance sector holds 64.7%of the total market capitalization. Hydropower companies hold 13.9%, investment companies 6.8%, manufacturing and processing industry 3.9%, hotels 1.9%, business entities 0.4% and others 8.4% of the total market capitalization.
• No. of listed entities has reached 245 as of mid-March 2023. There are 31 merchant banks and 3 Credit Rating Agencies as of mid-March 2023.
• Nepal’s insurance market also has huge potential as the penetration rate is very low.

Mines and Minerals

• Nepal has an abundance of minerals used in industry and construction, including limestone (most abundant), coal, talc, red clay, granite and marble, gold, and precious and semi-precious stones (tourmaline, aqua- marine, ruby and sapphire).
• Recent studies have shown that Nepal has 1,270 million tons of cement grade limestone that includes 700 million ton (proven), 200 million tons (half-proven), 370 million ton (possible). There are 26 cement industries in operation and 2 are in construction phase. With existing capacity, 10 million ton cement is expected to be produced yearly. Nepal has exported cement and clinker worth NPR 305.5 million till mid-March 2023 in the financial year 2022.23 CE.
• Nepal has an estimated 5 billion metric tons of dolomite and 180 million metric tons of high grade magnetite.
• The western part of Nepal has witnessed gas and oil seepage, confirming the presence of oil and natural gas in Nepal.
• About 10 petroleum and natural gas exploration sites have been identified so far.
• Nepal has more than 20 million metric tons of ore reserves in more than 80 locations.
• Copper occurs in Nepal in more than 107 locations.

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FDI Success Stories

Upper Marsyangdi A Hydropower Project

Upper Marsyangdi A is a run-of-river hydro-power project located in Bhulbhule of Lamjung district of western Nepal. The flow from Marshyangdi River is used to generate 50 MW electricity. It is the first project in Nepal built with foreign direct investment from China. It is also the first hydropower project built in BOOT model in Nepal. The project was developed by Joint venture of Power China Resources Ltd and Sagarmatha Power Company Nepal. A JV company Sinohydro-Sagarmatha Power Company (P) Ltd., was established in Nepal in March 2010 with PCR (90% shares) and SPC (10% Shares). The project construction started in October 2012 and was expected to be completed in December 2015 with an estimated cost of NPR 10 billion, but it was delayed due to the earthquake. The project started its commercial operation in 2016.

Hongshi-Shivam Cement Pvt. Ltd.

The 18th Board meeting of the Nepal Investment Board held on 28 July, 2015 approved the foreign investment of US$ 359.18 million (NPR 36 billion) by Hong Kong Red Lion No. 3 Ltd of Hongshi Holdings to establish a cement factory in Nepal. Hongshi Holdings had applied to the Investment Board Nepal a couple of months back for approval of FDI. The factory was proposed to be a joint venture with Shivam Cement of Nepal, with the Chinese company holding a 70% stake and the remaining 30% owned by Shivam Cement.
The plant came into operation in May 2018 with a capacity of 6,000 tons per day. Its factory is located at Beni Manipur VDC in the Nawalparasi district. The company currently manufactures ordinary Portland Cement (OPC) and Portland Pozzolana Cement (PPC) under the brand, Hongshi.

Solid Rock Lodge & Restaurant

Solid Rock Lodge & Restaurant ( a resort in Dakshinkali) which was established with a foreign investment of NPR 17,000,000 approved from Department of Industries opened for guests in August 2016. It provided an exciting new alternative for visitors to the attractive area around Pharping. Located on a green hillside above Dollu village (altitude 1760 m.), the lodge has splendid views of the surrounding forests and fields. Solid Rock features an organic vegetarian restaurant established in a traditional Nepali farm house and six comfortable guest rooms built in newly constructed earthquake resistant bamboo cottages. The resort is owned and run by Danish expat Christian ‘Simon’ Simmelkiaer and his Nepalese wife Mina KC.

Huaxin Cement Narayani Pvt. Ltd.

The 19th Board meeting of the Nepal Investment Board held on 21 Dec, 2015 approved the foreign investment of US$ 140 million (NPR 14.83 billion) by Huaxin Cement Co. Ltd., China. The China-Nepal Joint Venture “Huaxin Cement Narayani Pvt. Ltd. started its operation in 2022 with a capacity of 3,000 tons per day. Its factory is located in Dhading district. The company manufactures both Ordinary Portland Cement (OPC) and Portland Pozzolana cement (PPC).

Gourmet Vienna Meat and More Products Company Pvt. Ltd

The journey of Gourmet Vienna Meat and More Products Company Pvt. Ltd. started in 1984 AD with the name of Gourmet Vienna Food Products, when a factory was set up in Thamel, Kathmandu with an initial investment of NPR 2.5 million. It was the first company to introduce frozen foods in Nepal. The company started with the production of bakeries and pastries. Gradually, they introduced production of processed meat like sausages, ham and salami for the first time in Nepal. They were also the first company to import and sell imported cheese and coffee which they imported all from Europe.

Berger Jenson & Nicholson (Nepal) Pvt. Ltd.

Berger Jenson & Nicholson (Nepal) Pvt. Ltd. is a leading decorative paints manufacturer in Nepal. The company is a 100% subsidiary of M/S Berger Paints India Limited (BPIL) and was established with foreign investment approval from DOI. The company has two manufacturing units, one in Bhaktapur and the other in Hetauda, Makwanpur.

Nepal SBI Bank Ltd.

Nepal SBI Bank Ltd (NSBL) was established in 1993 as a subsidiary of the State Bank of India (SBI). SBI holds a stake of 55% in NSBL. SBI is a fortune 500 entity and the Government of India is the majority stakeholder. The bank has a total of 135 outlets that include 94 full-fledged branches, 22 extension counters, 7 province offices, 11 branchless banking outlets and a corporate office. With presence in 51 districts in Nepal, the bank is providing value added services to its customers through its wide network of 122 ATMs, internet banking, mobile wallet, SMS banking, IRCTC ticket online booking facility, etc. NSBL is one of the fastest growing commercial banks of Nepal with more than 1.30 million satisfied deposit customers and over 1 million ATM/Debit cardholders. The bank enjoys a leading position in the country in terms of penetration of technology products, viz. mobile banking, internet banking and card services. The bank is moving ahead in the Nepalese banking industry with significant growth in net profit with very nominal NPA. As of 31st Ashad, 2080, the bank has deposits of NPR. 150.72 billion and advances (including staff loan) of Rs. 125.53 billion, besides investment portfolio (including investment in subsidiary) of NPR. 34.14 billion.

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