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.

Provincial Map of Nepal

Nepal Fact Sheet

Location: 26º22’ North to 30º27’ North and 80º4’ East
to 88º12’ East
Time zone: GMT + 5:45
Area: 147,516 sq.km.
Altitude: 59 to 8,848 meters
Official country name: Federal Democratic Republic of Nepal
Governing system: Multiparty Parliamentary system
Executive power: Prime Minister (elected by majority in the
parliament)
Legislative power: House of representative
International Memberships: – United Nations
– South Asian Association for Regional
Cooperation (SAARC)
– World Trade Organization (WTO)
– Asian Infrastructure Investment Bank (AIIB)
– World Bank (WB)
– Belt and Road Initiative (BRI)
– Asian Development Bank (ADB)
– International Monetary Fund (IMF)
– Multilateral Investment Guarantee
Arrangement (MIGA)
– South Asian Free Trade Area (SAFTA)
– BIMSTEC
– UNESCAP
– UNCTAD
Currency: Nepalese Rupee (NPR)
Economy: Open
Judiciary power: Supreme Court of Nepal
Official language: Nepali (English is widely used in business and
profession)
Population: 28.89 million
Sex ratio: 95 (male per hundred female)

Economic Indicators

Economic Indicators

Economic Growth Rate in South Asia and China

Economic Growth Rate in South Asia and China

Doing Business in Nepal: Key Indicators

S.N.     Parameter                                                   Ranking (out of 190 countries)
1.         Ease of Doing Business in Nepal                                  94
2.         Starting a Business in Nepal                                         135
3.         Getting Credit                                                                        37
4.         Protecting Minority Investor                                        79
5.         Paying Taxes                                                                          175
6.         Trading Across Borders                                                    60
7.         Enforcing Contracts                                                          151
8.         Dealing With Construction Permits                        107
9.         Registering Property                                                          97
10.       Resolving Insolvency                                                         87
11.       Getting Electricity                                                             135

Source: World Bank – Doing Business Report 2020

Country-wise Foreign Direct Investment in Nepal
(till mid-March 2020)

Country wise FDI in Nepal

Graph 1

Industry-wise Foreign Direct Investment in Nepal
(till mid-March 2020)

Industry wise Investment in Nepal

Graph 2

Impact of COVID-19 in Nepalese Economy

The worldwide pandemic of coronavirus (COVID-19) has caused human losses as well as severely affected the global economy. Measures undertaken to prevent and control the transmission of this disease has disrupted the chain of production, supply and consumptions. Due to the COVID-19 pandemic, global economic activities have been slowdown and expected to be contracted by 3.0 percent in 2020 as projected by International Monetary Fund (IMF).

Due to the difficulties created by the COVID-19 pandemic, the entire production, manufacturing and supply chain has been negatively affected. The slowdown in global economy looks to severely impact economic growth, employment, prices and international trade, and has also seriously affected Nepalese economy.

The gross value added of manufacturing industry is estimated to be negative by 2.3 percent in fiscal year 2076.77(2019.20AD). The annual average contribution of manufacturing industries over the last 5 years is 5.5 percent. Such contribution is expected to remain 5.1 percent in fiscal year 2076.77(2019.20AD).

The coronavirus pandemic’s biggest impact has been felt by the tourism sector. In fiscal year 2076.77 (2019.20 AD), this sector is estimated to shrink by 16.3 percent. By contrast, the sector grew by 7.33 percent last year. Similarly, transportation, storage and communication, manufacturing industries, mining and extraction are expected to see negative growth as well.

The total remittance inflow in FY 2075.76 (2018.19 AD) was NPR 879.0 billion, in the first eight months of fiscal year 2076.77(2019.20 AD), NPR 592.0 billion has been received. With the reduction in remittance, the current account, balance of payment and foreign exchange reserves are expected to come under additional pressures. Low remittance inflows are likely to add pressure on external balance in the next fiscal year.

During the mid – March of fiscal year 2019.20 AD, foreign direct investment (FDI) commitment has increased by 165.38 percent compared to that of mid-March of fiscal year 2018.19 AD , and has reached NPR 29.67 billion. However,in mid-March of the current fiscal year, the total investment commitment decreased by 10.1 percent to NPR 127.91 billion against the corresponding period of the last fiscal year.

Sectors not negatively impacted by the COVID-19 pandemic during fiscal year 2019.20 AD, such as fisheries, electricity, gas and water, health and social work, and general administration as well as defense are expected to grow at a higher rate than last year. Remaining sectors are estimated to have negligible growth rates.

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 of 29.89 million, 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 2019” by the World Bank Group. It was ranked in 110th and 4thplace respectively in 2018.
  • Foreign investors are allowed 100% ownership of a company in a majority of sectors. Repatriation of capital and profits are allowed by law.
  • 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. Similarly, Nepal has signed Double Taxation Avoidance Agreement with Austria, 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 and interest income on foreign loans;
    • 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.
Socio-Political and Economic Environment
  • More stable Government than in past years.
  • Development of the country being the major agenda of the Government.
  • Legal reforms 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.
  • Annual Investment estimated NPR 2025 Billion Per Year to Meet Sustainable Development Goals (SDGs) by 2030 AD.
Potential Areas/Sectors for Investment
Energy
  • Rich in water resources with multiple sources of water, including glaciers, snowmelt 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.
  • The power generated in first eight months of fiscal year 2076.77(2019.20 AD) has increased by 8.3 percent to 1,355 MW compared to 1251 MW, the total electrical power generated by fiscal year 2075.76(2018.19 AD). Out of the generated electricity, 1233 MW is from hydroelectricity, 54 MW from thermal plant and 68 MW from renewable energy.
  • Until fiscal year 2075.76 (2018.19AD), the total hydropower generation was 1128.71 MW, in the first eight months of fiscal year 2075.76 (2019.20AD), the total hydropower generation has increased by 104.39 MW and reached 1233.10 MW, without the addition of alternative energy. Demand for electricity is increasing at 7–9% per year.
  • By February 2020, 90.0 percent of the population has access to electricity. As of July 2018, 88.0 percent of the population had access to electricity.
  • To meet the target of graduating from least developed country (LDC) status to developing country status by 2022 AD and become a middle income country by 2030 AD, 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.
  • Tax holiday of 100% for first 10 years and 50% for next 5 years

 

Status of Production Licenses Distribution

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).
  • Plans to upgrade the current international airport are underway, which will increase the tourist traffic significantly.

 

Tourists arrival data of Nepal

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.
  • 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.
  • 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, which accounted for about 30 % of GDP and absorbs about two- thirds of the labor market.
  • About 25% of the total land area is cultivable land; another 33% comprised of forest land and the rest is mountains.
  • 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 infra- structure 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 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 governmental agencies and the private sector.
  • Long Himalayan range and cold climate in the surrounding area presents opportunities for establishing data mining/warehouse industries in Nepal.

 

    Some indicators related to ICT

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.
  • Every year, thousands of students go abroad for further studies spending large sums of money. With more and better education institutions within country, this could be avoided.
  • Government is looking to develop health infrastructure, including modernization and 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 presenting opportunities for manufacturers of pharmaceutical goods.

 

Financial Sector
  • Although the financial sector is growing at a rapid pace, still a significant portion of Nepal’s population has no bank accounts.
  • Banking services are heavily concentrated in urban areas.
  • Financial sector of Nepal still has a large untapped market for banking and financial services.
  • Nepal’s Insurance market has also huge potential as the penetration rate is just about 22 %.

 

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 may have 2.5 billion metric tons of cement grade limestone.
  • 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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