- COUNTRY BACKGROUND
TopographySituated in South Asia, Nepal is bordered by China in the north and India in the east, west and south. The country is roughly rectangular in shape, with a total land area of 147,181 square kilometers, stretching 885 km from east to west and between 145 km and 241 km from north to south, with a mean width of 193 km.
Topographically, the country can be divided into three distinct regions from north to south: the mountainous region, the hilly region and the flat plains, known as the Terai. Lying at an altitude ranging from 4,877 to 8,848 metres above sea level (masl), the mountainous region includes the Himalayas, the world’s highest mountain chain.
Nepal Himalayas comprises nine of the world’s highest peaks, including the highest, Mount Everest. The hilly region lies in the middle of the country, with altitude varying between 610 and 4,877 masl. Kathmandu Valley, where the country’s capital, Kathmandu, is situated, and many other scenic valleys, basins and pockets are located in this region. The Terai, which is an extension of the Gangetic plains of India, forms a low flatland along the southern border. It comprises most of the fertile land and forest areas of the country, and rich and big river basins.
ClimateDue to its diverse topography, almost all the climatic zones of the earth- tropical, subtropical, temperate, alpine and sub-arctic- are found in Nepal. The mean annual temperature is about 15 degrees Celsius; however, in some places in the Terai the summer temperature can rise above 40 degrees Celsius. Nepal experiences four seasons: spring (March-May), summer (June-August), autumn (September-November) and winter (December-February).
Kathmandu Valley has a pleasant climate, with average summer temperature of 19 to 27 degrees Celsius and winter temperature of 2 to 12 degree Celsius. Rainfall varies greatly from place to place, from 300 millimeters (mm) to 250 mm, about 80 percent of the precipitation occurring during the monsoon season, which typically lasts from June to September.
The period from October to May is generally dry in most parts of the country. In the winter, the western part receives the larger share of rainfall, and during the monsoon, which is from June to August, the eastern part receives more rainfall. Kathmandu Valley receives around 1300 mm of annual rainfall, with the heaviest concentration from June to August.
Monthly Average Temperature and Rainfall in Kathmandu
January Poush/Magh 2.7 17.5 47 February Magh/Falgun 2.2 21.6 11 March Falgun/Chaitra 6.9 25.5 15 April Chaitra/Baisakh 8.6 30.0 5 May Baisakh/Jestha 15.6 29.7 146 June Jestha/Asar 18.9 29.4 135 July Asar/Shrawan 19.5 28.1 327 August Shrawan/Bhadra 19.2 29.5 206 September Bhadra/Ashwin 18.6 28.6 199 October Ashwin/Kartik 13.3 28.6 42 November Kartik/Mangsir 6.0 23.7 0 December Mangsir/Poush 1.9 20.7 1
Water is the most important natural resource in the country. There are about 6,000 rivers and rivulets, which add up to 45,000 km in length. The total drainage area of all the rivers consists of about 191,000 km, of which 74 per cent lies in Nepal. The total average run-off is estimated at about 170 billion cubic metres (m3), and theoretical hydroelectric power potential is estimated to be 83,000 megawatts (MW). This is one of the largest potential in the world, and about 50 per cent of this could be economically harnessed. However, about 2 per cent of this economically viable potential has so far been exploited.
Forests occupy 42.4 per cent (62,405 sq km) of the landmass, and account for 79 per cent of the country’s total energy consumption and more than 90 per cent of rural household energy consumption. Almost every known forest type, with the exception of the equatorial tropical rain forest, is found in Nepal. There are four major forest zones: tropical and subtropical (up to 300 masl); sub-tropical and riverine (301-800 masl); subtropical and sub- temperate hill (801-2,000 masl); temperate and alpine (above 2,000 masl). This diversity supports more than 100 mammal, 850 bird and almost 10 thousand plant species.
There are some deposits of mineral resources that can be economically exploited; some of these are of marginal tonnage and grade, while some others require further investigations. The country has large deposits of limestone. Other mineral deposits include magnesite, lead, zinc, talc, marble, iron ore, natural gas, silica, dolomite and semiprecious stones. Copper, cobalt, placer gold, etc of low grade and tonnage reportedly occur in many parts of the country. Preliminary surveys have also indicated occurrence of petroleum reserves in the Terai.
Political SystemAncient Nepal consisted of many small autonomous principalities. Late King Prithvi Narayan Shah unified Nepal by conquering these principalities and merging them into one single nation in 1769. After the Anglo-Nepal War of 1814-1816, Prime Minister Jung Bahadur Rana greatly augmented his power and established the Rana line of hereditary prime ministers, which ruled Nepal until 1951, when a popular revolution overthrew the family autocracy. In 1959, the country held its first general election and installed a parliamentary government. After about 18 months, Late King Mahendra abolished the popular government and replaced it by a party-less form of political system, called Panchayat, which lasted for three decades. Following a mass discontent with the Panchayat system and people's aspiration for modern democracy, a popular movement ushered in a new era of democracy in 1990. A new constitution, enshrining the sovereignty of the people, was adopted that year. A multiparty political system with constitutional monarchy and a bicameral parliamentary system of government with two houses, namely the House of Representatives and National Council, was established.
Nepal became the Federal Democratic Republic when the first session of the first Constituent Assembly declared so on May 28, 2008, abolishing the 240 year-old monarchy. Nepal today has a President as Head of State and Prime Minister heading the government.
The first Constituent Assembly was dissolved in May after four years without promulgating a New Constitution. However, the second Constituent Assembly election was held in November 2013, which subsequently promulgated the New Constitution on September 2015 replacing the Interim Constitution of 2007. Thereafter, the 2nd Constituent Assembly was turned into Legislature Parliament, which now governs the government of Nepal with an objective of implementing the new Constitution.
Social and Cultural Settings
Nepal is ethnically as diverse as it is geographically. It is home to several races and tribes, languages and religions. The majority of the Nepali people are Hindu (81.34%, Census 2011), followed by Buddhist (9.04%, Census 2011). There is a unique blend of Hinduism and Buddhism. The two religions have overlapped and harmonized to such an extent that Hindus and Buddhists worship the same gods and goddesses. The people are religious and have strong bonds with their cultures, which are as unique and as diverse as their backgrounds. There are also many tribal groups in Nepal. The coexistence of these ethnic groups and their cultures has been marked by tolerance and openness for centuries.
Nepali, written in Devanagari script, is the official language and lingua franca of slightly over 50 per cent of the population, while a number of other languages and dialects are spoken by specific ethnic and tribal groups. Some of these languages are Maithali, Bhojpuri, Newari, Gurung, Tamang, Tharu, Magar, Limbu, Rai, Urdu, Hindi, Sherpa and Awadhi and a host of other minor languages. English is spoken and understood by a large number of people in urban areas.
Nepal has maintained one of the world’s oldest and richest continuous cultures. Her culture finds exquisite expression in the religions, art, music, dance, social, cultural and religious festivals. Festivals are a prominent aspect of Nepalese life, in which all people take part enthusiastically. Dashain (or Durga Puja), Tihar (Festival of Light), Shiva Ratri (Lord Shiva’s Night), Indra Jatra (Festival of Indra the Rain God), Baisakh Purnima (Lord Buddha’s Birthday), Gai Jatra (Cow Festival), Chhath (Worship of the Sun), Ram Nawami, Krishna Asthami, Fagu (Festival of Colors) and a host of other festivals are celebrated every year.
- INTERNATIONAL RELATIONS
Economic diplomacy has been adopted as another significant dimension of Nepal’s foreign policy priorities in recent years. Its main objectives are to promote Nepal’s export trade, attract greater number of tourists to Nepal and enhance the flow of foreign direct investments (FDIs) into the county.
Nepal attaches considerable importance to the promotion of close economic cooperation in South Asia. Towards this end, it is actively working with other members of the South Asian Association for Regional Cooperation (SAARC) for the realization of the South Asian Free Trade Area (SAFTA), and is also engaged in sub-regional cooperation in the form of the South Asian Growth Quadrangle (SAGQ), comprising, among others, Bangladesh, Bhutan and India. Nepal has also been a member of the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC). Nepal acceded to the World Trade Organization (WTO) in 2004.
Nepal has been member of the UN and its specialized agencies since 1955, ADB since 1966 and the World Bank and IMF. The different organizations with which Nepal is actively associated are briefly elaborated below.
South Asian Association of Regional Cooperation (SAARC)
The South Asian Association for Regional Cooperation (SAARC) was established on December 8, 1985 when its Charter was formally adopted by the heads of state or government of Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. Afghanistan joined SAARC on 2007. The regional body provides a platform for the peoples of South Asia to work together in a spirit of friendship, trust and understanding, aiming at accelerating the process of economic and social development in member states. As a manifestation of Nepal’s interest, it hosts the secretariat of SAARC in Kathmandu.
SAARC has signed various agreements, notably the Agreement on South Asian Free Trade Area (SAFTA) and SAARC Framework Agreement for Energy Cooperation.
Bay of Bengal Initiative for Multi- Sectoral Technical and Economic Cooperation (BIMSTEC)
The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMST- EC) evolved from its original formation of ‘Bangladesh, India, Sri Lanka, Thailand Economic Cooperation’ (BIST-EC), established in Bangkok on June 6, 1997. Its objective was to foster socioeconomic cooperation among the founder members. Myanmar was admitted as a full member in December 1997, followed by Bhutan and Nepal in 2004. The seven-country forum aims to achieve its own free trade area by 2017.
BIMST-EC is based on mutual interests and common concerns of the member states and complementarities of their economies. Its basic objectives are: to create an enabling environment for rapid economic development through identification and implementation of specific cooperation projects in the trade, investment and industry, technology, human resources development, tourism, agriculture, energy, infrastructure and transportation sectors; to accelerate the economic growth and social progress in the sub-region through joint endeavours in a spirit of equality and partnership; to promote active collaboration and mutual assistance on matters of common interest in the economic, social, technical and scientific fields; to provide assistance to each other in the form of training and research in educational, professional and technical spheres; to cooperate more effectively in joint efforts that are supportive of, and complementary to, national development plans of member states, which will result in tangible benefits to the people in raising their living standards, including by generating employment and improving transportation and communication infrastructure; to maintain close and beneficial cooperation with existing international and regional organizations having similar aims and purposes; and to cooperate in projects that can be dealt with most productively on sub- regional basis among the BIMST-EC members and that make best use of available synergies.
Asia Cooperation Dialogue
Nepal became the 34th member of the Asia Cooperation Dialogue (ACD) in 2016 during the 14th Ministerial Meeting of Asia Cooperation Dialogue held in Bangkok, Thailand. The ACD is a continent-wide forum, the first of its kind in Asia. More specifically, the ACD aims to constitute the missing link in Asia by incorporating every Asian country and building an Asian Community without duplicating other organizations or creating a bloc against others. A key principle is to consolidate Asian strengths and fortify Asia's competitiveness by maximizing the diversity and rich resources evident in Asia. The core values of the ACD are positive thinking; informality; voluntarism; non-institutionalization; openness; respect for diversity; the comfort level of member countries; and the evolving nature of the ACD process.
World Trade Organization
In September 2004, the World Trade Organization (WTO) unanimously approved the text of the Protocol for Nepal’s entry into this global trade body. Nepal became the second least developed country (LDC), after Cambodia, to join the WTO through full working party process.
Following its entry into the WTO, Nepal can now fully enjoy the rights that all members have under the WTO agreement. The benefits are embedded in the past global trade reforms, improving the domestic trade policymaking process, helping exporters contest in the global market and supplementing the preferential market access to foreign markets. The membership gives Nepal a seat at the negotiating table, allowing it to take part in the debates on the future shape of the world trading system. These benefits will help Nepal better integrate itself into the world economy. In turn, Nepal has accepted some obligations under the WTO agreement. It must make significant investments in implementing trade-related regulatory reforms, such as in customs administration, intellectual property rights protection, food and plant sanitary measures, and technical standards.
Macro-Economic PoliciesNepal initiated planned economic development with its First Five-Year Plan in 1956, with mixed economic policy as the guiding principle of the state. With the reinstatement of democratic system of governance, Nepal liberalized its economy with a wide range of economic reforms in early 1990s. Those reforms induced remarkable growth in the key areas of the economy such as industry, trade, foreign investment, finance and international transactions. Reform and restructuring process in the micro-economic and sectoral areas, undertaken since the 1990s, has been instrumental in making the economy more investment-friendly, transparent, market-oriented and efficient.
Implementation of structural reforms has created a sound base for economic development. It has encouraged the establishment of joint venture banks and private financial institutions, privatization of state-owned companies and increased role of the private sector in the economy. Market- oriented economic policies have encouraged private sector participation in economic activities, limiting the government’s role to that of a facilitator and developer of prerequisites, which would support the private sector to become more efficient and competitive. Similarly, doing away with the licensing requirements and qualitative restrictions in industry and trade, simplification of regulatory processes, provision of current account convertibility, flexibility in cut-off rates, broadening the areas of the FDI and a host of other reform measures have created an environment for enhancing efficiency and competition in various economic activities.
Recently the Government of Nepal has approved the 14th Three-Year Plan (2073/74-2075/2076) with an objective of upgrading Nepal into the middle-income country. The Plan focused on transformation of agriculture; increment of production through development and expansion of tourism and industrial sector; improvement and development of infrastructure for energy and transport, information and communication and rural and urban settlement.
Gross Domestic ProductNepal, a small landlocked country, is one of the forty-eight least developed countries (LDCs) in the world. Nepal’s economic growth rate has remained at 3.8%, on average, for the past 10 years, which is below the South Asian average. Economic growth of the country is estimated to remain at 0.77 percent in FY 2015/16. The economic growth rate in FY 2001/02 had recorded 0.16 percent, which once again went below 1 percent for the second time. The economic growth rate recorded above five percent in FY 2007/08 and FY 2013/14, but the rate remained below five percent in other fiscal years.
Economic Growth in Last Decade (percent)
Average Agriculture 1.0 5.8 3.0 2.0 4.5 4.6 1.1 4.5 0.8 1.3 2.9 Non-Agriculture 4.4 5.9 4.3 5.0 3.6 4.5 5.0 6.4 3.1 0.6 4.3 Industry 3.9 1.7 -0.6 4.0 4.3 3.0 2.7 7.1 1.5 -6.3 2.1 Service 4.5 7.3 6.0 5.8 3.4 5.0 5.7 6.2 3.6 2.7 5.0 Economic Growth 2.75 5.8 3.9 4.26 3.85 4.61 3.76 5.72 2.32 0.77 3.8
Source: Economic Survey 2015/2016, MoF
- The average growth rate of agriculture and non-agriculture sectors stood at 2.9 percent and 4.3 percent in a decade. Similarly, industry and service sectors under the non-agriculture averaged 2.1 percent and 5 percent respectively in a current decade.
There has been structural change in Nepalese economy. Contribution of agriculture and manufacturing sector is declining while that of services sector is increasing. Contribution of the agriculture sector to real GDP, which stood at 36.6 percent in fiscal year 2001/02, has dropped to 31.6 percent in 2015/2016, while that of the non-agriculture sector has gone up from 63.4 percent to 68.3 percent in the same period.
Since the country is still at an early stage of industrial development, the share of the industrial sector in the economy is low. The performance of manufacturing sector has not been satisfactory in the last decade. Its contribution to GDP declined from 9.0 percent in 2000/2001 to 5.5 percent in 2015/2016.
The number of industries registered with the Department of Industry (DoInd) reached 6,524 as of mid-July 2016. Of these, 856 are large industries while 4,186 are the small industries. Similarly, a total number of 3,678 foreign investment industries have been registered with the DoInd as of mid-July 2016. Of these, maximum number of investments are in service sector (1,223) followed by tourism sector (1,059) and manufacturing sector (981).
Government of Nepal recently implemented the new Industrial Enterprise Act to create sustainable, vibrant, competitive and production-based economy through industrial development in the country. To promote industrial development in the country, the Industrial Enterprises Act 2016 has provided various facilities and concessions on income tax as well as on VAT and customs duty. The Act has provisioned ‘no work no pay’ to increase productivity of the industry as well as strikes or closures of the industry are prohibited.
Likewise, the Government has also implemented the Special Economic Zone Act 2016 to promote establishment of export-oriented industries in the country. SEZ in Bhairahawa is already in operation and about 21 industries are going to operate soon in the Bhairahawa SEZ. The Government is constructing another SEZ in Simara and plan to construct more in other parts of the country. Meanwhile, the Act has provisioned for a private sector to construct and operate SEZ in the country as well.
Nepal is an agricultural country. Agriculture sector has been significantly contributing to the Nepalese economy. Agriculture occupies around one third of GDP while two third of the population is dependent on agriculture as a profession. Agriculture sector had contributed 32.12 percent of GDP in fiscal year 2014/15, which is estimated to drop to 31.69 percent in fiscal year 2015/16. In the fiscal year 2015/16, annual growth rate of agriculture at base prices is expected to remain at 1.14 percent. As such, growth rate of agriculture in the past years has not been satisfactory.
The production of food grains (paddy, wheat, maize, millet, barley, buckwheat) in Nepal is estimated to drop by 6.2 percent to 869.2 thousand MT in current fiscal year 2015/16 which is 574 thousand MT less than the production of 926.6 thousand metric ton of the previous fiscal year. The major export items of agricultural origin are pulses, seeds, cardamom, tea, medicinal herbs and hides and skin.
Animal husbandry is an integral part of the Nepalese farming system. Cattle, buffalo and goat are the major livestock raised by the Nepalese farmers. Sheep rearing is popular in the mountain areas of the country. Poultry farming is emerging as a major farm enterprise, particularly in urban fringes.
In the paucity of large-scale dairy farms, the farmers of accessible areas engage in milk production as a supplementary business. The major portion of meat products comes from buffalo. Beef production, however, is not permitted by the country’s law.
Until Nepal adopted trade diversification policy in 1970, Nepal's foreign trade was predominantly with India only. In the fiscal year 1969/70, India's share of percentage on total trade of Nepal was 94.3 percent, whereas in both export and import it was 99.2 percent and 91.5 percent respectively. After 1970, Nepal diversified its trade to other countries and the Indian dominance on Nepal's foreign trade started declining. This trend continued till the fiscal year 1989/90, where India's share of percentage on total trade of Nepal was at 22.5 percent. Similarly, that of export and import was at 11.7 percent and 25.5 percent respectively.
In 1990/91, Nepal's total volume of foreign trade was Rs. 30.6 billion which constituted export of 24.1 percent (Rs. 7.4 billion) and import of 75.9 percent (Rs. 23.2 billion). After 1990, Nepal's foreign trade started increasing significantly due to the liberal and open market policies that Nepal adopted. Simultaneously, with increasing trade volume, the trade deficit also increased significantly. In fiscal year, 2015/16, total volume of trade was Rs. 843.7 billion. However, the trade deficit was a Rs. 703.5 billion. Nepal's export, at the same period, was at Rs. 70.1 billion whereas its import was at Rs. 773.6 billion.
In the current fiscal year 2016/17 (based on six months), total trade volume of Nepal is at Rs. 500.8 billion. During this period, Nepal's export was at Rs. 36.3 billion, whereas its import was recorded at Rs. 464.6 billion thereby incurring the trade deficit of Rs. 428.3 billion.
Government of Nepal has promulgated the new Trade Policy in 2015 with an objective to support the economic development through enhanced contribution of export to the national economy. Likewise, GoN has also implemented the revised Nepal Trade Integration Strategy (NTIS), 2016 identifying twelve priority exportable products and services.
The exports from Nepal have not been encouraging in the last three decades. The growth of export in comparison with that of total trade is very low. Nepal's export as a percentage of total trade has been hovering around in an average of 24 percent during this period. In 2000/01, it reached the height of 32.5 percent. In 2015/16, the percentage share of export in total trade was recorded at around 8 percent.
In fiscal year 2015/16, Nepal exported goods amount Rs. 70.1 billion to foreign countries including India. It is 11 times less than that of total import into Nepal. While India accounts for 56.3 percent of total export, the share of third countries stands at 43.7 percent. Export to India and China decreased by 29.3 percent and 24.6 percent respectively during 2015/16, whereas exports to other countries increased by 6.3 percent.
Woolen carpet, textiles, readymade garments, polyester yarn, zinc sheet, hides & skins, cardamom, pashmina goods, juice, pulses, threads (cotton, synthetic, other) are some of the major exportable items of Nepal.
Nepal’s import has been significantly growing in the last three decades. In the total foreign trade of Nepal, percentage share of import is very high. In 2015/16, the percentage share of import to total trade is almost 92 percent. In 1990/91, Nepal imported goods worth Rs. 23.3 billion which has increased to Rs. 773.6 billion in 2015/16.
In fiscal year 2015/16, Nepal imported goods worth Rs. 773.6 billion from foreign countries including India. The percentage share of India in total import is 61.7 percent while that of third countries is 38.4 percent. While imports from China increased by 15.5 percent, imports from India and other countries decreased by 2.9 percent and 1.2 percent respectively.
Petroleum products, gold, M.S. billet, transport vehicle & spare parts, medicine, machinery equipment & spare parts, crude soyabean oil, electrical equipments, and industrial raw materials, among others are some of the major import items. Among these import items, petroleum products, M.S. billet, medicine, transport vehicle & spare parts are mainly imported from India. While gold, telecommunication equipment & parts, crude soybean oil, computer & parts are mainly imported from third countries.
In 2016, Nepal had foreign trade relations with over 150 countries. It exported to more than 120 countries and imported from more than 150 countries. India, China, USA, UAE, Switzerland, Indonesia, Thailand, Germany, France, Japan are the top trading partners of Nepal.
Nepal has signed trade and transit agreements with India and Bangladesh. Similarly, it has trade agreements with Bulgaria, China, Czech Republic, Egypt, Mongolia, North Korea, South Korea, Pakistan, Poland, Romania, Sri Lanka, Russian Federation, UK, and US.
Foreign InvestmentNepal has been pursuing a liberal foreign investment policy and been striving to create an investment-friendly environment to attract FDIs into the country since 1981. As of February 3, 2017, a total number of 3,870 foreign investment projects have been registered at the DoInd, with the total project cost of Rs. 368.0 billion, of which foreign investments amounted to Rs. 206.0 billion (56%). In the fiscal year 2014/15, Nepal received a maximum number of foreign investment in the last ten years, amounting to Rs. 67.4 billion.
Foreign Investment Projects in Nepal-Fiscal year wise
Fiscal Year No. of Projects Total Project Cost
(Rs. In million)
Total Fixed Cost
(Rs. In million)
Total Working Capital
(Rs. In million)
Total Amount of Foreign Investment
(Rs. In million)
No. of Employment 2007/08 213 20,406.38 16,897.97 3,508.41 9,812.60 10,709 2008/09 231 9,417.89 7,530.02 1,887.87 6,255.09 11,108 2009/10 171 13,953.78 14,987.98 865.79 9,100.00 7,848 2010/11 210 11,252.69 9,377.26 1,875.43 10,053.21 10,902 2011/12 226 11,909.82 10,736.33 1,173.48 7,138.31 9,035 2012/13 317 51,990.78 41,046.35 10,944.43 19,818.73 16,569 2013/14 307 40,737.27 35,048.93 5,688.35 20,132.42 11,790 2014/15 370 81,370.60 77,436.79 3,933.81 67,455.04 13,167 2015/16 347 20,498.89 14,121.84 6,377.05 15,231.83 11,649 2016/17* 196 9,371.01 6,202.06 3,168.95 8,386.04 5,715Source: Department of IndustryThe areas of investment include industrial manufacturing, services, tourism, construction, agriculture, minerals and energy. As of date, service sector (33.5%) has received a large number of foreign investment followed by tourism (29.5%) and manufacturing sector (26.1%).
Foreign Investment Projects in Nepal-Category WiseFrom the Beginning to February 3, 2017
Category No. of Projects Total Project Cost
(Rs. In million)
Total Fixed Cost
(Rs. In million)
Total Working Capital
(Rs. In million)
Total Amount of Foreign Investment
(Rs. In million)
No. of Employment Agro and Forestry based 236 5,626.62 4,396.29 1,230.33 4,174.58 8,908 Construction 45 3,825.34 2,856.10 964.70 2,972.81 3,151 Energy based 75 153,564.68 150,102.15 5,362.53 87,572.36 10,917 Manufacturing 1,009 92,802.82 73,447.22 18,493.63 38,786.27 93,547 Mineral 66 6,538.12 5,183.10 1,355.02 4,159.35 8,070 Service 1,298 66,331.97 41,425.84 24,760.45 44,346.14 56,074 Tourism 1,141 39,335.15 36,270.99 2,794.46 24,018.60 42,613 Total 3,870 368,024.70 313,681.70 54,961.14 206,030.11 223,280Source: Department of Industry
Nepal has been receiving foreign investments from 89 countries around the world. The major source of foreign direct investments are China, India, Japan, USA, South Korea UK, Germany, among others. China has topped the list in most number of foreign projects in Nepal, while India has a lead in total amount of foreign investment coming into Nepal.
Foreign Investment Projects in Nepal-Country wiseCountryNo. of ProjectsTotal Project Cost
(Rs. In million)Total Fixed Cost
(Rs. In million)Total Working Capital
(Rs. In million)Total Amount of Foreign Investment
(Rs. In million)No. of EmploymentChina (mainland)1,07759,250.1149,660.229,573.3232,162.7450,897India658130,576.67113,584.6118,339.8281,167.4665,843USA34118,670.9916,624.921,796.027,527.2316,796South Korea31115,728.7111,111.794,580.5610,994.3310,577Japan2296,484.335,706.66711.132,342.178,909UK1588,719.416,928.801,771.915,255.0710,489Germany1022,791.432,486.21294.661,310.224,551France81881.15728.17139.60544.582,896The Netherlands682,379.431,437.36940.011,477.903,912Australia64786.21665.91119.22624.671,665Source: Department of Industry
- Nepal has concluded the Bilateral Investment Protection and Promotion Agreement (BIPPA) with France, Germany, UK, Mauritius, Finland and India. Negotiations are also going on with other countries including China and Canada.
- INVESTMENT SECTOR
Nepal’s economy is largely dependent on agricultural, which accounts for 36% of GDP and absorbs about two-thirds of the labour market. About 30% of Nepal’s total land is used for agricultural purposes. The major cash crops are oilseed, potato, tobacco, sugarcane, jute, cotton, and rubber; and the major cereal crops are paddy, maize, millet, wheat, barley, and buckwheat. Cardamom, ginger, garlic, turmeric, silk cocoons, honey and mushroom are also cultivated in copious amounts.
Nepal’s geography, water resources and ample supply of labour gives Nepal a comparative advantage in agricultural production. The temperature and rainfall differ from place to place, but the wet season is roughly the same in all areas of Nepal. The sector has seen Rs. 4.2 billion in foreign investment in about 236 agriculture projects, which employ over 8,900 people.
Even though Nepal is endowed with the resources needed for high land productivity, many households, particularly in the mountainous regions of Nepal, experience food shortages for 4–9 months a year. More than 50% of the districts in Nepal are considered food-deficient by FAO. This problem of low agricultural productivity arises due to fragmented subsistence farming, poor technical knowledge, and lack of irrigation facilities. Erratic weather patterns, pest epidemics, and lack of fertilizers and improved seeds exacerbate the problem.
Nepal also faces a negative trade balance in agriculture. The country’s agricultural imports were Rs. 40 billion (USD 400 million) in 2012/13. This figure is estimated to be at least Rs. 45 billion (USD 450 million) for 2013/14. However, agricultural imports from India have been growing at an astounding rate of 40% annually for the past 7 years. On the other hand, exports in 2012/13 stood only at Rs. 13 billion (USD 130 million) and were expected to reach Rs. 18 billion (USD 180 million) for 2013/14. Agricultural equipment, chemical fertilizers, rice, and vegetables account for more than two-thirds of the imports from India, whereas food and live animals comprise over 90% of total agricultural exports to India.
As the agriculture sector is the biggest contributor to GDP, the Government of Nepal is committed to uplifting this sector. With this objective, the Government has come up with the Agriculture Development Strategy, focusing on the modernisation, diversification, commercialisation and marketing of the agriculture sector. Towards this, the government plans to make available agricultural inputs, such as irrigation, electricity, transportation, and agro-credit.
Tourism (View Sector Profile)
Nepal officially opened its door to tourists in 1951. The first Tourism Master Plan in 1972 showed the government’s commitment to developing this sector. The Government of Nepal and the private sector have been working together to develop tourism: the private sector has taken the operational lead and the government has introduced regulatory reforms and developed infrastructure. Following the issuance of Tourism Policy, 2009, the government of Nepal has put tourism sector on top of its priority considering it’s crucial role in economic development and making its effort towards developing and extending tourism related activities. The Government has also prepared the Nepal Tourism Strategic Action Plan (2016-2025).
Tourism has grown considerable in Nepal in recent years. The number of tourists jumped from 380,000 in 2006 to about 800,000 in 2015. Recent data shows that more than two-thirds of tourists come for holidays, trekking expeditions, or pilgrimages. About a third of tourists are between the ages of 30–45 and about 17% are from India. The average length of stay for a tourist in Nepal is about 13 days. More tourists visit in March, October, and November than other months.
The Nepal Tourism Board, the body responsible for promoting tourism in Nepal, has launched a plan, in which it aims to achieve an increase in annual international tourist arrivals to Nepal to 2 million by 2020, as well as employment in the tourism sector of one million.
There are currently 116 star hotels, and 960 other non-star hotels with a total number of 36,950 beds. Out of the 116 star hotels, 8 are 5-star. Room occupancies in 5-star hotels generally hover between 40–80% during peak season.
Eight out of the 10 highest mountains in the world are in Nepal. Nepal also has 20 protected areas, which cover 23% of its land area: 10 national parks, 3 wildlife reserves, 6 conservation areas, and 1 hunting area. Nepal’s land accounts for only 0.1% of the total land mass in the world; however, in terms of biodiversity, the country has about 2.8% of plants, 4% of mammals, and 3.72% of butterflies, as well as 8.9% of birds found globally.
Although tourism is an important sector for Nepal’s overall development and has achieved higher growth rates than those achieved by the overall economy, it accounts for only about 2.5% of GDP. In 2014/15, the foreign currency earning from tourism sector is Rs. 5,342.9 million.
Hydropower (View Sector Profile)
Nepal is rich in water resources with multiple sources of water, including glaciers, snowmelt from the Himalayas, rainfall and ground water. There are 6,000 rivers, including rivulets and tributaries, totaling about 45,000 km in length. The country contains 2.2% of the world’s water resources.
Nepal’s theoretical capacity for producing power from hydropower projects is around 80,000 MW. However, as of mid-March 2016, installed capacity is only around 850 MW of electricity, despite the fact that demand is over 1,300 MW. Thus, Nepal remains one of the lowest energy consuming countries in the world. Demand for electricity is increasing at 7–9% per year, and according to the forecast from Nepal Electricity Authority, demand for electricity will reach 3,600 MW by 2027.
To deal with the shortage of electricity in Nepal, Government of Nepal and other government agencies have stepped forward to implement mega hydropower projects. In September 2014, Nepal signed its first Project Development Agreement (PDA, concession agreement) with a private developer, GMR LTD, to develop the Upper Karnali Hydropower Project, a 900 MW project. Similarly, another PDA with SJVNL, an Indian governmental entity, for the development of the 900 MW Arun III was also signed. The combined cost of these two projects exceeds USD 2.5 billion. In addition, Nepal has signed the Power Trade Agreement (PTA) with India, paving the way for the free flow of electricity as a commodity across the border.
Mining and Minerals (View Sector Profile)
Nepal lies in the centre of the 2,500 km Himalayan belt, which has favourable geography for various minerals (metallic, non-metallic, and fuel). As many as 63 minerals have been identified in Nepal. In 2010/11, 80 mines and quarries for 12 different minerals were in operation. Of these, 29 are limestone quarries and 6 gem mines. In 2011, mines and mineral-based industries contributed 2.4% to Nepal’s GDP.
Nepal has an abundance of minerals used in industrial and construction works including:
· Limestone (most abundant)
· Clay red
· Granite and marble (identified, but not extensively explored)
· Coal (with mines in Dang, Salyan, Rokpa and Palpa districts)
· Gold (alluvial gold was exploited in the past and there is potential for primary gold mining)
· Semi-precious and precious stones (tourmaline, aquamarine, ruby and sapphire)
The Department of Mines and Geology is engaged in the exploration and evaluation of mineral resources in Nepal and compiles and publishes consolidated information on the situation and potentialities of different minerals in the country. As per the Nepal Mines and Minerals Act 1986, the classification of minerals is done by type and importance:
· Type: Metallic/non metallic/fuels/thermal springs
· Importance: Very important/important/valuable/ordinary
The Department of Geology and Mines has discovered 1.07 billion tonnes of limestone deposits, of which 540 million tonnes are proven, 110 million tonnes are semi-proven, and 420 million tonnes are feasible deposits. These have been discovered in different districts including Udayapur, Dhankuta, Sindhuli, Makwanpur, Lalitpur, Dhading, Syangja, Arghakhachi, Sukhet, Dang, Salyan, Baitadi and Palpa.
As of January 2014, there are 44 cement plants in Nepal, of which only 12 have their own clinker production units. In the last two fiscal years, Nepal has imported cement worth approximately Rs. 16 billion (USD 160 million). The cement industry has experienced a sudden surge in demand due to the construction taking place. It is estimated that Nepal imports about 15–20% of the total cement consumed. The total FDI in this sector till date is approximately Rs. 4.1 billion (USD 40 million).
Information Technology (View Sector Profile)
The IT sector is an emerging area in Nepal. The Government of Nepal has identified IT and business process outsourcing (BPO) as one of the priority potential export service sectors in the Nepal Trade Integration Strategy (NTIS) 2016. IT has the potential to generate high growth, investment, and significant profits in the coming years and is expected to be one of the most significant growth contributors to the Nepali economy.
Business process outsourcing is a major emerging area in IT in Nepal. These IT entities are often referred to as ITES-BPO (informational technology enable services-business process outsourcing). The existing players in ITES-BPO in the market serve both the domestic and international market. Three types of companies are involved in the ITES-BPO sector: local solution providers focusing on the local market, export-oriented providers (e.g., offshore centre), and hybrid providers (both local and export oriented).
An IT Park is being established in Banepa in Kavre District. The total investment in this venture is estimated to be around Rs. 270 million (USD 2.70 million). The government is preparing to give a 50% tax subsidy to companies operating in the Park. The Park is expected to develop software, promote IT-based business and provide services, as well as promote investors in related fields.
Transportation (View Sector Profile)
During the past five years, Nepal’s transport sector has grown at an average rate 6.9%. Currently the sector accounts for 10.6% of real GDP. Because transport infrastructure development promotes economic growth and provides and promotes employment, it also contributes to improved living standards. Today the transportation industry directly provides employment to almost 20,000 people. Over the next five years, the government hopes to mobilize USD 8.2 billion for road infrastructure, rail connectivity and transport sector management.
The country has total road network of 80,078 km. Out of 75 total, only 67 district head quarter’s roads are linked with all-weather roads. Most of these work only as basic road connectors and require regular maintenance, upgrading, and further road connection to other districts. The other means of transportation, Nepal’s railway line has total length of 57 km out of which only 5 km is currently operating. The country has 1 international airport and 56 domestic airports.
- NEPAL AND THE WORLD
Index of Economic Freedom 2017
In the Index of Economic Freedom (2017), published by the Heritage Foundation, Nepal ranks at 125 out of 186 economies. In the Asia-Pacific region, Nepal’s rank is at 26 while in the South Asia region it is in the 3rd rank, behind Bhutan and Sri Lanka.
Nepal’s freedom score improved from 50.1 in 2014 to 55.1 in 2017. Nepal, along with all the South Asian countries- except Afghanistan, lies in the 'mostly unfree' category of the Index.
South Asian Countries in the 2017 Index of Economic Freedom
Country Rank Freedom Score Change in Score Afghanistan 163 48.9 No change Bhutan 107 58.4 Decline Bangladesh 128 55.0 Improve India 143 52.6 Decline Maldives 157 50.3 Decline Nepal 125 55.1 Improve Pakistan 141 52.8 Decline Sri Lanka 112 57.4 Decline
Nepal's performance in special categories of Economic Freedom Index 2017
Broad Areas Special Categories Score Change in Score Rule of Law Property Rights 37.3 Improve Government Integrity 26.7 Decline Judicial Effectiveness 32.0 No Change Regulatory Efficiency Business Freedom 64.6 Decline Labor Freedom 47.6 Improve Monetary Freedom 72.2 Improve Open Markets Trade Freedom 68.1 Improve Investment Freedom 10.0 Improve Financial Freedom 30.0 No Change Government Size Government Spending 89.5 Decline Tax Burden 84.9 Decline Fiscal Health 98.4 No Change
Source: www.heritage.orgGlobal Competitiveness Rank 2016-2017
In the Global Competitiveness Rank (2016-2017), published by the World Economic Forum, Nepal climbs to 98th position, two position higher than the last year. In the last five years, Nepal continues its upward trend and improves its global competitiveness. In 2012-2013 global competitiveness rank, Nepal was at 125.
South Asian Countries in the Global Competitiveness Index 2016-2017
Afghanistan - - - Bhutan 97 3.9 105 Bangladesh 106 3.8 107 India 39 4.5 55 Maldives - - - Nepal 98 3.9 100 Pakistan 122 3.5 126 Sri Lanka 71 4.2 68
Nepal's performance in pillars of competitiveness
Basic Requirement Subindex Pillar 1. Institutions 100 3.5 Pillar 2. Infrastructure 130 2.2 Pillar 3. Macroeconomic environment 27 5.5 Pillar 4. Health and primary education 82 5.6 Efficiency Enhancers Subindex Pillar 5. Higher education and training 113 3.3 Pillar 6. Goods market efficiency 116 3.9 Pillar 7. Labor market efficiency 103 3.9 Pillar 8. Financial market development 73 3.9 Pillar 9. Technological readiness 126 2.6 Pillar 10. Market size 91 3.2 Innovation and Sophistication Factor Subindex Pillar 11. Business sophistication 124 3.3 Pillar 12. Innovation 126 2.6
The World Bank Ease of Doing Business
In the Ease of Doing Business 2017 published by the World Bank, Nepal ranks at 107, which is second only to Bhutan in the South Asian region. However, from the last year, Nepal slips by one position, with overall score of 58.88.
South Asian Countries in the Doing Business Report
Rank in 2014 Rank in 2013 Afghanistan 183 177 183 164 168 Bhutan 73 71 125 141 148 Bangladesh 176 174 173 130 129 India 130 130 142 134 132 Maldives 135 128 116 95 95 Nepal 107 99 108 105 108 Pakistan 144 138 128 110 107 Sri Lanka 110 107 99 85 81
- Nepal’s drop in ranking was partially offset by changes in methodology. For the first time, the report includes a gender dimension in three sets of indicators: Starting a Business, Registering Property and Enforcing Contracts. The Paying Taxes indicator set has been expanded to cover post-filing processes, such as tax audits and VAT refund.
Nepal made exporting and importing easier by implementing ASYCUDA World, an electronic data interchange system.
Nepal's performance in Doing Business Report 2017
2017 Starting a Business (Rank) 109 Procedures (number) 7 Time (days) 17 Cost (% of income per capita) 26.1 Minimum Capital (% of income per capita) 0.0 Dealing with Construction Permits (Rank) 123 Procedures (number) 10 Time (days) 86 Cost (% of warehouse value) 13.2 Building quality control index (0-15) 9.0 Registering property (Rank) 72 Procedures (number) 3 Time (days) 5 Cost (% of property value) 4.8 Getting credit (Rank) 139 Strength of legal rights index (0-12) 6 Depth of credit information index (0-8) 0 Credit bureau coverage (% of adults) 1.8 Credit registry coverage (% of adults) 0.0 Protecting investors (Rank) 63 Extent of disclosure index (0-10) 6 Extent of director liability index (0-10) 1 Ease of shareholder suits index (0-10) 9 Extent of shareholder rights index (0-10) 8 Extent of ownership and control index (0-10) 6 Extent of corporate transparency index (0-10) 5 Paying taxes (Rank) 142 Payments (number per year) 34 Time (hours per year) 339 Total tax rate (% of profit) 29.5 Postfiling index (0-100) 33.48 Trading across borders (Rank) 69
Time to export
Documentary compliance (hours)
Border compliance (hours)
Cost to export
Documentary compliance (USD)
Border compliance (USD)
Time to import
Documentary compliance (hours)
Border compliance (hours)
Cost to import
Documentary compliance (USD)
Border compliance (USD)
Enforcing contracts (Rank) 152 Time (days) 910 Cost (% of claim) 26.8 Quality of judicial processes index (0-18) 5.5 Resolving insolvency (Rank) 89 Time (years) 2.0 Cost (% of estate) 9.0 Recovery rate (cents on the dollar) 42.3 Strength of insolvency framework index (0-16) 7.0 Getting electricity (Rank) 131 Procedures (number) 5 Time (days) 70 Cost (% of income per capita) 1,042.1
- Global Enabling Trade Index, World Economic Forum
In the Global Enabling Trade Index (2016), published by the World Economic Forum, Nepal ranks at 108, a jump by 4 position from the last index. Nepal’s performance over the years in index has been improving. In the South Asia region, all the economies have improved their ETI score, however, Bangladesh, Pakistan and Sri Lanka slipped down the order.
South Asian Countries in the Global Enabling Trade Index
ETI rank in 2010 ETI rank
Afghanistan - - - - - Bangladesh 123 3.5 115 109 113 Bhutan 92 4.0 107 - - India 102 3.9 96 100 84 Maldives - - - - - Nepal 108 3.8 112 124 118 Pakistan 122 3.5 114 116 112 Sri Lanka 103 3.9 84 73 99
- Nepal’s performance in the border administration has improved significantly in the last two years scoring 4.1 and climbing to 96 from 125 in the last ETI 2014. Progress has been slow in transport infrastructure, which suffered due to the effects of the devastating earthquake of April 2015 and disturbances along its border with India in the review period.
Nepal's performance in pillars of ETI 2016
Particular Rank in ETI 2016
Subindex A: Market Access 63 4.7 1st Pillar : Domestic Market Access 134 2.9 2nd Pillar: Foreign Market Access 1 6.5 Subindex B: Border Administration 96 4.1 3rd Pillar : Efficiency and Transparency of border administration 96 4.1 Subindex C: Transport & Communication Infrastructure 124 2.8 4th Pillar : Availability and quality of transport infrastructure 135 2.1 5th Pillar : Availability and quality of transport services 119 3.2 6th Pillar : Availability and use of ICTs 113 3.0 Subindex D: Operating Environment 106 3.8 7th Pillar: Operating Environment 106 3.8