An investment guide to Nepal
|Relevant documents||Industrial Enterprises Act, 1992 Foreign Investment and Technology Transfer Act, 1992 Company Act, 2006 Environment Protection Act, 1997|
|Relevant institutions||Department of Industry Office of Company Registrar|
You can register your company in person or online at www.ocr.gov.np.
Registration takes between three days and a week with the law authorizing up to 15 days. At the end of the process, you will receive a Certificate of Incorporation.
The application requirements are described below.
|Relevant institutions||Office of Company Registrar|
If your project is related to infrastructure, infrastructure finance, chemicals, large healthcare or requires an investment of over $118 million (see attached list) you must submit it for approval to the Investment Board, instead of the Department of Industry.
The Investment Board is chaired by the Prime Minister and is designed both to expedite the approvals process and facilitate access to land and other requirements. The Board also has a mandate to negotiate specific terms and incentives, both fiscal and financial.
|Relevant documents||Investment Board Act Sectors subject to approval by the Investment Board|
|Relevant institutions||Investment Board|
If your project relates to national security, safety and public health, it will require special permission. These are specified in Annex 2 of the Industrial Enterprises Act, 1992.
|Relevant documents||Industrial Enterprises Act, 1992|
Nepal's population is estimated at 31.5 million, with a density of (214 inhab/km2). Life expectancy at birth is 69 years. It is overwhelmingly rural but the urban population, currently at 17 percent is increasing at an estimated rate of 3.6 percent per year. (data.un.org)
According to official estimates, the labour force stood at 14.5 million at the end of 2011. However, Nepal is a labour-surplus country and exports unskilled, semi-skilled and highly skilled (e.g. engineers) labour, particularly to the Gulf region.
The Institute of Engineering under the State-funded Tribhuvan University is recognized as a centre of excellence by the Asian Institute of Technology (AIT) in Bangkok. English is the medium of higher education and the products of the Nepali post-secondary system speak English as a second language. In addition to university courses, various skill-development courses are run by a number of private and public institutions under the Council for Technical Education and Vocational Training (CTEVT) in different fields.
The table below shows indicative wages per month.
The Ministry of Labour prescribes minimum wages for factory labour every two years and publishes them in its Labour Regulations. However, reference employers tend to pay 30 to 40 %. Wages increase annually by an increment of half a day's pay.
|Senior manager||USD||1150-1750||2013||per month|
|Middle manager||USD||350-600||2013||per month|
|Graduate entry||USD||175-350||2013||per month|
|Office assistant||USD||120-230||2013||per month|
|Security guard||USD||120-180||2013||per month|
|Highly skilled technician||USD||96-104||2013||per month (minimum wage is 74 USD)|
|Unskilled labourer||USD||94-101||2013||per month (minimum wage is 72 USD)|
In addition to the wages specified above, you will also need to provide your employees with certain additional benefits.
With regards to the bonus pool, 70 % of funds remaining after bonuses have been paid, is placed in a staff welfare fund.
The housing allowance was originally intended as an amount an employer would have to set aside each year to invest in staff accommodation. However, there are examples of employers reaching agreement with unions to use those funds to support staff housing in other ways, such as through rental allowances or guaranteeing and subsidizing mortgages.
|Bonus||10 % of net income in fiscal year set aside for bonus pool||Bonus Act, 1974|
|Annual leave||18 days a year||Labour Rules, 1993|
|Maternity leave||52 days a year||Labour Rules, 1993|
|Sick leave (half pay)||15 days a year||Labour Rules, 1993|
|Obsequies leave||13 days a year||Labour Rules, 1993|
|Overtime||150 %||Labour Act, 1992|
|Housing allowance||5 % of gross profit in fiscal year set aside for employee housing||Labour Act, 1992|
|Relevant documents||Bonus Act, 1974 Labour Act, 1992 Labour Rules, 1993|
|Relevant institutions||Department of Labour|
|Provident fund, employer contribution||10 % of gross salary|
|Provident fund, employee contribution||10 % of gross salary|
|Final gratuity payment in consideration of first 7 years of service||Half a month of final gross salary per year worked|
|Final gratuity payment in consideration of eighth to fifteenth years of service||Two-thirds of a month of final gross salary per year worked|
|Final gratuity payment in consideration of service beyond 15 years||One month of final gross salary per year worked|
|Relevant documents||Labour Rules, 1993|
An employee who works full time for at least 240 days in a year is entitled to a permanent contract.
In case of termination for economic or technical reasons, the permission of the Department of Labour must be sought. Once granted, the indemnities below apply.
Disciplinary sanctions are described in Articles 50 to 53 of the Labour Act, 1992, and vary according to the type of misconduct from a written reprimand to dismissal. In all cases, due process procedures apply.
|Relevant documents||Labour Act, 1992 Trade Union Act, 1992|
|Relevant institutions||Department of Labour|
|Notice period||1 month of salary|
|Indemnity for each year worked or at least 6 months thereof||1 month of salary|
Work permits for expatriate employees are delivered by the Department of Labour on the recommendation of the Department of Industry. There is no automatic quota or limitation. However, you will have to demonstrate that no eligible Nepalese citizen is available, by advertizing a position and evaluating candidates. You may employ expatriates for two-year renewable periods but not more than five years in total, or seven years for “highly skilled” and “specialized” positions. There is an expectation that in that period, the position will be localized. You can obtain permits automatically for Indian citizens.
Employees are also required to obtain a non-tourist visa from the Department of Immigration. These are delivered for one year at a time and are therefore not linked to the work permit cycle. As an investor, you or your nominated representative may obtain a renewable five-year business visa.
If you invest at least US$100,000 in one time you are entitled to a permanent residential visa. This is granted by the Department of Immigration on the recommendation of the Department of Industry.
|Relevant documents||Labour Act, 1992|
|Relevant institutions||Department of Industry Department of Immigration|
Investors noted their satisfaction with the Nepali labour force. And while technical training was available, more was needed. Non-salary wage costs were raised, in particular the housing allowance. However, some employers were able renegotiate this allowance to offer it in a different form, for example as discounted housing loans or collateral. Concerns were raised about political interference in the trade union movement, which in certain firms had led to difficult labour relations.
Getting a work permit was noted as a potentially lengthy process and more coordination between departments would be welcome. Furthermore, visa and work permit periods didn't always align and it could be hard to get a work permit with a duration of more than a year, which could disrupt family life, especially in terms of schooling.
Electricity is provided by Nepal Electricity Authority (NEA).
In 2010, Nepal’s integrated power system had a total installed capacity of about 700 MW of which hydropower’s contribution was 650 MW. The rest came from thermal plants, multi-fuel plants and purchase from India. Only 40% of Nepalese have access to electricity.
Dependence on hydroelectric power means power cuts are to be expected, extending up to 16 hours at the driest time of the year, in January. Investors should expect to ensure solar or generator backup capacity.
|Electricity||USD||0.08||2013||1 Kwh industrial consumption (33 KV) day time|
|Electricity||USD||0.07||2013||1 Kwh industrial consumption (66 KV) day time|
|Relevant documents||Electricity Act, 1992|
|Relevant institutions||Nepal Electricity Authority|
Water is provided by local water authorities. Water shortages can occur in urban areas and it may be necessary to resort to delivery by tanker.
|Water||USD||2.11||2013||1 m3 tanker-delivered water|
|Water||USD||0.35||2013||1 m3 mains water|
|Relevant documents||Water Resources Act, 1992|
Mobile coverage extends throughout much of the country, with the exception of some rural areas. However and especially outside the Kathmandu valley and the main urban areas, quality and capacity can decline. 4G coverage is being gradually rolled out across the country.
Fixed line coverage is available in all districts. However, reach in rural areas may be limited. The Rural Telecommunications Development Fund exists to address this problem.
Indicative prices are below.
|Fixed line call||USD||0.35||2013||1 minute international peak|
|Fixed line call||USD||0.01||2013||1 minute national peak|
|Mobile call||USD||0.35||2013||1 minute international peak|
|Mobile call||USD||0.17||2013||1 minute regional peak|
|Mobile call||USD||0.01||2013||1 minute national peak|
The country has a road network of 23,209 km (33.4% are earth, 24.4% are graveled and 42.3% are black-topped). The underdeveloped condition of the road network increases the cost and difficulty of delivering products across the country. This is especially the case in the more remote hill districts. Furthermore, freight transport within Nepal is ensured by a hauliers' cooperative. As a result prices are fixed.
Access to the sea is principally via the port of Kolkata (1,150 km from Kathmandu). Transit time in India is between three and four days. Total time to Kathmandu is around one week. Other ports that are used are Haldia near Kolkata and Kandla near Mumbai. All these ports can be used under the transit treaty between India and Nepal. Also accessible is the Mongla port in Bangladesh, which is gradually being brought into use by Nepali business.
Four “dry ports” (inland container depots) in Nepal serve as virtual seaports. This reduces the wait for the bill of landing as it can be received on delivering the cargo to the shipping company’s office in the dry port. It also facilitates speedy negotiation of export documents with a bank. When importing goods, the importer does not need to go to Kolkata to receive the consignment, since it is delivered at the dry port by the shipping company.
Air transport plays an important role in the Nepali economy. There is one international airport (Tribhuvan International Airport in Kathmandu) and 52 domestic airports. Air is also the only convenient means to reach remote areas, where many tourism destinations are located and which are also sources of valuable herbs and minerals. Most airports are green-field without modern navigation systems. There are a range of international air connections, mostly with Asia and the Middle East.
Air fares, routes, and capacities (domestic and international) are set freely, subject to authorization from the Ministry of Culture, Tourism and Civil Aviation. The Nepal Civil Aviation Authority regulates and licenses private operators and air transport services. Nepal has signed 36 bilateral agreements on air transport.
The cost below is for a container shipment from the port of Kolkota to Kathmandu.
|Freight transport||USD||2700||2013||40' container from main (national or foreign) seaport to main commercial city|
For indicative purposes, a basket of goods and services that investors may face in Nepal are included below.
|Coca-Cola||USD||0.65||2013||50 cl plastic bottle|
|Imported beer||USD||2.82||2013||50 cl|
|Bottled water||USD||0.23||2013||1 litre|
|Wheat flour||USD||1.18||2013||per kg|
|Maize flour||USD||0.76||2013||per kg|
|Whole chicken||USD||4.52||2013||per kg|
|Minced beef||USD||5.29||2013||per kg|
|Bottled gas||USD||17.29||2013||15 kg not including cost of bottle.|
|Taxi ride||USD||2||2013||5 km journey within Kathmandu|
|Hotel 3 star||USD||70-110||2013||Standard room including breakfast|
|Hotel 4 star||USD||110-160||2013||Standard room including breakfast|
|Hotel 5 star||USD||160-200||2013||Standard room including breakfast|
Concerns were raised about the availability and reliability of supply of utilities. Electricity shortages were significant in the dry period - up to 16 hours - resulting from delays in agreeing hydro-electric generation projects. Many investors therefore require backup generators, although it was noted that fuel imports could be vulnerable to the state of the roads and availability of foreign exchange.
It was noted that piped water was not available throughout urban areas and that water may need to be delivered by truck.
Formalities at the India Nepal border were said to be correct although mention was made of spot checks on lorries crossing the Indian states of Bihar and Uttar Pradesh.
You may freely acquire land from private sellers whether as freehold or leasehold. However, you will require clearance from the Department of Industry and demonstrate that the land acquisition is needed for your project.
The maximum amount of land you may own is set out in the Land Act 1964 and depends on location - see table below.
|Relevant documents||Land Act 1964|
|Relevant institutions||Department of Industry|
|Location||Maximum permitted area (sq metres)|
|Hilly regions outside Kathmandu Valley||38,100|
|Office space||USD||9-16||2013||in main commercial city, per m² per month|
|Commercial shopfront||USD||12-14||2013||in main commercial city, per m² per month|
|Furnished expatriate house||USD||1,300-1,700||2013||3-bedroom with garden, in main commercial city, per month|
|Unfurnished expatriate house||USD||1,000-1,400||2013||3-bedroom with garden, in main commercial city, per month|
|Relevant institutions||Brihat Investments|
Land disputes are settled in the same way as other disputes involving investors. This is described under the Investor rights tab.
In order to begin construction, you must first apply to your municipality for a temporary building permit. This is provided after site checks and the consent of at least one neighbour. Once received, you may build up to plinth level.
To go beyond plinth level you must apply for a permanent building permit from your Town Development Committee. This will require a site visit and the approval of the committee.
Once construction is complete, you must obtain a completion certificate from your municipality. This is provided after a final inspection.
|Relevant documents||Town Development Act 1998|
There are currently no special economic zones in Nepal.
The Customs Act, 2007 provides that all imports of equipment and raw materials to a special economic zone for the purpose of export, shall be free of duty.
the Industrial Enterprises Act, 1992 also makes reference to special economic zones. However, there is no framework for the concessions that an EPZ developer might be granted, nor incentives that would accrue to an EPZ tenant, aside from those relating to customs duties.
|Relevant documents||Industrial Enterprises Act, 1992 Customs Act, 2007|
All taxes, apart from customs duties and local taxes (determined and collected by municipal authorities) are administered by the Inland Revenue Department. The fiscal year is from 1 July to 30 June.
|Relevant institutions||Inland Revenue Department|
Corporate tax is calculated on net profits.
You can pay it in installments in advance based on your company's estimate of performance, 40% at the six month point, 30% at the nine month point and 30% at 12 months. If the advance paid is more than 20% below the final assessed amount, you must pay the difference with interest of 15%.
|Category of enterprise||Percentage of profit|
|Enterprise approved by Department of Industry (all foreign investors)||20|
|Export industries (on pro-rata basis)||15|
|Financial institutions, tobacco and liquor industries||30|
|All other companies||25|
Your company can also benefit from a range of incentives.
Depreciation is on a straight-line basis. The regions are specified below.
|Enterprise with more than 300 employees||10% rebate|
|Enterprise with more than 1,200 employees||20% rebate|
|Enterprise with more than a third of employees who are women, underprivileged castes or disabled||20% rebate|
|ICT based enterprises||10% rebate|
|Enterprises based in an ICT park||25% rebate|
|Enterprises based in under-developed regions||25% rebate|
|Enterprises based in less-developed regions||30% rebate|
|Enterprises based in least-developed regions||50% rebate|
|Depreciation on buildings||5%|
|Depreciation on computers and office equipment||25%|
|Depreciation on vehicles||20%|
|Depreciation on construction equipment||15%|
|Hydropower and infrastructure, first 7 years after operation||100% tax exemption|
|Hydropower and infrastructure, next 3 years||50% rebate|
|Loss carryforward||7 years|
|Loss carryforward for hydropower and infrastructure||12 years|
VAT is payable at 13%. You must make payments monthly (or three times a year if your company's turnover is less than $23,530).
By statute, refunds for exports, which are VAT-exempt, should be paid to you within 30 days of the application being received. Refunds not related to export activity should by statute be paid to you within 60 days of the application being received. VAT refunds, whether related to exports or not, only take place if your company's VAT balance is negative for a particular month. VAT refunds for exports only take place if over 50% of sales were exported during the month in question.
Health services are VAT-exempt but are subjet to a Health Services Tax of 5%, payable by the end user.
|Relevant documents||VAT Act 1996, amended 2011 VAT Rules 1996|
The table below presents a selection of integrated tariffs. The full schedule can be found in the Department of Customs database: http://www.customs.gov.np/integrated-tariff/search.php.
Under the terms of the India-Nepal Trade Treaty, preferential tariffs applied to imports from India. These are also indicated in the table.
Depending on the product, imports from SAARC countries align with either those applied to imports from India or to those applied to imports from the rest of the world. These tariff rates are also contained in the above-mentioned database.
|Item||Integrated tariff||Preferential rate for Indian imports|
|Bus (over 25 seats)||54.25||51.75|
|Relevant documents||Customs Act, 2007|
|Relevant institutions||Department of Customs|
|First 160,000 NPR (individual) or first 200,000 NPR (couple)||0%|
|Next 100,000 NPR||15%|
|All remaining income up to 2.5 million NPR||25%|
|All income exceeding 2.5 million NPR||35%|
|House or land, all owners, less than 5 years||5%|
|House or land, all owners, more than 5 years||2.5%|
|Stock owned by a company||15%|
|Stock owned by an individual||5%|
You must obtain a Permanent Account Number (PAN) for your company and for yourself as an individual if you plan to be fiscally resident in Nepal. You can do this online or in-person. However, you must collect the tax certificate bearing the PAN in person from the IRD. Time taken is one day.
Once your company has a PAN, it can also register in the same way for VAT.
|Partner||Type of agreement||Year|
|India||Income and capital||2011|
|Mauritius||Income and capital||1999|
|Norway||Income and capital||1996|
|Sri Lanka||Income and capital||1998|
|Thailand||Income and capital||1998|
The full Nepal-India agreement is attached
|Relevant documents||Nepal-India Double Taxation Agreement|
Certain legal and treaty measures exist to provide protection to your investments.
The Industrial Enterprises Act states that no “industry” will be nationalized. The Land Acquisition Act empowers the Government to acquire land for any public purpose and sets out procedures for determining compensation and for appeal.
However, no law sets out any of the conventional rights of a foreign investor to receive compensation promptly and in convertible currency. Only foreign investors protected by international investment agreements have rights of an international standard.
International arbitration to settle a dispute with the Government is available to you as a foreign investor if you are protected by an international investment agreement or if you have negotiated such a clause with the Government (usually available for investments over US$ 5.2 million).
Otherwise you must first attempt negotiation and amicable settlement, which can be facilitated by the Department of Industry. If that fails, you may resort to arbitration according to UNCITRAL rules. However, this must take place in Kathmandu under Nepalese law. Decisions are appealable to the Appelate Court.
As an alternative to arbitration, you may settle disputes through the Nepalese courts.
|Relevant documents||Foreign Investment and Technology Transfer Act, 1992 Arbitration Act, 1999|
|Relevant institutions||Department of Industry|
You may repatriate funds in order to pay foreign vendors or technology transfer, repay loans (interest and principle), remit dividends or disinvest.
In order to do so you need to provide the relevant justification (such as invoice, loan agreement or minutes of the company AGM). This needs to be first approved by the Department of Industry before being forwarded to the Central Bank for the authorization letter. It should be noted that in the case intra-company loans, you are required to seek approval from the Department of Industry for the loan itself.
If you are an exporter, you may maintain foreign currency accounts at commercial banks – although at interest rates controlled by the Central Bank.
If you wish to retain funds abroad in order to satisfy international project loan requirements, you must put a case to the Central Bank. In larger investments these arrangements have been given contractual force in agreements between the investor and the Government.
|Relevant institutions||Department of Industry|
Intellectual property is governed by the laws below. Currently, the government of Nepal is preparing an Industrial Property Act covering patents, designs and trademarks and other categories of intellectual property rights in accordance with the World Trade Organization’s Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS).
You may register patents, trademarks, and industrial property at the Department of Industry. Registered trademarks are renewable every seven years. Patents are valid for seven years and can be renewed two times for seven years. Industrial designs are valid for five years, and can be renewed two times for five years. Fees for the registration and renewal of intellectual property rights are the same for foreign and domestic applications Copyright is protected without registration for the life of the author plus 50 years. The Nepal Copyright Registrar’s Office provides for procedures for voluntary registration of copyright works.
Intellectual property rights can be licensed, assigned or transferred under written agreements. The Department of Industry registers technology transfer agreement. Investors and licensors are entitled to repatriate payments related to technology transfer agreement in foreign currency according to the Foreign Investment and Technology Transfer Act, 1992.
|Relevant documents||Patent Design and Trade Mark Act, 1965 Copyright Act, 2002 Copyright Rules, 2004 Foreign Investment and Technology Transfer Act, 1992|
|Relevant institutions||Department of Industry - intellectual property registration Office of the Copyright Registrar|
|Relevant documents||WIPO Berne Convention|
The Paris Convention for the Protection of Industrial Property (1883) establishes industrial property protection rules regarding patents, marks, industrial designs, trade names, geographical indications and the repression of unfair competition. Its provisions include regulations regarding the national treatment, the right of priority and a number of common rules.
|Relevant documents||WIPO Paris Convention|
Convention Establishing the World Intellectual Property Organization (1967)
|Relevant documents||WIPO Convention|
Enforcement of intellectual property rights falls in the jurisdiction of the courts and customs officials of Nepal. The civil procedures include injunction, award of damage, and removal of infringing goods. Trademark and copyright infringement entails criminal liability and fines. The Customs Act, 2007 put special border measures in place. Customs officials may suspend the release of goods being imported in to Nepal or exported from Nepal that are suspected of infringing any intellectual property rights, such as patent, design, trademark, and copyright, upon the request of the right holder.
|Relevant documents||Customs Act, 2007|
|Relevant institutions||Department of Customs|
|Relevant documents||Competition Promotion and Market Protection Act, 2007|
Concerns were raised about the time taken to repatriate funds, which could extend to eight months. A good case scenario would be one week. Concerns were also raised about attempts by political parties to extract funds from investors, although it was noted that this could be refused.
Where required, investors favoured arbitration over commercial courts.
Since 1992, the Government's focus has been on private sector development and poverty alleviation. The preliminary statistics show that the population living below the poverty line has gone down from 45% to 25.4% in this period. Similarly, the increase in literacy and school enrolment rates, the prolonged average life expectancy, the reduction in child and maternal mortality rates, the fairer income distribution have exhibited considerable achievements (National Planning Commission). Attention has also been paid since 2007 on rebuilding physical infrastructure damaged during the country's decade-long conflict.GDP for 2012 was estimated at US$ 9.4 billion with GDP per capita at US$ 709. Agriculture accounts for slightly below 40% of GDP, services comprises 41% and manufacturing/craft based industries 22%. Agriculture employs 76% of the workforce, services 18% and industry 6%. Major food crops, which are mostly grown in the Terai Region, include rice, maize, wheat, millet, barley and buckwheat. In addition, sugarcane, root crops, milk and water buffalo meat are import products. Industry mainly involves the processing of agricultural products, including jute, sugarcane, tobacco and grain.
SAFTA comprises Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka. It represents a market of US$ 2.29 trillion and a population of 1.70 billion.
A key feature is the Trade Liberalization Programme under which non-LDC members commit to reduce important tarriffs for products from member countries to 20 percent by 2013. LDC members have until 2016. This currently applies to trade in goods only and does not include items that members assign to their sensitive list.
Under European Union's Everything But Arms Initiative (EBA), least developed countries (LDCs) enjoy duty-free access to the EU market for all products except arms and ammunition. Sugar and other processed foods are permitted.
Developing countries benefit from preferential duty-free access to the United States for up to 5,000 products, under its Generalized system of preferences (GSP). Eligible include: most manufactured items; many types of chemicals, minerals and building stone; jewelry; many types of carpets; and certain agricultural and fishery products. Among the products that are not eligible are: most textiles and apparel; watches; and most footwear, handbags, and luggage products.
Under this treaty, a wide range of Nepali products benefit from duty-free access to the Indian market with a population of 1.28 billion and a GDP of US$ 1.90 trillion. Primary products include those from agriculture and mining. Manufactured products must have at least 30 percent Nepalese content.
|Relevant documents||India Nepal Trade Treaty|
Agriculture is the major sector of the Nepalese economy, providing employment opportunities to 66% of the total population and contributes about 36% in GDP. Nepal produces rice, wheat, maize, millet and barley as the main food crops and mustard and rapeseed as the major oilseeds. Niger seed, which is great demand in the international market for birdfeed, is emerging as an export-oriented crop. Potato, sugar cane, lentils, tobacco and jute are the country's major cash crops. In recent years, the market-oriented production of vegetables and fruits has been promoted, gradually changing the subsistence pattern of agriculture. Also increasing in importance are tea, coffee, meat, milk, eggs, fish, vegetable seeds, silk and soya production.
Nepal produces two types of tea: orthodox tea in the hills from Chinese clones and CTC (crush, tear and curl) tea in the plains from Assamese-variety plants. “Orthodox” and “CTC” refer to two different types of tea-processing methods. Orthodox tea - the premium variety - is leaf tea with a good aroma and a mild liquor. The Nepal CTC tea - a mass consumption item - is ‘curled leaf’ tea with a mild aroma and a strong liquor. The distinction is in the processing of the green leaves, not in the leaves themselves or in the locations in which they are grown.
The Nepal's strength in tea production lies in the youth of the plants and in the long period of rainfall that the country (particularly the eastern part) receives. Nepal used to produce the similar quality of Darjeeling tea mainly in its eastern hills and plains adjoining the Darjeeling district of India. Recently the tea plantation has expanded to the central and western hills. Last few years, the production and export of Nepalese tea have been very impressive. More and more tea farmers have been attracted towards tea production, particularly organic farming, as these products fetch value in the international market. Germany, Japan, the Republic of Korea, and Hong Kong (China) have been the main importers of Nepalese orthodox tea.
Coffee is a newly identified export product of Nepal, as compared with tea. Coffee farming in Nepal is proven as promising due to the availability of soil with appropriate climate in the mid hills at an altitude of 1100 meter and above from where the series of Himalayas with fresh and cool air can be viewed to be suitable for specialty coffee. Coffee originates from the subtropical forest eco-system of the Ethiopian high lands, where it grows under the shade of a variety of trees.
Coffee is produced in more than 30 districts in Nepal. Among them, the commercially significant districts are: Lalitpur. Syangja, Gulmi, Kaski, Palpa, and Kavrepalanchowk. Majority of growers are low-income farmers, usually no chemical fertilizer and insecticide/pesticide applied. They do not even weed and manure coffee plants. Of the total production 65% is exported and the rest consumed in the domestic market. There is increasing demand for Nepalese Coffee for its specialty quality Nepalese coffee has been exported to different parts of the world mostly to Japan, the United States, and the Republic of Korea and European countries.
Nepal is rich in biodiversity having 6500 species of flowers, bushes and trees blooming in the uphill of the Himalayas to Terai. Due to the favorable climate, abundant labour, and suitable soil, floriculture has recently become one of the prominent businesses especially in hills and inner plains. Whereas exports in a regular and organized manner have not been well established, Japan, Kuwait, Qatar, India and many European countries have become major importers. The Government is aware that the diverse agro-climatic conditions of the country offer good prospects for the production of a wide variety of flowers (including some exotic species of orchids) and flowering seeds for export.
The workforce suitable to floriculture is easily available. For a successful export operation, direct air links to international markets for flowers as well as their proper storage areas at the airport would be needed. These needs present themselves as areas of investment in their own right. Thus far, there has been no significant FDI in this field.
In 2012, the Government of Nepal endorsed a new floriculture policy, which, among others, recognizes floriculure as a priority industry and promises to support it through a slew of incentives for entrepreneurs. The incentives include arrangement of priority sector loans to entrepreneurs pursuing floriculture farm projects.
The policy aims at developing floriculture by improving necessary infrastructure such as irrigation, agricultural roads, collection centers and cold storage, in collaboration with cooperatives and other non-government sectors. The policy also stipulates that floriculture related materials be included in school or college curriculum, and encourages industries to produce medicines, scents and other cosmetics using local flowers. In an effort to improve the market access for floriculture, the policy also emphasizes the need for establishing service centers in different places with the involvement of both the Government and the private sector.
The policy includes programs to institutionalize the market for floriculture products and its inputs, to encourage fresh flower outlets, to promote the involvement of under-privileged groups to pursue floriculture and to promote FDI in the sector. The policy also enlists indigenous varieties of ornamental flowers to protect their patent rights and their commercial farming, plans to establish a gene bank to preserve the indigenous flowers and encourage floriculture farms that support protection of bio-diversity in the country.
Floriculture has emerged as the highly potential sector which has been providing direct or indirect employment to over 40,000 people in 35 districts across the country.
Dairy farming is an integral part of Nepali agriculture. Water buffaloes and cows are the main animals reared for milk, but many farmers are facing the problem of over-supply. Bullocks are used for traction only, while male buffaloes are used also for meat. Yaks are also used for meat. Other livestock reared in Nepal includes goats, sheep, pigs, chickens and ducks.With some 7.2 million heads as their total population, cattle are the primary livestock in Nepal. Some 999,000 of them are milking cows. Perhaps even more important are the water buffaloes in the Nepali village economy, as they are used for all three purposes: traction, milk and meat. Their population is estimated at around 5.1 million heads with some 1.3 million heads of milking buffaloes. The number of sheep and goats is estimated at 807,000 and 5.8 million heads respectively. The number of pigs is estimated at around 1.1 million. Of the 45 million chickens, about 7.9 million are laying hens.
Opportunities in this field include the production of powdered milk and condensed milk to address the problem of milk holidays and to maintain regularity of supply during the lean season. Milk and milk products can also be exported, particularly to the adjoining states of India, Tibet (the Autonomous Region of China), and Bangladesh.
Nepali farmers have been facing the problem of what is known as “milk holidays”. These are days in the week when dairy firms and skimmed milk companies are unable to absorb the quantity of milk that farmers want to sell, causing a large quantity of milk wastage. This typically happens during the flush season that begins in the middle of the rainy season (July–August) and continues till January. Farmers reportedly blamed the Government for the milk holidays as it has refused to VAT on milk and milk products. Dairy industry firms have pressured the Government to reduce VAT.
The country has a theoretical hydropower potential of 83,000 MW, of which about 44,000 MW is thought to be economically feasible. However, Nepal has been able to harness only a small fraction of this potential resource so far. In 2010, Nepal’s integrated power system had a total installed capacity of about 700 MW of which hydropower’s contribution was 650 MW. The rest came from thermal plants, multi-fuel plants, and purchase from India.
Systematic and planned development of water resources started in the early 1990s. Many medium-sized hydroelectric projects such as Kulekhani I and II, Trishuli, Devighat, Gandaki, Sunkoshi, Panauti, Marsyangdi and Andhikhola have been completed and commissioned. Seti, Tamakoshi, Upper Karnali, Arun and Budhi Gandaki are some of the hydropower projects that have attracted interest of foreign investors. Furthermore, recently, a number of small and micro hydroelectric projects have been increasingly supplementing the energy needs of mountain and hill regions.
There is a gap in the supply and demand for electricity in Nepal. According to the load forecast conducted by Nepal Electricity Authority (NEA), energy growth per year for 2010-2020 will be 9.06%, whereas peak demand will increase by 8.85% in the same period. (NEA Annual Report, 2010)
Preliminary studies have identified potential for over half a dozen medium and large hydroelectric projects. Some projects are of such a size that their greatest value for Nepal will be from the perspective of exporting hydroelectric power to neighbouring countries, including to the northern regions of India, which face power shortages. One obstacle though has been the non-ratification of an India–Nepal agreement on power trade, signed in 1996, by the Nepali parliament. (Parliamentary ratification is not required in India.) The power trade agreement serves as the basis on which private-sector firms in the two countries can enter into power-purchase agreements.
Domestically, Government policy also allows captive generation by an energy-intensive industry which can then sell surplus power to the locality near it or to the national grid. Selling surplus power to a distant buyer within the country using the national grid is also possible against the payment of a fee to the Nepal Electricity Authority, which owns the national grid.
100% FDI is permissible in the hydropower sector. Additional approval from the Department of Electricity Development is required.
The Government has implemented a liberal tourism development policy aimed at attracting a larger flow of tourists who spend more in the country by lengthening their average stay. It is the second largest sector in terms of foreign exchange earnings and employment after agriculture. Holiday Inn, Hyatt, Radisson and Taj are some of the international hotels chains present in Nepal in joint ventures (financial and/or technical–managerial) with Nepali investors.
Nepal's attractiveness is due to its varied topographical features. The country’s elevation ranges from 100 metres to 8,848 metres above sea level. It is also a country in which two great religions, Hinduism and Buddhism, are blended together and there has been no religious conflict in its long history.
Trekking, white water rafting and mountaineering are increasingly popular tourist activities. The major attractions are the Himalayan ranges: 8 of the world’s 10 highest peaks exceeding 8,000 metres including Mount Everest, are in Nepal. The number of peaks above 6,000 metres exceeds 200. Fertile green valleys, forests full of wildlife where tigers and rhinoceroses roam, birds and flowers are other tourist attractions. The country provides tourists with a fascinating mix of natural beauty with a rich and ancient civilization of shrines, temples and palaces with ageless sculptures.
These features suggest some of the potential in cultural tourism, nature tourism, health tourism, adventure tourism and convention tourism. Tourism products targeted at Buddhists and Hindus from around the world (including those in India, China, South-East Asia, the Republic of Korea and Japan) can be developed with a focus on Lumbini, the birthplace of Buddha.
Tourism in Nepal has hitherto been concentrated in the Kathmandu valley, Pokhara and Chitwan. New areas can be developed in other parts of the country by setting up resorts that can be destinations on their own, such as the national parks and wildlife reserves.
Some entrepreneurs are also planning to develop educational tourism by setting up educational institutes targeted at international students. Yet others are thinking of health tourism, under which specialty hospitals will be set up in scenic locations with a wholesome climate and accompanying relatives or friends of patients coming to such hospitals will have holidaying opportunities.
Most tourists visiting Nepal are young adventurers (between 25 and 44 years in age). Packages and facilities targeted at older tourists are lacking, and therefore offer an opportunity for specialized investment in this sector. The major tourist-originating market for Nepal has traditionally been India. This is a foundation that can be built on, for Indian tourists are among the highest spenders in Nepal and they are especially likely to visit in the summer months when non-Indian arrivals decline.
The latest development in this area is the status granted to Nepal by China as one of the outbound destinations for Chinese tourists. The necessary arrangements to facilitate the flow of Chinese tourists into Nepal have been finalized by the two Governments. The Chinese yuan has been made convertible with the Nepali rupee and a representative office of China’s tourism authority has been established in Nepal. Various private and public institutions have started running language courses to meet the need for Chinese-language guides and interpreters.
Training schools for the hospitality industry, amusement parks, golf courses, cable-car complexes and resorts in non-traditional destinations such as the mid-western, far-western and eastern development regions are among the opportunities for FDI. The emergence of China as a source of tourists has also opened up opportunities for specialty restaurants.
An opportunity exists for setting up the international airport planned for outside the Kathmandu valley. The possible site is Bhairahawa, near Lumbini, the birthplace of Buddha. An airport located anywhere in the Terai can serve also as a preferred alternative airport for people wishing to visit Bihar or Uttar Pradesh in India. The Government has included the airport in the list of infrastructure projects that can be licensed to the private sector.
The Nepal Tourism Board (NTB), a public–private partnership organization set up especially for the purpose of promoting Nepal as a tourism destination, is the relevant authority for further information in this field. The Hotel Association of Nepal (HAN), the Nepal Association of Travel Agents (NATA) and the Nepal Association of Tour Operators (NATO) are private-sector associations that can also be contacted for further information.
In the tourism sector, 100% FDI is permissible in hotel and other areas. However, in the travel and trekking agencies the government is working on imposing some restriction on FDI. For example, maximum 51% and the minimum threshold of the FDI requirement. Therefore, until the approval of this policy, approval of FDI has been postponed in these sectors (travel/trekking).
The Government is encouraging private sector investment in specialized health services, so that it can concentrate its resources on primary health-care. As a result, a number of private health centres have been set up and are operating in Nepal, some of them with substantial foreign participation. Foreign participation is particularly significant in teaching hospitals. The Government has already announced a policy to provide land on long-term leases in the hills to private sector investors to construct specialty hospitals, health centres and educational institutions. This can be combined with tourism, as mentioned earlier.
In health services, 100% FDI is permissible. Additional approval from the Department of Health Services or its local offices is required before the operation of hospitals.
The pharmaceutical industry is another potential area for foreign investment. At present, there are a few dozen units in this industry. All of Nepalese firms produce non-patent drugs and occupy less than 40% of the domestic pharmaceutical market, whereas the rest belongs to Indian companies. One Nepalese pharmaceutical unit (Hukam Pharmaceuticals) has been exporting bulk drugs (formulations in bulk, not packaged for dispensary use) to India, while another unit (Nepal Pharmaceutical Lab) has started exporting branded pharmaceutical products ready for dispensary use to India.
The Government has promoted self-sufficiency in producing essential drugs, but the progress has been slow, particularly without much of FDI.
There are substantial prospects for the production of Ayurvedic formulations and other herbal medicines, as Nepal’s biodiversity encompasses a wide range of medicinal and aromatic herbs. (Ayurvedic medicine is the traditional medical system of India.) India’s major producer of Ayurvedic formulations, Dabur India Ltd, has set up a majority-owned subsidiary in Nepal to process the herbs available in Nepal. Figures for the export of some Ayurvedic formulations to India during 1998–2001 are given in table III.7.
100% FDI is permissible. Additional approval from the Department of Drug Administration is required before the operation of pharmaceutical industries.
Nepal’s overseas exports also include light manufacturing items such as terry towels and microtransformers, which have attracted some foreign investors. Thailand’s Ekarat Engineering has invested in Nepal Ekarat Engineering, an ISO-certified company which manufactures electricity transformers. Nepal Bayern Electric, a joint venture between Nepali and German investors, has been exporting micro-transformers (electronic parts used in the telecommunication industry) to Germany.
Nepal has proven deposits of marble, magnesite, talc, garnet, quartz crystals, kyanite, tourmaline, beryl, corundum/ruby and natural aggregates (river boulders, gravel and sand).
Some of these minerals are exported raw, mainly to India but also to a few other Asian countries. Minerals are also processed for cement, industrial lime, agriculture lime, dead burnt magnesite, paper, soap and marble industries. Some small-scale industries also use limestone, dolomite, quartz, talc, coal, peat, precious and semiprecious stones, brine water (salt) etc. Construction materials (aggregate, dimension stones, slates, river boulders, gravel, sand, clay) are in high demand. Since only about 30-35% of the total demand of cement is fulfilled by internal production there are ample opportunities to exploit existing cement grade limestone and establish more cement and allied industries in Nepal.
Lesser Himalaya is the the main area for cement grade and chemical grade limestone, dolomite, magnesite and phosphorite, with around 1.25 billion tonnes of limestone deposits identified. Limestone deposits in Diyarigad, Chaukune, Katari-Galtar, Narpani, Nigale, Kazeri and Dang also show promise for cement and allied industries. Further limestone deposits are under exploration in Udayapur, Khotang, Syangja, Dang, Rolpa and Palpa. There also exists an estimated potential of over 5 billion tonnes of dolomite in the Lesser Himalaya. Lead and Zinc deposits in Ganesh Himal area can be mined economically.
The prospects for decorative/dimension stones in Kathmandu, Lalitpur, Kavre, Makwanpur, Dhadhing and Sindhuli districts appear promising. The exploitation of river boulders, gravel, and sand in the Terai and Churia, together with the identification and development of a new quarry for raw stone as a source aggregate for civil works is also promising. Meanwhile, ruby, sapphire, tourmaline, aquamarine, garnet, kyanite and quartz crystals reveal high potential. (For further information, visit the Department of Minerals and Geology at www.dmgnepal.gov.np.
100% FDI is permissible in mineral based industries.
|Population (ADB Key Indicators 2011)||28.3 million|
|Local currency||Nepali Rupee (NR)|
|Exchange rate (2011/2012)||US$1=NR79|
|Official language(s)||Nepali (English is widely used in business)|
|Other national language(s)||Maithili, Bhojpuri, Newari, Magar|
|GDP per capita||US$735|
|Time zone||GMT + 5.45d|