Environmental Challenges
Nepal is an independent and federal democratic republic country. It is in the process of
establishing a state system but number and boundaries have not been finalized. It is a land-locked
country in South Asia with a population of 26.4 million. Nepal is an agriculture dominated
country, however due to globalization and technological advancement potential business sectors
in Nepal are rapidly rising. The key business sectors in Nepal are Agro-business, Hydropower,
Tourism, Herbal, Sugar, Match, Flour, Carpets, Paper Garment and Textiles, Cigarette, Cement
and Brick, Leather and leather goods, Soap, Health, Telecommunication and Mines. Despite
being a small country, Nepal is diverse in terms of topography. Mountains and rugged hills cover
almost 77% of the total area. Bordering China to the North and India to the South, East and
West, most trade is done via two industrial giants. Due to the rapid industrialization of India and
China, Nepal has potential to become one of the fastest growing nations in the world. The major
industrial centres of Nepal are Biratnagar, Birgunj, Kathmandu, Bhairahawa, Janakpur, Hetauda,
Nepalganj, Patan and Pokhara. There are around 150 ethnic groups in Nepal as of 2011, these
groups coexist in Nepal, each with their own complex customs. Nepal has estimated water
potential of 83000 MW, out of which 40,000 MW is technically and economically viable.
However, Nepal to date has been able to develop only approximately 680 MW of power. As per
an Economic Survey published by Ministry of Finance for FY 2015/16, the total exports were
Rs. 74.2 billion while the total imports were Rs. 789.3 billion. Being an economically developing
country, Nepal has recently emerged as a key destination for foreign investors. Nepal strives to
promote foreign investment in a focused, comprehensive and structured manner with a main
focus to provide quality input and support services to its prospective foreign investors.
However, there are a number of issues which you must consider when you are looking to set up
your business in Nepal.
Economic environmental challenges:
Lack of adequate infrastructure: Nepal is a landlocked state, which makes market access a
challenge. Surface transport into and out of Nepal can be difficult, and there is only one reliable
road route from Bangladesh India to the Kathmandu Valley. Political unrest and general strikes
can disrupt the movement of goods in and out of Nepal. Nepal’s border was virtually shut down
from September 2015 to February 2016 due to political turmoil and protests at key border points.
The primary seaport for entry of goods bound for Nepal is Kolkata, India, about 460 miles from
the Nepal-India border. With a single international airport in the country, challenges in the air
transport sector are also acute
Lack of Electricity : Electricity is a major pre-requisite for the Industries. But for the past few
years, there has been acute shortage of electricity in Nepal. Therefore, most of the industries are
dependent on captive generators that run-on petro-fuel to meet their electricity needs. Due to the
lack of domestic sources, the country depends entirely on imports of petro-fuel. This has raised
the cost of doing business in almost every sector.
Lack Of Manpower: Qualified workers are in short supply. Nepal produces technical
manpower, but a lack of economic opportunity and low wages compel millions of workers to
seek jobs overseas. Businesses often complain of having to constantly recruit and re-train new
staff. Rigid labor laws make it difficult to terminate employees. Moreover, militant and highly
politicized unions commonly abrogate negotiated agreements to press new demands, making it a
challenge to assemble and retain qualified staff. A new Labor Act was enacted in August 2017
replacing the previous one from 1998. This Act should make the employer-laborer relationship
more systematic and help ease some of the rigidities, e.g. ability of firms to retrench workers in
response to market demands, clarity on provisions related to occupational health and safety,
collective bargaining, dispute resolution and reduced wages during strikes.
Small market: Nepal's market is small and limited. There is no access to all parts of the country.
As small quantity of goods is to be produced for small market, the production cost reaches
[Link] a result the price of the goods also goes [Link] Chines and Indian goods enter Nepal
at lower price, Nepalese industries cannot compete with the Chines and Indian [Link] also
has shrunken the market of Nepalese [Link] small market is also a problem for
management.
Corruption: Investors have identified corruption as an obstacle to maintaining and expanding
direct investment in Nepal. There are frequent allegations of corruption by GON officials in the
distribution of permits and approvals, procurement of goods and services, and award of
contracts. Nepal’s ranking on Transparency International’s Corruption Perceptions Index
improved from 131 out of 176 countries in 2016 to 122/180 in 2017 largely due to the successful
completion of elections.
The political/Legal environmental challenges:
Political instability: Including 25 governments in the past 27 years, had created an uncertain
environment for foreign and private investment. With the successful conclusion of local and
parliamentary elections in 2017 and a majority government in place in early 2018, this
environment is expected to improve. However, the new Constitution of 2015 also committed
Nepal to a federal set-up with a central/federal government (based in Kathmandu) and seven
Provincial or State governments, besides 753 units of local government. The division of power
and responsibility across these three tiers of government is still being worked out, and can create
additional administrative, bureaucratic and possibly even policy-level costs, hurdles and delays.
Non-transparent legal system: The GON claims to be open to foreign direct investment, but
implementation of its policies is often hindered by bureaucratic delays and inefficiency. Foreign
investors frequently complain about complex and opaque government procedures and a working-
level attitude that is more hostile than accommodating. Lack of inter-agency co-ordination is
often touted as another hurdle.
Indian Domination: Bordering China to the North and India to the South, East and West, most
trade is done via two industrial giants. For Nepal, it’s probably no surprise that neighbor India is
far and away the biggest economic partner , accounting for 53.7% of all exports, according to the
CIA.
Customs tariffs: High customs tariffs imposed on most manufactured products increase the
price of U.S. products in the Nepali market. Additionally, cheap consumer goods imported from
India also present market challenges for Bangladeshi products
Cultural environmental challenges:
There are around 150 ethnic groups in Nepal as of 2016, these groups coexist in Nepal, each with
their own complex customs. The major ethnic groups in Nepal are: Brahman, Chettry, Newar,
Gurung, Sherpa, Magar, Tamang, Tharu, Rai, Limbu and Muslim.