8 Sept 2017
Nepal: Market Profile
Major Economic Indicators
- Nepal is a landlocked Himalayan country sandwiched between China and India. It maintains close relations with the two countries, especially with regard to infrastructure investment. Its hilly topography, however, poses a significant challenge to the improvement of transportation facilities within the country. One of the world’s poorest countries, Nepal abolished its monarchy in 2008 and adopted a multi-party republic system. A number of massive earthquakes struck the country in early 2015, with continual negative repercussions for the Nepalese economy. Currently reconstruction costs are estimated at more than US$10 billion, nearly half of the country’s GDP.
- Agriculture is the major economic sector for the country, contributing some 30% of GDP while employing 80% of Nepal’s working population. Tourism, once a key economic driver that accounted for 10% of GDP, is now facing uncertain prospects given the destruction of many tourist attractions by the earthquakes. Foreign aid and remittances from Nepalese overseas workers remain important in terms of helping Nepal’s external position in the face of the reconstruction costs.
- India is Nepal’s leading trading partner, and the Nepalese rupee is pegged to the Indian rupee. Nepal and India renewed their trade treaty in 2009. Over half of Nepal’s exports are sent to India, with the US and Germany as the other two most significant destinations. Textile articles, including carpets, account for some 35% of the country’s total exports. Nepal’s major imports include fuel, machinery and vehicles, mostly from India and China.
- A World Bank report estimates that Nepal needs to invest about 3% of GDP annually in order to enhance external connectivity through strategic and local roads. Thanks to an MOU signed with China in May 2017, Nepal expects its infrastructure gap to be better addressed under China’s Belt and Road Initiative. Chinese media has reported a number of ambitious regional rail schemes, including a rail link under Mount Everest to Nepal, are being considered. While India is Nepal’s largest FDI source, China is fast catching up. In September 2017, the Investment Board of Nepal has signed off an investment project of US$360 million by Chinese-Nepal joint venture Hongshi-Shivam Cement.
- Nepal acceded to the WTO in 2004, and is a founding member of the South Asian Free Trade Area (SAFTA) and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Co-operation. In March 2016 China and Nepal signed an MOU to launch a joint feasibility study on FTA. Besides, an agreement on providing Nepal access to Chinese sea ports was also signed.
- Investment Board Nepal (IBN) is the government agency for promoting FDI and thereby the Nepalese economy. FDI projects in hydropower, agriculture, information technology and tourism are encouraged. More information on the investment rules and incentives in Nepal can be found on the IBN website.
- Nepal’s cumulative FDI was US$541 million as at end-2014, with India and China being the major sources. According to UNCTAD, Nepal’s cumulative FDI was US$653 million as at end-2016. According to statistics of China’s Ministry of Commerce, Chinese cumulative FDI in Nepal was US$291.9 million as at end 2015.
More information on the Belt and Road countries’ economic and investment environment, tax and other subjects that are important in considering investment and doing business are available in The Belt and Road Initiative: Country Business Guides.