Nepal Country Analysis: Exploring Opportunities for Emerging Business

This report provides a comprehensive analysis of Nepal as an emerging market for foreign direct investment (FDI). It covers various aspects including a general overview of the country, political, economic, socio-cultural, and technological influences, national resource and factor endowments, foreign currency and exchange influences, existing trade policies, systems, barriers, and incentives, and current levels of FDI. The analysis highlights Nepal's potential for growth, driven by its strategic location, increasing technological advancements, and evolving socio-cultural environment. However, it also acknowledges challenges such as political instability, bureaucratic inefficiencies, and infrastructural limitations that hinder FDI. The report concludes with recommendations for investors and policymakers to capitalize on Nepal's opportunities while addressing the existing barriers to investment. Desklib provides students access to similar solved assignments and past papers.

Running head: COUNTRY ANALYSIS FOR EMERGING BUSINESS
COUNTRY ANALYSIS FOR EMERGING BUSINESS
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Executive summary
Every year Nepal approximately exports $661.2 million worth of juices, zinc sheets, woollen
carpets, polyester yarn, pulses, garments, and the agricultural items. The main imports of
Nepal are the products from Nepal, vehicles, machinery and parts, gold, medicines,
telecommunications equipment and the electrical goods. The other sector in which reflects the
commercial opportunities following the deregulation involving the civil aviation and the
telecommunications. This study analyses the present condition of Nepal and also identifies the
benefits the country is able to produce for the emerging business market in Nepal.

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General overview of the country or region
Nepal is considered as the landlocked country that is located in South Asia with the
annual Gross Domestic Product (GDP) of the roughly USD 19 billion. The total trade of Nepal
comprise of USD 7.92 billion and it is one of the smallest share in the global economy. Nepal
is located between India and China and the business market in Nepal is also attractive for the
foreign investment. The agriculture accounts for the 28.9% of GDP and reflects 65.7% of the
employment. There has also been the important rate of migration of people from the rural to
the urban areas and overseas. It has established the friendly laws for investment and the
regulations. The corruption, the laws which has limited the functioning of the foreign banks,
the practical limitations on the repatriation of the profits, the limited facilities for currency
exchange, monopoly of government over the crucial areas like the transmission of electricity
and the distribution of petroleum undermines the foreign investment in the landlocked nation,
Nepal. This study mainly draws light on the factors of the country that enhances the growth of
the emerging business. This study also discuses the opportunities that can increase the foreign
direct investment.
Political, Economic, Socio-cultural and Technological influences/benefits/ advantages
As per the record of the Bank doing business report (2013), Nepal ranked 105th out of
the 185 economies. Nepal is currently recovering from the political uncertain state by
finalizing the new constitution and updating the social structures with the developed countries
(Nightingale 2017).
The key objectives of the economic policy of Nepal is to encourage afair and the
transparent business environment for both the domestic and the foreign companies. Nepal has

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also established the competitive market economy system through the privatization of the
public enterprises and adopted the competition policy (Basnyat, Lovelock and Carr 2017).
However, the FDI policy are still very limited due to the high cost of doing business with the
limited investment opportunity and the political instability (Vij et al. 2018).
The socio-cultural environment of the Nepal has been changing drastically for the last
two decades with various changes in the society, culture, economic and the gender
composition of the workforce of the economy. The emerging, the unique changes in the class
structure has also opened up the new frontiers of both the economic and the business activities.
The factors reflects the widening base of the nation’s business sectors that are the middle class
house makers plays an active role in managing the household activities and the shifting in the
lifestyles the Nepal is currently facing the great challenges and paradigm shift in the diet of the
people (Wise and Darmstadt 2015). The urban teenagers who are from the middle and the
upper class of the society are now emerging and the teenagers from the urbanized parts
belongs from the middle and the upper class families have emerged as the sizeable and the
unique market segments. The socio cultural condition of Nepal attracts more and more
emerging business market.
The technological advancement have taken place in Nepal from the earlier condition
that is by the introduction and development of the ICT in Nepal and this has cause the increase
in the use of the telecom sectors. There has also been increase in the internet penetration of the
63% as recorded in 2014 – 2016. In the remote areas of Nepal also there has been the
introduction of internet and this reflect the successful formulation of the Nepal Wireless
Networking Project in 2002 and this has maximised the use of the ICT and improves the social

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and economic conditions of the people life in the remote areas (Panday 2015). This make
advantageous for the new emerging business to grow up in the place where, the technology
advancement has taken place largely. The remarkable achievement of nation is the high
position it has been able to occupy 22nd position among the emerging economies in the world
and has acquired 1st position among all the South Asian countries in 2018. Nepal has reflected
the technology development in various areas including the specific areas like the civil
engineering sectors, architectures, metallurgy, paper manufacture, dyeing and the food
technology (Paudel and Le Billon 2018).
National resource and factor endowments that create competitive advantage
The factor endowments create an impact on Nepal’s comparative advantages that is
affecting largely the opportunity cost of specialization of production of those items that are
related to other. The comparative advantage generally exists when the opportunity cost of the
specialization is lower than that of the other competitive nations. The existence of the
comparative advantage is largely affected by the labor cost, capital, land and several other
factors. There are also other influential factors the country’s comparative advantages in the
practical terms like the highly developed financial system and the economies of scale (Jung,
Ryu and Yun 2016). The examples of the factor endowment related to the present of the
natural resources like oil and other. Nepal focuses on the internal resources that they can
produce the factors that they have in enough quantity. Labor is considered as the crucial factor
input in most of the manufacturing items that is from agricultural products to cell phones and
the characteristics affects the country’s comparative advantages. If any country has the
abundance of labour force, this reflects the country possess lesser opportunity cost of

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specializing in the labor-intensive activities. The labour force of Nepal has increased their
skills, which had multiplying effect on wages increasing manifold. Nepal has also begun
specialization in the more complicated and processed food products. The factor endowments
are not static as the labor force characteristics can change like the characteristics of the labor
force can change and the same holds true for investments in the capital and infrastructures
(Fox 2018).
Foreign currency and exchange influences
Nepal has started to influence adequate control on the foreign exchange reserves that
was challenged through the Central Bank of India. In 1983, in order to counter the economic
instability and the increased inflations, the exchange rate of the Nepalese rupee was weighted
against the basket of the important currencies like the U.S. dollar. The Nepalese currency is
strongly influenced by the fluctuations of the Indian rupee (Subedi 2016). The Nepal currency
has been in decline for years but the rising of the Nepal currency attracts most of the business
and the emerging platform finds a great place for the settlement of the new business and
earning more and more profit. According to the Nepal laws, the authorized dealer like the
banks, hotels and the licensed money changers can offer the currency exchanging services and
does not allow anybody to exchange currency from any unauthorized body. Thus, the new
emerging business should make safe transactions based on this law. The three major exchange
rates that the business market should follow are the Rastra Bank rate, the private bank’s rate
and the black market rate. The official exchange rates are generally set by the Nepal
government Rastra Bank and the list are also provided in the daily newspaper. The
international currencies like the USD, GBP,YEN, EURO and other are accepted in Nepal and

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there are also no custom charges and the limitations in bringing the home currency to Nepal
(Carney 2015).
The countries existing trade policies, systems, barriers and incentives
The first trade policy of Nepal was introduced in 1983 with the slogan of the Export
for the development. By following the wave of the economic liberalization and the structural
adjustment programs, Nepal had introduced the first liberal trade policy in 1992. The trade
policy in 1992 removed most of the trade barriers like eliminating licensing for the import and
the export and the establishing industry etc. The changed context GON has introduced the
trade policy in 2009 and considering the dynamism in the trade sector and addressing the
alarming trade deficit, the government has introduced the new trade policy in 2015. This trade
policy of 2015 highlights the policy and the institutional coherence and the linkage, trade in
goods, services and trade related to the intellectual property rights. This trade policy highlights
the trade related to the infrastructure building and the product development and the value
chains (Roy 2017).
The legal system of the Nepal is based on the common laws along with the strong
influence on the Hindu customary law. The emerging business can register for the sole
proprietorship firms as per the Private Firm Registration Act in 1957 that provides the firm
with the trading name. The sole proprietorship firms do not have the separate legal personality
and the liability of the proprietor is unlimited. These firms are mostly used by the individuals
undertaking the trading activities and the professional service providers like the lawyers and
the accountant. These firms provide advantages like the individuals can easily establish,
control and dissolve, prompt and the flexible decision making process. However the

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disadvantages are periodic renewal and the separate legal personality. The overseas company
can either register as the joint venture company or the fully owned subsidiary company in
Nepal . the private companies are the most corporate vehicle that are used by the foreign
companies for seeking their establishment of the business presence in Nepal because of teh
limited liability, the separate legal personality and there is no need of renewal based on the
annual or the periodic basis (Bastola and Sapkota 2015).
The barriers faced by the emerging market are the political instability that is from the
past 27 years including the 25 governments has created the uncertain environment for the
foreign and the private investment. The high custom tariffs imposed on the manufactured
products due to the increase of price of the US products in the Nepali market. The climatic
condition is also not favourable for the emerging business due to large amount of major
Earthquakes in April and May (Gupta et al. 2015).
Nepal’s existing tax incentives was for the losses that could be carry forward for the 12
years on the construction of powerhouse, generation and the transmission of electricity. The
tax incentives causes the beginning of the beginning of the commercial production of the
hydropower, production and the transmission production (Choudhary and Patil 2015).
Existing levels of Foreign Direct Investment
The GON claims to be open to the foreign direct investment but the implementation of
the policies is generally hindered by the bureaucratic delay and the inefficiencies. The foreign
investors frequently complain about the complex and the opaque governmental procedures and
the working level attitude that is more hostile than accommodating. The foreign investors in
Nepal should deal with the non-transparent legal system, where the basic legal procedures are

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neither quick nor routine (Chalise and Naranpanawa 2016). The legislation limits the foreign
investment in the financial services, legal services and the accounting services that has made
difficult for the investors to cut through the regulatory red tape. However the foreign investors
have found out that the corruptions as the obstacles for maintaining and expanding the direct
investment in Nepal as there are frequent allegations of the corruption by the GON officials
for the distribution of permits, approvals, procurement of goods and services and the award of
contracts (Regmi and Walter 2017).
Conclusion
Therefore, from the above discussion it can be concluded that Nepal would be able to
provide the great scope for the new business to emerge and this study reflects the rapid and the
constant growth of Gross Domestic Product. This growth of the Gross Domestic Product has
created the attractive investment opportunities for the new business to emerge in this country.
The country analysis has been done in the entire study that discusses the important factors for
the growth of the emerging business and also shown opportunities for the Foreign Direct
Investment.

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