Nepal may not be among the best known of trading centers in Asia, but there are many reasons why certain businesses should consider trade in Nepal. Since, 1951 the Nepali government has worked hard to liberalize the country’s economy, by improving transportation and communication facilities, as well as industry and agriculture. The Nepali government has tried to make the Nepali economy more conducive to investment by entering into various trade agreements and investment protection pacts. The export areas that Nepal does best in is the production of garments and carpets industry. With the European Union accounting for approximately 47% of all garment and rug exports. Nepal has also steadily climbed the scales in terms of ease of doing business in, with an increase of 3 places to 107. The Nepali economy has also been doing very well over the past few years, with economic growth in the 2000’s averaging between 4-6% on a annual basis.
So the Nepali market has steadily expanded and gotten richer, with GDP per capita increasing albeit at a slower rate, over the past 30 years. However, it should be noted that there is a sever lack of skilled labor in the country and there is little sign of this changing, with little government investment in education. So anything beyond basic manufacturing is likely to be difficult in Nepal.
Another aspect of the Nepali economy, is that it is heavily reliant on the Indian economy and exports, the local market is very weak in terms of consumption potential. So if international trade conditions are poor or if the Indian economy is performing poorly, it is very likely that the Nepali economy will also be performing poorly. But that does not make it any less of a manufacturing center for garment and rug producers. In fact, overtime many manufacturers from China have been locating to Nepal in order to take advantage of its lower wages and lower costs. But once again this has been restricted mainly to basic manufacturing as opposed to any technological manufacturers. But keep in mind, there is also a level of political instability in the country that makes any large long term investing slightly difficult.
While the currently elected president was elected through a democratic process, Nepal has a history of civil war and monarchy rule. With the current democratic government being established in 2008. While Nepal might have had a period of turmoil, the current democratic government is committed to attracting foreign investment by creating a much more friendly business environment. So in the foreseeable future there is likely to be a greater stable climate for investment in Nepal and at that time, trade in Nepal may be a better investment. The tourism industry is also another great area for investment, since Nepal has a growing number of international visitors. Currently there is also a low level of inflation, ranging from 2-3%, so the currency is likely to be more stable. But Nepal still suffers from a high level of corruption, with Nepal ranking near the bottom at 146 on the Corruption Perception Index(CPI). So there are certainly challenges to investing in Nepal. But for the right businesses, it could present a huge opportunity in the form of cheap labor and low costs. For more information on Trade in Nepal, you can consult the resources listed below.
Trade and Export Center of Nepal
Doing Business in Nepal: World Bank