Learn about barriers to market entry and local requirements, i.e., things to be aware of when entering the market for this country.
Last Published: 2/1/2019
Nepal is a landlocked state, which makes market access a challenge.  Surface transport into and out of Nepal can be difficult.  The one reliable road route from India to the Kathmandu Valley is 84 miles and takes a minimum of six hours to traverse.  As recently as 2016, political unrest and general strikes have disrupted movement of goods in and out of Nepal, sometimes for months at a time, and while the likelihood of future disruptions is now decreasing with the improvement in the political environment, they cannot be ruled out.  The primary seaport for entry of goods bound for Nepal is Kolkata, India, about 460 miles from the Nepal-India border.  With only one international airport in the country, challenges in the air transport sector are also acute. The Government of Nepal (GoN) is attempting to negotiate a Trade and Transit Protocol with its northern neighbor, China. If successful, this would grant Nepal an alternative access to the Chinese sea-port most likely in Tianjin. However, even if this negotiation were to succeed it may still be a couple of years before this route is active.
 
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.
 
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.
 
Foreign investors must deal with a non-transparent legal system, where basic legal procedures are neither quick nor routine.  The bureaucracy is generally reluctant to accept legal precedents, and businesses are often forced to re-litigate issues that had been previously settled.  Legislation limiting foreign investment in financial, legal, and accounting services has made it difficult for investors to cut through regulatory red tape. Legislation protecting intellectual property is in its nascent stages. An IPR policy was created in March 2017, and the government is working on drafting an IPR Act based on this policy.
 
U.S. firms and foreign 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 discussed above.
 
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 neighboring countries also present market challenges for U.S. products.
 
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.
 
Nepal was struck by major earthquakes in April and May 2015, resulting in tremendous damage to buildings and infrastructure in certain districts in Nepal.  Roads, schools, power plants, heritage sites, private houses, and buildings throughout the affected zone suffered extensive damage.  Reconstruction is underway, but it will be several years before rural areas in hard-hit districts have completely recovered.  Kathmandu Valley suffered less damage compared to rural areas and visitors to the capital might not see much evidence of the quake, besides several historic buildings and temples that were damaged, many of which are now being repaired. While the earthquakes caused billions of dollars in losses, the reconstruction work, which are also expected to pick-up pace with a stable government in place, will create opportunities for businesses and investment.
 

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Nepal Trade Development and Promotion