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: 8/1/2019
  • 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.  The primary seaport for entry of goods bound for Nepal (or for exports) 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.  However, market access challenges are reducing.  As recently as 2016, political unrest and general strikes added further disruptions to the movement of goods in and out of Nepal, sometimes for months at a time.  While they still cannot be ruled out, such disruptions have declined substantially with the improvement in the political environment. Two more regional international airports are being built in Bhairahawa and Pokhara, and will become operational in the next couple of years.  A large international airport is under serious consideration in Nijgadh, directly south of Kathmandu. All of these will alleviate the pressures on the existing, single international airport in Kathmandu.  Sea access has improved with the addition of Vishakhapatnam Port in India, as well as the opening of an integrated checkpoint in Birgunj and substantial progress on an oil pipeline which will divert up to 40% of the traffic at Birgunj.  In addition, expanded use of the inland port at Birgunj combined with the pilot roll-out of a radio frequency container tracking system between Kolkata and Vizag and Birgunj have drastically reduced transit times improving market access.  During 2018, the Government of Nepal (GoN) successfully negotiated a Trade and Transit Protocol with its northern neighbor, China, which grants Nepal alternative access to 3 Chinese sea-ports and 4 dry ports on land.  Their existence as alternatives and potential competition has improved the services Nepali businesses are getting at Kolkata Port.  

  • Political instability, including 25 governments in the past 28 years, 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 since early 2018, this environment is improving. The new Constitution of 2015 committed Nepal to a federal set-up with a central/federal government (based in Kathmandu) and seven provincial governments, as well as 753 units of local government. The division of power and responsibility across these three tiers of government is being developed, agreed and implemented slowly. This has created additional administrative, bureaucratic, and possibly even policy-level costs, hurdles and delays, and is likely to continue to do so in the coming years.

  • The GON claims to be open to foreign direct investment, but implementation of its policies is often hindered by bureaucratic delays, inefficiency, and policy uncertainty.  Foreign investors frequently complain about complex and opaque government procedures and a working-level attitude that is more hostile to the private sector than accommodating. Lack of interagency coordination is often another hurdle. Though the GON passed a new Foreign Investment & Technology Transfer Act (FITTA) in March 2019 to make Nepal a more attractive investment destination, in May it also increased the minimum FDI threshold ten-times over to nearly $500,000, which will prevent many small and medium sized foreign investors from entering Nepal.  It can be difficult to predict what new rule, regulation or directive the GON might push through, and these can be inconsistent with the larger, stated strategic goals of the country.

  • 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 under creation. A draft IPR Law has been prepared on the basis of an IPR policy created in March 2017. It is unclear when this IPR Act will be introduced to Parliament for consideration.

  • 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 (CPI) fell two places to 124 from 122 the previous year, in a ranking of 180 countries. While Nepal’s score remained the same (at 31), its ranking fell, indicating Nepal made no visible improvements—despite the installation of elected representatives in all three tiers of government—while other countries did. Only Bangladesh and Afghanistan have worse CPI scores than Nepal in South Asia.

  • 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.  Labor problems arising from trade unionism have subsided following the improvement in the political environment. A new Labor Act was enacted in August 2017 replacing the previous one from 1998 with the aim of making 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. But this Law has also added to the costs of doing business as previously indicated. Many SMEs are struggling to meet the requirements of the new Social Security Fund introduced in 2018.

  • 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.

Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.

Nepal Trade Development and Promotion