Discusses key economic indicators and trade statistics, which countries are dominant in the market, the U.S. market share, the political situation if relevant, the top reasons why U.S. companies should consider exporting to this country, and other issues that affect trade, e.g., terrorism, currency devaluations, trade agreements.
Last Published: 2/1/2019
Nepal is a low-income, developing nation with an estimated GDP of $24.5 billion and per capita annual income of $835 in fiscal year (FY) 2016/17 (Note: Nepal’s fiscal year runs from July 16 to July 15).  Nepal’s estimated population is 29.3 million (male 14.2 million, and female 15.1 million). The median age in Nepal is 24 and more than half of the population is under the age of 25, indicating a young nation whose ratio of working-to-non-working population will remain high in the years to come. 
 
Nepal averaged an annual growth rate of 4% in the last decade behind most of its neighboring countries (India – 7.4%, Bangladesh – 6.2%, Sri Lanka – 5.9%), owing largely to political instability following a decade-long armed conflict. With the end of the conflict, the creation of a constitution mandated by the subsequent peace process, and the presumed political stability resulting from local and parliamentary elections in 2017, observers expect that economic growth will now pick up. The IMF’s latest growth estimate for FY 2017/18 is 6.3% (the ADB’s estimate was 4.9% in April this year).
 
Structurally, Nepal’s economy is still relatively highly dependent on Agriculture, but the Services sector is the largest contributor to national GDP. Agriculture accounts for 28.9 percent of GDP and 65.7 percent of employment.  However, there has been significant migration from rural to urban areas and overseas.  An estimated four to six million Nepalis work abroad, primarily in the Gulf countries, Malaysia, and India.  Nepal received $6.55 billion in remittances in FY 2016/17, equivalent to 27 percent of GDP.  Nepalis working in India also contribute significantly to remittances, but the exact amount is unknown as many Nepalis take cash back from their jobs in India, rather than remitting the money through formal channels.  Officials at the Nepal Rastra (Central) Bank also believe many migrant workers use informal channels to send money back to Nepal so the total amount of remittances is likely significantly higher than $6.55 billion.
 
The Industrial sector, whose largest sub-sectors consist of manufacturing, construction, and trade, contributes 14 percent of GDP. The Services sector, whose largest sub-sectors include real estate, transport & communications, and education, contributes the largest 57 percent of GDP. Political instability, a landlocked location, challenging topography, poor infrastructure, a poorly trained and educated workforce, and a weak policy and regulatory environment have been some of the key impediments to economic growth. However, Nepal promulgated a new Constitution in 2015 and held fresh parliamentary and local elections in 2017 under this constitutional framework, yielding a strong majority government that should remain in power for the next 5 years.  This is expected to provide the much-needed political stability, leading to an improved policy and regulatory environment, and ultimately a better business environment. The new government has prioritized infrastructure-building and increasing employment opportunities at home, which should also support business growth. Thus, after two decades of political instability, hope exists that Nepal has now turned a corner and may be poised for a period of sustained economic growth and prosperity.
 
India accounted for 64 percent ($6.36 billion) of Nepal’s total trade in FY 2016/17, China for 12 percent ($1.21 billion), and the rest of the world for the remaining 24 percent ($2.44 billion). Compared to 4 years ago (FY 2012/13) when disaggregated records began, China’s share of total trade with Nepal has grown from 10 to 12 percent, displacing India’s share, which has declined from 66 to 64 percent, while the rest of the world’s share has remained stable at 24 percent.
 
Nepal imports far more than it exports. The imports-to-exports ratio in FY 2016/17 was 13.6 i.e. Nepal imported $13.6 for every dollar exported, resulting in a trade deficit of $8.6 billion. In FY 2016/17, Nepal exported $687.8 million worth of goods, mainly woolen carpets, readymade garments, jute goods, textiles, polyester yarn, zinc sheets, juices, and agricultural products.  Nepal’s annual imports were about $9.3 billion, mainly from India, China, and the UAE.  The main imports are petroleum products, vehicles and spare parts, machinery and parts, gold, medicine, electrical goods, and telecommunications equipment.
 
U.S.-Nepal bilateral trade is estimated at$167.8 million in 2017, roughly 1.7 percent of Nepal’s total trade with the world, according to data from the Office of the United States International Trade Commission.  U.S. exports to Nepal nearly doubled to $75.9 million in 2017 relative to the previous year when it was $41 million.  In December 2016, the United States established a new stand-alone trade preference program for Nepal, as mandated by the Trade Facilitation and Trade Enforcement Act of 2015.  Designed to help support Nepal’s economic recovery following the 2015 earthquakes, this program gives duty-free access to the United States for some products made in Nepal, including certain kinds of carpets, headgear, shawls, scarves, handbags, and suitcases.  More information on this program can be found here: https://np.usembassy.gov/business/nepal-trade-preference-program/
 
In FY 2016/17, the United States was the second-largest export market for Nepal, accounting for 12.3 percent of total exports (India was the largest, accounting for 57 percent).  U.S. products contributed just shy of one percent of Nepal’s total imports. Key products exported to the U.S. were carpets, glass/ceramic objects, dog or cat food, shawls, scarves and other knit material, and felt products. Key imports from the U.S. were aircraft machinery & parts, optical and medical instruments, ICT products, and miscellaneous grains, seeds or nuts.
 
Nepal traditionally runs a large trade deficit, which until recently was balanced by sufficient remittance inflows to maintain a surplus or balance the current account. However, the increase in the trade deficit has outpaced remittance inflows since FY 2016/17 when the current account entered a deficit of $95.4 million. The capital and financial accounts have traditionally been in surplus, keeping the overall balance of payments in surplus including in FY 2016/17. However, the current account deficit and weak capital inflows contributed to an overall balance of payments deficit of $178 million in mid-February 2018 compared to a surplus of $344 million in the same period last year.   As of May 2018, the gross foreign exchange reserve of the country stood at US$ 10.28 billion, which is sufficient to finance merchandise imports for 11 months (this figure was 13.9 months about a year earlier).
 
The Nepali rupee is pegged to the Indian currency (INR. 1 = NPR. 1.6), so the Nepali currency fluctuates against the USD in line with the INR.
 
A recent Nepal Rastra Bank (NRB, the Central Bank) report shows that the total stock of Foreign Direct Investment (FDI) in Nepal as of July 2016 was $1.3 billion, of which the U.S.’s share was 1.7% and the 10th largest. However, total FDI inflow into Nepal has grown sharply in the last year, increasing from $106 million in 2016 to $196.3 million in 2017 as per World Bank data. Government sources reveal U.S. investment in Nepal during FY 16/17 was $3.45 million. FDI commitments during the first 8 months of the current fiscal (FY 17/18) year have hit $326 million (as per the Ministry of Finance’s Economic Survey). While all this pledged amount may not materialize into actual investment, it is indicative of the increasingly optimistic mood amongst investors, especially Chinese and Indian, about business prospects in Nepal in the coming years.
 
Nepal’s ranking in the World Bank’s Ease of Doing Business rankings improved from 107 in 2016 to 105 in 2017, making it the third ranked country in South Asia for ease of doing business. While doing business in Nepal is not without challenges (as further described below), Nepal is a growing market with a young population and rising middle-class. Visitors to the country, tourists and business-people alike, are often impressed not only by the natural beauty of the country but also by the warm, friendly and welcoming nature of the local people. Nepal’s cautiously improving economic prospects, coupled with its location between two of the largest and fastest growing economies of the world, should make Nepal a more attractive country to do business in in the coming years.
 

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