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.
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 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 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).
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 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).
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 there are also no custom charges and the limitations in bringing the home currency to Nepal (Carney 2015).
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 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).
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 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.
References:
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Bastola, U. and Sapkota, P., 2015. Causality between trade and economic growth in a least developed economy: Evidence from Nepal. The Journal of Developing Areas, 49(4), pp.197-213.
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