NepalDoing Business In Nepal: A Country Commercial Guide for U.S. Companies INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2004. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES.
Chapter 1: Doing Business In NepalMarket Overview Return to top• With a per capita income (Gross National Product) of only $300, Nepal is one of the world's poorest countries. • Limited natural resources, a landlocked location, difficult topography, poor infrastructure, a weak human capital base and a long history of public intervention in the economy are some of the impediments to economic growth. • Agriculture accounts for approximately 38.3 percent of gross domestic product (GDP) and 71 percent of employment. • In the last five years real GDP growth averaged less than four percent per annum. • The GDP growth rate for FY 2004/05 was 2.04 percent. • Nepal traditionally runs large trade and current account deficits, which are offset by equally large service, transfer and capital account surpluses. • Based on the balance of payments statistics for Nepal's FY 2004/05 (from mid-July to mid-July), Nepal's overall balance of payments recorded a surplus of USD 80.05 million. This was a result of increases in official capital, due to large inflows of remittances from Nepalese workers employed abroad. Accordingly, the gross foreign exchange reserve of the banking sector reached USD 1.76247 billion, enough to finance 11.8 months of merchandise imports. • In FY 2004/05, Nepal's exports totaled USD 821.84 million and imports totaled USD 2.00 billion. • Carpets and garments constituted the vast majority of Nepal’s officially recorded exports and are mostly exported to Germany and the United States, respectively. • India accounts for 61.28 percent of Nepal’s total trade. During FY 2004/05, exports to India grew 28.17 percent. However, exports to third countries, which had declined marginally by 1.73 percent in FY 2003/04, declined further by 15.73 percent in FY 2004/05. The decline in exports to third countries is primarily due to the decline in exports of readymade garments and jewelry, while the increase in exports to India is the result of fewer procedural restrictions imposed on certain items by the Indian government following the March 2002 Indo-Nepal trade treaty. • Due to the 7.08 percent import growth and 9.32 percent growth in exports, the trade gap in FY 2004/05 increased by 5.6 percent as compared to an increase of 4.07 percent in FY 2003/04. • The U.S. is the second largest market for Nepalese exports. Imports to Nepal from the U.S. are low as compared to those from other countries. In FY 2004/05, out of total imports of USD 2.00 billion, only 1.2 percent came from the U.S. However, imports from the U.S. increased by 23.06 percent in FY 2004/05 as compared to FY 2003/04. • Nepal has had fourteen governments in the last 15 years. • On February 1, 2005, King Gyanendra dismissed the coalition government. Under the chairmanship of the King, the new government laid down its priorities for maintaining peace and security in the country. Under the state of emergency declared following the royal takeover, the King had suspended most fundamental rights. Although the state of emergency was lifted on April 29, 2005, direct rule of the King still continues. Protests by the political parties against direct rule by the constitutional monarch are intensifying, and the political situation is getting increasingly volatile. • The ten year-old Maoist insurgency and the Maoist use of terror negatively affect the market environment. Market Challenges Return to top• Nepal is a land-locked state, which makes market access a challenge. Surface transport into and out of Nepal is severely constrained. There is only one reliable road route from India to the Kathmandu Valley. The only practical seaport for entry of goods bound for Nepal is Calcutta in India, about 650 miles from the border. • A foreign company must either be registered in Nepal as a foreign investor, under the Foreign Investment and Technology Transfer Act of 1992, or have a permit to import and export commodities and services. • High customs tariffs imposed on most manufactured products increase the price of U.S. products in the Nepalese market. • The ongoing Maoist insurgency adversely affects the market in Nepal. Market Opportunities Return to top• Nepal's overall potential as a market for U.S. exports is modest. • Best prospect sectors for U.S. product sales include telecommunications equipment, computers and peripheral equipment, water resources equipment, and aircraft parts. U.S. computers and peripheral equipment and telecommunications equipment are highly competitive in the local market. • Best prospect sectors for U.S. investment are hydropower and civil aviation infrastructure building. • Prospects in hydropower include the 750 megawatt West Seti Project, which is being developed by an Australian consortium, and projects at the Pancheshwore and Karnali-Chisapani sites. Nepal expects to add approximately 2,537 megawatts to its generating capacity over the next decade. • A number of major projects are underway that hold potential for U.S. business. In its Medium Term Expenditure Framework for FY 2005/06, Nepal Telecom plans to spend approximately USD 100 million on expansion of telecom services. In the Civil Aviation sector, the Ministry of Culture, Tourism, and Civil Aviation (MOCTCA) Nepal plans to build a number of airports and invite global tenders from interested foreign investors. • Business opportunities exist within the ongoing NTC Telecommunication Development Project (2002-07) for equipment sales. Additionally, foreign investment opportunities are available through the MOCTA planned airport building projects. Market Entry Strategy Return to top• Relationship-building in Nepal is essential to conducting business. For large-scale business ventures, investors or suppliers are encouraged to visit. • To access the Nepali market, foreign companies generally should use local representatives and agents. Supplying government projects offers opportunities for large volume sales, but requires an authorized local representative or agent. • The U.S. Embassy Commercial Section provides agent/distributor services for U.S. companies to assist in selecting a reliable partner. Requests for these paid services are normally routed through U. S. Export Assistance Centers, available through the U.S. Department of Commerce (http://www.buyusa.gov/home/us.html). Chapter 2: Political and Economic EnvironmentFor background information on the political and economic environment of the country, please click on the link below to the U.S. Department of State Background Notes. http://www.state.gov/r/pa/ei/bgn/5283.htm Chapter 3: Selling U.S. Products and Services
Using an Agent or Distributor Return to topLocal agents normally work as an exporter's sales representative on a commission basis. Specific responsibilities depend on the terms of the contract. The agent normally works on a commission ranging between 5 and 15 percent of the sales price, depending upon the nature of the product or service offered. The Embassy Commercial Section helps in finding a buyer, partner, agent or distributor. Through the paid ‘Gold Key Service,’ the Commercial Section provides a list of pre-screened potential agents, distributors, sales representatives, and other strategic business partners in Nepal. The distributor not only sells on a commission basis, but also buys and keeps goods in stock for resale, does local marketing, and handles after-sales product servicing as required. The distributor works on a profit margin so the commission rate and responsibilities (pricing, advertising, market promotion, after-sales service, etc.) should be defined in the contract. The distributor's commission in Nepal normally ranges between 15 to 30 percent, again depending upon the nature of the product. Use of a local distributor is more effective when selling consumer goods. Hiring a commission agent to assist in winning a contract can be effective when selling development-oriented goods such as construction services or heavy equipment, selling to government departments and competing in an international tender exercise. Establishing an Office Return to topAny U.S. company that desires to undertake business in Nepal can register the company after submitting the following documents required under the Company Act 1997: a) An authentic copy or translation in Nepali or English of the law or license under which the company was incorporated and established. b) An authentic Nepali version of the memorandum and articles of the company. c) Full address of the head office of the company. d) A list of the directors, managing agents, manager, secretary, etc. of the company along with their names, positions, contact details, and share-holding, if any. e) Name and address of resident representative(s) of the company in Nepal empowered to accept on its behalf time limits, notices, etc. issued to it. f) The proposed location where business will be, or is being, conducted in Nepal and the full address of the company's office. Franchising Return to topFranchising is not yet a common sales method in Nepal. There is untapped potential for ventures that cater to the tourist, resident expatriate, and Nepali middle-class markets. Some U.S. franchise companies have entered the Nepali market, particularly because Kathmandu and Pokhara are major foreign tourist centers that offer a large market base. Under the Foreign Investment and Technology Transfer Act 1992, the GON Department of Industry grants permission to establish franchises. Since trademark and brand names registered in a foreign country do not automatically qualify in Nepal for trademark enforcement, the trademark and brand name must first be registered in Nepal under the Patent, Design and Trademark Act of Nepal 1965 to prevent any possible infringement. Direct Marketing Return to topDirect marketing is usually not cost-effective in view of the small Nepalese market for U.S. products and generally unreliable service offered by the local post office. Direct marketing via fax has been used to a limited extent and local firms are increasingly interested in the commercial potential of the internet. Nepal has twenty-six Internet Service Providers (ISPs), and many Nepali businesses, tourist agencies, and industries have home pages. Five satellite/cable TV networks in Kathmandu, three private TV channels and two state-owned broadcast TV channels provide additional marketing opportunities to reach audiences. Joint Ventures/Licensing Return to topNepal officially encourages foreign investment and technology transfer under the Foreign Investment and Technology Transfer Act (FITTA) of 1992. Investment in the form of equity shares and reinvestment of earnings from share capital and loans are defined as foreign investment. Under FITTA, technology transfer refers to any transfer of technology made by agreement between an industry and a foreign investor as follows: (a) use of any technological right, specialization, formula, process, patent or technical knowledge of foreign origin, (b) use of any trademark of foreign ownership, and (c) acquiring any foreign technical consulting, management and marketing service. While technology transfer arrangements are legally permissible, the Government of Nepal has not yet determined where they are to be registered so no instances of such arrangements exist at present. Foreign investments through joint ventures or wholly foreign-owned enterprises are allowed in most industries. However, foreign investment is not permitted in defense-related industries, cigarettes, and alcohol (excluding 100 percent export oriented industries). Potential investors are invited to contact the American Embassy for current information on prohibited industries. Selling to the Government Return to topThe Government of Nepal fiscal regulations relating to procurement of goods and services state that goods worth up to Rs. 5,000 (USD 70) can be purchased directly from the market. For goods worth between Rs. 5,000 and Rs. 150,000 (USD 2,100), procurement is to be made by inviting price quotes from at least five suppliers. For higher amounts, procurement should be made via tenders or bidding. For procurements, each government department or project publishes its own tenders by following the procedures mentioned under the Financial Administration Regulations 1999. Goods and services are generally procured from the supplier or contractor who quotes the lowest price. Notices of tender calls for major projects having sufficient lead-time (a minimum of 45 days) are disseminated to U.S. businesses via the U.S. Department of Commerce Trade Opportunity Program (TOP). Many firms find the use of a local distributor or commission agent effective in dealing with government sales, as many tenders have a lead-time of less than two weeks for bid submission. Opportunities to sell to the government are available in the telecommunications, hydropower, and civil aviation sectors. Distribution and Sales Channels Return to topThe channel of distribution and sales used by most national and international manufacturers/sellers is the conventional three-fold distribution system (Manufacturer - Distributor/Wholesaler - Retailer). U.S. exporters sell through a Nepal-based intermediary such as a trading company or a local agent or distributor. Indirect local sales channels are most suited to selling U.S. goods and services in Nepal. Most higher value electronic and electric appliances and machinery products enter into Nepal by air cargo via the Tribhuvan International Airport in Kathmandu. However, large quantity goods such as foodstuffs, large machinery items, vehicles, fertilizer, construction materials, and various raw materials are brought by ships to the Calcutta or Haldia ports in India, and then transshipped either via truck or rail. In the latter case, more than ninety percent of goods enter through Birgunj- Raxaul Indo-Nepal border. An Inland Container Depot (ICD) at Birgunj started commercial operation in September 2004. Although at the start of its operation the ICD has handled only overseas consignments brought in via rail directly from Calcutta or Haldia ports of India to Birgunj, since February 1, 2005 it also handles any cargo between Nepal and India. Major distribution centers in Nepal are Birgunj, Biratnagar, Bahirahawa, Nepalgunj, and Kathmandu.
Selling Factors/Techniques Return to topWhen selling in the local market U.S. businesses should be aware that a local agent is generally necessary to conduct sales and marketing effectively. Foreign companies selling high volume and/or high value products and services normally deal directly with the buyers to meet a known demand rather than invest in promotional marketing. There are no specific packaging requirements and most products can use the English language for both sales and labeling purposes. For product introduction, however, U.S. companies can visit potential buyers and make presentations or send product catalogs, brochures or other materials directly to the target customers via email, fax, post or courier. Alternately, companies planning to launch consumer products or look for a business partner in Nepal normally use exhibitions, trade shows, trade missions, catalog and video shows, and advertising media such as newspapers, radio and television for market introduction and brand recognition. For companies/products that already have a presence in the Nepalese market, participating in trade shows and catalog and video shows through a local agent/distributor can be an effective way to introduce new products into the market and to promote brand recognition. Electronic Commerce Return to topThe internet had a late start in Nepal compared to many developing nations. Today there are 26 ISPs operating with around 47,000 accounts and the total number of Internet users is approximately 235,000 nationwide. Roughly 30% of these accounts are commercial, which primarily use the internet to promote their products and services and communicate with foreign businesses. Activity is concentrated in Kathmandu and half a dozen towns in Nepal. To date, relatively little business activity is online, but it is growing. The total number of registered commercial websites in Nepal is 5,323. Many businesses such as airlines, hotels, and travel agents rely heavily on internet service for dealing with their foreign partners. The temporary shutdown of email communications in the wake of the King’s February 1 takeover highlighted the increasing reliance of Nepali business on the internet for contact with local and foreign business partners. Electronic commerce websites in operation are mostly based outside Nepal where credit card verification services are available. Credit Card transfers, and transfers from e-banking websites are accepted but Nepalis who do not have a dollar account cannot make payments in foreign currency. Foreign exchange is regulated and is not freely available. There are a few B2B websites. The most popular ones are www.muncha.com, www.thamelmall.com, and www.bitarak.com. These sites are mostly used to send gifts during religious festivals. Frequent users are Nepalis residing abroad and delivery of goods is done primarily within Nepal. Trade Promotion and Advertising Return to topNewspapers, radio and television are the main advertising media used for trade promotion. Television serves only a limited section of Nepalese consumers, primarily the more affluent urban population, but newspapers and radio reach most parts of the Kingdom. Selection of advertising media thus depends on the target group. TV advertising is the most appropriate means to reach the urban middle and upper classes. For basic consumer products, advertising in newspapers and via radio is more appropriate. Advertising costs are lower for newspapers and radio than for television. Since the size of the market is so small, there are no BSP, FUSE or Single Company Promotion services available in Nepal. Names and addresses of major newspapers, and radio and television stations are given below. Inclusion in this list does not constitute U.S. Government endorsement. 1. The Rising Nepal (English daily) 2. The Kathmandu Post (English daily) 3. The Himalayan Times (English Daily) 4. Radio Nepal 5. Nepal Television 6. Space Time Network Pvt. Ltd. 7. Shangri-La Channel (P) Ltd. Pricing Return to topPricing formulas are determined by the availability of similar products, the level of demand for the product in the Nepalese market, and total costs required to bring the product to market. Before selecting a pricing strategy, the exporter should obtain as much information as possible from local agents, market research, potential customers, and competitors. Exporters should factor in various tariffs and taxes, which are levied on all imported products. Examples include customs tariffs ranging from 5 percent for certain agricultural products to 80 percent for four-wheel vehicles; 13 percent value added tax (VAT); 5 percent special tax; and 1.5 percent local development tax. In the case of vehicle import, an additional excise duty of 32 percent is levied on the gross value, which includes invoice price, customs tariff, VAT, local development tax, and special tax. Interested businesses can request hard copies of the complete tariff schedule directly from the Department of Customs (http://www.customs.gov.np/index.php). Pricing structures in Nepal are erratic. Imported goods are priced higher than locally produced goods. Imported goods' prices reflect transportation costs and other mark-ups. Indian manufactured goods, when available, are cheaper than imports from more distant countries.When determining a price for U.S. products in Nepal, the exporter should keep in mind competition from India, which has an open border with Nepal. Chinese manufactures, mainly consumer goods such as appliances, shoes, and textiles, find a ready market and are imported via Tibet. Products from the European Community, Japan, South Korea, and Taiwan are also popular and help determine the local price for goods and services. Sales Service/Customer Support Return to topAfter-sales service and product guarantees are very important for customers, especially for durable products. Given long shipping times to Nepal, doubts about after-sales service and availability of spare parts affect product choice. It is therefore preferable to make arrangements with a local agent/distributor for reliable after-sales customer service and support. Foreign companies selling vehicles, high value machinery items, electrical and electronic goods in Nepal have arrangements in place for such services with their local agents or distributors. The parent company provides the technical know-how and machinery for such services whereas the local company provides the services. Protecting Your Intellectual Property Return to topIn order to prevent infringement on intellectual property rights, patents and trademarks should be registered with Nepal's Department of Industries in accordance with the Patent, Design and Trademark Act of 1965. Nepal is not a signatory to any international conventions protecting patents, copyrights, or trademarks, so registration in the United States does not automatically result in protection in Nepal. When registering a trademark of foreign origin, a copy of the home registration with application form, deed of assignment and four copies of the representation sheet should be included in the application. Trademark registration is valid for a period of seven years and can be renewed for an additional period of seven years. Similarly, the new Copyright Act of 2002 offers only limited protection for copyrighted works, which must in any case be registered in Nepal to qualify for protection. Nepal’s accession to the World Trade Organization (WTO) in April 2004 obligates Nepal to draft new legislation and to amend many laws to become compatible with WTO requirements. These binding provisions of the WTO also obligate Nepal to improve its trade practices and IPR protection regime regardless of the government in power. Please also refer to Chapter 6, the Investment Climate Statement. Due Diligence Return to topU.S. businesses should check bona fides of a Nepali company before appointing it as a local agent/ distributor and/or entering into a trade deal. Most Nepali business bona fides cannot be checked via traditional U.S. business channels. The Commercial Section of the U.S. Embassy in Kathmandu prepares an International Company Profile (ICP) for U.S. businesses on request. It is a paid service and normally routed through the Department of Commerce, U.S. Export Assistance Center near you. Businesses may wish to contact the following organizations to obtain profiles of some Nepali businesses. Nepal Chamber of Commerce The Federation of Nepalese Chambers of Commerce and Industry The Nepal-USA Chamber of Commerce and Industry Local Professional Services Return to topUse of a local attorney for preparing required documents can ease unnecessary delays in the process of finalizing business contracts with trading partners and other local agents. A list of local attorneys is available on the U.S. Embassy Kathmandu website: http://kathmandu.usembassy.gov/. On request the Commercial Section of the U.S. Embassy also provides lists of companies for other professional services such as market research agencies, advertising agencies, customs clearance houses, freight forwarding agencies and transport companies. Web Resources Return to topPopular B2B websites: www.muncha.com, www.thamelmall.com, www.bitarak.com. The Rising Nepal (English daily): http://www.gorkhapatra.org.np The Kathmandu Post (English daily): kanti@kpost.mos.com.np The Himalayan Times (English Daily): http://www.thehimalayantimes.com Nepal's Department of Industries: http://www.ip.np.wipo.net/index.htm Department of Customs, GON: http://www.customs.gov.np/index.php Nepal Chamber of Commerce: http://www.nepalchamber.org Federation of Nepalese Chambers of U.S. Embassy Kathmandu website: http://kathmandu.usembassy.gov U.S. Export Assistance Center: http://www.buyusa.gov/home/us.html
Chapter 4: Leading Sectors for U.S. Export and InvestmentCommercial Sectors
Telecommunications Equipment and Services (TEL)Overview Return to top
(Average Exchange Rate (Selling Rate of Central Bank) for USD 1 was NRs. 78.07 in 2003, NRs. 74.09 in 2004, and NRs. 72.59 in 2005) Value in USD millions. In the last five years telecommunications services in Nepal have witnessed significant growth. Currently there are four companies providing telephone services in Nepal. Of the four, the government-owned Nepal Telecom is the biggest operator. The other three companies, a U.S.-Nepal joint venture, a Russia-Kazakhstan-Nepal joint venture, and an Indo-Nepal joint venture are operating in very limited geographical areas. Nepal Telecom is very quickly expanding both its geographical reach and range of services, which offer excellent investment potential. Local microwave and cable TV services depend on U.S. firms for much of their equipment, as do Kathmandu’s three satellite/cable TV networks. Due to Nepal's rough topography, satellite services for phone and internet will find a market in Nepal. Best Products/Services Return to topA wide variety of telecommunications equipment including switching, radio and transmission equipment, telephone sets, videophones, and networking equipment. Opportunities Return to topNepal Telecom has established a mobile telephone service, is expanding its landline phone system, and will continue to issue tenders for optical fiber lines, digital switching equipment, and telephone sets. Under the GON’s plans for commercialization and privatization, Nepal Telecom was converted into a public limited company in June 2004, but the government still owns one hundred percent of shares. Although the GON has plans to disinvest 49 percent of company shares, it has not yet set a timeline. When available for privatization, Nepal Telecom will be an excellent investment opportunity for U.S. companies. The World Bank has an ongoing telecommunications sector reform project, which might provide opportunities for U.S. companies. Resources Return to topFor information regarding Nepal Telecom ongoing and future projects, U.S. businesses may contact Nepal Telecom via email at: sugat.kansakar@ntc.net.np or visit their website at www.ntc.net.np. Information pertaining to government policies and regulations can be obtained from the Ministry of Information and Communications, Telephone: 977-1-4242562; Fax: 977-1-4227310 and from the regulator, Nepal Telecommunications Authority, E-mail: info@nta.gov.np, ntra@nta.gov.np, ntra@wlink.com.np, or via website at www.nta.gov.np. For further information and assistance businesses may contact the Commercial Specialist at the U.S. Embassy, Kathmandu: GuptaTK@state.gov. Aircraft and Aircraft Parts (AIR)Overview Return to top
(Average Exchange Rate (Selling Rate of Central Bank) for USD 1 was NRs. 78.07 in 2003, NRs. 74.09 in 2004, and NRs. 72.59 in 2005) Value in USD millions. The mushrooming of private airlines in Nepal in the early nineties initially provided opportunities for the sale of short-hop passenger turboprop aircraft, including both used and new aircraft. However, declines in the tourism industry over the last five years drove at least five domestic airlines into bankruptcy, and, as a result, adversely affected the market for aircraft and parts. Best Prospects/Services Return to topAll kinds of aircraft parts, accessories, and ground equipment accessories and spares. Opportunities Return to topDomestic Nepalese private airlines still in operation prefer twin-engine aircraft such as the Beechcraft 1900D, Canadian Twin Otter, and Dornier. One carrier operates a few Fokker-100 jet aircraft. The national flag carrier, Royal Nepal Airlines Corporation (RNAC), has traditionally preferred Boeing aircraft for its international routes, but financial problems have made it difficult for the airline to purchase any new aircraft. Demand for helicopters and major parts has also picked up due to the increased need for upgrading the mobility of security forces. Resources Return to topInformation pertaining to government policies and regulations can be obtained from the regulator, Civil Aviation Authority of Nepal, via email: dgca@caanepal.org.np. For additional information and assistance, U.S. businesses may wish to contact the Commercial Specialist of U.S. Embassy Kathmandu at: GuptaTK@state.gov. Computers/Peripherals (CPT, CSF)Overview Return to top
Imported U.S. manufactured computer hardware and other peripheral equipment are mostly trans-shipped through Hong Kong and Singapore, and therefore are not reflected in the figures of direct U.S. Exports to Nepal. (Average Exchange Rate (Selling Rate of Central Bank) for USD 1 was NRs. 78.07 in 2003, NRs. 74.09 in 2004, and NRs. 72.59 in 2005) Value in USD millions. U.S. computers and peripheral equipment remain highly competitive in the local market. U.S. brands enjoy strong preference and loyalty from buyers. Over the years, visibility of U.S. products has significantly increased. Leading U.S. companies in this sector are represented through their authorized distributors and representatives in Nepal. In view of market size, volatility of sales, and legal restrictions in opening a sales outlet, U.S. companies are advised to hire a distributor/representative. Best Prospects/Services Return to topComputer components, hardware, monitors, and uninterrupted power sources. Opportunities Return to topTotal annual imports of computer hardware are estimated at around $20-25 million, generally involving goods transshipped through Hong Kong or Singapore. Customs statistics understate the U.S. market share because American equipment is often imported via distributors in intermediate ports such as Hong Kong or Singapore and therefore not captured in official statistics. Since the market size is extremely small and opportunities for regional export are negligible, investment opportunity in this sector is not available. Resources Return to topThe Computer Association of Nepal (CAN) organizes an annual trade event entitled CAN Info-Tech. It is a mega-event for showcasing cutting-edge IT innovations, products and services. A record number of 209,587 visited the show held from January 25 –29, 2005. For further information businesses may wish to contact: The Computer Association of Nepal at: info@can.org.np, or visit their website at www.can.org.np. Information pertaining to government policies and regulations can be obtained from the High Level Commission for Information Technology, E-mail: info@hlcit.gov.np or via its website at www.hlcit.gov.np. For other information and assistance businesses may wish to contact the Commercial Specialist of U.S. Embassy Kathmandu: GuptaTK@state.gov.
Water Resource Equipment/Services (WRE)Overview Return to top
(Average Exchange Rate (Selling Rate of Central Bank) for USD 1 was NRs. 78.07 in 2003, NRs. 74.09 in 2004, and NRs. 72.59 in 2005) Value in USD millions. Nepal’s large hydropower potential possesses enormous opportunity for U.S. investors for direct foreign investment or joint ventures with Nepalese private as well as public sector enterprises. While Nepal has some 83,000 megawatts in hydroelectric potential, less than one percent of this potential has been developed. On the other hand, the northern states of India bordering Nepal have chronic power shortages with limited domestic sources in the form of costly thermal power generating plants to meet the ever-increasing internal demand. Despite agreements struck with India in 1996 and 1997, which define the terms for joint development of hydropower projects (the Mahakali Treaty) and sanction cross-border trade in private electric power, the Indian power market has not yet significantly opened up to producers in Nepal. Facilitating open access to the Indian power market, however, India’s Electricity Act of 2003 has removed major impediments and opened up power-trading opportunities with Nepal. Best Prospects/Services Return to topHydropower projects, hydropower generation machines, turbines, generators, power control machineries, surveying instruments, and transmission wire. Opportunities Return to topNepal has a variety of public and private hydroelectric projects. The $453 million, 144 MW Kali Gandaki A Project, constructed with financing by the Asian Development Bank, started commercial production in April 2002. The first fully private power development project--the $100 million, 36 MW Upper Bhote Koshi Project involving two U.S. firms, Harza Engineering and Panda Energy--started commercial production in January 2001. These and other projects developed by state-owned power producer Nepal Electricity Authority (NEA) offer substantial opportunity for equipment sales. While there are a number of large-sized hydropower projects, including Pancheshwore and Karnali-Chisapani, waiting for foreign investment, current prospects for equipment sales include the 750 MW West Seti Project, which is being developed by an Australian consortium. According to India’s Electricity Act of 2003, Indian consumers can enter into a direct commercial relationship with a generating company or trader in Nepal. In such cases the State Regulatory Commission will not regulate the price of power. The Act also granted customs and excise duty waivers on imports of power, and a 10-year tax holiday. Nepal’s Department of Electricity Development grants licenses for projects developed by both foreign and domestic private sector investors. Nepal Electricity Authority (NEA), the state-owned corporation is developing some medium-sized projects through joint venture and consortium financing. NEA is looking for potential foreign partners to jointly develop some of the projects. In another development, the Government of Nepal has consented to divide the NEA into three companies for generation, transmission, and distribution within a year. This would open additional investment opportunities for US companies. Resources Return to topInformation pertaining to projects offered for private development, policies and regulations can be obtained from the regulator, Department of Electricity Development, via email: doed@pshdp.wlink.com.np, or access further information via website at http://www.doed.gov.np. For opportunities in projects developed by the Nepal Electricity Authority, U.S. businesses may wish to contact: nea_misd@info.com.np, or access further information via website at www.nea.org.np. For additional information and assistance businesses may contact the Commercial Specialist of U.S. Embassy Kathmandu at: GuptaTK@state.gov.
Medical Equipment and Drugs/Pharmaceuticals (MED and DRG)Overview Return to top
(Average Exchange Rate (Selling Rate of Central Bank) for USD 1 was NRs. 78.07 in 2003, NRs. 74.09 in 2004, and NRs. 72.59 in 2005) Value in USD millions. Sales of medical equipment and drugs may continue to grow steadily, as the degree of medical training and a middle class that can afford foreign medicine increases. The decline in imports in the last two years is primarily due to the worsening security and political situation in the country. This market has the potential to bounce back as soon as the security situation improves. Best Prospects/Services Return to topX-ray machines, Ultra Sonographic Machines, ECG machines and other testing equipment. Instruments and appliances used in medical, surgical, dental or veterinary sciences, including electro-medical and sight testing. Opportunities Return to topPrivate sector medical facilities are expanding very quickly in Nepal. In recent years almost half a dozen medical colleges and hospitals have opened up in various parts of Nepal. These colleges and hospitals have a constant need for upgrading their testing and treatment facilities to make their services competitive. They therefore need to import modern medical equipment on a regular basis. Resources Return to topMost procurement and supply orders are placed in local newspapers. The Commercial Section of the U.S. Embassy posts such trade leads on the U.S. Embassy website: http://kathmandu.usembassy.gov/ and the BuyUSA Nepal website: http://www.buyusa.gov/nepal/en/. For information on trade leads, U.S. businesses may contact the Commercial Specialist of U.S. Embassy Kathmandu: GuptaTK@state.gov.
Franchising (FRA)Overview Return to top
(No data for franchising is available) Although very few franchises exist in the Nepalese market, significant untapped potential exists and a few foreign companies currently have a presence in the fast food/dessert market. Due to the sizeable tourist presence and expatriate communities of cities such as Kathmandu and Pokhara, franchising potential exists in sectors such as fast food, coffee houses, clothing and sports equipment. While there is no long-term track record for the performance of franchised businesses within the Nepalese market, foreign companies are entering the market. Franchises could be a particularly good investment because their location in major cities keeps them secure even during challenging political times. Best Products/Services Return to topFast food chain restaurants. Opportunities Return to topAlthough the present franchise market is very small (an estimated $4.25 million in 2004), it has potential. Demand consists of 70% locals and 30% foreigners. There are no known Nepal-based companies that franchise. Market growth is projected at 25% through the first few years of establishment. Key benefits of a franchise lie in brand name equity, and quality consistency. Market entry should take a long-term view. With an annual tourist arrival of approximately four hundred thousand and a sizable expatriate community, fast food franchises hold excellent potential in Kathmandu and Pokhara. A more favorable climate for expansion of franchises to cities such as Birgunj, Biratnagar, and Bharahawa is expected when the security situation of the country improves and political stability is regained. Resources Return to topSince the franchise sector is a potential growth sector, research data or trade leads are not available. The Commercial Section of the U.S. Embassy keeps track of strong interests shown by the local business community. For information on potential local partners, U.S. businesses may contact the Commercial Specialist of U.S. Embassy Kathmandu at: GuptaTK@state.gov.
Agricultural Sector Return to topAgriculture accounts for approximately 39 percent of gross domestic product (GDP) and 76 percent of employment in Nepal. The purchasing power of the average Nepali, compounded with heavy reliance on agriculture, both in terms of share in GDP and in employment generation, means that Nepal does not offer a potential market for U.S. agricultural products. The shortfall in domestic consumption and production of agricultural products is mostly met by imports from India because Indian agricultural products are competitive in terms of cost and quality. Geographical proximity, a soft border and traditional trade relations gives Indian agricultural products easy access to Nepalese markets. Chapter 5: Trade Regulations, Customs and Standards
Import Tariffs Return to topImport tariffs are generally assessed on an ad valorem basis. Nepal uses the Harmonized Tariff System (HTS) for classification purposes. Import duty rates vary from zero to 80 percent. Live animals, fish, and most primary products are exempt from import duties. Machinery or goods related to basic needs are charged at a five-percent rate. Products hazardous to health such as cigarettes are taxed at 80 percent and liquors are taxed at 40 percent. Custom duties are generally assessed on the cost, insurance, and freight (CIF) value. Goods imported into Nepal are also liable for a Value Added Tax (VAT) of 13 percent and Local Development Tax of 1.5 percent. Both of these taxes are levied on CIF plus customs duty value. Special Duty Reductions of five or ten percent have been given to imports from the Tibet Autonomous Region of the People's Republic of China, member countries of the South Asia Association for Regional Cooperation (SAARC) and designated most favored nations. Nepal has not established Export Processing Zones (EPA). However, any industry exporting 90 percent or more of its products is entitled to privileges equivalent to those normally provided by an EPA; i.e., no tax, duty or fee is levied on the machinery, tools and raw materials utilized by the industry in manufacturing the export products. Export-oriented industries may also enjoy bonded warehouse facilities. Raw materials can be imported via entry in a passbook without paying any custom duty or VAT. The same value of raw materials is deducted from the passbook upon export of the finished product. The industry must also submit a bank guarantee sufficient to cover applicable duties. Trade Barriers Return to topThere are no major tariff or non-tariff trade barriers on imports. Technical Standard barriers are applied to a very small number of manufactured products, such as vehicles and refrigerators. Vehicles imported into Nepal must qualify under the Euro I standard, and refrigerators must be chlorofluorocarbons (CFCs) gas-free. Import Requirements and Documentation Return to topDocuments required for shipment to Nepal include a commercial invoice, a customs declaration form (CDF), clearly marked and labeled packaging, and a certificate of origin. Similarly, exported items sent by air require a CDF, a copy of the export license (if applicable), a commercial invoice, a certificate of origin, a copy of the letter of credit or advance payment statement from a bank, a foreign exchange declaration form, a packing list, a photocopy of income tax registration certificate, an airway bill, and an authorization letter. All imports may be brought in without a license except for banned or quantitatively restricted items such as (a) products injurious to health (including illicit drugs -- see section on Prohibited Imports further in this Chapter); (b) arms and ammunition, explosive materials (or products required for production of explosive materials, and guns and bullets); (c) communications equipment, wireless walkie-talkies and other similar audio communication equipment (except under import license of His Majesty's Government); (d) valuable metals and jewelry; and (e) beef and beef products (dietary restrictions of the majority Hindu religion prohibit the consumption of beef). The government of Nepal does not require open general licenses for imports. Traders need to show their general export/import license and taxpayer’s certificate to import the goods they deal in. If the end user, for example, a project office, a company or an institution, is importing some goods directly, it will have to produce a copy of its corporate registration certificate and taxpayer’s certificate for getting foreign currency approval from the Nepal Rastra Bank (Nepal's central bank) and for the customs clearance of the consignment. U.S. Export Controls Return to topAll products, other than those banned or those under quantitative restrictions, may be exported freely from Nepal. Banned items include articles of archeological and religious importance, controlled wildlife and by-products, narcotic substances, articles related to explosive materials or required for the production of arms and ammunition, industrial raw materials (such as raw leather, raw wool, imported raw materials, parts, capital goods), and other goods such as logs and timber. Items subject to quantitative restriction are subject to notification by the Government of Nepal from time to time. Past examples have included food grains, oilseeds, and some types of pulses (lentils). As a rule, the re-export to India of goods not of Indian origin is prohibited. Other than banned items there are no U.S. government export controls companies must abide by when exporting to Nepal. Temporary Entry Return to topGoods--including vehicles, machinery, and equipment--may be imported temporarily for special purposes such as domestic exhibitions or fairs by making a refundable deposit of the applicable duty. Such goods must be taken out of the country within three months of the completion of work. If the duty has been paid and the item sold or retained for personal use, it can stay in- country. An extension of the three-month period may be granted on appropriate and reasonable grounds upon payment of an additional ten percent of the applicable duty amount. If the duty is not paid or the goods are not re-exported within six months of entry, action may be taken by the GON on a smuggling charge. The GON places no legal restrictions requiring warranty for products imported temporarily for a specific purpose. Labeling and Marking Requirements Return to topNepalese law requires no special labeling or marking. For customs purposes, the packaging and labels of a shipment should clearly identify country of origin and destination and include a commercial invoice with a list of items in the package, a customs declaration form (CDF), and a certificate of origin. Department of Customs information can be found via website at http://www.customs.gov.np. Prohibited and Restricted Imports Return to topThe following products are prohibited for import: 1. Products injurious to health: a) narcotic drugs such as opium and morphine; and b) liquor containing more than 60 percent alcohol. 2. Arms, ammunition and explosives (except under import license of His Majesty's Government): a) materials used in the production of arms and ammunition; b) guns and cartridges; c) caps other than those of paper; and d) arms, ammunition and other explosives. 3. Communication equipment: wireless walkie-talkies and other similar audio communication equipment (except under import license of His Majesty's Government). 4. Valuable metals and jewelry (except permitted under bag and baggage regulations). 5. Beef and beef products. 6. Any other product as per notification of the Government of Nepal in The Nepal Gazette, published by the Department of Printing. Such notices can be obtained from the Department of Printing by making a request to the Director General at fax: 977-1-4228774. Customs Regulations and Contact Information Return to topAll customs-related information, tariff structures, special provisions, rules and regulations are available at the Government of Nepal Department of Customs website, http://www.customs.gov.np. Specific questions related to customs can be forwarded to the Department of Customs by e-mail: npdoc@ntc.net.np. Standards Return to top
Overview Return to topNepal generally follows internationally recognized standards; it does not follow the ISO 9000 series. Standards-developing bodies include the Nepal Bureau of Standards and Metrology (NBSM) and the Department of Drug Administration. Food product standards are generally set under the Food Act and Nepal Standard (Certification Mark) Act. The law regarding the import of products other than food products, cars and refrigerators requires no standard. The Ministry of Population and Environment introduced the Nepal Vehicle Mass Emission Standards Act in December 1999 to control pollution. These standards are similar to EURO 1, and comprise levels of nitrogen with provision for type approval and conformity of production of the vehicles. Standards Organizations Return to topNepal Bureau of Standards and Metrology (NBSM) is the only authorized agency of the government to develop technical standards for different products. NBSM is currently working on developing Standards and Labeling programs for electrical appliances. The Department of Drug Administration regulates the consumption and quantification of modern drugs for human use in Nepal. Conformity Assessment Return to topStandards for testing the quality of food and the processes for testing food products are governed under the Food Act and Nepal Standard (Certification Mark) Act, which requires the importer to have a sample tested by the Department of Food Technology and Quality Control. The Department of Drug Administration approves the consumption and quantification of modern drugs for human use and issues licenses of import of any drugs in Nepal. Quantification of modern drugs for human use is governed under the Cosmetics, Devices and Drugs Act 1980. Product Certification Return to topExcept for drugs/medicines, no product certification for any other branded products is required. For imports of drugs/medicines into Nepal the importer must obtain prior approval from the Department of Drug Administration. Certification is not required for patent drugs manufactured by recognized manufacturers, and for which the Department of Drug Administration has already approved their chemical composition. Accreditation Return to topThere are no accreditation bodies in Nepal. Accreditation of labs is not required. Publication of Technical Regulations Return to topFinalized acts and regulations issued by the government are published in the Nepal Gazette and are made available by the Department of Printing. U.S. entities can comment or challenge these regulations by email or notification to the appropriate department. Labeling and Marking Return to topNepalese law does not mandate special labeling or marking. For customs purposes, the packaging and labels of a shipment should clearly identify country of origin and destination and include a commercial invoice with a list of items in the package, a customs declaration form (CDF), and a certificate of origin. Contacts Return to top1. Nepal Bureau of Standards and Metrology (NBSM) 2. Department of Drug Administration 3. Department of Printing 4. Ministry of Population and Environment 5. Department of Food Technology and Quality Control 6. Ministry of Agriculture and Cooperatives For further information on standards businesses may contact the Commercial Specialist of U.S. Embassy Kathmandu: GuptaTK@state.gov Trade Agreements Return to topMultilateral: Nepal has ratified the South Asian Association for Regional Cooperation (SAARC) Agreement on South Asian Free Trade Area (SAFTA). During the 12th SAARC summit held in Islamabad in January 2004, the member states signed an agreement to establish a South Asian Free Trade Area (SAFTA). The SAFTA agreement came into effect January 2006 and subsumed the ongoing trade liberalization process under the South Asian Preferential Trade Agreement (SAPTA). Under SAFTA, the seven SAARC nations (Nepal, Bhutan, India, Bangladesh, Pakistan, Sri Lanka, and the Maldives) have pledged to cut tariff rates on a product-by-product basis. Following the third round of trade negotiations in 1998, a total of 5,000 items, from all member countries, are now entitled to preferential duty treatment in one or another of the participating countries. Nepal became the 147th member of the World Trade Organization (WTO) on April 23, 2004. It is the first least developed country to join the WTO since 1995. Nepal has until December 2006 to be in full compliance with its WTO obligations. In February 2004, Nepal became a member of the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), which was founded in 1997. Other members include Bangladesh, Bhutan, India, Myanmar, Sri-Lanka and Thailand. BIMSTEC’s objectives are similar to those of WTO except that it seeks to establish a much more comprehensive free trade area through deeper and substantial sector coverage of services and an open and competitive investment regime. A BIMSTEC free trade agreement is expected to be finalized in 2006. Bilateral: Nepal has signed bilateral trade treaties with 17 countries. From the point of view of Nepal’s trade volume and trade relationship, the trade treaty signed with India in 1996 is most important. Out of Nepal’s total trade of USD 2.83 billion in FY 2004/05, trade with India accounted for 61.3 percent. Except for some items under quantitative restrictions, the trade treaty puts Nepal in a unilateral duty-free trade regime with India. Web Resources Return to topWTO and Nepal: http://www.moics.gov.np/wto_&_nepal/index.html NEPAL and the BIMSTEC: http://www.mofa.gov.np/bimstec.htm BIMSTEC Official Site: http://www.bimstec.org/ Bilateral Trade Treaties: http://www.tpcnepal.org.np/tagree/tradeagreement.htm Department of Customs: http://www.customs.gov.np Ministry of Population and Environment: http://www.mope.gov.np/ Chapter 6: Investment Climate
Openness to Foreign Investment Return to topAlthough the Government of Nepal (GON) is open to foreign direct investment, implementation of its policies is often distorted by bureaucratic delays and inefficiency. At present, there are 1,025 foreign investment projects in Nepal, worth a total of approximately USD 1.73 billion according to official GON statistics. Indian ventures lead the list with 320 projects, or approximately 31 percent. The U.S. ranks fourth with 95 ventures, or approximately 9 percent. China, Norway, Japan, South Korea and Germany are also prominent. Government policy changes have signaled to foreign investors that Nepal is open for business. In 2005, the government opened up certain service sectors to foreign investment. Progress has been made in allowing private operations in some sectors that were previously government monopolies, such as telecommunications and civil aviation. Licensing and regulations have been simplified, and 100 percent foreign ownership is allowed. New banking institutions and a nascent stock exchange provide alternative sources of investment capital. Nevertheless, significant problems remain. They include lack of direct access to seaports (currently all products imported by ship from third countries enter through Kolkata, India's inefficient river port), difficult land transport, lack of trained personnel, scarce raw materials, inadequate power (especially outside the Kathmandu Valley), insufficient water supply, non-transparent and capricious tax administration, inadequate and obscure commercial legislation, and unclear rules regarding labor relations. Policies intended to establish a "one window policy" and simplify necessary interactions between investors and the host government have produced few results. Furthermore, there is often a wide discrepancy between the letter of the law and the law's implementation. Foreign investors constantly complain about complex and opaque government procedures and a working-level attitude that is more hostile than accommodating. The government is aware of the deficiencies in Nepal's investment climate and is slowly moving toward more investor-friendly arrangements. Policies regarding hydropower generation, for instance, have changed to open the sector to private development. By involving the private sector in the generation, transmission, and distribution of power, the GON intends to diminish the role of Nepal's Electricity Authority. A few sizable private-sector hydropower projects have either begun operation or are in the planning stages. Additionally, the Foreign Investment and Technology Transfer Act of 1996 abolished the minimum capital investment requirement and eliminated significant barriers to foreign investment. However, there is occasional backsliding. The same Act also closed the Nepali market to foreign investment in business and management consulting, accounting, engineering and legal services. A hydropower policy announced in October 2001 was expected to boost the flow of foreign investment into the hydropower sector of Nepal. However, political instability, a deteriorating security environment caused by the Maoist insurgency, a lengthy and cumbersome licensing process, and the failure to finalize a blanket electric power trade agreement with India, which is the only potential market for any exportable electricity produced in Nepal, all contributed to the indifferent attitude shown by foreign investors toward investing in Nepal's hydropower sector. Legislation The most significant foreign investment laws are the Foreign Investment and One Window Policy of 1992; the Foreign Investment and Technology Transfer Acts of 1992 and 1996; the Finance Act of 2002 and the recent Finance Ordinance 2005 (an annual budget act); the Immigration Rules of 1994; the Customs Act of 1997; the Industrial Enterprises Act of 1997; the Electricity Act of 1992; the Privatization Act of 1994; and the Patent, Design and Trademark Act of 1965. In a positive development, Nepal passed the Copyright Act in 2002. This Act includes all types of electronic and electrical audio video materials, provides for financial penalties as well as imprisonment, and provides for confiscation of sold and published unauthorized materials. The offender would also have to pay compensation claimed by the copyright holder. However, the revised Copyright Act is not yet to the level required for trade-related intellectual property rights necessary under the World Trade Organization. Revisions are likely, as Nepal acceded to the WTO in April 2004. The Foreign Investment and One Window Policy of 1992 restates the desired benefits from foreign investment; lists acceptable forms of investment; allows for foreign shares up to 100 percent in business areas not on a "negative list"; establishes currency repatriation guidelines; and outlines visa arrangements, arbitration guidelines, and a special "one window committee" for foreign investors. The Foreign Investment and Technology Transfer Act, as revised in 1996, eliminates the minimum investment requirement; clarifies rules relating to business and resident visas; exempts interest on foreign loans from tax; and gives contract terms precedence over Nepali law in investments valued at more than Nepali rupees (NRS) 500 million (approximately USD 7.0 million). The 2005 Finance Ordinance outlines customs, duties, export service charges, sales, airfreight and income taxes, and other excise taxes that affect foreign investment. The Immigration Rules of 1994 describe visa regulations. The Customs Act and the Industrial Enterprises Act, as revised in 1997, establish invoice-based customs valuations and eliminate many investment tax incentives, installing in their place a lower, uniform rate. The Electricity Act defines special terms and conditions for investment in hydropower development. The Privatization Act of 1994 authorizes and defines the procedures for privatization of state-owned enterprises to broaden participation of the private sector in the operation of such enterprises. The 2002 Copyright Act and the 1965 Patent, Design and Trademark Act define the terms and conditions of intellectual property rights protection. Institutional Arrangements The Department of Industry is designated as the "one window servicing agency" with the Industrial Promotion Board as a focal point for foreign investment under the Foreign Investment and Technology Transfer Act. The Department of Industry facilitates corporate registration, land transfers, utility connections, administrative services agreements, and coordination among various agencies. The Investment Promotion Board (IPB), chaired by the Minister of Industry, Commerce and Supplies, is the primary government agency responsible for foreign investment. The IPB is intended to coordinate policy-level institutions, establish guidelines for economic policies, approve or disapprove foreign investment proposals, and determine applicable investment incentives. The Department of Industry (under the Ministry of Industry, Commerce and Supplies) registers and classifies foreign investments. It also serves as the secretariat for the "one window servicing agency," which manages the income tax and duty drawbacks granted to some foreign investments. Current administrative procedures do not allow for automatic approval of foreign investments. Foreign investors are required to obtain licenses for manufacturing or service sector investments, and each license request must be considered individually. Although investments below NRS 1 billion (approximately USD 14 million) are referred to the Department of Industry for action without the involvement of the IPB, in reality, such investment proposals invariably go to the IPB. Foreign investors frequently complain about bureaucratic delays and lack of transparency in procuring investment licenses. In most cases, one to six ministries other than the Ministry of Industry review the business proposal and provide input prior to consideration by the IPB. Licensing of new investments can be time-consuming. Some foreign investors have reported that the licensing process requires a good lawyer and great patience. The law mandates, however, that the IPB make a licensing decision within 30 days of submission of application, provided all necessary information has been submitted. Eligible Sectors Foreign investment proposals must fall under existing industry categories, which include agriculture and forestry, manufacturing, electricity (water and gas), construction, hotels and resorts, transport and communication, housing and apartments, and a restricted range of services. To comply with its WTO commitments, Nepal recently opened service industries and a few other sectors to foreign investment. These sectors include business and management consulting, accounting, engineering and legal services, travel and trekking services, tourist lodging, international retail sales services, and production of alcohol or cigarettes. However, foreign investment is forbidden in the defense sector. Furthermore, the IPB will not license foreign investments that are judged to be either hazardous to general health or the environment. Foreign investors are permitted to acquire real estate in the name of the business entity they own, but are not allowed to acquire real estate as personal property. Although local law permits foreign investors to buy shares on the local stock exchange, Foreign Exchange Regulations restrict repatriation of profits/dividends earned from trading shares. Therefore, investment in the local stock market is practically blocked for foreign investors. However, foreign investors are allowed to buy shares of government corporations by participating in the bidding for privatization of such corporations. In such cases, Nepal’s Ministry of Finance sells the shares to the buyer after carrying out a lengthy screening during the bidding process. The Privatization Act of 1994 generally does not discriminate between national and foreign investors. However, in cases where proposals from two or more investors are identical, the government gives priority to Nepali investors. To date fifteen state-owned corporations have been privatized, seven corporations have been liquidated, and two other corporations have been closed. The last privatization completed by the government was in January 2006. Out of the fifteen corporations privatized so far, foreign investors have taken over only two of them. The privatization process of three other state-owned corporations is currently underway. Two of Nepal's largest commercial banks, the Rastriya Banijya Bank (RBB) and Nepal Bank Limited (NBL), are being prepared for privatization. Under an agreement signed in January 2003 with Nepal Rastra Bank (Nepal's Central Bank), a group of foreign experts took over the management of RBB. Visas The GON offers different types of visas to investors and businesses. Potential investors are generally given six-month visas to conduct research and feasibility studies. To obtain a six-month visa, applicants must provide biographic information and a description of relevant work and professional experience. If the Department of Industry can readily identify the applicant as a legitimate business representative, the process can be expedited. Endorsement by a recognized foreign industrial enterprise is one means of accomplishing this. Business visas are generally issued to approved investors for a period of one to five years. However, investors describe the business visa process as bureaucratic and time-consuming. Many say they spend more than 24 work hours per visa, over a period of 20 to 30 days. Although the GON began issuing five-year, multiple-entry visas to resident foreign investors and their families in 1998, in actuality it has issued very few. In 1999, Nepal lowered its business visa fees; fees range from USD 250 for a five-year visa to USD 100 for a one-year visa. A non-tourist visa, however, costs USD $60 per month for the initial six month period. This visa period can be extended for another six months or more at an additional $60 per month. Conversion and Transfer Policies Return to topThe Foreign Investment and Technology Transfer Act of 1992, permits foreign investors to repatriate all profits and dividends, all money raised through the sale of shares, all payments of principal and interest on any foreign loans, and any amounts invested in transferring foreign technology. Foreign nationals working in industry are also allowed to repatriate 75 percent of their salaries, allowances, and emoluments, etc. Repatriation facilities (such as opening accounts or obtaining permission for remittance of foreign exchange) are made available on the recommendation of the Department of Industry, which normally provides approval of the original investment. However, convertibility is difficult and not guaranteed. Repatriation of any funds needs approval from the concerned GON department and Nepal Rastra Bank, which regulates foreign exchange. In most cases, approval must be obtained from the Department of Industry. In other cases, such as telecommunications, the Nepal Telecommunications Authority (NTA) must approve the repatriation. In joint venture cases, NRB and the Ministry of Finance must approve. Because commercial banks process only the applications but do none of the oversight, the process slows down when it reaches the NRB, which must verify the authenticity of all requests. In the end, an overworked and inefficient banking system is to blame for slow approval of foreign exchange facilities. The actual experience of American and other foreign investors suggests that there are discrepancies between the government's stated policy of repatriation and its implementation. To repatriate funds from the sale of shares, foreign investors apply to the Nepal Rastra Bank. For repatriation of funds connected with dividends, principal and interest on foreign loans, technology transfer fees, expatriate salaries, allowances, and emoluments, the foreign investor applies to the Department of Industry, and then to the Nepal Rastra Bank. At the first stage of obtaining remittance approval, foreign investors must submit remittance requests to a commercial bank. Generally, foreign investors rated services provided by private banks as satisfactory. However, final remittance approval must be made by the NRB foreign exchange department, at which stage the process slows down significantly. For this reason, foreign investors rated the Nepal Rastra Bank's administration of exchange regulations as unsatisfactory. In general, Nepalis are not permitted to invest outside of Nepal. Exceptions, however, can be granted on a case-by-case basis, and policing of the prohibition is weak. In 1995, a private airline was permitted to invest in a regional carrier based in Kolkata and represented the only instance of approved direct foreign investment by Nepalese nationals. Expropriation and Compensation Return to topThe Industrial Enterprise Act of 1992 states that "no industry shall be nationalized." Nepal constantly reiterates this point in negotiations with private-sector firms interested in the hydropower sector. There have been no cases of nationalization in Nepal, nor are any anticipated. Companies can be sealed or confiscated if they do not pay taxes in accordance with Nepali law. There are no official policies either existing or planned that suggest official expropriation should be of concern to prospective investors. There have been instances in the past in which unscrupulous local partners used the tax or regulatory systems to seize control of a joint venture firm from a U.S. investor. Such cases have not involved major Nepali business houses, however. Dispute Settlement Return to topIn the event of a dispute with a foreign investor, the concerned parties are encouraged to settle it through consultation in the presence of the Department of Industry. If the dispute cannot be settled in this manner, cases involving investments less than NRS 500 million (approximately USD 7 million) in value will be referred to arbitration in Nepal according to the Arbitration Rules of the United Nations Commission for International Trade Law (UNCITRAL). For investments that exceed this amount, the government of Nepal will permit stipulation of legal jurisdiction other than Nepal in shareholder agreements and contracts. There have been two investment disputes over the past few years in which the GON did not honor portions of contracts with foreign investors. These disputes have not been frequent, but investors should be aware that the GON might not fully comply with its contracts. All real property transactions must be registered, and property holdings cannot be transferred without following established procedures. Even so, property disputes account for half of the current backlog in Nepal's overburdened court system, and such cases can take years to settle. Moreover, laws and regulations regarding property registration, ownership and transfer are unclear, and interpretation can vary from case to case. There is also a provision for liquidation in the Company Act. Claimant priorities are: 1) government revenue, 2) creditors, and 3) shareholders. Monetary judgments are made in local currency. Nepal adheres to the New York Convention of 1958 on the recognition and enforcement of foreign arbitral awards, and has updated its legislation on dispute settlement to bring its laws into line with the requirements of that convention. The Arbitration Act of 1999 allows the enforcement of foreign arbitral awards and limits the conditions under which those awards can be challenged. Performance Requirements and Incentives Return to topThe Nepal Laws Revision Act of 2000 has eliminated most tax incentives, regardless of whether they were connected with performance requirements. Exports, however, are still favored, as is investment in certain "priority" industries. There is no discrimination against foreign investors with respect to export/import policies or non-tariff barriers. There is no local content or export performance requirement. There is no requirement that nationals own shares that the share of foreign equity is reduced over time, or that technology is transferred. However, in the recently opened service sectors and some cottage industries, permitted foreign investment limits range from 51 to 80 percent; the balance of the investment is reserved for Nepali nationals in order to form a joint venture with a foreign investor. On the other hand, Nepal does employ tax incentives to encourage industries to locate outside the Kathmandu Valley due to pollution and overpopulation and an interest in developing poorer parts of the country. In general, there is no income tax on profits from exports. Customs, value added tax (VAT), and excise duties are to be reimbursed within 60 days on raw materials used in the production of export items. In practice, however, these duty paybacks are often extensively delayed. In addition, income in certain priority industries is taxed at a concessional rate of 10 percent, as opposed to the usual 20 percent rate. The Electricity Act of 1992 governs foreign investments in hydropower generation. That act allows developers an exemption from income tax for the first fifteen years of a project's operation and a 10 percent reduction in income tax for the remaining years. It also provides for a flat one percent customs rate on all construction materials, equipment and spare parts. Foreign investors are not required to disclose proprietary information to government agencies as part of the regulatory approval process. There are no restrictions on participation by foreign firms in government-sponsored research and development programs; however, depending upon the nature and expertise required for the job, government agencies sometimes limit such programs to participation by Nepali nationals only. Right to Private Ownership and Establishment Return to topForeigners are free to establish and own business enterprises and engage in all forms of business activity with the exception of a few industries. Prohibitions exist in the defense industry, real estate, and security printing sectors. In addition, the form of public participation is restricted in some areas. For instance, foreign banks have not yet been allowed to open wholly-owned subsidiaries or branch operations in Nepal. The GON is moving slowly toward open competition in most sectors of the economy. Former public monopolies in banking, insurance, airline services, telecommunications and trade have already been eliminated, and the remaining restrictions on private and foreign operations in these areas are being scaled back. Nepal does not have a law to guarantee free competition or to restrict unfair forms of competition. However, competitive equality is the official standard applied to private enterprises in competition with public enterprises with respect to market access, credit, and other business operations. That said, there are special subsidies and preferred credit arrangements for individual public and private companies in select sectors, such as rural electrification, fertilizer importation, and the provision of agricultural credit. In a joint initiative of the private sector and the Ministry of Industry, Commerce and Supplies, a new "Competition Law" is being drafted. Although Nepal committed to the enactment of the Competition Law during the negotiation process for its entry to the World Trade Organization (WTO), Nepal missed the July 31, 2004 deadline for its enactment. Protection of Property Rights Return to topThe Contract Act of 2000 incorporates many new features, including provisions recognizing mortgages, sales, appointment of agents, and shipment of goods as contracts. Protection of intellectual property rights is inadequate. Patent registration, according to the 1965 Patent Design and Trademark Act, is only valid for seven years and can be extended twice for a total period of twenty-one years. In addition, Nepal does not automatically recognize patents awarded by other nations. The Copyright Act of 2002 is similar in that it does not recognize foreign patents; these must be re-registered in Nepal. However, the Act covers most modern forms of authorship and provides adequate periods of protection. Enforcement is weak, with the result that much of the software and most sound or video recordings now circulating in Nepal are pirated. As per the commitment made by the country on its accession to the World Trade Organization, Nepal must enact new legislation on trade-related intellectual property rights to bring the country into compliance with international norms. Nepal has not yet signed the World Intellectual Property Organization (WIPO) Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT). Trademarks must be registered in Nepal to receive protection. Once registered, trademarks are protected for a period of seven years. Enforcement is very poor. Transparency of Regulatory System Return to topForeign investors in Nepal face a non-transparent legal system. Firms complain that basic legal procedures are neither quick nor routine. The bureaucracy is generally reluctant to accept legal precedents. As a consequence, businesses are often forced to re-litigate issues that had been previously settled. Furthermore, legislation banning foreign investment in financial, legal, and accounting services has made it difficult for investors to find help cutting through regulatory red tape. Labor, health, and safety laws exist but are not properly enforced. Some companies report that the process of terminating unsatisfactory employees is cumbersome and that protective labor laws make it very difficult to bring skilled foreign-national specialists such as pilots, engineers, or architects into Nepal. Efficient Capital Markets and Portfolio Investment Return to topCredit is generally allocated on market terms, although special credit arrangements exist for farmers and rural producers through the Agricultural Development Bank of Nepal. Foreign-owned companies can obtain loans on the local market. The private sector has access to a variety of credit and investment instruments. These include public stock and direct loans from finance companies and joint venture commercial banks. Legal, regulatory, and accounting systems are neither fully transparent nor consistent with international norms. Though auditing is mandatory, professional accounting standards are low, and many practitioners are either poorly trained or lacking in business ethics. Under the circumstances, published financial reports are unreliable, and investors are better advised to rely on general business reputations, except in the few cases in which companies have applied international accounting standards. The Nepali banking system is small, fragmented, and, in some cases, plagued by bad loans. Banking system assets totaled approximately USD 5.73 billion on 15 July 2005, the end of FY 2004-05. Banking system capital (total deposit) in the same period totaled USD 4.04 billion. 18.7 percent of the total asset base is estimated as non-performing as of July 15, 2005. Foreign commercial lending is also scarce and expensive. Currently, there are no resident or non-resident foreign commercial banks that have standing credit limits for loans of a maturity of more than one year. There is no regulatory system to encourage and facilitate portfolio investment in the industrial sector. The GON has made certain exceptions to promote Foreign Direct Investment (FDI) in tourism and hydropower. In these sectors, there can be 100 percent direct foreign investment or up to 25 percent portfolio investment through purchase of stocks on the Nepal Stock Exchange, where a few industrial firms are listed. Lack of transparency or regular reporting of reliable corporate information also presents problems for foreign investors in equity markets. There are no legal provisions to defend against hostile takeovers. Political Violence Return to topFor the past ten years, Nepal has been wracked by a violent Maoist insurgency. The violence has spread to the Kathmandu Valley, although to a lesser degree than in the rest of the country. Hardly any district has been left unaffected by the insurgency. On June 6, 2005, Maoists detonated a landmine underneath a crowded bus in the Chitwan district (170 km southwest of Kathmandu), killing or injuring over a hundred civilians. Foreigners, particularly aid workers, have been threatened, and there have been several incidents of Maoist insurgents attacking establishments of NGOs and INGOs working in different parts of Nepal. Many business owners report they have received extortion threats from the Maoists. The insurgents have increased their rhetoric against foreign-owned industries operating in Nepal. Over the past few years, Maoists have set off explosives at several foreign-owned as well as domestic industries operating in Nepal. In July 2004, the Maoist-affiliated All Nepal Trade Union Federation forced more than a dozen local as well as foreign joint venture industries to shut down their operations completely; the forced closure lasted a little over one month. In December 2004, Indian Hotels Company Ltd. (IHCL), owner of the Taj hotel chain in India, pulled out of a contract for a five-star hotel in Kathmandu, citing security concerns. Intensified attacks on industries by Maoist rebels in 2005 resulted in several large domestic and foreign joint venture companies deciding to either suspend or close their operations in Nepal. The Maoists also attacked and destroyed village-level government infrastructure, including small electricity projects, bridges, and drinking water systems. Because of severe constraints in both personnel and resources, the government's ability to protect basic infrastructure, local government offices, businesses, and other installations is limited. On January 2, 2006, the Maoists withdrew their unilateral ceasefire that began on September 3, 2005. With the end of the ceasefire there is an increasing level of uncertainty regarding the security situation in Nepal. Recent media reports have stated that the Maoists have moved their personnel into urban areas such as Kathmandu and Pokhara. In the past, Maoist urban tactics included attacks on government security forces and facilities, indiscriminant bombings using improvised explosive devices, and assassination attempts against government officials. Recent media reports imply that the Maoists may resume these tactics, which were common in 2003 and 2004. Open conflict between the Maoists and government security forces in rural areas, including popular trekking routes, is also possible. The risk of possible Maoist violence must be taken into account by any foreign firm wishing to invest in Nepal. The Department of State Travel Warning for Nepal, dated December 15, 2005, urges U.S. citizens to defer non-essential travel to Nepal. Maoist supreme commander Prachanda issued a press statement on July 1, 2004, threatening to use "more violent means" if peace talks with the Government of Nepal were not forthcoming or were unsuccessful. The U.S. Department of State continues to regard this as an ongoing statement of intent. The Embassy has periodically received information that the Maoists may attempt to attack or take actions specifically against U.S. citizens as part of that contingency, particularly in regions of the country where Maoists are most active. On a number of occasions, Maoists have burned or bombed tourist resorts after foreigners staying there were given short notice to evacuate. Maoists also periodically detonate bombs within Kathmandu itself. The Department of State has designated the Communist Party of Nepal (Maoist) as a Terrorist Organization under the "Terrorist Exclusion List" of the Immigration and Nationality Act and under Executive Order 13224. These two designations make Maoists excludable from entry into the United States and bar U.S. citizens from transactions such as contribution of funds, goods, or services to, or for the benefit of, the Maoists. U.S. citizens are advised to avoid road travel outside the Kathmandu Valley unless they have reliable information that they can proceed safely in specific areas at specific times. During road closures, Maoist cadres have attacked commercial trucks, buses and private vehicles defying their blockades, sometimes killing or severely injuring drivers. In April 2005, two Russian tourists were injured when a bomb exploded on the highway near their taxi while driving east toward Jiri, Dolakha district. During announced road closures in the past, the Embassy received widespread reports of Maoists forcibly blocking major roads throughout the country, including roads to Tibet, India, Chitwan, Pokhara, and Jiri. During some closures, some districts were blockaded without warning. At times, Maoists have forcibly blocked all traffic coming into and out of the Kathmandu Valley. U.S. citizens are encouraged to contact the U.S. Embassy in Kathmandu for the latest security information, and to travel by air whenever possible. Because of heightened security risks, U.S. official personnel do not generally travel by road outside the Kathmandu Valley. All official travel outside Kathmandu Valley, including by air, requires specific clearance by the Regional Security Officer. As a result, emergency assistance to U.S. citizens may be limited. U.S. citizens who travel or reside in Nepal should factor the potential for violence into their plans, avoid public demonstrations and maintain low profiles while in Nepal. U.S. citizens are urged to register with the Consular Section of the Embassy by accessing the Department of State's travel registration site at https://travelregistration.state.gov or by personal appearance at the Consular Section. The Consular Section is located at the Yak and Yeti Hotel complex in Durbar Marg. The section can be reached directly at (977-1) 444-5577 or through the Embassy switchboard. The U.S. Embassy is located at Pani Pokhari in Kathmandu, telephone (977-1) 441-1179; fax (977-1) 444-4981. The Consular Section can provide updated information on travel and security. Public demonstrations and strikes are popular forms of political expression in Nepal and may occur on short notice. Political parties have indicated that they plan to continue to hold protests and/or mass demonstrations against the government. Protestors in the past have used violence, including burning vehicles, throwing rocks during street demonstrations, and burning tires to block traffic. In some cases, police have responded with tear gas and baton charges. During general strikes, many businesses close for one or two days, and transportation and city services may be disrupted. These strikes usually result in little or no damage to private property. Corruption Return to topU.S. firms and other foreign investors have identified pervasive corruption as an obstacle to maintaining and expanding their direct investments in Nepal. There are also frequent allegations of corruption by Nepalese government officials in the distribution of permits and approvals, in the procurement of goods and services, and in the award of contracts. Combating corruption is the responsibility of the Commission for Investigation of Abuse of Authority (CIAA) and of the National Vigilance Center under the Ministry of Home Affairs. In the past, the Parliamentary Public Accounts Committee (PAC) has also played an active role in publicizing cases of misconduct on the part of GON officials. Since restoration of the multi-party system, the local media has been particularly proactive in unearthing and reporting cases of corruption within the government. Investigative commissions and committees are often formed to look into major cases of corruption that come to light. Officially, giving or accepting a bribe is a criminal act, punishable by imprisonment for one to six years, a fine, or both, depending on the degree of offense committed. In the past |
