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Information on key security and political risks which UK businesses may face when operating in Nepal.
1. Political and Economic Overview
Located between India and China, Nepal is the 41st most populous country in the world. The Nepalese economy was ranked 109th globally in size in 2014. The World Bank put Nepal’s GDP at $21.19 billion in 2015. The annual average growth rate is 3-4%, but it is expected to exceed 6% in FY 17.
Nepal’s ten-year armed conflict ended in 2006 with the Comprehensive Peace Accord. This led to the monarchy being abolished and the Maoist Party joining the Nepali Congress, the United Marxist Leninist (UML) and a range of smaller parties in a multiparty political system. Elections for a Constituent Assembly to draft a new constitution for Nepal were held in 2008. After four changes of government, the Constituent Assembly was dissolved in May 2012 having failed to agree a new constitution. Two interim governments followed the dissolution of the Assembly, and fresh elections were held in November 2013 for the second Constitution Assembly. The second Constitution Assembly promulgated the constitution in September 2015 amid protest from the Terai and Madhesi people, who are mostly of Indian origin. Since September 2015 there have been two changes in Government. The current coalition Government between the Nepali Congress and the Communist Party of Nepal (CPN- Maoist) is in transition with Nepali Congress expected to take the new leadership following first phase of local elections in May 2016. Second phase of local elections are planned for June 2018. This coalition Government is mandated to carry out parliamentary elections by January 2018.
Nepal’s economy is predominantly based on agriculture which contributes only 35.7% of GDP but 75% of employment. Industry accounts for 14% of GDP. Tourism contributes 9% to GDP. The mainstay of Nepal’s economy is remittances from the estimated 2m Nepalese working overseas. According to the World Bank, these accounted for 29% of GDP in 2013, making Nepal the world’s third biggest recipient of remittances as a share of GDP. The services sector accounts for almost 50% of GDP and is mainly driven by remittance income.
Infrastructure in Nepal is poor. According to the World Bank, only 43% of the population have access to all-weather roads. Power outages of up to 16 hours per day during the dry season (October-May) limit economic development. Nepal’s potential in hydropower is estimated at 42,000 MW, but current installed hydropower capacity is only 700 MW. Only 2 per cent of Nepal’s micro-hydro potential has been developed to date.
Localised strikes and general shutdowns (‘bandhs’) have become less common among agitating political parties in recent years. However, due to weak and tense labour relations between management and unions, they are still used by workers as a bargaining tool. The last major strike was in January 2015 after the constitution assembly failed to deliver the constitution. The Federation of Nepali Chambers of Commerce and Industry (FNCCI) estimates that strikes, bandhs and other industrial action cost the Nepalese economy NPR 100 billion, or about £750m each year.
Investment opportunities exist in various sectors, including infrastructure, energy, tourism, construction, and minerals. Nepal signed Power Trade Agreement (PTA) with India in October 2014 paving way for the development of the hydropower sector. Following the PTA India’s GMR and SJVN Ltd. (formerly Satluj Jal Vidyut Nigam Limited) signed Power Development Agreements (PDAs) with the government to develop 900MW Upper Karnali and 900MW Arun III respectively. High value opportunities including major infrastructure and hydropower projects are promoted by the Nepal Investment Board. All investment proposals worth less than NRS10bn (£65m) are managed by the Department of Industry. Nepal has preferential trade agreements in place with both India and China .
2. Human Rights
Nepal has signed or ratified all the major international human rights treaties and conventions. The protection and promotion of human rights is written into Nepal’s Interim Constitution. Nepal is a broadly free and open society. But there are human rights concerns in Nepal, including discrimination, violence against women, allegations of torture and the lack of an appropriate mechanism to deal with human rights violations committed during the country’s ten year conflict.
Nepal has ratified 7 out of the 8 fundamental principles listed on the International Labour Organisation’s Declaration on Fundamental Principles and Rights at Work. Labour rights are enshrined in various acts, including the Labour Act (1992), Trade Union Act (1992), Bonus Act (1973), Foreign Employment Act (2007) and Child Labour (Prohibition and Regulation) Act (2000). Despite regulatory frameworks, child labour is still a very common practice. According to a report by the International Labour Organization an estimated 1.6 million children are said to be engaging in child labour in Nepal. Human trafficking and other forms of forced labour are also a concern.
3. Bribery and Corruption
Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.
In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.
Transparency International’s Corruption Perceptions Index (CPI) 2014 ranked Nepal 126th out of 175 countries. Nepal ratified the UN Convention against Corruption in 2011. The Prevention of Corruption Act and Public Procurement Act 2007 and Anti-Money Laundering Act 2008 are the key elements of the legal framework criminalising corruption. The Commission for the Investigation of Abuse of Authority (CIAA) is tasked with investigating and prosecuting corruption in the bureaucracy. To meet the requirements of the Financial Action Task Force (FATF), Nepal adopted additional measures to tackle money laundering and counter terrorist financing in 2013.
4. Terrorism Threat
Please visit the terrorism section of our travel advice.
5. Protective Security Advice
The Centre for the Protection of National Infrastructure also provides protective security advice to businesses. Read the information provided on our Protective security advice page.
6. Intellectual Property
Nepal’s intellectual property (IP) regime is still in a nascent phase. There are two laws that specifically deal with IP issues— the Patent, Design and Trademark Act 2006 and the Copyright Act 2002. The Department of Industry under the Ministry of Industry is the regulatory body responsible for patent, design and trademark issues. The Nepal Copyrights Registrar’s Office sits under the Ministry of Culture, Tourism and Civil Aviation and handles issues related to copyrights. Nepal is a signatory to most international IP conventions, such as the Berne convention, Rome convention and TRIPS Agreement.