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U.S. Department of State
Nepal Country Commercial Guide for FY 95-96
Office of the Coordinator for Business Affairs
Country Commercial Guide for FY 95-96
Nepal
TABLE OF CONTENTS
CHAPTER I. EXECUTIVE SUMMARY
CHAPTER II. ECONOMIC TRENDS & OUTLOOK
CHAPTER III. POLITICAL ENVIRONMENT
CHAPTER IV. MARKETING U.S. PRODUCTS AND SERVICES
CHAPTER V. LEADING SECTORS TO U.S. EXPORTS AND INVESTMENT
CHAPTER VI. TRADE REGULATIONS & STANDARDS
CHAPTER VII. INVESTMENT CLIMATE
CHAPTER VIII. TRADE & PROJECT FINANCING
CHAPTER IX. BUSINESS TRAVEL
CHAPTER X. APPENDICES
A. COUNTRY DATA
B: DOMESTIC ECONOMY
C: TRADE
D: INVESTMENT STATISTICS
E. U.S. & COUNTRY CONTACTS
F. MARKET RESEARCH
G. TRADE EVENT SCHEDULE
CHAPTER I: EXECUTIVE SUMMARY
Nepal is a landlocked economy with per capita income levels among the
world's lowest and limited market potential. Nonetheless, since the
advent of a democratically elected government in 1991, the country has
undertaken a number of economic reforms that considerably enhance its
attractiveness as a market for U.S. goods and services and for U.S.
direct investment. Reduced government regulation and greater freedom
have unleashed domestic private sector energies. Nepal's hydropower,
aviation, environmental, tourism, and computer
hardware/telecommunications markets offer attractive sales and
investment opportunities to U.S. firms. The presence of the large and
growing Indian market to the south combined with preferred access for
Nepalese manufactures into that market both make Nepal more accessible
to the U.S. private sector and increase its attractiveness as a business
location, particularly for manufacturing firms that propose to cater to
northern India.
Country Commercial Guides are available on the National Trade Data Bank
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CHAPTER II. ECONOMIC TRENDS & OUTLOOK
Nepal Fiscal Year (NFY) 1993/94 (ended July 15, 1994) was the best year
in a decade for the economy with 7.8 percent real GDP growth. In
NFY94/95, growth fell to four percent. Inflation remains under ten
percent and the currency has remained relatively stable against the U.S.
dollar in recent years. Further depreciation is expected in view of the
worsening balance of payments situation. Worrying developments include
an increase in the current account deficit due to worsened export
performance, especially handknotted woolen carpets and ready-made
garments, and increasing imports and stagnating foreign investment due
to current political instability.
Manufacturing turned in strong performance (including an 18 percent hike
in non-garment and non-carpet production) and tourism, construction,
transport, and services also performed well. Agricultural performance
was flat because of a decline in the rice crop due to a poor monsoon,
but there is continued strong growth in production of cash crops and
fruits and vegetables. In view of Nepal's variety of micro-climates
and proximity to the vast Indian market, the outlook for agro-industry
remains bright. Negative signs include a downturn in exports of
handknotted woolen carpets and no growth in ready-made garment exports.
Government interference and importance in the economy have steadily
decreased in the past few years. In particular, subsidies have been
reduced or eliminated for a number of key products with the exception of
fertilizer and the cost of food transport to remote areas. Recent major
policy accomplishments have included ongoing work on tax reform
including introducing a Value Added Tax (VAT), work on eliminating the
"Octroi" internal transit tax, expanding the taxpayer base, and further
simplifying and reducing customs, excise, sales, and income taxes.
The privatization program begun under the former Nepali Congress Party
(NCP) government has slowed under the Communist Party of Nepal United
Marxist-Leninist (UML). While not opposing privatization outright, the
UML has criticized the methodology used by the NCP and has initiated a
policy review. Even so, there has been considerable progress in the
past few years in terms of streamlining licensing, registration, and
rules relating to access to foreign exchange. For example, the
Government of Nepal (GON) privatized the Nepal Stock Exchange and
separated it, although incompletely, from its regulatory body.
Additional reforms, especially in the legal area, were scheduled for
implementation during FY94/95 but have been put on hold due to the
dissolution of Parliament in July 1994 followed by mid-term elections in
November of that year. Yet further uncertainties were introduced by the
dissolution of Parliament in June 1995 and a call for another round of
elections in November 1995. As per a Nepal Supreme Court decision
rendered on August 28, 1995, Parliament was reinstated and the Nepali
Congress and National Democratic Parties have announced their intention
to form a coalition government.
All year data for the balance of payments (BOP) account are lacking. In
general, the overall balance is a more accurate measure than the trade
balance due to the large size of the "other services" and "miscellaneous
capital" items. The trade balance was becoming sharply more negative in
NFY93/94 and that trend continued during the current fiscal year as
well. Current estimates are that exports fell almost a quarter and
imports rose 13 percent in value terms for a 36 percent increase in the
trade deficit. While the overall balance of payments has remained
positive in recent years due to aid inflows, preliminary data indicate a
net outflow for NFY94/95 if the trend continues. If so, this would be
the first negative overall balance in a decade.
Exports to India have been increasing significantly with major items
representing exports by Indian firms that have recently located in Nepal
to serve the Indian market. Examples include soap products and leather.
Traditional agricultural exports to India have been stable. Exports to
third countries, accounting for almost 90 percent of all exports, fell
by 14 percent for the first nine months of the current fiscal year. The
major item, carpets, still accounts for 55 percent of all exports, but
sales fell by 36 percent due to weaker demand in the major market,
Germany. The second largest export, ready-made garments mainly destined
for the U.S. market, grew only one percent in the period. Exports of
pulses and nigerseeds fell.
The Kathmandu Valley is the major consumer of imported products in
Nepal. While air links with major transshipment points such as Hong
Kong and Singapore are good, surface transportation is constrained by
being limited to one port, Calcutta, and the existence of only one
reliable road link to India. Recently, however, the Government of India
has agreed in principle to permit Nepal transit facilities via the port
of Khandela north of Bombay. Once goods have arrived in Kathmandu, the
compactness of the valley makes for relatively easy distribution.
The poor state of development of the road system (22 of 75
administrative districts lack road links altogether and the entire
country has only some 10,000 kilometers of roads) means that national
distribution is unrealistic for many products. In contrast, the
southern Terai region is both readily accessible to India and served by
a good road network so distribution in this area is relatively easy.
Telecommunications links are generally good, particularly in the capital
city of Kathmandu. The quality of international fax and telephone
services is high.
A World Bank-financed project, this US$ 30-40 million "dry port" to be
located near the southern border city of Birgunj features an inland
container terminal linked directly to India's national rail system.
Still in an early planning stage, the project is expected to make a
significant contribution to lowering high transportation costs.
CHAPTER III. POLITICAL ENVIRONMENT
The United States and Nepal have traditionally enjoyed warm relations.
Diplomatic recognition was extended in the mid-50's and the U.S. Agency
for International Development (USAID) has been active here for over 40
years. The Peace Corps has been in Nepal since 1962. The United States
and Nepal cooperate closely in a number of international fora including
the United Nations and U.N. Peacekeeping Operations. The United States
Government has been highly supportive of Nepal's new democracy and
enjoys excellent access to top level officials and politicians across
the political spectrum.
The UML minority government has stated its commitment to further
economic reforms but details remain elusive. Privatization of state
enterprises has been put on hold pending further study. Current
uncertainty in the political situation dating from mid-94 has precluded
long-term policy planning. Thus far, the two budgets presented by the
minority UML government have tended to emphasize popular local spending
programs and have avoided addressing the need for long-term
macroeconomic stability. Even so, the reality of the situation
dictates that Nepal cannot lag far behind the ongoing liberalization
process taking place in India. In view of the August 28 Supreme Court
decision reinstating Parliament, the Nepal Fiscal Year 95/96 budget will
be subject to review by the expected coalition government which may also
proceed more positively with the economic reform program.
Given that Nepal is a landlocked country whose only access to the sea is
via India, relations with the southern neighbor can help or harm
business prospects. For example, at the end of the 1980's, a dispute
led to Indian refusal to renew the Trade and Transit Treaty with
consequent disruption to trade. On the other hand, India has
historically been a major donor to Nepal. It provides preferential
access to its market for Nepali products with at least 50 percent Indo-
Nepal content (both materials and labor). Economic reform and growth in
India, with attendant increases in U.S. trade and investment, could lead
to expanding opportunities for U.S. business in Nepal.
Following the democracy movement in 1990, Nepal officially became a
multiparty democracy organized along parliamentary lines under a
constitutional hereditary monarchy. The first general elections were
held in May 1991. The Nepali Congress Party (NCP) won a majority of the
seats in the 205-member Parliament (lower house). Other major parties
include the conservative National Democratic Party (NDP) and the ethnic
Nepal Sadbhavana Party (NSP).
Although the Parliamentary term is set at five years, the Congress Party
lost control of its majority in July 1994. General elections held in
mid-November gave 88 seats to the UML, 83 to the NCP, 20 to the NDP,
four to the leftist Workers' and Peasants' Party, three to the NSP, and
victories for seven independents. As a coalition government could not
be formed, the UML formed a minority government in accordance with
Nepal's constitution. In June of 1995, the Congress Party called for a
special session of Parliament at which it intended to call for a "no-
confidence" vote against the UML. The UML Prime Minister retaliated by
asking the King to dissolve Parliament and to set new elections for
November 23, 1995.
In a decision released at the end of August, Nepal's Supreme Court ruled
that the dissolution of Parliament was unconstitutional. It is now
anticipated that the NCP, NDP, and NSP parties will form a coalition
government which could take office in September. If the coalition
proves stable, its rule could extend as far as the end of the current
Parliament's tenure, November 1999.
ORIENTATION OF MAJOR POLITICAL PARTIES
The Nepali Congress Party is one of the oldest democratic parties in
Nepal and has traditionally followed a socialist economic philosophy.
After coming to power in 1991, it adopted more pragmatic economic
policies and seems committed to further economic reform including
liberalization and privatization of state enterprises.
The UML was formed by the unification of two leftist parties in 1990 and
espouses a more radical economic line. To date, the UML has not
reversed the former economic liberalization but has adopted a "go-slow"
policy emphasizing further study. Implementation and long-term planning
have been hindered by continuing political uncertainty.
The National Democratic Party largely represents the previous ruling
elite. Its economic policies closely parallel those adopted by the NCP.
CHAPTER IV. MARKETING U.S. PRODUCTS & SERVICES
There are three main sales channels in Nepal: 1) direct - exporter
(manufacturer/supplier) sells directly to the customer in Nepal; 2)
indirect U.S. - exporter sells through a U.S.-based intermediary, such
as an export management or trading company; and 3) indirect local -
exporter sells through a Nepalese agent or distributor. Indirect local
sales channels are most suited to selling U.S. goods and services in
Nepal.
The local agent normally works as an exporter's sales representative on
a commission basis to sell a product in Nepal. Specific responsibilities
depend on the terms of the contract and reflect business norms
prevailing in Nepal. The agent normally works on a commission ranging
between five and 15 percent of the sales price, depending upon the
nature of the product or services offered.
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 and 30 percent, again depending upon the nature of the
product.
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 and for selling to government departments
and competing in an international tender exercise. Use of a local
distributor is more effective when selling durable and nondurable
consumer goods.
FRANCHISING
Franchising is not yet a common sales method in Nepal. However, a
recent instance involving introduction of an Australian fast food
franchise, via the master franchise agent in India, has proved highly
successful. There is limited scope for further such ventures if they
cater to the tourist, resident expatriate, and Nepali middle class
markets.
DIRECT MARKETING
Direct marketing is not cost-effective at present in view of the small
and limited Nepalese market for U.S. products and generally unreliable
service offered by the local post office. Direct marketing via fax has
not been tried here but could be effective in reaching a target business
audience. Two new cable TV networks in Kathmandu provide a marketing
opportunity to reach an elite audience not previously available.
JOINT VENTURES/LICENSING
Nepal officially encourages foreign investment and technology transfer
under the Foreign Investment and Technology Transfer Act (FITA) of 1992.
Investment in the form of equity shares and reinvestment of earnings
from share capital and loans are defined as foreign investment made by a
foreign investor. 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 investment via joint ventures or wholly foreign-owned
enterprises are allowed in any industry providing that fixed investment
exceeds Nrs. 20 million (US$ 400,000). This minimum size of investment
effectively bars most direct foreign investment in the services sector.
In its July 1995 budget document, the UML Government announced that it
would consider lowering or dropping this minimum. However, any such
change will likely require an amendment to the FITA. Technology
transfer may be allowed in cottage and small-scale industries and
medium-scale industries with fixed assets of up to Nrs. 20 million.
Foreign investment is not permitted in defense related industries,
cigarettes, and alcohol (excluding 100 percent export oriented
industries).
STEPS TO ESTABLISHING AN OFFICE
Any foreign company which desires to undertake business in Nepal shall
have the company registered after submitting the following documents
required under the Company Act:
a) An authentic copy or translation in Nepali or English of
the law or license under which the company was incorporated
and established.
b) 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 agent, manager,
secretary, etc. of the company along with full particulars.
e) Name and address of resident representative or
representatives of the company in Nepal, who is or are
empowered to accept on its behalf time limits, notices, etc.
issued to it.
f) The main place where the business of the company will be
or is being run in Nepal and the full address of the
company's office located at such place.
SELLING FACTORS/TECHNIQUES
Market promotion can be done by sending advertising directly to the
target group of customers via the post or messenger. Facsimile messages
may be more reliable and are certainly faster in the case of Nepal.
Telemarketing, exhibitions, trade shows and trade missions, catalog and
video shows, advertising media such as newspapers, radio and television,
etc. are used for market promotion. These can be done by the exporter
directly or through a local agent/distributor. Direct marketing will
likely not be cost-effective in view of the small size of the 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.
ADVERTISING AND TRADE PROMOTION
Newspapers, radio and television are the main advertising media used for
trade promotion. Television serves only a limited section of Nepal's
people, primarily the more affluent urban population, but newspapers
and radio reach most parts of the country. Selection of advertising
media thus depends on the target group. TV advertising would be most
appropriate if the target group is the urban middle and upper classes.
For a basic consumer product, advertising in newspapers and via radio
will be more appropriate. Advertising costs are lower for newspapers
and radio than for television. Below are names and addresses of major
newspapers, radio and television.
1. The Rising Nepal (English daily)
Dharma Path
P.O. Box 23
Kathmandu, Nepal
Phone: 977-1-227493
FAX: 977-1-224381
2. The Kathmandu Post (English daily)
Shantinagar, Naya Baneswore
P.O. Box 8559
Kathmandu, Nepal
Phone: 977-1-474798/474/963
FAX: 977-1-470178
5. Radio Nepal
Singha Durbar
P.O. Box 6034
Kathmandu, Nepal
Phone: 977-1-226436/215773
FAX: 977-1-212951
6. Nepal Television
Singha Durbar
P.O. Box 3826
Kathmandu, Nepal
Phone: 977-1-228234/214548
7. Shangrila Channel (P) Ltd.
Sangarsh Chamber, Gyaneshwor
P.O. Box 5852
Kathmandu
Phone: 977-1-415299/411137
Fax: 977-1-416333
8. Space-Time Network
Nepal Satellite Cable Television
Iceburg Building, 3rd Floor
Putali Sadak, Kathmandu
Phone: 977-1-419133, 220839
Fax: 977-1-419504
PRICING PRODUCT
Pricing strategy depends on the competitive situation, 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 market
research, potential customers, and competitors. When establishing a
price for U.S. products in Nepal, the exporter should keep in mind
competition from India, the closest neighbor having open borders with
Nepal. Products from the European Community, Japan, Taiwan, and
increasingly China also find a ready market here.
SALES SERVICE/CUSTOMER SUPPORT
After-sales service and product guarantee are very important for
customers, especially when they are buying durable products. Given long
shipping times to Nepal, doubts about after-sales service and
availability of spare parts will affect product choice. It is therefore
preferable to make an arrangement with the local agent/distributor for
reliable after-sales service and support.
SELLING TO THE GOVERNMENT
GON fiscal regulations relating to procurement of goods and services
state that goods worth up to Rs. 5,000 (US$ 100) can be purchased
directly from the market. For goods worth between Rs. 5,000 and Rs.
150,000 (US$ 3,000), procurement is to be made by calling for quotations
from at least five suppliers. For higher amounts, procurement should be
made via tenders or bidding. 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 being disseminated to U.S. businesses via the U.S.
Department of Commerce Trade Opportunity Program (TOP). For other sales
opportunities, use of a local distributor or commission agent is more
effective.
PROTECTING YOUR PRODUCT FROM IPR INFRINGEMENT
In order to prevent infringement of intellectual property rights, the
product and its trademark should be registered with Nepal's Department
of Industries in accordance with the Patent, Design and Trademark Act,
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 this
country. 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.
NEED FOR A LOCAL ATTORNEY
Use of a local attorney for preparing required documents will ease
unnecessary delays in the process. The U.S. Embassy can provide a list
of local attorneys thought to be reliable.
CHAPTER V. LEADING SECTORS FOR U.S. EXPORTS & INVESTMENT
1 - Computers/Peripherals (CPT, CSF)
Nepal's overall potential as a market for U.S. exports is modest. Total
U.S. exports to Nepal in NFY93/94 amounted to only US$ 8 million.
However, U.S. computers and peripheral equipment successfully compete in
the local market and the total import of computer hardware is estimated
at around US$ 20 million. Customs statistics understate U.S. market
shares as much American equipment is imported via distributors in Hong
Kong or Singapore and is not captured in official statistics for
bilateral trade.
2 - Telecommunications Equipment (TEL)
Local microwave TV services depend on U.S. firms for much of their
equipment as does a cable network. There is also demand for paging and
cellular phone systems. Although the GON has not yet issued licenses
for such a cellular phone system, it recently announced a tender
regarding which details are to be made public in September 1995. The
Nepal Telecommunications Corporation is also steadily expanding its
landline phone system and will continue to issue tenders for optical
fiber lines, digital switching equipment, and telephone sets.
3 - Aircraft and Parts (AIR)
The mushrooming of private domestic airlines in Nepal will provide
opportunities for the sale of short-hop passenger turboprop aircraft,
especially used equipment. However, the GON has not yet relaxed its
restrictions on the use of single-engine aircraft for passenger flights.
At present, there is only one U.S.-made Cessna single engine aircraft in
Nepal, a "Caravan" 208. It is used for chartered passenger flights and
cargo. Domestic Nepalese private airlines prefer twin engine turboprop
aircraft such as the Canadian Twin Otter, the British Avro, the German
Dornier, and the Chinese-built Y-12, though the Y-12 has gained a poor
reputation for reliability and service. Nepal's government-regulated
domestic fare structure makes it difficult for private airlines to turn
a profit and produce sufficient revenue flow to add to their fleets.
The national flag carrier, the Royal Nepal Airlines Corporation (RNAC),
has traditionally preferred Boeing aircraft for its international
routes, but financial problems make it difficult for the airline to
purchase any new aircraft. Nepal's mountainous terrain makes the Global
Positioning System (GPS) an ideal solution for air navigation in Nepal.
Some airlines are already experimenting with hand-held GPS systems. The
market for rotary wing aircraft is growing, particularly for tourism-
related passenger and cargo services.
4 - Water Resources Equipment/Services (WRE)
Nepal is trying to move ahead with major hydroelectric projects such as
Kali Gandaki "A." With the recent cancellation of the Arun III
hydroelectric project by the World Bank, the Government is placing even
greater emphasis on development of small and medium size projects.
Private investment is a top priority and laws and regulations have been
revised to permit this. When such projects get underway, there should
be opportunities for sales of U.S. equipment and engineering services.
5 - Autos/Light Trucks/Vans (AUT)
An electric vehicle project sponsored by USAID may lead to market demand
for small electric taxis and vans within the next few years. The
pollution caused by diesel vehicles is compelling Nepal to explore
alternatives and a recent decision by the GON to reduce the customs duty
to five percent for electric vehicle parts and ten percent for electric
buses, cars, and vans (compared to 110 percent plus sales tax for diesel
and gasoline powered vehicles) should stimulate demand for such
equipment in the Kathmandu Valley.
6 - Renewable Energy Equipment (REQ)
There is scope for increasing U.S. exports of solar power equipment
components to Nepal. Such equipment is well suited to hilly regions
which are not connected to national or local electrical grids.
Windpower units could also find applications in the agricultural sector
for pumping water.
7 - Management Consulting Services (MCS)
Current visa and service investment rules make it difficult to set up
and maintain consultancy services in Nepal. When and if these rules are
relaxed, there will be opportunities for entrepreneurs to set up small
consultancy and market research services to service local businesses and
foreign assistance projects.
8 - Medical Equipment and Drugs/Pharmaceuticals (MED and DRG)
These categories grouped together traditionally have topped the list of
U.S. exports to Nepal. Sales should continue to grow steadily.
BEST PROSPECTS FOR AGRICULTURAL PRODUCTS
Given the small size of Nepal's market in terms of purchasing power and
the fact that most of the population is engaged in subsistence
agriculture, there is extremely limited scope for exports of U.S. food
products. In 1993/94, total imports of agricultural products from the
United States reached about US$ 250 thousand. The statistics reveal
that exports of powdered milk and dry fruits (almonds) have been
relatively strong recently. Rising incomes and the concentration of
tourist facilities in the Kathmandu Valley have resulted in the import
of some prepared foods from the United States, mainly via brokers in
Singapore and Hong Kong.
Nepal is totally dependent on imports for fertilizers such as urea. The
Government engages in open tenders for import of such items and U.S.
firms have proved competitive in the past.
MAJOR INVESTMENT OPPORTUNITIES
There are two main investment opportunities in Nepal: hydropower and
tourism. While Nepal has some 36,000 megawatts in proven hydro
potential, less than one-half of one percent of this has been exploited.
In addition to growing domestic demand, India is a potential market for
larger projects. Recent cancellation of the Arun III hydroelectric
project by the World Bank has given even greater impetus to the
Government's efforts to attract private foreign investment in the power
sector. There is currently one U.S.-Nepal joint venture working to
develop a 36 mw site in Nepal.
Nepal's rugged and beautiful terrain and interesting culture have
enduring fascination for tourists. Indeed, most current U.S. direct
investment in the country is concentrated in the tourism-related areas
of hotel, restaurants, and casinos. Other projects with U.S.
involvement are in the planning stages.
The Government of the United States acknowledges the contribution that
outward foreign direct investment makes to the U.S. economy. U.S.
foreign direct investment is increasingly viewed as a complement or even
a necessary component of trade. For example, roughly 60 percent of U.S.
exports are sold by American firms that have operations abroad.
Recognizing the benefits that U.S. outward investment bring to the U.S.
economy, the Government of the United States undertakes initiatives,
such as Overseas Private Investment Corporation (OPIC) programs,
investment treaty negotiations, and business facilitation programs that
support U.S. investors.
CHAPTER VI. TRADE REGULATIONS & STANDARDS
TARIFFS AND IMPORT TAXES/CUSTOMS VALUATION
Import 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 60 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 and liquor are taxed at 60
percent. Goods imported into Nepal are also liable for a sales tax of
10 and 20 percent for basic necessities and luxury items, respectively.
Custom duties are generally assessed on the cost, insurance, and freight
(c.i.f.) value.
IMPORT LICENSES
All imports may be brought in without a license except for banned or
quantitatively restricted items such as (a) products injurious to health
(such as opium and morphia or liquors containing more than 60 percent
alcohol); (b) arms and ammunition, explosive materials (or products
required for production of explosive materials, and guns and bullets;
(c) communications equipment including computers and home entertainment
products such television sets and VCRs; (d) valuable metals and jewelry;
and (e) beef and beef products.
EXPORT CONTROLS
All products other than banned ones or those under quantitative
restriction may be exported freely. 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
foodgrains, oilseeds, and some types of pulses (lentils). In general,
the export to India of all types of goods imported from countries other
than India is prohibited.
IMPORT/EXPORT DOCUMENTATION
Documents required for shipment to Nepal include a commercial invoice, a
customs declaration form, clearly marked and labeled packaging, and a
certificate of origin. Similarly, documents required for shipment from
Nepal include the following. If sent by air: a customs declaration
form, 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, airway bill, and an authorization letter are required. In
addition to the above except for the airway bill, the following
documents are required for surface shipment: transport manifesto (one
copy per truck), customs transit declaration, and transit declaration
invoice for goods in transit via India or Bangladesh to a third country
destination. Special documentation such as visa stamps from the
National Productivity and Economic Development Center are essential for
export of ready-made garments to the United States.
TEMPORARY ENTRY
Goods, 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 the
work unless the duty has been paid and the item sold for the use of
others or retained for personal use. 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 on a charge of smuggling.
LABELING/MARKING REQUIREMENTS
No special labeling or marking are required by law. 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, and a
certificate of origin.
PROHIBITED IMPORTS
The 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 and 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 and ammunition and other explosives.
3. Communication equipment: wireless walkie-talkie and similar other
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 His Majesty's Government in
the Nepal Gazette.
STANDARDS (EG, ISO 9000 USAGE)
Nepal does not follow ISO 9000 series. No standard is required by law
for import of products other than food products. For food products, the
importer is required by law to have a sample tested by the Food Research
Laboratory under the Food Act and Nepal Standard (Certification Mark)
Act. Nepal has established its own standards for various food products.
FREE TRADE ZONES/WAREHOUSES
Nepal has not established Export Processing Zones (EPZ). However, any
industry exporting 90 percent or more of its products is entitled to
enjoy facilities as if it were established in an EPZ. 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 sales tax. 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 which must be sufficient to cover applicable
duties.
SPECIAL IMPORT PROVISIONS
Duty exemptions of ten and five percent have been given to imports from
the Tibet Autonomous Region of the People's Republic of China and member
countries of the South Asia Association for Regional Cooperation (SAARC)
and designated most favored nations, respectively.
MEMBERSHIP IN FREE TRADE ARRANGEMENTS
Nepal is not a member of Free Trade Arrangement although it has ratified
the South Asia Preferential Trade Agreement (SAPTA).
CHAPTER VII. INVESTMENT CLIMATE
SECTION A: INVESTMENT REGIME
A1 OPENNESS TO FOREIGN INVESTMENT
The Government officially welcomes foreign direct investment. The GON
began carrying out policy and regulatory changes in industry, trade,
finance and the Stock Exchange beginning in 1992. At present, there are
some 130 operating joint ventures in Nepal today. Indian-invested
ventures lead the list with about 40 percent of the total number. U.S.-
Nepal joint ventures number about ten. Japan, South Korea, China, and
Germany are also relatively prominent. Multinational investors based or
looking to expand in the growing Indian market are expressing an
interest in investing in Nepal. Policy changes have allowed business
people to operate in sectors that were previously Government monopolies.
Licensing and regulations have been simplified, 100 percent foreign
ownership is allowed, and extensive tax holidays exist. New banking
institutions and a growing stock exchange provide alternative sources of
investment capital. However, foreign banks are effectively barred from
opening branch operations and access to the domestic stock is denied to
all except domestic individuals and firms.
0 PROBLEMS PERSIST
There continue to be problems due to poor infrastructure; lack of direct
access to seaports; lack of trained human resources; few raw materials;
lack of adequate electricity and water; nontransparent and capricious
tax administration; inadequate economic legislation; and unclear rules
regarding firing workers.
0 CHANGE NEEDED
Politicians and Government officials realize that more changes are
needed and are open to suggestions from the private sector. The recent
promise by the GON to consider relaxing the required fixed capital
investment minimum (US$ 400 thousand) is a step in the right direction.
0 PREREQUISITES FOR FOREIGN INVESTMENT
No rules exist on acquisitions, mergers, takeovers, and so-called
"greenfield" investments starting from scratch. There are certain
preconditions that foreign investors must fulfil after which there is no
discrimination. These conditions are noted in the following section.
The screening criteria require that the proposal fall within the
"industry category," that it is environmentally sound, and that the
proposed investment does not fall under restricted categories (hazardous
to health, defense, environmentally damaging) and that it meet the
minimum investment level of US$400,000 needed for foreign investment.
0 FOREIGN INVESTMENT SCREENING
There is general screening of foreign investment. Each proposal must be
approved by the Industrial Promotion Board (IPB) which is headed by the
Minister of Industry. The purpose of the approval is to see whether the
proposed investment meets the criteria laid down in Nepal's industrial
policy. Since current administrative procedures do not allow for the
establishment of guidelines for automatic approval, each foreign
investment proposal must be considered individually. This has led to
long delay in some cases.
Screening mechanisms are routine and non-discriminatory. The IPB meets
only once a month and there is no fixed time for meetings so delays in
the approval process are common. The Department of Industry (DOI) is
attempting to designate a set date for the meeting so that investors may
know to submit their proposals in time for a quick decision. In
contrast to past practice, the DOI is bound to make its decision within
30 days provided that the information supplied by investors is adequate.
O PRIVATIZATION POLICIES
Under the Nepali Congress Party, GON policy was to sell loss-making
state-run enterprises to the domestic private sector. Foreigners were
allowed to bid on larger enterprises which might not be affordable to
Nepalese. While not mentioned in official policy, there is a general
concern about the prospect of increased domination by Indian business
interests. The current Communist Party of Nepal United Marxist-Leninist
government has not rejected the privatization policy outright but
appears prepared to proceed with such on a highly selective basis. At
any rate, no new privatizations have been announced in the nine months
since the party took control of government in December of 1994.
0 DISCRIMINATION AT TIME OF INITIAL INVESTMENT
There is discrimination against foreign investors at the time of the
initial investment with respect to a minimum fixed capital requirement
but there is none thereafter as regards incentives and facilities
provided by the Government. While an investment minimum is required at
the initial stage, there are no further restrictions as to the amount of
investment required of foreign investors except for limits on small
investments in the cottage industries, small businesses, and the
agricultural sector.
0 R AND D SUBSIDIES
Government subsidies for research and other development programs are
negligible.
0 VISA REQUIREMENTS
Six-month visas are provided to prospective investors for the purpose of
conducting feasibility studies. A residence visa is available to
foreign investors but it must be renewed annually. To obtain a six-
month visa, applicants must provide biographic information and a
description of relevant work and professional experience. The process
can be expedited if the person can be readily identified as a legitimate
business representative. Endorsement by a recognized foreign industrial
enterprise is one means of accomplishing this.
0 INVESTMENT INCENTIVES
There is no favored treatment of foreign investors in terms of
incentives in that the same incentives are available to both domestic
and foreign investors. The following are incentives provided by the GON
to investors.
1. Cottage industries are exempt from sales tax, excise duty, and
income tax. Foreigners are not permitted to invest in this sector.
2. There is no income tax on profits from exports. Customs, sales tax,
and excise duties are reimbursed within 60 days on raw materials used in
the production of export items.
3. Manufacturing industries are exempt from income tax for five years
from commencement of commercial production. An additional two-year
income tax exemption is granted when:
a. Industries fall under the National Priority List. This list
consists of 31 areas including such items as modern sugar and oil mills;
dairy, fruit and vegetable seed production; tea and coffee farming;
fruit processing; the paper industry; pharmaceuticals; fertilizer;
pollution control devices; infrastructure; computer software; and
precision goods.
b. Firms that utilize 90 percent or greater local raw material
content even if the investment category is not included in the National
Priority List.
c. Firms that employ more than 600 workers.
d. Firms that invest more than 750 million Nepalese Rupees
(US$15 million).
4. Industries are entitled to a reduction in tax rate on each income
tax slab or corporate tax of five percentage points.
5. Industries in remote areas are granted a 60 percent rebate on income
tax and a 35 percent rebate on excise duties.
6. No taxes, duties, or fees are to be levied on machinery, tools, and
raw materials utilized by industry.
0 DISCRIMINATORY/PREFERENTIAL EXPORT/IMPORT POLICIES
There is no discrimination against foreign investors with respect to
export/import policies, nontariff barriers, and import price controls.
However, the GON does encourage imports from India as there is a
bilateral Trade Treaty that provides preferential access to the Indian
market for Nepali goods with at least 50 percent Indo-Nepali material
and labor content. In practice, the GON provides a 20 percent rebate on
duties levied on goods coming from India.
A2 CONVERSION AND TRANSFER POLICIES
O REPATRIATION
The GON currently has foreign exchange reserves equivalent to eight
months of import cover. While these have been declining of late, there
is currently no problem in repatriating funds related to approved
investments in convertible currency. In fact, 100 percent of profits
and 100 percent of sales value can be repatriated for approved
investments.
Government clearance is needed for repatriation. To obtain this
clearance, the investor must show a balance sheet, proof of investment,
and declaration of dividend in accordance with approved clauses. If all
required documents are presented, the DOI normally approves the
application within 15 days after which local commercial banks can make
provision for the exchange.
In the event that the Overseas Private Investment Corporation (OPIC)
pays an inconvertibility claim due to a firm's inability to repatriate
profits or investment, local currency accepted by OPIC would be made
available, pursuant to the bilateral agreement providing for the OPIC
program, to the U.S. Embassy on a priority basis for U.S. Government
expenses. Estimated annual USG local currency expenditures in Nepal are
on the order of US$ two million, including US$ 500,000 for accommodation
exchange. Nepali rupees are purchased by the Embassy at the official
rate of exchange. The currency is currently depreciating at a gradual
pace against the U.S. dollar.
A3 EXPROPRIATION AND COMPENSATION
0 EXPROPRIATION
The Industrial Enterprise Act of 1992 states that "No industry shall be
nationalized." 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 to Nepalese law. There are no official policies either
extant or in the offing that lead the Embassy to conclude that official
expropriation should be of concern to prospective investors. There have
been instances in the past where unscrupulous local partners have used
the tax or regulatory system to seize control of a joint venture firm
from the U.S. investor. Such cases have not involved major Nepalese
business houses, however.
A4. DISPUTE SETTLEMENT
In the event of a dispute with a foreign investor, the concerned parties
are encouraged to settle the dispute through consultation in the
presence of the Department of Industry. If the dispute cannot be
settled in this manner, it will be referred to arbitration according to
the arbitration rules of the United Nations Commission for International
Trade Law (UNCITRAL). The GON is currently considering permitting
stipulation of legal jurisdiction other than Nepal in shareholder
agreements and contracts involving larger foreign investments,
particularly in the hydropower and tourism sectors.
0 RECENT DISPUTES
According to GON officials consulted, there have been only three
investment disputes relating to foreign investors. One has been
resolved as the two partners involved in the dispute came to an
understanding. Local partners can and do make use of corruption to
contravene both the letter and the spirit of the law.
0 LEGAL SYSTEM
There is an effective means of enforcing property rights as all such
transactions must be registered and property holdings cannot be
transferred without following procedures. Even so, property disputes
account for half of the current backlog in Nepal's court system and such
cases can take years to be settled. Judgments from foreign courts are
not accepted as all judgments must be made in Nepali courts.
There is 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.
Secured interest in property is secured in the Department of Revenue.
Machinery collateral is valid in the courts.
0 ARBITRATION
Arbitration must be carried out in accordance with UNCITRAL rules.
Nepal is a member of the Multilateral Investment Guarantee Agreement
(MIGA). Nepal does not accept international arbitrators. Nepal is not
a member of nor does it plan to become a member of the International
Center for the Settlement of Investment Disputes (ICSID - also known as
the Washington Convention) and/or the New York Convention of 1958 on the
Recognition and Enforcement of Foreign Arbitral Awards.
A5 PERFORMANCE REQUIREMENTS/INCENTIVES
Beyond fulfilling legal requirements as to minimum investment amount,
pollution parameters, restricted sectors, etc., no performance
requirements are imposed on foreign investments in Nepal. There is no
local content or export performance requirement.
In the case of foreign investments, there is no requirement that
nationals own shares, that the share of foreign equity be reduced over
time, or that technology be transferred on certain terms.
0 CONDITIONS ON INVESTMENT
In general, there are no conditions on investment imposed by the GON.
However, industries are being encouraged to locate outside the Kathmandu
Valley due to concern regarding growing pollution and overpopulation in
the capital. The GON expects that most employees will be Nepalese, but
managerial, supervisory, and advisory positions can be filled by
expatriates. Employment of foreigners must be approved by the
Department of Immigration.
Investors are required to disclose proprietary information to the
Government only if they wish to register patent rights.
A6 RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
There are limitations on foreign investment such as requirements for
minimum investment amounts. Foreigners are excluded from investing in
cottage industries, small enterprises, agriculture, alcohol, cigarettes,
defense, and industries which present a health hazard. Foreigners
cannot participate in other than industrial activities which are defined
to include services.
Private entities have the right to acquire and dispose of interests in
business enterprises freely. The GON is moving towards competition
between private and public enterprises. Most of the former public
monopolies in banking, domestic airlines and trade have already been
removed.
A7 PROTECTION OF PROPERTY RIGHTS
The legal system protects property rights. According to Government
officials, patent rights are also protected but the same cannot be said
in general of intellectual property rights in that existing rules are
not effectively enforced.
Patent registration is valid for seven years and can be extended for an
additional seven years for a total of 14 years.
The Copyright Law is 30 years old and does not mention modern forms of
intellectual property such as computer software. The country is not a
party to any major IPR international agreement so foreign works are not
protected unless they have been registered in Nepal.
Trademarks can be registered first for seven years and be renewed
thereafter. There is no obvious problem with trademark infringement.
Original formulas can be patented. Protection of trade secrets is
informal at best.
The computer industry is relatively undeveloped except for small
assembly operations although some firms are engaged in software
development. As mentioned, modern forms of intellectual property are
not recognized in Nepal's present copyright legislation, For example,
there is no protection of semiconductor chip layout design.
A8 REGULATORY SYSTEM: LAWS AND PROCEDURES
The GON has adopted a fairly transparent policy and implemented a number
of laws so as to free up the private sector and foster competition.
There is no discrimination in granting industrial approvals and the
Government has ended many public monopolies.
Tax, labor, health and safety, and other laws and policies to avoid
distortions or impediments to the efficient mobilization and allocation
of investment exist. In particular, health and safety regulations are
included in the Labor Act but they are not properly enforced.
A9 EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT
Credit is allocated on market terms. Foreign-owned companies can obtain
loans on the local market.
The private sector has access to a variety of credit instruments. These
include:
-public issues
-finance companies
-joint venture commercial banks
Legal, regulatory, and accounting systems are not fully transparent and
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 reputation except in a
very few cases where international accounting standards prevail.
There is no regulatory system to encourage and facilitate portfolio
investment in the industrial sector. Only direct investment is
permitted. Stocks for a few industrial firms are listed on the Nepal
Stock Exchange, but foreign individuals and institutions are not yet
permitted to purchase these.
There are no legal provisions with respect to private firm defense
against hostile takeovers.
A10 POLITICAL VIOLENCE
There have been no civil disturbances targeted at foreign investors in
the past five years. However, since the advent of the democratically-
elected government in mid-1991, there have been a number of instances
when domestic political parties have called for nation-wide "Bandh" or
strikes. In 1993, these succeeded in provoking a violent response by
the police and a number of deaths resulted. No deaths have occurred
during mass demonstrations in 1994, however. Thus far in 1995, only a
handful of such strikes were called. While disruptive to normal
commerce and transportation, they have been mainly peaceful with only
minor injuries resulting. Such actions typically result in little or no
damage to private property. However, they have the potential to disrupt
normal commercial activities for one or two-day periods.
SECTION B: BILATERAL INVESTMENT AGREEMENTS
Nepal and the United States signed a Bilateral Investment Treaty (BIT)
in 1960 which was amended in 1963 to permit extended risk investment
guaranties to be provided by the Overseas Private Investment Corporation
(OPIC).
SECTION C: OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS
0 OPIC
OPIC is free to operate in Nepal without restriction due to the
existence of the BIT and the country's low per capita income level. As
noted above, OPIC is empowered to offer its "extended risk guaranty"
facility to prospective U.S. investors in Nepal.
0 MIGA
Nepal joined the Multilateral Investment Guarantee Agency (MIGA) in
1993.
SECTION D: LABOR
Nepal lacks a skilled and educated labor force. The overall literacy
rate is only 33 percent and only 18 percent for females. Vocational and
technical training is poorly developed and the national system of higher
education is severely overtaxed by the large number of students
enrolled. Many secondary and college graduates are unable to find
employment in positions commensurate with their education.
Overall labor relations are relatively good and industrial actions are
infrequent. However, efforts at collective bargaining are often
hampered by unrealistic laws such as the Bonus Act which provides that
workers must receive 10 percent of yearly profits in bonuses regardless
of productivity improvements or lack thereof. The country has a small
but active labor movement. The GON does not interfere in labor
organizing. Organized labor is not actively involved in influencing the
country's receptiveness to foreign investment.
SECTION E: FOREIGN TRADE ZONES
Nepal has not established Export Processing Zones (EPZ). However, any
industry exporting 90 percent or more of its products is entitled to
enjoy facilities as if it were established in an EPZ. 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 sales tax. 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 which must be sufficient to cover applicable
duties.
SECTION F: CAPITAL OUTFLOW POLICY
REPATRIATION
As per the Foreign Investment and Technology transfer Act, 1992, a
foreign investor making investment in Nepal shall be entitled to
repatriate the following amounts outside the Kingdom of Nepal:
a. The amount received by sale of the whole or any part of
the equity investment.
b. The amount received as profit or dividend from the
investment.
c. The amount received as payment of principal and interest
on any foreign loan.
d. The foreign investor or a foreign technology supplier is
also entitled to repatriate the amount received under the
agreement for the technology transfer in such currency as
set forth in the concerned agreement as approved by the
Department of Industry.
A. Foreign national working in any industry with prior approval of the
Department of Labor and who is from a country where convertible foreign
currency is in circulation may repatriate salaries, allowances,
emoluments etc. in convertible currency in an amount not exceeding 75
(seventy-five) percent of such salaries, allowances and emoluments.
To obtain the repatriation facility, the foreign investor or the
technology supplier or the foreign expatriate or the concerned company
must obtain a recommendation from the Department of Industry.
In general, Nepalese are not permitted to invest outside of Nepal.
There are limited exceptions to this policy which must be approved on a
case-by-case basis, mainly having to do with export sales promotion.
SECTION G: FOREIGN DIRECT INVESTMENT STATISTICS
(As of mid-April 1995)
No. of operating firms having foreign investment - 130
No. of firms having foreign investment under construction - 28
No. of licensed firms having foreign investment - 89
No. of firms having foreign investment approved - 7
Total No. of firms - 254.
Total authorized capital - Nrs. 31 billion (US$ 620 million)
Total fixed capital - Nrs. 27 billion (US$ 520 million)
Total estimated foreign investment - Nrs. 6.5 billion (US$ 130 million)
Total employment - 4,800.
Source: Government of Nepal, Industrial Statistics 1994/1995
Note: Official statistics overstate realized direct foreign investment
as they do not measure actual inflows of foreign investment capital.
SECTION H: MAJOR FOREIGN INVESTORS
Based on GON statistics as of July 15, 1994 for operating joint venture
industries in Nepal, the following are the top ten foreign invested
enterprises in Nepal ranked by authorized capital.
TOP TEN OPERATING JOINT VENTURES IN NEPAL
RANKED BY AUTHORIZED CAPITAL
AS OF JULY 15, 1994
RANK NAME SECTOR FOREIGN PARTNER
1. Bhrikuti Pulp & Paper Manufacturing India
2. Nepal Orind Magnesite Mining India
3. Gorakahali Rubber Manufacturing China
4. Jyoti Spinning Mills Manufacturing Philippines
5. Hotel Yak & Yeti Tourism India
6. Mt. Everest Brewery Manufacturing Philippines
7. Soaltee Holiday Inn Tourism USA
8. Nepal Lever Manufacturing India
9. Annapurna Textile Manufacturing India
10. Gorkha Brewery Manufacturing Denmark
In terms of the number of recorded investment interests in operating
joint ventures as of mid-94, India is far and away the most important
foreign investor in Nepal with over 40 percent of the total by number
and involved in five of the ten largest foreign invested enterprises.
Japan is second, the United States third, South Korea fourth, and China
and the United Kingdom tie for fifth place.
CHAPTER VIII. TRADE & PROJECT FINANCING
DOMESTIC BANKING SYSTEM
Two large banks dominate the banking sector. Nepal Bank, Ltd. is 52
percent government-owned. Rastriya Banija Bank is 100 percent
government-owned. The two account for 70 percent of deposits and loans.
In the 1980's, the GON opened commercial banking to foreign joint
venture banks. Local affiliates of Emirates, Indosuez and Grindlays
introduced modern banking techniques and allowed the rapid expansion of
exports of handknotted woolen carpets and ready-made garments. In 1991
the GON eliminated interest rate controls. In 1992, the GON further
liberalized by allowing finance companies. In early 1994, the GON
privatized the Stock Exchange and permitted private brokers. The volume
of trading increased dramatically in the first half of 1994 but has
since fallen, largely due to political uncertainties following the fall
of the Nepali Congress Party Government in July 1994.
FOREIGN EXCHANGE CONTROLS
The Nepali rupee is tied to the Indian rupee which, in turn, has a
managed float against the U.S. dollar (the intervention currency).
There is free convertibility between the two rupee currencies and for
all transactions on the trade account. In 1993, Nepalese were permitted
to hold foreign currency accounts in Nepal for the first time. Foreign
accounts must be declared and taxes paid. Disinvestment remains subject
to GON approval.
GENERAL FINANCING AVAILABILITY
Foreigners are not allowed to purchase shares on the local stock
exchange but can sell shares of firms in which they were the promoters.
Banks are only willing to lend short term but will consider loans with
terms up to five years. The total amount of outstanding loans to the
private sector is currently just over US$ 600 million. Bank limitations
and lack of sufficient liquidity make it difficult to borrow in excess
of US$ 20 million from the entire banking system, plus possibly another
US$ five million via the stock exchange.
HOW TO FINANCE EXPORTS/METHODS OF PAYMENT
The preferred method of financing exports is Letter of Credit (L/Cs)
with experimentation taking place on rolling L/Cs and other instruments.
Agreements with the United States Export-Import Bank are in place as are
MIGA, OPIC, and numerous bilateral arrangements. The World Bank and the
Asian Development Bank are active, both taking equity participation and
making loans to local companies.
PROJECT FINANCE
The U.S. Export-Import Bank can lend to both the private and public
sectors in Nepal but has not had any recent requests for its services.
Both the World Bank and the Asian Development Bank are active in lending
for development activities including infrastructural projects such as
roads, telecommunications, and hydroelectric power.
BANKS WITH CORRESPONDENT BANKING ARRANGEMENTS
Nepal Bank Limited
Mr. Purusottam Bahadur Pandey, General Manager
Nepal Bank Bldg., Dharma Path
Kathmandu, Nepal
Phone: 223790
Fax: 977-1-222383
Rastriya Banijya Bank
Mr. Guru Prasad Neupane, General Manager
Tangal
Kathmandu, Nepal
Phone: 413422/411164
Fax: 977-1-414256
Himalayan Bank Ltd.
Mr. Prithvi Bahadur Pandey, Executive Director
Tridevi Marg, Thamel
Kathmandu, Nepal
Phone: 418665/225399
Fax: 977-1-222800
Nepal-Arab Bank Limited
Mr. S.C. Kabadkar, Executive Director
Kanti Path
Kathmandu, Nepal
Phone: 228549/227181
Fax: 977-1-226905
Nepal Grindlays Bank Limited
Mr. J. F. Murray, General Manager
Naya Banashwor
Kathmandu, Nepal
Phone: 228474/229333
Fax: 977-1-228692
Nepal Indo-Suez Bank Limited
Mr. Michel Courzaret, Chief Executive Director
Durbar Marg
Kathmandu, Nepal
Phone: 227228/228299
Fax: 977-1-226349
Nepal SBI Bank Limited
Mr. Aditya Bikash Chakrabarty, Managing Director
Durbar Marg
Kathmandu, Nepal
Phone: 225326/230808
Fax: 977-1-221268
Nepal-Bangladesh Bank Ltd.
Mr. Kazi Khalilur Rehman, Managing Director
Ramrukmani Sadan, Ramshah Path
P.O. Box 9062
Kathmandu, Nepal
Phone: 421568/419297
Fax: 977-1-410644
Bank of Kathmandu Ltd.
Mr. Chanrit Youngcharoen, General Manager
Kamal Pokhari, P.O. Box 9044
Kathmandu, Nepal
Phone: 418068
Fax: 977-1-418900
Everest Bank Limited
Mr. Bramha Dutta Dixit, Chief Executive
Naya Baneshwor
Kathmandu, Nepal
Phone: 214878/233122
Fax: 977-1-270986
IX BUSINESS TRAVEL
BUSINESS CUSTOMS
----------------
The main language is Nepali. However, most businessmen can speak both
Hindi and English. A common way of greeting everyone is "Namaste"
(Hello), pronounced "NA-MAS-TAY." A majority of the population follows
the Hindu religion. The unique feature of Nepalese society is its
ethnic, linguistic, and cultural diversity. The people are divided into
a number of ethnic groups but all are of Indo-Aryan and Tibeto-Burman
origin. Traditional and conservative in nature, the Nepalese are very
hospitable people and take great pride in their national heritage.
TRAVEL ADVISORY AND VISAS
Nepal is a developing country with extensive facilities for tourists
which vary in quality according to price and location.
A passport and visa are required for entry. A tourist visa for a stay
of up to 60 days is issued at ports of entry upon arrival. The fee for
the tourist visa varies with the number of entries and duration of stay
requested. Visas can be routinely extended in Kathmandu and Pokhara for
stays of up to four months. A fifth month requires special approval.
Penalties for overstaying a visa may include fines and imprisonment.
Travelers can obtain additional information by contacting the Royal
Nepalese Embassy at 2131 Leroy Place, N.W., Washington, D.C. 20008
Telephone (202) 657-4550 or the Nepalese Consulate General in New York
at Telephone (212) 370-4188.
Public demonstrations and strikes are popular forms of political
expression in Nepal and may occur from time to time on short notice.
These demonstrations are usually nonviolent and not directed towards
foreigners. During general strikes, many businesses are closed, and
transportation and city services are sometimes disrupted.
Medical care is extremely limited. Any serious illness may require
evacuation to the nearest adequate medical facility (usually Bangkok).
Doctors and hospitals expect immediate cash payment for health services.
In general, U.S. medical insurance is not valid in Nepal. Supplemental
health insurance which specifically covers overseas treatment and
evacuation to the nearest adequate medical facility is useful.
Additional information on health problems can be obtained from the
Center for Disease Control's International Traveler's Hotline at (404)
332-4559.
Petty crime, especially theft of personal property, is common. While
acts of violent crime in Nepal are rare, several attacks against lone
foreign trekkers have been reported. The loss or theft of a U.S.
passport abroad should be reported immediately to local police and the
U.S. Embassy. Useful information on safeguarding valuables, protecting
personal security and other matters while traveling abroad is provided
in the Department of State pamphlets, "A Safe Trip Abroad" and "Tips for
Travelers to South Asia." They are available from the Superintendent of
Documents, U.S. Government Printing Office, Washington, D.C. 20402
U.S. citizens are subject to the laws and legal practices of the
countries in which they are traveling. Penalties for possession, use or
trafficking in illegal drugs are strictly enforced. Convicted offenders
can expect jail sentences and fines.
There have been sporadic reports of difficulties in crossing the border
from Nepal to Tibet by land. U.S. citizens planning to travel into
Tibet overland from Nepal may contact the U.S. Embassy in Kathmandu for
current information on the status of the border crossing points.
U.S. citizens who register at the U.S. Embassy in Kathmandu can obtain
updated information on travel and security in Nepal.
HOLIDAYS
0 National holidays (1995)
Krishna Asthami 17 August
Indra Jatra 8 September
Ghatasthapana 25 September
Dashain 1-7 October
Tihar 23-25 October
Constitution Day 9 November
H.M. King's Birthday 15 January
0 National holidays (1996)
Prithvi Jayanti 11 January
Basanta Panchami 25 January
Martyr's Day 30 January
Shiva Ratri 17 February
Democracy Day 19 February
Fagu 4 March
Ghode Jatra 19 March
Chaite Dashain 27 March
Ram Nawami 28 March
New Year's Day 13 April
Buddha Jayanti 3 May
Janai Purnima 28 August
Gai Jatra 29 August
Krishna Asthami 4 September
Indra Jatra 26 September
Dashain 18 - 25 October (8 days)
Constitution Day 7 November
Tihar 10 - 12 November (3 days)
H.M. King's Birthday 15 January
NOTE. Exact dates for holidays are announced by the Government at the
beginning of each Nepali year (mid-April).
BUSINESS INFRASTRUCTURE
The country has only some 10,000 kilometers of motorable roads so
surface travel is difficult, especially so during the June - September
rainy season known as the "monsoon." In addition to national carrier
Royal Nepal Airlines Corporation, six private firms offer both
helicopter and fixed wing air service within the country to a number of
locations. International calls and fax facilities are readily
available. AT&T service is not. Nepal has a wide variety of hotels
ranging from five-star to budget; it is also possible to rent apartments
and homes. The most prevalent illnesses encountered by foreign visitors
are respiratory infections, allergies, and gastrointestinal illnesses
due to ingesting contaminated food and water.
X. APPENDICES
APPENDIX A: COUNTRY DATA
Nepal's population is estimated at about 20 million and it is growing at
2.5 percent a year. The main religions are Hinduism (87 percent),
Buddhism (eight percent), and Islam (four percent). The Muslim
population is concentrated in the southern Terai district. There is a
small number of Christians in the country. Nepal is a multi-party
democracy with two houses of Parliament and a constitutional monarch.
The lower house is elected via direct elections and the upper is either
appointed or elected indirectly. The main language is Nepali which is
closely related to Hindi. English is also spoken in the urban areas and
is popular for business dealings. The work week is Sunday through
Friday. Business hours are generally 10-4 (10-3 on Friday) for
government offices with no lunch break and two tea breaks. Saturday is
the day of rest.
APPENDIX B: DOMESTIC ECONOMY
ECONOMIC INDICATORS - NEPAL
(In millions of U.S. dollars unless otherwise noted
and for Nepali fiscal years ending July 15)
GENERAL INDICATORS
Category 93/94 94/95 95/96
GDP 3,898 4,202 4,614
GDP Growth Rate 7.8 4.0 4.5
GDP Per Capita 200 210 221
Govt Spending (pct GDP) 18 20 21
Inflation (Pct-CPI) 9.6 7.0 8.0
EXTERNAL SECTOR
Foreign Exchange Reserves
(months of import Cover) 9.0 10.0 8.3
Avg Exchange Rate (for US$) 49 50 51
Foreign Debt (end CY) 1930 2400 2808
Debt Service Ratio (pct exp) 17 18 20
Avg Exchange Rate (NRP/US$) 49 51 52
U.S. Assistance 16 14 27
APPENDIX C: TRADE
Exports (F.O.B.) 400 302 370
Imports (C.I.F.) 1,090 1,237 1,552
U.S. Exports 9 10 12
U.S. Imports 92.2 110 128.7
US share of Imports (pct) 0.9 0.8 0.9
US share of Exports (pct) 23 24 25
MAIN NEPAL EXPORTS: Handknotted woolen carpets, ready-made garments,
soap products.
MAIN NEPAL IMPORTS: Wool, machinery and transport equipment, chemicals
and drugs.
Note. U.S. exports to Nepal are understated due to extensive
transshipment and distribution via Singapore and Hong Kong.
APPENDIX D: INVESTMENT STATISTICS
See Chapter VII, Sections G and H
APPENDIX E: U.S. AND COUNTRY CONTACTS
U.S. EMBASSY TRADE-RELATED CONTACTS
ATTN: Peter Gadzinski ATTN: Siddi Amatya
Economic/Commercial Officer Commercial Specialist
U.S. Embassy Pani Pokhari Kathmandu, Tel: 977-1-411179; Fax: 977-1-
419963, Internet : PETER.GADZINSKI@DOS.US-STATE.GOV
U.S. Mailing Address: U.S. Embassy Kathmandu,Department of State
Washington, D.C. 20521-6190
BILATERAL CHAMBER OF COMMERCE
Nepal - U.S. Chamber of Commerce and Industry (NUSCCI)
Tel : 977-1-474991,Fax : 977-1-474990
ATTN: Narendra Basnyat, President
NEPAL TRADE AND INDUSTRY ASSOCIATIONS
Federation of Nepalese Chambers of Commerce & Industry:
Tel: 977-1-233302, 230407, Fax: 977-1-227322
Cargo Agents Association of Nepal: Tel: 977-1-419019
Fax: 977-1-419858
Central Carpet Industries Association of Nepal: Tel: 977-1-413135,
Freight Forwarders Association of Nepal
Tel: 977-1-411764
Garment Association of Nepal: Tel: 977-1-223173
Hotel Association of Nepal: Tel: 977-1-412705
Fax: 977-1-415984
Management Association of Nepal: Tel: 977-1-224475
National Association of Travel Agents
Tel: 977-1-411764
Nepal Foreign Trade Association
Tel: 977-1-223784, Fax: 977-1-228562
Women Entrepreneurs Association
Tel: 977-1-525031, Fax: 977-1-411277
NEPAL GOVERNMENT OFFICES
Ministry of Commerce, Babar Mahal, Kathmandu
Tel: 977-1-223489, 224805, Fax: 977-1-225594
Ministry of Finance, Hari Bhawan, Kathmandu
Tel: 977-1-224527, 223280, Fax: 977-1-227529
Ministry of Industry, Singha Durbar, Kathmandu
Tel: 977-1-226686, Fax: 977-1-220319
Ministry of Tourism & Civil Aviation, Singha Durbar, Kathmandu
Tel: 977-1-225870, 28840, Fax: 977-1-227758
Ministry of Information & Communications, Singha Durbar, Kathmandu, Tel:
977-1-227525, Fax: 977-1-221729
Trade Promotion Center, Kupundole, Kathmandu
Tel: 977-1-524771, 524772, Fax: 977-1-521637
Department of Industry, Tripureshwor, Kathmandu
Tel: 977-1-213880, 213838, Fax: 977-1-226112
Department of Commerce, Bijuli Bazar, Kathmandu
Tel: 977-1-227364, 227404
Department of Immigration, Tridevi Marg, Thamel, Kathmandu
Tel: 977-1-412337, 418573
Company Registrar's Office, Tripureswor, Kathmandu
Tel: 977-1-217293, 212702
MARKET RESEARCH FIRMS
S.R. Shrestha & Co. (P) Ltd.
Mr. Shiva Raj Shrestha, Managing Director
Jawalakhel, Lalitpur, Tel: 977-1-522641
Fax: 977-1-522641
Group Three (P) Ltd.
Research and Marketing Division
G.P.O. Box 6227
Kailash Kuli, Kalikasthan
Kathmandu
Tel/Fax: 977-1-221594
Himalayan International Marketing Associates (P) Ltd.
Mr. Sidharth Malhotra, Consultant
Tripureswor
Kathmandu, Nepal
Phone: 212409/415006
HIMAL, Tripureshwor, Kathmandu
Tel: 977-1-212409
Fax: 977-1-226293
Human Resource & Development Center (HURDEC)
Tel: 977-1-222685
Fax: 977-1-222809
ICTC, Thapathali, Kathmandu
Tel: 977-1-227694
Fax: 977-1-227766
COMMERCIAL BANKS
Nepal Bank Ltd., Dharma Path, Kathmandu
Tel: 977-1-221185, 224337
Fax: 977-1-222383, 221337
Rastriya Banijya Bank, Tangal, Kathmandu
Tel: 977-1-411164, 410852
Fax: 977-1-414256
Nepal Arab Bank Ltd. (NABIL), Kantipath, Kathmandu
Tel: 977-1-227181, 226785
Fax: 977-1-226905
Nepal Grindlays Bank, Kantipath, Kathmandu
Tel: 977-1-228474, 229333
Fax: 977-1-228692
Nepal Indo-Suez Bank, Durbar Marg, Kathmandu
Tel: 977-1-228229, 227228
Fax: 977-1-226349
Himalayan Bank Ltd., Thamel, Kathmandu
Tel: 977-1-418665, 225399
Fax: 977-1-222800
Nepal SBI Bank, Durbar Marg, Kathmandu
Tel: 977-1-225326, 214152
Fax: 977-1-221268
Everest Bank, Ltd., Durbar Marg, Kathmandu
Tel: 977-1-214878, 233122
Fax: 977-1-270986
Nepal Bangladesh Bank, Ramshah Path, Kathmandu
Tel: 977-1-419297, 421568
Fax: 977-1-410644
Bank of Kathmandu, Kamal Pokhari, Kathmandu
Tel: 977-1-418068
Fax: 977-1-418900
COMMERCIAL BANK REPRESENTATIVE OFFICES
Standard Chartered Bank., Durbar Marg, Kathmandu
Tel: 977-1-220129
Fax: 977-1-220129
Union Europeenne De CIC, Durbar Marg, Kathmandu
Tel: 977-1-227071
Fax: 977-1-228339
Citibank, Hotel Yak & Yeti, Kathmandu
Tel: 977-1-228884, 413999
Fax: 977-1-227884
American Express Bank Ltd., Kantipath, Kathmandu
Tel: 977-1-229053, 214926
Fax: 977-1-228837
MULTILATERAL DEVELOPMENT BANKS
The World Bank, Hotel Yak & Yeti, Kathmandu
Tel: 977-1-226792, 226766
Fax: 977-1-225112
The Asian Development Bank, Srikunj, Kamaladi, Kathmandu
Tel: 977-1-220305, 229091
Fax: 977-1-225063
The Multilateral Development Bank Office
Brenda Ebeling, Director
14th and Constitution, NW, Washington, DC 20007
Tel: 202-482-3399
Fax: 202-482-5179
WASHINGTON CONTACTS
Nepal Desk
Bureau of South Asia
ATTN: Elaine Papazian-Etienne
U.S. Department of State, Washington D.C.
Tel: (202) 647-2141
Fax: (202) 647-3001
Nepal Desk, Office of South Asia
Room 2308
U. S. Department of Commerce, Washington D. C.
Tel: (202) 482-2954
Overseas Private Investment Corporation (OPIC)
Insurance Department
ATTN : David O'Hanian
1100 New York Avenue, N. W.
Washington D. C. 20571
Tel: (202) 336-8584, Fax: (202) 337-7954
U. S. Export-Import Bank
Asia Division
ATTN: Regional Loan Officer Rita Murrell
811 Vermont Avenue, N. W.
Washington D. C. 20571
Tel: (202) 566-4632, Fax: (202) 337-7954
TPCC Trade Information Center
Washington, DC
Tel: 1-800-USA-TRADE
US Department of Agriculture
Foreign Agricultural Service
Trade Assistance and Promotion Office
Tel : 202-720-7420
APPENDIX F: MARKET RESEARCH
"Guide to Doing Business in Nepal," August 1995
"Nepal's Energy Sector"
"Civil Aviation in Nepal"
APPENDIX G: TRADE EVENT SCHEDULE
INFO-TECH '96
Sponsored by the Computer Association of Nepal, this event proved highly
popular in its debut in January of 1995. To be held again in Kathmandu,
the show features computer hardware and software from the United States.
Himalayan Expo '96
This event will be held in Kathmandu May 4-8, 1996 and is organized by a
local promoter. Next year's event is to be trade-only but will be a
horizontal event in that a number of products will be featured.
Himalayan Expo is the only business event of its kind in Nepal and is
gaining stature as a regional trade show. In 1994 and 1995, the Embassy
sponsored highly successful USA Pavilions at the show.
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