16 May 2016
Major Economic Indicators
- Nepal is a landlocked Himalayan country sandwiched between China and India. It maintains close relations with the two countries, especially with regard to infrastructure investment. Its hilly topography, however, poses a significant challenge to the improvement of transportation facilities within the country. One of the world’s poorest countries, Nepal abolished its monarchy in 2008 and adopted a multi-party republic system. A number of massive earthquakes struck the country in early 2015, with consequences still having an adverse effect on the Nepalese economy. Currently reconstruction costs are estimated at more than US$10 billion, nearly half of the country’s GDP.
- Agriculture is the major economic sector for the country, contributing some 30% of GDP while employing 80% of Nepal’s working population. Tourism, once a key economic driver that accounted for 10% of GDP, is now facing uncertain prospects given the destruction of many tourist attractions by the earthquakes. Foreign aid and remittances from Nepalese overseas workers remain important in terms of helping Nepal’s external position in the face of the reconstruction costs.
- India is Nepal’s leading trading partner, and the Nepalese Rupee is pegged to the Indian Rupee. Nepal and India renewed their trade treaty in 2009, and half of Nepal’s exports are sent to India, with the EU and China the most significant destinations. Textile articles, including carpets, account for some 35% of the country’s total exports. Nepal’s major imports include fuel, machinery and vehicles, mostly from India and China.
- The Chinese government, under its Belt and Road Initiative, is proposing a China-Nepal-India economic corridor in order to enhance connectivity and trade in the region. The Chinese media has reported that China is considering a number of ambitious regional rail schemes, including a proposal for constructing a rail link to Nepal via a tunnel under Mount Everest. While India is Nepal’s largest FDI source, China is fast catching up. In July 2015, Nepal approved a US$360 million investment by China’s Hongshi Holdings. This will establish as joint venture cement factory in the country.
- Nepal acceded to the WTO in 2004, and is a founding member of the South Asian Free Trade Area (SAFTA) and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Co-operation. In March 2016 China and Nepal signed an MOU to launch a joint feasibility study on FTA. Besides, an agreement on providing Nepal access to Chinese sea ports was also signed.
- Investment Board Nepal (IBN) is the government agency for promoting FDI and thereby the Nepalese economy. FDI projects in hydropower, agriculture, information technology and tourism are encouraged. More information on the investment rules and incentives in Nepal can be found on the IBN website.
- Nepal’s cumulative FDI was US$541 million as at end-2014, with India and China being the major sources. According to statistics of China’s Ministry of Commerce, Chinese cumulative FDI in Nepal was US$138.3 million as at end-2014.
More information on the Belt and Road countries’ economic and investment environment, tax and other subjects that are important in considering investment and doing business are available in The Belt and Road Initiative: Country Business Guides.