Nepal: Market Study - RVO

1 Nepal: Market Study Identifying Foreign Direct Investment Opportunities in Nepal Commissioned by the Netherlands Enterprise Agency Nepal: Market Study Identifying Foreign Direct Investment Opportunities in Nepal 1 DISCLAIMER The information included in this report is for information purposes only and may not reflect the most current legal developments, ad justments, or settlements. Thisinformation is not offered as legal or any other advice on any particular matter. Thecontributing authors expressly disclaim all liability to any person in respect of anything,and in respect of the consequences of anything, done or omitted to be done wholly orpartly in reliance upon the whole or any part of the contents. No reader should act orrefrain from acting on the basis of any matter contained in this report without first seeking the appropriate legal or other professional advice on the particular facts andcircumstances.

2 AcknowledgmentsThis report has been commissioned by Rijksdienst voor Ondernemend Nederland andhas been prepared with the generous and kind support of the following individuals and organisations: Pepijn Trapman, Consul for The Netherlands in NepalKari Cuelenaere, Consular Officer for The Netherlands in NepalKhagendra Bahadur Basnet, Director, Department of IndustryMim Himal, Trade Officer, European External Action ServiceStrahan Spencer, Senior Economic Advisor, DFID NepalRabi Rayamajhi, Economic Advisor, DFID NepalRam Khadka, Economic Advisor, DFID NepalSagun Shrestha, Business Development Manager, British CouncilManbar Singh Khadka, Economics Officer, ADBA njan Panday, Economics Officer, ADBR atish Basnyat, Senior Manager, Office of the Investment BoardPragya Adhikari, Project Manager, Office of the Investment BoardSuvechha Nepal, Officer, Office of the Investment BoardWillem Grimminck, Director, One to WatchDouglas MacLagan, Consultant, Vocational Education & HospitalityMohan Giri, Director, Inspire NepalToby Muller, Consultant, Construction SectorRichard Bonokoski, Consultant, Vocational Education PolicyAvash Pandit, Attorney at Law Associate.

3 Gandhi and Associates Publication Date: 1 May 2018 2 Acronyms ADB ADR ADS BBA BFI Asian Development Bank Alternate Dispute Resolution Agricultural Development Strategy Bachelors of Business Administration Bank and Financial Institutions ICT ILO IPR IT JV Information and Communication technology International Labour Organisation Intellectual Property Rights Information technology Joint Venture BPO BRI Business Process Outsourcing Belt and Road Initiative LDC LoI Least Developed Country Letter of Intent CAC CBS Capital Account Convertibility Central Bureau of Statistics MAP MBA Medicinal and Aromatic Plants Master of Business Administration CEO Chief Executive Officer MFN Most Favoured Nation CIA CPN CRO CSR CTEVT Central Intelligence Agency Communist Party of Nepal Company Register Office Corporate Social Responsibility Council for Technical and Vocational MIGA MoF MoU NITS Multilateral Investment Guarantee Arrangement Ministry of Finance Memorandum of Understanding

4 Nepal Trade Integation Strategy DANIDA DFID DoI EBA FDI FI FITTA FMCG FY GCC GDP GIZ GoN GSP HEP IBN Training Danish International Development Agency Department for International Development(UK) Department of Industry Everything But Arms Foreign Direct Investment Foreign Investment Foreign Investment and technology TransferAct Fast Moving Consumer Goods Financial Year Gulf Cooperation Countries Gross Domestic Product German Development Agency Government of Nepal Generalised System of Preference Hydro Electric Project Investment Board Nepal NRB NTFP PDA PPP REE RPP RVO SAFTA SEZ SME TSLC UGC UML USAID WIPO WTO Nepal Rastra Bank Non-Timber Forest Products Project Development Agreement Public Private Partnership Research, Education, Extension Rastriya Prajatantra Party Rijksdienst voor Ondernemend Nederland South Asian Free Trade Agreement Special Economic Zone Small and Medium Enterprise Technical School Leaving Certificate University Grant Commission United Marxists Lenonist United States Aid World Intellectual Property Organisation World Trade Organisation 3 EXECUTIVE SUMMARY The Netherlands Embassy in Delhi and RVO are interested to know more about theopportunities that could contribute to the development of the private sector in Nepal in relation to Dutch expertise.

5 Due to the limited Dutch official presence in the country too little is known about the challenges and opportunities in Nepal. Especially after theearthquake in April 2015 the country faces a lot of challenges and it is expected thatDutch expertise can be of added value. Due to political instability, aggravated by the earthquake of 2015, there is a weakenabling environment for businesses, although that environment is positively challenge of this report is to indicate sectors where: Nepali entrepreneurs are active and can be strengthened without relying on aweak government Where Dutch expertise can make a difference to skills and industry development Where opportunities exist for Dutch businesses to invest in Nepal. The world s two largest populations with vibrant economies share opening trade borders with Nepal. Increasing ease of trade, open border policies and infrastructuredevelopment all indicate a very strong growth potential, both within and through Nepal.

6 When viewed historically, acting as an arbitrage agent between India and Ch ina hasalways been Nepal s key economic strength, this is an environment in which Dutch companies are used to operating. Potential investment opportunities and Market interventions exist in a broad range ofsectors. Throughout all of them there are three constant factors: 1. The impact of political instability 2. Potential bureaucratic delays 3. Developing an adequately skilled workforce Negating and offsetting these factors requires an intimate understanding of theoperating environment and appropriate commercial adeptness. Although Nepal isbecoming an easier place in which to do business, it is by no means simple. This report represents an overview of potential opportunities and thorough examination of Market entry and expansion strategies is recommended be fore taking further steps. 4 Sector Summary Overall Risk & Barriers to Entry* Market Opportunity Attractiveness** Low Medium High Low Agriculture Fertiliser & Seeds Cardamom Agriculture Honey Education Research Centres Health pharmaceutical Industry Ayurvedic Centres &Medications Banking, Finance & Insurance Microfinance Insurance Energy Hydropower Transmission System Transportation Roads Medium Agriculture Vegetables Floriculture manufacturing FMCGs Garments & Textiles Agriculture: Ginger Coffee Construction Construction and Engineering Centres Hospitality Health Health Care Facilities & Equipment Construction Building Materials ICT Communication services Transportation Airports Rail High Agriculture Infrastructure,Machinery, Tools & technology Education Vocational Education Health Education Services Tourism Event Managementand Infrastructure Agriculture.

7 NTFP & MAPs Tea Health Aged Care ICT IT services Tourism Tourism Infrastructure * Note: This document does not disclose all risks and barriers to entry that could affectsectors and investment strategies. It is highly recommended that potential investors complete a comprehensive feasibility and risk disclosure Study before investing inNepal.** Note: This document does not disclose all Market opportunities and it is recommended that potential investors should thoroughly research Market depth, scopeand profitability before investing in Nepal. 5 Agriculture There are extensive Market opportunities in agriculture production: processing,packaging and branding in non-timber forest products, cardamom, ginger,aquaculture, vegetables, floriculture, tea, coffee, honey and high value productsfor the tourism and hospitality industry and export. There are good op portunities in input markets such as for seeds, nurseries,fertilisers, agricultural infrastructure and technology , and agriculture financing.

8 Nepal also offers potential in export-enabling infrastructure includingtransportation, storage (dry and cold) and laboratory testing facilities, includingphyto-sanitary testing. Banking, Finance and InsuranceOpportunities in this sector are limited but show enormous potential: There are excellent growth opportunities in micro-finance helping finance entrepreneurs across the country and building trust in financial systems (see also agriculture finance) Insurance also offers extraordinary growth potential catastrophic risk insurance, home and contents and general business insurance Construction The scale of needs in the construction and housing sector mean that Public-Privatepartnerships are an ideal investment vehicle. Building materials clay bricks and cement Building and engineering schools and education centres Hospitality heritage building renovation to hotels and business centres Education Vocational education - Hospitality and tourism, construction and engineering, agriculture, IT, banking and finance, management consulting (general businessmanagement, quality assurance and governance) Health education Services - nursing and aged health care, health management and administration staff Opportunities exist in developing education infrastructure, including upgradingand building educational institutions and even education cities (medical, IT,engineering, management, etc), for which the government is seeking to engagein private-public partnerships, research centres including laboratory testingfacilities for agriculture (phyto-sanitory, export standards for processing andpackaging), construction materials, energy systems and textiles.

9 Energy Hydropower Nepal has an enormous potential hydro-power generation capacity from large to small scale locations. Transmission systems Opportunities exist in developing national and local (micro-grid) transmission systems Solar wind, biomass and geothermal small scale interventions aligned with light manufacturing in SEZ areas and micro-grids offer good opportunities forinvestment. Health and Aged Care In terms of pharmaceuticals, there are persistent shortages of quality medicines in the Market presenting opportunities for manufacturers and importers of pharmaceutical goods. Health Care Facilities improving technology and services, especially through public-private partnerships and developing aged care facilities. 6 Aged Care providing facilities for Nepali and foreign retirees as well as training aged-care staff for domestic and international work placements offer excellent investment opportunities.

10 Internet and Communication TechnologiesThe ICT sector exhibits a number of investment opportunities, the most obvious include: Communication Services: opportunities exist in telecommunications, InternetService Providers, Online Payment and Infrastructure Services. Internet technology Enabled Services (ITES) and Business Process Outsourcing(BPO), including Data Centre management all offer good investment opportunities. manufacturing : FMCG, Industrial and Consumer GoodsNepal s manufacturing sector is rich in potential, both for large-scale projects and innovative small-scale projects. Although Nepal is primarily an agricultural country,various initiatives are being taken to stimulate the manufacturing sector, which the GoNbelieves is crucial to the country s economic development. The combination of access toa growing domestic Market , enormous neighbouring markets and various incentivesand facilities make Nepal an attractive investment destination. Some of the most viableareas are: Fast moving consumer goods -Food and beverages including sugar, grains, millproducts, oils and fats, dairy products, soft drinks, spirits and beer.