Trade policy

The government announced the trade policy

in 1992. The intention of this policy is to

enhance the trade sector to the national
economy of the country. The intention of the
policy is to promote internal & international
trade & to increase the participation of the
private sector by increasing an open & liberal
atmosphere.

Objectives of the trade policy

in 1992.
Promoting internal & international trade with
increased participation of private sector.
Diversify trade by identifying, developing &
producing new exportable products through the
promotion of backward linkages for making
export trade competitive and sustainable.
Expand trade on a sustained basis through
gradual reduction in trade imbalance.
Coordinates trade with other sectors by

expanding employment- oriented trade.

Components of trade policy:

Basic policy
Import policy
Export policy

Employment & Labor policy-1999

Employment & labour policy is one of the major
policy taken by the government as part of on
going economic & social reforms. Nepal
government passed this policy to create
conditions for the protection of labour from
un fair employment practices & to provide a
legal frame work through which industrial
relations are to be regulated.

Parts of labour policy

Labour relations
Employment generation & human resource

development.
Wages, discipline, skill development, labour
laws & social security are the foundation of
this policy.

Highlights of the policy

Promote the climate of labour management

relations.(Improve harmonious industrial relation)

End exploitable labour system like kamaiya
&Haligothala.
Self employment campaign will be expanded.
The employers who enhance the skills of the workers
will be given tax incentives.
Traditional Nepalese skills will be increased by
promoting such skills.
Emphasis will be laid to increase access of women in
skill development & training by conducting programes
to educate them.
Employment exchange & information collection
programes will be made more systematic.

 Necessary steps will be taken to establish an

autonomous institution for promoting foreign

employment & making it reliable.
Labourers working in non organised sector will be
provided an environment to be organised.
Programes will be conducted for increasing workers
understanding of policy issues of national
importance, for raising their awareness about their
rights & duties ,& for making them conscious
through the massive extension of labour education
registered trade unions & associations.
Programes for increasing participation of workers
in management will be implemented.

Tourism policy -2009

Nepal has tremendous potential for tourism

development because of its unique natural

and cultural heritage.

Objectives of tourism policy

To create self-employment opportunity for the rural

people &reduce the level of poverty through the

extension & diversification of the tourism sector.
To develop Nepal as an attractive tourist destination
with the exploration, protection & promotion of the
natural, cultural, biological,& man- made national
heritages of the country.
To expand and promote tourism sector by providing
dependable, safe & accessible network of air & land
transport facilities.
To make the sustainable use of natural resources for
tourism development keeping in view the adverse
effects of tourism on environment.

Policies & strategies

Diversify Nepals tourism products & services & taken tourism to new areas.
Encourage rural communities to launch various programs that contribute to
the growth & promotion of rural tourism.
Initiate promotional activities in the tourist generating locations in
partnership with the private sector.
Formulate new strategy for the promotion of domestic, regional as well as
international tourism.
Activate the Nepal tourism board to implement these strategies.
Conduct air services agreements with additional countries for the promotion
of tourism.
Encourage the private sector to participate in human resources development
activities and also in the qualitative development of tourism business.
Apply the information technology to commercialize tourism business.
Upgrade the quality of tourist services and facilities and make Nepal a secure
place for tourists.

Liberalization: Economic
reforms & Structural
Economic liberalization refers to a country opening up to
Adjustments

the rest of the world with regard to trade, regulations,

taxation,less restrictions on both domestic &foreign
capital,open market & other areas that generally affect
business in the country. Liberalization usually refers to
fewer government regulations & restrictions in the
economy with the participation of private sectors. Today all
deve loped countries of the world have already gone
through this liberalization process. In developing countries
liberalization is in the form of delicensing, removal of
barriers to international trade & invest ment, unrestricted
flow of capital, stock market development freedom to
transfer licenses & assets,simplified tax structure &
procedurs.

Liberalization of the Nepalese

economy
Nepal started economic reform programmes

supported by the IMF & the world bank from

1985. The structural adjustment programs
covered areas like subsidies, the price
environment & the public sectors.

Aims of the liberalization

To modernize the industrial system.
Reduce unproductive controls.
Strengthen private invest ment & foreign

investment.

Mechanisms followed for

economic liberalization

Internal liberalization i.e. deregulation , de licensing

& adjustment of subsidies , taxes &administered

prices.
External liberalization with the spirit & norms of free
trade in a global economy.
Privatization of public enterprises as a part of the
process of down sizing the bureaucracy, relieving
the government of unnecessary burden from lossmaking pes.
Involvement of private sector in economic activities
of all kinds.

Monetary policy
The central bank attempts to achieve economic

stability, growth, full employment, inflation,

favorable balance of payment and so on.
Management of quantity of money in circulation,
the availability of credit, and the composition of a
countrys debt. Monetary policy refers to all the
actions of the central bank of a country which affect
directly or indirectly, supply of money, credit, rate of
interest and the banking system. The three
instruments in order to implement the monetary
policy are : (a)open market operation (b) reserve
requirements, and (c) the discount window.

Types of monetary policy

Restrictive policy: This policy seeks to raise

the rate of interest, reduce money supply

growth rate & restrict the flow of credit & is
generally aim to fight inflation.
Liberal policy: It is generally meant to fight
recession & stimulate demand through credit
liberalization, monetary expansion & fall in
the rate of interest.

Monetary policy-2011
NRB announced monetary policy in 2011 to

address the problem of slowdown the

economy . The monetary policy focused the
inflationery expections foreign exchange
reserve, external & financial secter stability so
as to create the environment supportive for
high & sustainable economic growth.

Features of the monetary

policy

The CRR has been reduced to 5% from 5.5%.

The balance of payment surplus has been targeted at Rs 5 billion
The foreign exchange reserve to be .maintained at least 6 months of import
The targets are set for broad money supply (12.5%); domestic credit growth(13.7%) ; credit growth
to private sector (14%);& bank deposit growth(13%).
Bank rate remains unchanged at 7%.
NRNs are allowed to open dollar account.
Foreign exchange facility has been raised to US$2500 at one instant & up to $5000 in a year by
showing relevant documents.
The commercial, development bank &financie cos. Would need to lend 3.5%,3% &2.5%
respectively of their total loan portfolio to the deprived sector. would be permited to issue loans
in foreign currency in priority sectors like hydropower & infrastuture.
Legal actions would be taken against borrowers who use loans , taken for stated purpose , to run
differe nt un productive businesses.
Loans of Rs 1.5 million would be given to micro finance institutions at gero interest rate if they
open branches in 9 remort districts.

Effects of
liberalization:Emerging
Business firms in Nepal
operated under conditions
of state
regulation &
business
environment
in
Nepal.
protection for a long time. The decade of 1990s changes in Nepals

business environment. Some of the development s that occurred in

Nepal during this period were as follows:
Open market liberalization & deregulation forced the entire business
community in to freedom & competition.
Privatigation of major public enterprises changed the economy. The
economy favours the private sector.
Consumers & environmentalists started exerting pressure on business
firms.
Human rights, protection of the interest of the minority groups, &
women empowerment issues became prominent..
Joint venture activities grew in the country.
WTO pushed the process of globalization &trade liberalization.
The new economic polices &reforms have affected all the sectors of the
economy

A synopsis of the emerging

business in Nepal is :

Appearance of multinational companies.

Free enterprize system: Many opportunities have now been created with the change in business
environment arising from reforms. Enterpreneurs can focus their attention on the setting up
industries of their choice. They are free to make their own investment decision,freedom to raise
capital, with in the country as well as abroad.
Growth of the private sector: Private sector &public sector are now exchanging seats. The
example of the areas are newly opened private sectors are: HYDROPOWER,OPEN SKY,
TELECOM,ROAD & WATER SUPPLY SECTORS ETC.
Stock exchange market: Capital market provide opportunities for investors to seek out & invest in
cos. Of the future. NEPSE started automated trading system since 2007 replacing the previous
open out cry system.With this , the stock market has in tered in to a new era of stock market
competitiveness & accessibility.
Public private partnership:PPPconcept reflect the long term view that public authorities & private
companies can entered in to parternerships. The ppp has extended to 30 municipalities & 50
VDCsin 2008 with the purpose of increasing employment opportunities by linking villages
&municipalities through mobilizing social groups , providing credit & conducting traning
proramme.
Shift towards service sector: Service sector is growing very fast.Service , retailing & whole saling
are growing.

Emergence of information
economy
Private businesses,banks ,financial

institutions, hotels & tourism ,airlines

educational institutions & international
agencies operating in Nepal are in the
forefront in the use of it resources compared
to the public sector.

Emerging market place

scenario
The market is flooded with wide ranging

imported from foreign countries. Demand for

T.V. sets, audio system,VCRs,CD player,
quartz watches,computers,two
wheelers,pressure
cookers,refrigerators,cooking
ranges,washing machines, dish
washers,vacuum cleaners & other home
appliances is growing.

Nepals industrial sector:

structure & performance.
The industrial policy -2010 has classified

industries in to seven categories:

manufacturing, energy-based, agro & forestbased, mineral, tourism, service &
construction.

MANUFACTURING INDUSTRIES
The number of industrial units doubled in

every census period till 1986-87. The period

after 1990 recorded a significant decrease in
the number of industrial units. There was sig
nificant decrease in the number of carpet,rug
garment,brick, distillery & printing units.
There was significant decrease in the number
of industrial units. The significant decrease in
the number of carpet,rug,garment,brick,
distillery & printing units.

Nature of manufacturing
industries
Food beverage and tobacco. Food products,
noodles, biscuits and confectionery, sugar soft

drink, cigarettes, and distilleries.

Textiles. Jute, carpets, ready made garments,
semi-processed leather and leather goods.
Building materials. Cement, iron bars,
corrugated sheets for roofing, sanitary pipes.
Packing .Flexible pouches, bag-in-boxes, metal
contain, paper boards, wrapper.
Plastic. Plastic sheets, bags, pouches, and
bottles.

Positions of manufacturing
industries
Large scale industries exist only in the public
sector.Nepal is dominated by small

manufacturing units.
They are more labour intensive, traditional
technology.
The contribution of manufacturing sector to
employment is less than 3% of the total labour
force.
About 95% of these units employed less than 100
workers.
They are concentrated in kathmandu vallley,
eastern & central development region.

CONTRIBUTION
There contribution to the GDP is decreasing

every year since 2000.

At present there is about 6.5% contribution
to the GDP.

EXPORT ORIENTED INDUSTRIES

The main export products of Nepal are

carpet, garment, leather & handicrafts.

CARPET INDUSTRY
The contribution of carpet industry to the

national economy is very significant in terms

of export, employment & exchange
earnings.The share of carpet industry in the
total foreign exchange earning of Nepal was
around 7% in 2010.

Features of carpet industry

It is heavily labour intensive.
Nepalese carpets are woven from woolen yarn made from

amixture of Tibetan &New zealand wool.

The carpet industry depends on foreign market totally.
External environment plays very prominent role in its
development.
90% of total units are concentrated in Kathmandu valley.
Small-sized units dominate the carpet industry.
Germany 7 USAare the main importer of Nepalese carpet.
About 140000 persons are engaged in the carpet industry.
At present the market of Nepalese carpets has declined.

Garment industry
This industry was started in the country in

the late 1970s. Now garment industry is a

major export industry of Nepal.

Features of garment industry

It is the largest industry in terms of foreign exchange earnings
Directly or indirectly it provides employment to about 40000

people.
The share of garment industry in the total overseas export of
Nepal has remaind at about 32%.
The major importer of Nepalese garment is the USA.
The garment industry uses all the factors of inputs have to be
imported from India.
Indian enterpreneurs & workers occupy a big share of the
industry.
The cost of production is 15 to 20% higher than the other south
asian countries.
Quality of garment products, dependency of one market,poor
innovation &marketing are major features of Nepalese carpet
industry.

Leather industry
Leather industry has great potential because

of the possibility of value addition & export.

At present the takes place in semi finished ,
wet blue &crust form.
This industry is very traditional, so there is
traditional skills & technologies.
The leather industry need to diversify the
leather products with the changing consumer
tastes.

Handicraft industry
Handicraft industry is providing employment opportunity &

is also the source of foreign exchange earnings.

Nepal exports handicrafts to over 50 countries around the
world.
The major markets are USA, UK,GERMANY, FRANCE
,TAIWAN, SINGAPUR, JAPAN etc.
These products are unique & welknown for craft manship.
Gold plated items , bronze & brass arts icons house hold
utencils , hand made paper & paper products paintings &
thankas

wood carving basketary works , potteries, maska & so on

are the major handicrafts items.

Import substituting
industries.
Cement, paper, sugar, pharmaceuticals, and

so on. A brief account of some import

substitution activities in Nepal.

Pharmaceutical Industries
Import of pharmaceutical products for the year 2009-2010 was

about Rs. 12 billion. The demand for pharmaceutical products

is expected to increase over the year.
India based national and multinational companies meet much
of the Nepalese demand. Drugs are also imported from other
countries like USA, Australia, UK, China, Japan, & Thailand.
At present , there are about 40 industrial units in Nepal
manufacturing different types of drugs . Good prospects
exist for the establishment of industrial units producing
formulated drugs .
The best areas for immediate investment are in the
production of the major high volume product lines of
essential drugs , identified by the department of drug
Administration , Ministry of Health.

Electrical & electronic

industries.
Demand for heaters,radio transisters, Tv sets,

communications equipments, electrical appliances

house wares , batteries, wires cables, switches,
lighting fixuters is increased.
Nepal offers very good prospects for the
development of electronic industries.
The lower cost of labour would give Nepal a
competitive advantages compared to other Asean
countries.
Computer key boad assembly, circuit board, core
transfermers, multi socket, power strips & similar
other asssembly industries have a good prospects.

Other import substituting

industries

Tobacco industry: various types of cigarettes, bidis & other products are
being produced by these industries. It is also the traditional industry in
Nepal.Now there are about 78 units operating in Nepal.
Cement industry: Hetauda & Udayapur cement factories are two big
cement factories in the public sector.Some cement factories are
operating in the private sector.At present there is a very satsfactory
development in the cement production. There are more than 60 units
which produce various types of cement.
Chemical industries: chemical products such as soap, detergent powder,
matches, plastic, fertilizer etc have wide spread growth. There are about
64 units producing such products.
Paper industry: There are about 90 units producing paper & paper
products in Nepal.
Sugar industry: sugar factories are both in the public & private sectors.
About 30 units exist in the country producing sugar &other related
products.

Service sector
The following five major industries can be

identified in the service sector: (1) tourism (2)

transport (3) construction (4) trade & services
& (5) financial & consultancy services. This
sector now accounts for almost 51% of the
GDP.

Tourism industry
Tourism industry engaged in tourist lodging, motel hotel,

restaurant, resort,travel agency, gliding, water rafting cable car

complex, treking, hot air balloning, polo horse rding etc.
The government has decided to celeberate the year-2011 as
Nepal tourism year,establishing Nepal as a unique tourist
destination.
The total no. of tourist arrival was 602867 in 2010-11.
The share of this industry in foreign exchange earning was 7.5%
in 2010-11.
This industry employed about 267000 people.
Nepal has great potential in tourism.
Mountains, snow covered peaks, rivers , lakes, valleys, colour ful
fairs & festivals, national parks & wild life, ancient temples with
super sculptured ornaments,peace loving & hospitable people
increase its importance.

Trade & services

Trade refers to retail & wholesale business. Services are wide

range of economic activities like banking, insurance,

telecomunication, cultural & sporting services etc. services are
intangible &invisible.
There has been a substantial growth in this sector in Nepal during
the last two decades.
Service industries includes like workshops, printing press,
consultancy service, cinematography,construction business,
public transportation business,photography, hospital, nursing
home, educational& training institution, laboratory air services,
cold storage etc.
It is important for imports,exports & the domestic market.
Private sector is basically centered on trading activities.
The share of the GDP was 51% in 2010-11
Direct employment in trade & services was about 500000 in 2011.

Transport industry

Road ropeways, railways, civil aviation,& waterways are Nepals

transport sector.Road & civil aviation have progressed significantly than
the other mode of transport. At present, altogether 21455 KM of road
network exists in the country.Only 6874 KM is black topped.
At present there are 19 airlines have been operating.
This industry is also providing direct employment to around 131000
persons as drivers, cleaners, conductors, counter clerks, inspectors &
managers.
A total of about 32000 buses & mini buses operate in the countary
The total number of trucks, & tankers & pickups was around 44,ooo in
2011.
The road network is very limited in the country. The roads are over
crowded , the transportation costs are relatively higher due to fuel
&syndicate system.

Construction industry
Construction industry includes construction &operation of

roads,bridge, ropeway,railway, trolley bus, tunnel & also

those engaged in the construction of industrial, commercial
& residential complex.
At present there are about 430 contractors in Nepal under
A,B,C &D classes.
The foreign construction cos. Have been dominating the
Nepalese construction industry. There are 20 chinese, seven
Indian, two Bangladeshi, one pakistani & eleven other
international cos. Operating in Nepal.
The total business available to construction industry is
around RS 42 billion per year.
This industry is the most important source of employment
for unskilled &semiskilled work force.

Problems & constraints of

industrial sector
The world bank, in colaberation with the

FNCCI, undertook a survey manufacturing

firms to investigate the problems facing such
firms & offer suggestions for policy reforms
& assistance services to address them. The
major problems of industrial sectors are
sumarised as:

Government regulations &

policy:

Corruption is wide spread. It is more where discretion of public officials

is required &where laws are unclear.
Complex regulation practices, contradictory rules etc.
Tax law is one of the biggest problems facing by business organizations.
They find difficult to comply with the tax regulation.
Vat administration are also difficulty & uncertainty in obtaining refunds,
inadequate enforcement that allows many firms to escape vat,
inadequate training of tax officers & limited dissemination of
information to firms & the public.
Lack of security for business firms. Cases of theft, crime, forced
donation, damage to building & property etc. are increasing. Business
firms have very little protection from government.
Smuggling of goods is wide spread along the indo-Nepal boarder.
The duty drawback scheme is designed to encourage exports by
exempting them from import duties on raw materials used for exported
goods. Under this scheme the problems are: delay in refunding, rigid
deadlines, insufficient bank guarantee.

Demand related problems:

Low demand is the major cause for low capacity

utilization.
Textile, chemical & paints, & metal products
industries have been facing problems of inadequate
demands for their products.
Low cost import s from China & India has been
posing problems for most of the Nepalese business
firms.
Fluctuation of demand regularly to project the
demand & prepare the plans for manufacturing.
Little protection by the government from the
growing liberal imports.

Finance related problems:

High interest rate, large collateral

requirement & other factors prevent firms

from obtaining sufficient finance.
Administrative & procedural barriers.
Difficulty in borrowing to the smaller firms to
get enough credit due to insufficient
collateral.
Trade credit practice poses problem in
business.

Infrastructure related
problem:
Electricity problem
High cost of electricity.
Transportation problem. Low quality of local roads

cause high repair costs of vehicle.

Closure of the highways frequently due to accidents,
bandhs, & chhaka jams.
Limited supply of trucks &their higher costs.
Limited number of international cargo flights the
cost of the service & the lack of capacity in the peak
season specially to garment& carpet exporters.
The quality of postal service is so poor.

Labour regulations:
The labour act 1992 & its regulation requires

business firms to make all employes

permanent after working 240 days. After
their permanent, workers can not be laid off
without the consent of the department of
labour.
Labour union are wide spread & very strong
in Nepal.
Inter union rivalries often creat problems for
the management.

Other problems:
Lack of business support system.
Lack of research & development programme

in business.
Lack of domestic raw materials.
Absence of business information center.

Natural environment & energy

situation in Nepal:

Socio- cultural environment

Socio- cultural environment is formed of the social institutions, class

structure, beliefs, values, behaviours of people, customs of people, &
their expectaions, etc. A business firm is established by people ,sells to
them, buys from them, employs them. So people are the vital & integral
part of business firms. Societies culture reflects & shapes its values, &
attitudes including time ,authority, age, status, & education. All these
factors affect business operations in numerous ways , such as in hiring
practices, job satisfaction, labour turnover, & so on. Social cultural
factors are also mixed up with all the managerial functions , such as
finance, human resources, production & marketing management.
Without proper understanding of these socio cultural forces,
management functions can not be effectively undertaken. Poverty,
illiteracy, skill shortages, family system, caste or religious structures,
culture & traditions, increasing awareness of citizens right &
consumerism & complicate managerial functions in respect to
supervision , discipline management, marketing control system & the
like.

COMPONENTS OF SOCIO-CULTURAL
ENVIRONMENT:
Attitudes & beliefs: A n attitude can be defined
as any affective reaction to a person, object,

idea, or activity. It might also be thought of as

a judgement about where a person, object ,
idea, or activity liked or disliked. A persons
belief reflects his view points. Culture creates
attitudes towards time, leisure work & business.
Attitudes influence business. Bholi or tomorrow
is the common attitude toward time in Nepal.
Fatalism & superstition dominate values &
beliefs of NEPALESE PEOPLE.

RELIGION:
Religious coexistence is present in Nepal.

Religion influences food habits, dress & dates

of travelling.

Language:
Language reflects culture. Nepal is a

multilingual country. More than 40 languages

are spoken by Nepalese people. Language
diversities in a society often creates
communication problems for a business firms
& its manager.

Education:
Education is the learning process, which equips an

individual to take his or her place in the society.

Education plays an important role in transferring
cultural values from one generation to another.
The educational environment in any country
influences every aspect of managerial & industrial
life.
Educational level have an impact on organizations.
Higher education level allow people to earn higher
income, leads to increased expectations of workers
& increased job mobility.

Family structure & social

organization:
Every society has a structure of relationship.

The social institutions are dynamic entities.

Family structure constantly changes due to
various social, political, & economic
transformation. Social institutions consists of
:

Family
Family as a social institution significantly

affects purchase decision in Nepal. Nepal still

has predominantly a joint family system.
Generally, the head of the family serves as
the decision making centre. Nuclear families
have now become common in the Nepalese
society, particularly in urban areas.

Reference groups
Reference groups are also social units in the

form of common interest groups & the

community. They influence attitudes &
behaviour of customers.They influence values
& attitudes towards business & their
products. Friends are important reference
groups in Nepal.

SOCIAL CLASS
Nepalese social class can be divided in to

upper, middle, & lower. The lower class is in

large majority. Middle class is growing.
Buying behaviour is substantially influenced
by social class in Nepal, which also influences
business.

Pressure groups
They are special interest groups organized to

advance their position. They pressurize &

lobby business organizations. Pressure
groups are related to
consumerism,environmentlists, human
rights,women & good governance. They
influence business decisions too.

Social change
The buying behaviour of consumers changes

over time.
Social trends are changing in Nepal
Participation of married women in work
activities is increasing.
In urban areas, marriges are begin delayed.
Family planning has made families smaller.

Socio-cultural changes & their

effect in Nepalese business:
Growing urbanization & consumer awareness.
Individualized lifestyles & world oriented outlook.
More informed & demanding consumers due to

growing education.
Fashionable life styles,blending of traditionally
defined male-female roles.
greater pleasure orientation culture.
Smaller size family structures.
Growing demand for more effective & prompt
public services.
Equal opportunity for all walks of national life.

Concept of globalization
Globalization refers to a strategy of crossing national

boundaries through globalized production &

marketing networks. Deregulation, privatization,
trade liberalization, protection of property rights,
promotion of foreign direct investment,
opportunities for strategic alliance.
According to economist, it refers to an economic
inter-dependence between countries covering
increased trade, technology, labour & capital flows.
To a political scientist, globalization refers to an
integration of a global community in terms of ideas,
norms & values. It means the creation of world
government,i.e. WTO,WORLD BANK, IMF.

Widely used definitions

Globalization is a free movement of goods,

services, people, capital & information across

national boundaries.
Globalization is a process by which an activity
becomes world wide in scope.
Globalization is a process of integration of
the world as one market.

Categories of globalization:
(1) World trade: Most of the world trade today is
among the industrialized countries. The service

trade has also been rapidly increasing during

recent years. World trade has been made easier
by the following two reasons:
Technological advancement in transport, global
network of banking & insurance & information
flows.
A number of international & regional agreement
promote & coordinate world trade.

(2) Portfolio investment:

It is also known as indirect foreign

investment. It is the purchase of foreign

securities in the form of stocks, bonds, or
commercial papers to obtain a return on that
investment in the form of dividends,
interests, or capital gains.

(3) Foreign direct

investment:
It is the long term capital investment. It involves
acquisitions by domestic firms of foreign based

factories or any type of business firms. The

investors enjoy managerial control over the
assets of the acquired firm. It may be financed by
borrowing locally, by reinvesting foreign
earnings, by the sale to foreign affiliate of non
financial assets such as technology, or through
funds generated by licensing fees & payments
for management services to the parent
company.

(4) Multinational

u
c
companies:
h

f
i
r
m
s
a
l
s
o

Regional Economic Groupings of

nations:
A number of Regional Economic alliances

exists in all the continents.

SAFTA: (south Asian free trade

Area)
Safta agreement was signed at the SAARC

summit held at Islamabad on January 6, 2004

during the 20th SAARC summit in Islamabad.
This agreement came into effect from Jan-1,
2006.
SAFTA provides for free movements of goods
in the region through elimination of tariffs,
that include border charges & fees, & non
tariff restrictions on movement of goods &
any other equivalent measures.

Objectives:
Eliminating barriers in trade &facilitating to cross
boarder movements of goods between

territories of the contracting states.

Promoting of fair competition in the free trade
area & ensuring equitable benefits to all
contracting states.
Creating effective mechanism for the
implementation & application of the agreement
& the resolution of disputes.
Promote regional cooperation & enhance the
mutual benefits of the agreement.

SAPTA (SAARC Preferential

Trading Arrangement:
SAARC member countries entered into an

agreement on SAARC preferential trading

arrangement in 1995.
It reflects the desire of SAARC countries to
promote & sustain mutual trade & economic
cooperation through exchange of
concessions.

Basic principles of sapta:

Overall reciprocal & mutual advantages.
Step by step negotiation & periodic reviews

to improve & extend preferential trade

arrangement in successive stages.
Inclusion of all products raw, semi processed,
processed.
Special & favourable treatment to least
developed countries, like Bangladesh,
Bhutan, Nepal.

PROVISIONS OF SAPTA:
The member countries may conduct their negotiations for

trade liberalization in accordance with any or a

combination of the following procedures:
Product by product basis.
Across the board tariff reduction.
Sectoral basis.
Direct trade measures.
The tariffs, para tariff & non tariff concessions negotiated &
exchanged amongst member states shall be incorporated
in the national schedule of concessions.
All member states shall provide, special & more favourable
treatment to the least developed members.

BIMSTEC (Bangladesh, India,

Myanmar,Srilanka &Thailand
economic
cooperation)
Anew sub- regional grouping was formed in Bangkok &

given the name BIMSTEC on June 6, 1997.

Myanmar attended the inaugural as an observer & joined as
a full member at a special meeting on Dec 22, 1997.
Nepal was given observer status by the 2nd ministerial
meeting in Dec. 1998 & full membership was given to Nepal
& Bhutan in 2004
In the first summit on 2004, leaders of the group agreed
that the name of the grouping should be known as
BIMSTEC or the bay of bengal initiative for multi-sectoral
technical & economic cooperation.
The member countries signed the BIMSTEC free trade
area agreement in 2004 at Bangkok summit.

Purposes of BIMSTEC
To create an environment for rapid economic

development, accelerate social progress in the subregion.

To promote active collaboration & mutual assistance
of common interest.
To provide assistance to each other in the form of
training & research facilities.
To cooperate more effectively in joint efforts that
are supportive of, & complementary to national
development plans of member states.
To maintain close & beneficial cooperation with
existing international & regional organizations.

Priority sectors lead by member

countries:

Trade & investment led by Bangladesh.

Agriculture led by Myanmar.
Technology lead by Sri-Lanka
Energy led by Myanmar.
Transportation & communication led by India.
Tourism led by India.
Fisheries led by Thailand.
Cultural cooperation led by Bhutan.
Environment & disaster management led by India.
Public health led by Thailand.
People to people contact led by Thailand. Poverty alleviation led
by Nepal.
Counter terrorism transnational crime led by India.

Impacts of regional groupings

on the Nepalese business:

There has been a phenomenal growth of industrial activities in SAARC economies over the years.
The following are the major issues having direct impact on the economy of Nepal:
There is the serious impacts on the agriculture sector. Cheaper prices from India has created
visible impact on the domestic production & market.
Unrestricted & untaxed inflow of goods from SAARC countries create serious impact on domestic
industries. Many rice mills oil extracting plants & agri-business units have already closed down in
Nepal because of cheaper imports from India.
With the gradual decay of business &industries , there would be a big loss of job opportunities.
Nepal has been facing the problem of trade deficit with India.
As the tariff for imports from India & other SAARC countries is given MFN treatment the import
duties are minimal.
The third country investors may not come to Nepal due to higher investment cost. Because of free
trade area foreign investors might find india or other countries in the region with sea routes &a
huge population more attractive investment destinations than Nepal.
Nepal can attract tourists from the SAARC regions.

WORLD TRADE ORGANIZATION

The world trade organization (WTO) is an
international body dealing with the rules of the

trade between nations. It was established on Jan

1, 1995. Nepal got its membership on April
23,2004. The membership of WTO currently
stands at 159 countries, representing more than
97% of the worlds population. The
establishment of the WTO aims at integrating
the world economy by cutting down the barriers
in trade & investment flows. WTO now
administers international trade & investment .

Objectives of WTO:
Raising standard of living & incomes,
Promoting full employment, expanding

production & trade &optimum utilization of

worlds resources.
Introducing sustainable development- which
envisages that development & environment can
go together.
Taking positive steps to ensure that developing
countries, specially the least developed
countries, secure a better share of growth in
trade.

Functions of the WTO:

Administer & implement the trade agreement.

Act as a forum for multilateral trade negotiations.
Seek to resolve trade disputes.
Oversee national trade policies.
Cooperate with other international institutions involves in
global economic policy making.
Maintain trade related database. Members are required to
notify in detail various trade measures & statistics.
Act as a watchdog of international trade.
Act as a management consultant for world trade.
Provide technical assistance & training for developing
countries.

Nepals membership in WTO:

Nepal got the membership of the WTO on April

23,2004. Nepal had applied for the membership of

GATT in 1989. This application of membership was
made in view of the trade &transit problems with
India at that time.
Nepal started the process of economic reforms in
the early 1990s. These reforms were essential to
acquire the membership of WTO. Nepal was given
the observer status in 1993.
Nepal presented its formal application to WTO IN
Dec. 1995. After three rounds of working party
meetings during 2000-2003,Nepal finally was
granted the membership in the cancun conference.

Opportunities of WTO for the

Nepalese business:
Now there is the guarantee that Nepal will get the most

favoured nation status from all the member countries.

Nepal will now have assured market access & transit rights.
Nepal will also have access to WTO dispute settlement
procedures &legal recourse to contest undesirable trade policies
imposed up on it.
Nepals membership is also expected to discipline its own
government.
It helps to enhance transparency & reduce uncertainty to trade &
investment environment.
Nepals membership will provide opportunity to indulge in
multilateral trade negotiations.
This membership will give Nepal a seat at the negotiating table,
allowing it to contribute to the debate on the future shape of the
world trading system.

Threats of WTO for the Nepalese

business.

Domestic industries will face the greater competition.

The domestic market in goods & services sure to dominate by multinational
companies.
the government will face the fiscal adjustment cost of finding new import
surcharges introduced since 2000.
The cost of negotiation & transaction too are expected to put pressure on
least developed countries like Nepal.
Nepal have to bear the burden of implementing trade related regulatory
rules. Which requires huge investment in administrative capacity , legal
reforms & institution building.
Nepal has to undertake internal reforms to be able to match with global
standards. Due to the shortage of reliable information it is difficult to design
action plan s to enhance the competitiveness & effectiveness of this sector.
Nepalese products or service s are not competitive in terms of price,
quality, & delivery schedule. The prevailing system of coalition government is
not conducive & effective changes & their implementation.

Technological environment
Technology is a powerful tool for poverty
reduction. It creates income generating jobs. It is

a key variable for productivity improvements.

Technology is the processes & systems used by
organizations to convert resources in to products
or resources.
Technology refers to the manner in which
organizational inputs are transformed in to
outputs.
Technological environment refers to all
technological surroundings that influence
business environment.

BUSINESS & TECHNOLOGY:

Business firms generally try to meet the changing needs of the society. Business
should create market for their new products & services. Society also expects
innovations & discoveries from business firms for better products &improved
services.
Business firms also strive to contineously improve existing products through
changing in design, engineering, or manufacturing.
Business & technology are inseperable. These are mutually complementary. One
can not exist without the other.
In the present contest goods, people, information & technology are moving
across the globe at an increasing speed.
Today technology is a major item of international trade.
Technology is cutting across all political, economic & trade barriers.
Scientists have been creating technologies that were outside our dream a few
years back.
Technological factors like use of specialized & automatic machine, application
of mechanical power, integration of processes, design of machinery &plant,
simplification & standardization of products &techniques, automation of
manufacturing process & so on have greatly influenced industrial productivity.

Areas of technology relevant to

business:

Methods of manufacturing a product.

Improvement in product design & manufacturing process.
Reduction of waste.
Reduction of manufacturing costs.
Using new raw materials.
Using eco- friendly materials.
Improving quality & reliability.
Introducing new products & services.
New methods of distribution.
New ways of management control &information.
e- business technology.

HUMAN FACTORS & TECHNOLOGY:

With the change in technology ,serious impact can be felt in the total industrial
system & the job market of a country.
Old industries may disappear due to technological development.
Occupational structure of the work force also changes.
Due to technological change the new skills also needed.
New technology may displace the employees.
Technological capability of a nation revolves around its people.
The skill level of the people in a country decides the absorption & utilization of
technology.
Inability to acquire new skills as demanded by the technology makes employees
out-dated.
Self development of managers & others at the top is also required for
acquisition, management &development of new technology.
Conceptual & professional skills of the managers & personnel involved are
important contributory factors for the successful use & upgrading of
technologies.

SCIENCE & TECHNOLOGY POLICY:

The science & technology policy is adopted in

Nepal with the objective to improve the

countrys S&T for the overall development &
scientific creativity in 1989.

Priority sectors of the

policy:
Development of technologies & services for

priority areas of socio-economic

development;
Fulfillment of peoples basic needs;
Qualitative development of human
resources;

STRATEGIES OF S&T:
Ensuring maximum utilization of available resources

.
Developing and adopting appropriate technology
through the mobilization of private sector.
Developing of a mechanism to conduct research &
development activities.
Contributing in the socio-economic development of
people through the development of knowledge &
skills in the science & technology sector .
Encouraging universities, concerned institutions &
individuals in scientific researches

PROGRAMMES OF S&T STRATEGIES:

The three year plan adopted the following

programe in translate the S&T strategies in to

action:

DEVELOPMENT & EXPANSION:

A high-level Nation science & Technology

council & a coordination committee would be

constituted that would adopt a national
vision and policy.
Ministry of science and Technologys
competence would be enhanced to play an
active role in development and proper use of
science & technology.

DEVELOPMENT OF HUMAN RESOURCES:

Extension of cooperation in producing

necessary manpower in intricate technology,

practical technology & industrial and service
sectors.
Increasing the competence of universities in
producing quality human resources.
Controlling brain drain by introducing
attractive programme to enhance abilities of
young scientists.

PROMOTION OF RESEARCH &

DEVELOPMENT:
CONDUCTING PROGRAMS RELATED WITH
LOCAL RESOURCES.
Conducting programs to develop necessary
technology to uplift rural life standard.
Conducting programs focus on special area s and
targeted groups.
Conducting research and development with the
help of S&T.
Conducting research & development programs
to enhance national capacity.
Establishing a research fund.

SOCIO-ECONOMIC DEVELOPMENT OF
URBAN & RURAL SECTORS:
Developing, utilizing and expanding rural

technology.
Developing & expanding the use of modem
technology like biotechnology , Itand space
technology.
Managing and simplifying the transfer of
technology.

EXPANSION OF SCIENTIFIC AND

TECHNOLOGY SERVICES:
Conducting and expanding water and

meteorological services.
Expanding forensic services .
Expanding equipment maintenance and
service.

ENHANCING

AWARENESS:

Establishing planetarium, science and

technology museum, among others.

Publishing materials and conducting program
to create awareness.
Mobilizing professional organizations.
Raising the standard of science education in
school level courses.

PRESENT LEVEL OF TECHNOLOGY

ADOPTED BY THE NEPALESE
The industrial sector in Nepal is currently in the process of
BUSINESS:

transition. The overall technological system in industrial

sector has remained relatively simple.
New technology is being introduced & the product range
of goods & services is widening.
Village & cottage industry is being encouraged to grow and
become more skillful.
Transport, communication, electric & electronics are the
other areas in which Nepal has also felt technological
change.
The status of industrial technology in a country can be
assessed by analyzing (1) R& D (2) export performance. (3)
skill inventory.(4) technology transfer.

RESEARCH & DEVELOPMENT:

Most of the industrial units remain dependent

on imported & low graded technologies.

Business firms in Nepal show little awareness
of the need for formal research .
NEPAL SPENDS ONLY ABOUT 0.13% OF ITS
GNP ON RESEARCH &DEVELOPMENT
ACTIVITIES.

EXPORT PERFORMANCE:
The technological status of the Nepalese

industrial sector may be observed by its

export performance. Nepalese exports are
mainly in the form of raw or semi finished
items. Lack of competitiveness in high value
added , high skill products such as machinery
& consumer durables may be taken as a sign
of Nepals technological backwardness.

THE SKILL INVENTORY:

The skill base in Nepal may be assessed from
relative enrolment figures at various levels of

education. The gross enrollment ratio has just

reached 45% in secondary level schools. The
female enrollment at all levels of the school have
remained very low. The proportion of enrolment
at technical institutes average about 19% of the
total enrolment in higher education.
The supply of mechanics, electricians, engineers,
IT professionals,& other technicians are much
below the level of required quantity.

TECHNOLOGY TRANSFER:
The pace of technological transfer has

accelerated as the production has become

globalized.
Nepalese business has been unable to draw
fully on FDI to upgrade its technology.
The open door policy could not stimulate
foreign investment to the extent desired.
Some of the facts indicate the lower status of
technology transfer s taking place in Nepal:

Contd
FDI in to Nepal rose from US $5.4 million in 19911995 to US$19.3 million in 2001 . Thereafter, it

started to decline.
The FDI inflows are significantly lower relative to
other SAARC countries.
The extent of technology transfer was relatively
low in the FDI that did come in to Nepal.
The FDI promotion strategy in Nepal is not
targeted nor based on a clear idea as to which
activities Nepal can offer a competitive for
foreign firms.

Foreign direct investment

FDI is the international movement of capital

for specific investment purposes. It is made

for the purpose of actively controlling
property , assets, or companies located in
host countries. Investors undertake FDI to
expand foreign markets or gain access to
supplies of resources or final products.

Forms of FDI:
Purchase of existing assets in a foreign

company.
New investment in property like land &
building.
Participation in a joint venture with a local
partner.
Mergers & acquisition activities.

Reasons of FDI:
TO ACCESS NEW OVERSEAS MARKET.
TO TAKE ADVANTAGES OF LOWER

MANUFACTURING & OTHER COSTS.

TO ACCESS NEW TECHNOLOGY &SKILLS.
TO LOCATE A BUSINESS FUNCTION NEAR
CLUSTER OF SIMILAR OR RELATED
COMPANIES.

Benefits of FDI:
It is an important source of bringing in capital

& technology in a country.

Improvement in productivity, technology
transfer, r&d expansion & promotion of
exports in a host country.
Encouragement of competitive corporate
culture & technical skills for industrial
development.
Benefits of foreign management skills in host
country.

Reasons for poor inflow of FDI

in Nepal:
The FITTA act- 1992 is not clear on the foreign investment &

technology transfer.
Production base is limited due to non availability & poor access to
mineral, forestry & other mineral resources.
Political instability & social unrest.
New investment areas are not explored to foreign investors.
Absence of long term business plans & strategies backed by
proper information &R&D systems.
Lack of proper monitoring & supervision of the registered foreign
projects. They have not started their project construction &
operation.
Implementation of FDI policies is often distorted by bureaucratic
delays & inefficiency.
Some pre conditions of FDI are yet to be fully achieved in Nepal.

Dimensions of the economy:

The economic dimension: it indicates the

purchasing power & pattern of consumption

of the people. The balance of payments &
exchange rates measure external economic
performance. Outputs, price & employment
measure internal economic performance. The
measurement of supply side performance of
the economy includes saving, investment,
productivity, wage increases, labour costs, &
utilization of capacity.

Major challenges of the

Nepalese economy:
Nepal just achieved about 4% growth rate over a decade

where as neighbouring countries have achieved the

double digit economic growth rate.
Nepal couldnt achieve the desired growth rate due to
political instability, fragile peace & security situation weak
infrastructure etc.
The GDP structure is gradually changing. Contribution of
the primary sector as a value addition to the economy have
come down to 36.2% in 2000-2001. contribution of
secondary sector is expected to remain at 14.1% with a
decrease of 2.8% over a decade. Similarly the contribution
of agriculture sector has decreased by 1% over a period of
last one decade.

Contd
The ratio of consumption expenditure to GDP accelerated

by 5% from previous years 88.3%. The ratio of fixed capital

formation to GDP decelerated by 1.2% from previous years
18%.
Rate of inflation is very high. With inflationary pressure, the
cost of infrastructure would increase .
The outstading debts grew by 8.3% totaling Rs 409.14
billion from Rs 377.59 billiion in the previous year.
The balance of payment is still in deficit. The deficit amount
is Rs 19.12 billlion at the end of 2010-2011.
Securities market indicators like NEPSE indicator, stock
transactions & market capitalization have slid down. The
confidence of investors towards the capital market remains
a challenge.

Contd

Youths are compelled to heading for overseas seeking employment due

to failure in creating employment opportunities with in the country.
Migratory pressure on cities & secured locations with physical facilities
has created the problems of urban poverty.
The countrys economy is becoming consumption oriented due to
remittance income & other factors .
The saving & investment levels is decreasing due to unnecessary
consumption.
Revenue mobilization also seems poor. Tax system , administrative
reforms for custom valuation , simplification of income tax procedures
need to be followed.
The value added tax & its effective implementation has yet to be
materialized. There is the practice of evading VAT by fake bills/vouchers
Delay in submission of regular budget, no elected representatives in
local bodies, delay in providing contracts & opposition of local people to
development projects.

SOCIO-ECONOMIC DIMENSION
Population
Labour force composition
Employment trends
Migration & foreign employment
Labour market issues
Poverty situation

population

Countries with growing population & income are indicative of growth

markets, population size, can provide some basis for estimating
consumption for the low priced , mass consumed products like soft
drinks, cigarettes, clothes, soap, biscuits & many other food items.
If income grows over times, market also grows.
If income of the people decreased, unemployment problem indicates
less opening of new jobs to absorb the graduates.
Densely populated areas tend to make products distribution
&communication simpler &less costly.
In Nepal mountains & hill region with over 78.8% of the total land area,
contains 51.5% of the total population. The remaining 48.5% of the total
population reside in the terai, which covers 21.2% of the total land area.
There is a growing shift of the population from rural to urban areas
causesthe percentage of the labour force engaged in agriculture is also
decreasing.

Labour force composition

Labour force is the most important input into the production process.
The productivity & quality of production are affected by the quality of the
available labour force.
Quality of labour force are mainly education, skill formation schemes, training,
working conditions, wage levels, incentive systems & motivation.
In Nepal a large proportion of the labour force remains unemployed or under
employed.
Currently there are about 11 million people in the labour force.
The growth rate of the working age population is 3% per year.
Most trained personsare in urban areas , rural areas have man power shortages
at all levels.
The share of the active population in the primary sector(agriculture, forestry,
hunting & fishing) has declined over the years.
The gains in the secondary (mining, quarrying, manufacturing & construction) &
thirdly sectors (electricity, gas, water, transport, communication & services) have
compensated this loss of employment in the primary sector.

Employment trends:
There is the growing displacement of the labour force from

the agriculture sector. The emerging employment trends

are as follows:
Informal farming, cottage &small industries are giving up.
The rural population has now been migrating to urban
areas for employment.
Some people are migrating abroad for employment.
In many places, new townships have developed generating
new employment opportunities for people.
The educated women are now seeking out employment
opportunities.

Migration & foreign employment:

Migration & foreign employment are important components of

population change.
In Nepal the number of people going abroad for foreign
employment has been increasing annually.
The government has made the following arrangement for
foreign employment:
Foreign employment loan for marginally poor people from
among affected by the conflict, disadvantaged, minorities &
women. Arrangement is made for providing 80% of such loan
without any collateral.
A provision for an insurance scheme of Rs 500000 to every person
to foreign employment has been made.
Foreign employment rehabilitation fund has been established for
rescuing victimized in course of foreign employment.

Contd..
Skill development &language training programs
as per the demand of international labour

market will be launched to martyrs families,

people injured in peoples movement,
handicapped, blind, women, conflict affected
people& under privileged community.
Money transfer institutions are being
encouraged that the Nepalese workers could
send their foreign currency earnings easily to
their family.