Nepal's Investment Climate : Leveraging the Private Sector for Job Creation and Growth

The objective of the Nepal Investment Climate Assessment (ICA) is to evaluate the investment climate in Nepal in all its dimensions and promote policies to strengthen the private sector. The investment climate is made up of many dimensions that shape the opportunities for investments, employment creation, and growth of private firms. Such dimensions include factor markets, product markets, infrastructure services, and the macroeconomic, legal, regulatory, and institutional framework. The report's key finding is that while there are some niche sectors growing and expanding employment in Nepal (including tourism and certain educational and other services), there are many constraints to the investment climate in Nepal that are hindering the development and growth of the private sector. In particular, political instability, poor infrastructure, poor labor relations, poor access to finance, and declining exports plague Nepal's private sector. To overcome many of these issues and move forward, many reforms are needed. Given the extent of the challenge, effective public-private dialogue is required so that the government and the private sector can work in partnership to address these constraints. The pervasiveness and impact of political instability in Nepal makes the investment climate in the country comparable more to Afghanistan than other countries in the region or the comparator countries used in the analysis. While this comparison is unflattering, it is true. Political instability has stifled growth and limited Nepal's ability to exploit its hydropower and tourism potential. Interestingly, many firms do not perceive access to land and finance as major obstacles. This could be a reflection of lack of dynamism: Nepalese firms are simply not planning to invest, expand, and grow in their unstable and unpredictable environment. The peace dividend is not difficult to measure. As the surveys show, ending civil unrest alone would give back to enterprises 44 working days a year. The effects on economic activity, investment, growth, and job creation could be potentially huge.