Nepal has made strong strides toward improving its economy since the end of civil war in 2006 and beginning a transition to democracy. Extreme poverty has been cut in half and, until a 2015 earthquake, the economy had been growing steadily.
However, restrictions on public and private investment, poor infrastructure, and overly burdensome regulations are severely hindering the economy. Manufacturing has become uncompetitive and output is shrinking, from 10% of GDP in the late 1990s to 6% by 2014. By comparison, the average GDP share of manufacturing in low and middle-income countries was 22% in 2014. Businesses face complex procedures, regulatory uncertainty, labor tensions, and counterproductive labor regulations.
Nepal has attempted to improve its investment climate through a new company act (2006), renewal of the industrial policy framework (2010), an investment board act (2011), and a new foreign investment and one-window policy (2015). It also has a special economic zones program, which was recently updated with assistance from Locus Economica. The country’s first SEZ was inaugurated in 2014 in Bhairahawa.