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.
Since Locus Economica assistance with Nepal’s SEZ strategy, as well as its legal, regulatory, PPP and socio-environmental frameworks began in 2015, 23 investors have begun operating in Bhairahawa SEZ, having built what they committed to, a further 15 plots in the SEZ have been allocated, and applications for all remaining plots are overbooked. In 2017, the Government issued the Notice on the Expansion of Bhairahawa Customs Area (NG 27/03/2017) (14/12/2073). Block A of the Simara Garment Processing Zone is also set to open soon, with infrastructure now complete and the SEZ Authority having tendered for applications to lease 69 plots. The government has also tendered the development of Simara’s Blocks B and C, with a decision on a developer to have been made in May 2019. Moreover, a masterplan for a third SEZ, in Panchkhal, has also been completed.