Nepal’s economic position in the world and Asia

Nepal is a mountainous country on the “roof of the world,” in the Himalayas. Eight of the ten highest peaks of the planet are located in Nepal, including the highest peak on Earth – Everest (or Jomolungma). Geographically and physically, Nepal is divided into three zones from south to north: the plain (Terai), the highlands (Inner Himalayas) and the mountains (Greater Himalayas).


Nepal is colorful and vibrant, unusual and ambiguous. It does not look like other Asian countries, it has its own joy, restraint, responsiveness, humility, and sense of pride, all in one bottle.


A huge number of small foreign investments come to Nepal through non-residents, citizens of Nepal, who invest in building shopping malls, hotels, buying up real estate, tourism and other types of businesses.


Nepal has great potential for hydropower development, but political instability hinders the inflow of foreign investment, despite strong interest from foreign companies.

Nepal’s situation

The state of Nepal is located in South Asia. Nepal is bordered on the north by the Tibet Autonomous Region (China) and on the south by India. They are also called the two dragons of Asia. The longest border is along India – 1700 km. In terms of area, Nepal is the 93rd largest country in the world with 147,180 square kilometers.


Nepal’s EGP is unfavorable because the country is landlocked and most of the country (over 90%) is in the highlands. This makes it difficult to develop industry and agriculture. 


Nepal is one of the poorest and undeveloped countries in the world. According to the UN classification it belongs to the group of “least developed countries”. GDP per capita (in 2009) is $1,200. (159th in the world according to the IMF).


Nepal is also ranked 45th in the Ease of Doing Business ranking. This means that Nepal has quite favorable conditions for starting a business compared to other countries, but it is worth paying attention to the existing nuances in the legislation of the state. 

Historical legacy of Nepal’s economy

Since 1983, the government of Nepal has signed investment protection agreements with 5 countries, and since 1987, double taxation agreements have been signed with 10 countries. In 2014, the government of Nepal imposed minimum restrictions on foreign grants, loans and commercial loans from development partners.


In the second half of the 1990s, international agreements were concluded to promote Nepal’s foreign trade: a quadripartite agreement between states with interests in northeast South Asia – Nepal, India, Bangladesh and Bhutan (1995); between Nepal and Bangladesh (1998), providing direct communication through India, which previously strictly regulated it; between Nepal and India in hydropower and irrigation construction (1997).


The balance of foreign trade in goods has improved since 2000 with growth in Nepal’s carpet and garment industry. In fiscal year 2000-2001, export growth (14%) exceeded imports (4.5%), which helped reduce the trade deficit by 4% from the previous year to $749 million. 


The European Union has recently become the largest buyer of Nepal’s manufactured goods. Exports to the EU accounted for 46.13% of total national garment exports. 


The annual monsoon rains (or lack thereof) strongly affect economic growth. From 1996 to 1999, real GDP growth averaged less than 4%. Growth recovered in 1999 to 6%, declining to 5.5% by 2001.


Strong export performance, tourism revenues, and foreign aid have helped improve the overall balance of payments. Nepal receives significant amounts of foreign aid-from the United Kingdom, the United States, Japan, Germany, and Scandinavian countries.


A number of international organizations such as the World Bank, Asian Development Bank and UN development programs also provide assistance to Nepal.

Nepal’s Self-Determination

Nepal usually identifies itself as a member of the Non-Aligned Movement and strives not to give preference to any one country in its external contacts. In reality, however, the historical importance of Nepal’s political, economic and strategic ties with India continues to be felt. 


According to members of the Nepalese government themselves, membership in the WTO brings benefits as well as challenges to Nepal’s economy.

Foreign trade

Nepal’s main trading partners are India (65%) and China (12%). Apart from them, Nepal’s main trading partners also include Saudi Arabia, Indonesia, Singapore, Thailand, the United Kingdom, Japan, Malaysia, and the United States.


The main export items are textiles (carpets, yarn, ready-made garments, jute and pashmina products), tea, beans, medicinal herbs, ginger, cardamom, leather raw materials, fruit juices, and souvenir handicrafts. The most important and fastest growing item of imports is fuel and lubricants. Significant amounts of foodstuffs and finished industrial products are imported: machine tools, equipment, vehicles and spare parts, fertilizers and building materials.

Foreign Investment

The Government of Nepal has recently embarked on a policy of liberalizing the economy by encouraging foreign investment. Nepal continues to maintain control over capital investment. Foreign investment is fully convertible into capital account. 


Nepal has adopted a very liberal policy on international exchange, trade, industry and tax policy in order to encourage foreign direct investment. Nepal has to compete with neighboring countries to attract foreign investors.


As of May 2019, Nepal has diplomatic relations with 165 nations around the world. There are 27 foreign embassies operating in Kathmandu, as well as a European Union diplomatic mission and several offices of UN specialized agencies and international financial institutions (UNDP, UNICEF, WHO, FAO, UNFPA, ILO, IBRD, IMF). Nepal has 30 embassies of its own, six consulates general and permanent missions to the UN and other international organizations in New York, Vienna and Geneva. Honorary consulates of 44 countries are located in the capital. There are 64 honorary consuls of Nepal in various countries around the world (including Russia).


In the international arena, Nepal pursues a pragmatic line to ensure a favorable external environment for the protection of national interests, the inflow of foreign aid and investment in the country’s economy. Kathmandu emphasizes its strict adherence to the UN Charter, the tenets of the Non-Aligned Movement, and the five principles of peaceful coexistence (panchashila). Since joining the UN in 1955, Nepal has been an active participant in its peacekeeping activities.