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U N I T E D N AT I O N S C O N F E R E N C E O N T R A D E A N D D E V E L O P M E N T Nepal Rapid eTrade Readiness Assessment
U N I T E D N AT I O N S C O N F E R E N C E O N T R A D E A N D D E V E L O P M E N T
Nepal
Rapid eTrade Readiness Assessment
New York and Geneva, 2017
ii Nepal Rapid eTrade Readiness Assessment
© 2017, United Nations
This work is available open access by complying with the Creative Commons licence created for intergovernmental
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The findings, interpretations and conclusions expressed herein are those of the authors and do not necessarily
reflect the views of the United Nations, its officials or Member States.
The designation employed and the presentation of material on any map in this work do not imply the expression
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Photocopies and reproductions of excerpts are allowed with proper credits.
This publication has been edited externally.
United Nations publication issued by the United Nations Conference on Trade and Development.
UNCTAD/DTL/STICT/2017/11
NOTE iii
NOTE
Within the UNCTAD Division on Technology and Logistics, the ICT Policy Section carries out policy-oriented
analytical work on the development implications of information and communication technologies (ICTs) and
e-commerce. It is responsible for the preparation of the Information Economy Report (IER) as well as thematic
studies on ICT for Development.
The ICT Policy Section promotes international dialogue on issues related to ICTs for development and contributes
to building developing countries’ capacities to measure the information economy and to design and implement
relevant policies and legal frameworks. It also monitors the global state of e-commerce legislation (unctad.org/
cyberlawtracker). Since 2016, the section has coordinated a new multi-stakeholders’ initiative entitled eTrade
for all (etradeforall.org), which aims to improve the ability of developing countries, particularly least developed
countries (LDCs), to use and benefit from e-commerce.
Reference to companies and their activities should not be construed as an endorsement by UNCTAD of those
companies or their activities.
The following symbols have been used in the tables:
Two dots (..) indicate that data are not available or are not separately reported. Rows in tables have been omitted
in those cases where no data are available for any of the elements in the row;
A dash (-) indicates that the item is equal to zero or its value is negligible;
Reference to “dollars” (USD) means United States of America dollars, unless otherwise indicated;
Details and percentages in tables do not necessarily add up to the totals because of rounding.
iv Nepal Rapid eTrade Readiness Assessment
PREFACE
The eTrade for all Initiative, launched at the fourteenth Ministerial Conference of UNCTAD in July 2016, is a practical
example of how to harness the digital economy in support of the 2030 Agenda for Sustainable Development,
notably Sustainable Development Goals (SDGs) 5, 8, 9, and 17. The initiative seeks to raise awareness, enhance
synergies, and increase the scale of existing and new efforts by the development community to strengthen the
ability of developing countries to engage in and benefit from e-commerce by addressing seven relevant policy
areas:
• E-commerce readiness assessment and strategy formulation
• ICT infrastructure and services
• Trade logistics and trade facilitation
• Payment solutions
• Legal and regulatory frameworks
• E-commerce skills development
• Access to financing
As part of the initiative, demand-driven assessments are envisaged to provide a basic analysis of the current
e-commerce situation in the countries concerned, and to identify opportunities and barriers. The resulting reports
will serve as a valuable input to these countries’ involvement in various discussions related to e-commerce and
digital trade, the new UNCTAD Intergovernmental Group of Experts on E-commerce and the Digital Economy.
It may furthermore help LDCs to identify areas in which they could benefit from assistance by partners of eTrade
for all.
The Nepal Rapid e-Trade Readiness Assessment is the fourth such assessment conducted by UNCTAD. It has
benefited from excellent collaboration with the Enhanced Integrated Framework (EIF), which funded the report. It
is hoped that the report will contribute to the Government of Nepal’s quest to build a robust, safe and business-
friendly e-commerce ecosystem.
With the EIF and other eTrade for all partners, UNCTAD is committed to continue supporting Nepal in its resolve
to harness the potential of e-commerce for its development.
Shamika N. Sirimanne
Director, Division on Technology and Logistics, UNCTADACKNOWLEDGEMENTS v
ACKNOWLEDGEMENTS
This Rapid eTrade Readiness Assessment for Nepal was prepared by Sven Callebaut, UNCTAD Consultant,
with the support of Shiv Raj Bhatt, National Consultant, under the supervision of Cécile Barayre, Economic
Affairs Officer, Marian Pletosu, UNCTAD Consultant, Rahul Bhatnagar, Economic Affairs Officer, and the overall
guidance of Torbjörn Fredriksson, Chief, ICT Policy Section, Science, Technology and ICT Branch, Division on
Technology and Logistics, UNCTAD.
The consultant wishes to express his profound gratitude to the Honourable Naindra Prasad Upadhaya, Commerce
Secretary, Ministry of Commerce, Government of Nepal, Toya Narayan Gyawali, Joint Secretary, Ministry of
Commerce, Government of Nepal and Vidur Ghimire, National Programme Manager, National Implementation
Unit of the Enhanced Integrated Framework (EIF) programme in Nepal for their guidance and kind advice before,
during and after the eTrade readiness assessment in-country mission and for providing access to the most
updated e-commerce data.
In Geneva, the assessment was made possible thanks to the timely support of the Permanent Representative
of Nepal to the United Nations, the Executive Secretariat of the Enhanced Integrated Framework and UNOPS
office, acting as the EIF Trust Fund Manager.
The assessment benefited from inputs from more than 60 Nepalese institutions in both public and private
sectors, through the eTrade for all online surveys and subsequent interviews in Kathmandu. The consultant
wishes to thank all individuals who took part in the focus group discussions in the Ministry of Commerce facilities
in Kathmandu.
Appreciation also goes to the Nepal Economic Forum and the Economic Policy Incubator (Nepal) for sharing up-
to-date data on e-commerce payment flows in Nepal. Data from their most recent reports were used extensively
in the Payment Solution section of this report.
Desktop publishing was prepared by Nathalie Loriot and the cover was designed by Nadège Hadjémian. The
document was externally edited by Nancy Biersteker.
Funding for this report was provided by the Enhanced Integrated Framework, a core partner of the eTrade for all
initiative.vi Nepal Rapid eTrade Readiness Assessment
TABLE OF CONTENTS
NOTE............................................................................................................................................................... III
PREFACE........................................................................................................................................................ IV
ACKNOWLEDGEMENTS................................................................................................................................ V
ABBREVIATIONS..........................................................................................................................................VII
EXECUTIVE SUMMARY................................................................................................................................. 1
METHODOLOGY............................................................................................................................................. 2
SUMMARY OF FINDINGS AND RECOMMENDATIONS............................................................................... 3
FINDINGS UNDER THE SEVEN ETRADE FOR ALL POLICY AREAS.......................................................... 4
1. E-COMMERCE READINESS ASSESSMENTS AND STRATEGY FORMULATION ................................... 4
2. ICT INFRASTRUCTURE AND SERVICES ............................................................................................... 8
3. TRADE LOGISTICS AND TRADE FACILITATION .................................................................................. 11
4. PAYMENT SOLUTIONS ....................................................................................................................... 14
5. LEGAL AND REGULATORY FRAMEWORKS ....................................................................................... 17
6. E-COMMERCE SKILLS DEVELOPMENT ............................................................................................. 18
7. ACCESS TO FINANCING...................................................................................................................... 21
CONCLUSION............................................................................................................................................... 25
THE WAY FORWARD: ACTION MATRIX..................................................................................................... 26
ANNEX I: NEPAL COUNTRY PROFILE ON ETRADEFORALL.ORG.......................................................... 30
ANNEX II: BIBLIOGRAPHY AND WEBSITES USED................................................................................... 32ABBREVIATIONS vii
ABBREVIATIONS
ADB Asian Development Bank
AFT Aid for Trade
APGML Asia / Pacific Group on Money Laundering
ASYCUDA Automated System for Customs Data
ATM Automatic Teller Machine
B4ETD Business for eTrade Development
BFI Banking and Financial institutions
BPO Business Processing Outsourcing
CIB Credit Information Bureau
CIC Community Information Center
COD Cash on Delivery
CRMSAP Customs Reform and Modernization Strategies and Action Plan
DoC Department of Customs
DP Development Partner
DTIS Diagnostic Trade Integration Study
EIF Enhanced Integrated Framework
EIF ES Executive Secretariat of the Enhanced Integrated Framework
EPI Economic Policy Incubator Programme
ETA Electronic Transaction Act
EU European Union
FATF Financial Action Task Force
FCGO Financial Comptroller General Office
FDI Foreign Direct Investment
FNCCI Federation of Nepalese Chambers of Commerce and Industry
FSP Financial Service Providers
FY Fiscal year
GoN Government of Nepal
HLCIT High Level Commission for Information Technology
IBN Investment Board of Nepal
ICT Information and Communication Technology
ICTPR ICT Policy Review Programme
IME International Money Express
ISP Internet service providers
IT Information Technology
ITES Information Technology Enabled Services
ITU International Telecommunication Union
MFS Mobile Financial Services
MoC Ministry of Commerce
MoF Ministry of Finance
MoI Ministry of Industry
MoIC Ministry of Information and Communications
MoPIT Ministry of Physical Infrastructure and Transport
MoSTE Ministry of Science, Technology and the Environment
MoU Memorandum of Understanding
MNO Mobile network operatorviii Nepal Rapid eTrade Readiness Assessment MSME Micro, Small and Medium Enterprises NECAS Nepal Customs Automation System NEF Nepal Economic Forum NICTP National Information and Communication Technology Policy NIDMC Nepal ID Card Management Centre NPC National Planning Commission NPR Nepalese Rupee NPS National Payment System NRB Nepal Rastra Bank NTA Nepal Telecommunications Authority NTIS Nepal Trade Integration Strategy POS Point of Sales PPP Public-Private Partnership PSO Payment System Operator PSP Payment Service Provider QoS Quality of Service RTI Right to Information Act SAARC South Asian Association for Regional Cooperation SCWEC SAARC Chamber Women Entrepreneurs Council SDF SAARC Development Fund SME Small and Medium Enterprises TFA Trade Facilitation Agreement UNCTAD United Nations Conference on Trade and Development UPU Universal Postal Union USD United States Dollar VDC Village Development Committee WEAN Women Entrepreneurs Association of Nepal WEF World Economic Forum WTO World Trade Organization
EXECUTIVE SUMMARY 1
EXECUTIVE SUMMARY
The e-commerce industry in Nepal is at a nascent methods, means that Nepalis cannot use
stage and represents an underexplored market. The their payment cards to purchase goods from
fast-increasing Internet penetration, especially in international e-commerce platforms. High
the Kathmandu Valley, has opened opportunities for commissions charged by electronic payment
several e-trade niches. Domestic and foreign players services discourage businesses from
are trying to address the needs of the e-commerce using these services. These are “collateral
ready population, creating healthy competition, in damages” from the restrictions imposed on
particular among financial service and payment the Nepalese banking system as a whole and
service providers. This marked increase in demand are not confined to the e-commerce Financial
for e-commerce in Nepal is attributed to a growing Service Providers (FSPs) and Payment Service
segment of the population that is young, educated Providers (PSPs).
and technology-dependent. Sectors benefiting from
–– A lack of adequate logistics and transportation
this e-commerce development includes retail, mobile
infrastructure, critical to supply chain
operators and payment sectors.
management, and a lack of proper addressing
system for houses hamper deliveries.
Despite these promising trends, e-commerce is
currently not achieving its full development potential in –– A slightly outdated legal and regulatory
Nepal. E-commerce could become a key contributor framework, especially regarding restrictions
to economic growth and foreign trade in years to come, on FDI for retail (since e-commerce is not
thanks to better ICT infrastructure and innovation. recognized as its own separate industry),
The steady rise of Internet use in Nepal has improved data protection and privacy and electronic
accessibility of e-commerce for the population. As of transactions, is slowing down e-commerce
April 2017, Internet penetration was at 58 per cent, uptake and online trust.
from 8 per cent in 2010. Most consumers in Nepal
The Government of Nepal, through Nepal Rastra Bank
access the Internet through 2G or 3G mobile data
(the Central Bank of Nepal), the Ministry of Commerce
services.
and the Ministry of Information and Communication
have taken steps with a view to address constraints
Several factors continue to hamper e-commerce
faced by the young e-commerce ecosystem. This
development in Nepal:
includes developing an ambitious national ICT policy,
–– Transportation and distribution channels are singling out Information Technology Enabled Services
major challenges, as volumes are well below (ITES) and Business Processing Outsourcing (BPO) as
the levels that will attract main logistics players. services export priorities, and setting up a joint task
Cash-On-Delivery is the preferred e-commerce force on e-commerce.
payment method; around 85 per cent of
Moving forward, it will be crucial for the Government
e-commerce users indicating preference
to take steps to facilitate e-commerce and to seize
for that method. Digital payment gateways
opportunities from it. This involves dealing with
such as eSewa, IMEPay are the second
potential cost and challenges arising from e-commerce
most popular method with 10 per cent of
development. Taking steps in that direction would
e-commerce transactions, leaving only 4 per
be both timely and instrumental as e-commerce
cent of e-commerce customers using payment
is expected to grow multi-fold in the coming years.
cards to buy online.
The action matrix contained in this report includes
–– Difficulties in cross-border money transfer, recommendations to accompany and accelerate this
in accepting payments for both the exporter process, along the seven policy areas promoted by
and retailer through international payment the eTrade for all Initiative.2 Nepal Rapid eTrade Readiness Assessment
METHODOLOGY
Figure 1. Survey methodology
eTrade
Stakeholder
PHASE 1 Literature review Readiness
engagement
Questionnaire
Summary
Questionnaire Dissemination
PHASE 2 customization of questionnaires
+
eTrade
Semi-structured Local validation of Readiness
PHASE 3 interviews in-country early findings Report
+
Report Validation
PHASE 4 drafting by UNCTAD Action
Matrix
A four-step approach was used for the Rapid eTrade 2017 during the consultants’ mission to Kathman-
Readiness Assessment for Nepal, to ensure a high level du. A total of six (6) focus-group meetings were
of participation and engagement of key stakeholders held. Meetings were organized by the MoC with
in the consultative process: the following sectors: regulatory, ICT, banking and
insurance, exporters, training and education and
✓✓ Phase 1 | Stakeholder engagement and litera- e-commerce vendors. Briefings on early findings
ture review, 10-30 June 2017. It included of- and suggestions were presented to the Honour-
ficial communications between UNCTAD, the able Commerce Secretary on 31 August 2017.
Nepal Ministry of Commerce (MoC) in Kath-
mandu and the Executive Secretariat of the ✓✓ Phase 4 | Report writing and finalization with
Enhanced Integrated Framework (EIF ES) at UNCTAD, 10 September– 25 October 2017.
the World Trade Organization (WTO) in Geneva As with all other Rapid eTrade Readiness Assessments,
(as the donor for this assessment). Literature the seven policy areas used in the eTrade for all initiative
review and data analysis were made possible were used as entry points for this assessment. These
through access to up-to-date statistics provid- are:
ed by ITU, UPU and the World Bank, in addition
to data compiled by UNCTAD on behalf of the ✓✓ E-commerce readiness assessment and strategy
eTrade for all initiative. formulation
✓✓ Phase 2 | Questionnaire customization and dis- ✓✓ ICT infrastructure and services
semination, 5-27 August 2017. Two (2) custom-
ized questionnaires for the public and private ✓✓ Trade logistics and trade facilitation
sectors were distributed by MoC to more than ✓✓ Payment solutions
100 stakeholders in Nepal. A total of 48 com-
✓✓ Legal and regulatory frameworks
pleted questionnaires were used for this report.
✓✓ E-commerce skills development
✓✓ Phase 3 | Semi-structured in-country interviews
and local validation, 27 August to 1 September ✓✓ Access to financingSUMMARY OF FINDINGS AND RECOMMENDATIONS 3
The information provided in this report is therefore questionnaires and secondary data provided by the
based on data collected from 48 respondents Ministry of Commerce (MoC), the Economic Policy
to the survey from both the public and private Incubator (EPI) Programme for Nepal funded by
sectors and the 40 participants in the six (6) focus- the UK Department for International Development
group meetings in Kathmandu on 27 August – (DFID) and the Nepal Economic Forum (NEF)
1 September 2017. The study benefited from “Cross-border e-commerce ecosystem in Nepal”
primary data collected using responses to programme.
SUMMARY OF FINDINGS AND RECOMMENDATIONS
MAIN FINDINGS MAIN RECOMMENDATIONS
e-Commerce Readiness Assessment and Strategies Formulation
Recent broad recognition of the untapped potential of ICT Enhance inter-ministerial coordination to promote development gains
and e-commerce has led to initial steps towards inter- from ICT and e-commerce, developing a national strategy spearheaded
ministerial coordination but is hampered by the lack of a by recent efforts from the Nepal Rastra Bank to develop a supportive
single vision and identification of e-commerce as a single financial environment and backed by a supportive private sector.
sector.
ICT Infrastructure and Services
Steady investment in ICT, including mobile infrastructure, More comprehensive geographic coverage would facilitate domestic
has enabled major growth in mobile and Internet e-commerce. Continued investment in fibre-optic backbone networks
penetration. There is still a lot of room for improvement in in the more remote areas would be welcome, ensuring charges for
terms of mobile network coverage, international Internet use of that backbone do not discourage the mobile operators from
bandwidth, secure Internet services and power supply. expanding their networks.
Trade Logistics and Trade Facilitation
Several logistics and regulatory bottlenecks hamper cross- Implementation of the Fifth Customs Reform and Modernization
border trade and impede e-commerce. This is coupled by a Strategic and Action Plan (CRMSAP) 2017-2021 will ensure increased
lack of a proper postal addressing system making last-mile digitalization of customs procedures. Efforts should be taken to
delivery challenging. The lack of reliable logistics services encourage existing logistics providers to add value by bundling together
outside the Kathmandu ring road inhibits the completion of various products and services (e.g. COD, cash management, etc.) and
e-commerce transactions. work with Postal Services to improve the addressing system.
Payment Solutions
Innovative solutions have been developed by new PSPs, Accelerate upgrade of financial system by enhancing dialogue between Nepal
banks and mobile operators, allowing for increased Rastra Bank (NRB), Financial Service Providers (FSPs) and Payment Service
volumes of domestic e-commerce, while international Providers (PSPs), regarding access to cashless payments for international
payment is limited to “remittance gifts”, due to severe e-commerce. Efforts should focus on increasing the level of adoption of
constraints on international means of payments. Payment technology such as mobile banking, Internet banking, credit and debit cards,
was consistently rated as the single, most important factor POS/POT machines and reducing regulatory impediments and usage barriers
hampering e-commerce development. needs mismatch.
Legal and Regulatory Framework
Several acts approved in the past 10 years provide a A supportive legal framework is required to generate trust in online
basis, although an outdated one, for e-commerce legal transactions. There is a strong need to formulate forward-looking laws
and regulatory framework. Multiple ministries encompass in various legal areas to improve users’ confidence in online transactions
e-commerce but a common platform for coordination has not and to update existing ICT-related laws (all of which are more than 10
been created. The unclear categorization of e-commerce as years old) to improve trust in online marketplaces as well as foster FDI
an industry has proven to be a barrier for foreign investment. in e-commerce.4 Nepal Rapid eTrade Readiness Assessment
MAIN FINDINGS MAIN RECOMMENDATIONS
E-commerce Skills Development
Nepal’s IT-savvy young segment of the population is a promising E-commerce has potential for job creation, both in the urban and rural
factor for e-commerce skill development. E-commerce requires areas of Nepal and beyond, use of social media networks and apps as
a diverse array of skill sets ranging from content marketing trading platforms. Tertiary education providers can work more closely
to data analysis and programming that universities are only with the ICT industry to ensure employability of new entrants in the
starting to embed or upgrade in their ICT curricula. industry.
Access to Financing
Banks’ ability to provide loans is hampered by a lack Help leading banks and prominent PSP develop innovative products for
of confidence in the information provided by the Credit MSMEs wishing to invest in the e-economy, once they have been able
Information Bureau of Nepal. Reliance on informal financial to be formally registered. This should particularly target the increasing
services has important implications for the adoption of number of startups active in the financial technology (fintech) and
electronic payments and, consequently, stimulation of cashless payments segments, whose business models can be nurtured
e-commerce. Similarly, e-commerce is considered a risky through support to business incubators.
“sector” for which banks are not yet ready to develop
customized financial products for MSMEs.
FINDINGS UNDER THE SEVEN ETRADE FOR ALL
POLICY AREAS
1. E-COMMERCE READINESS ICTs and e-commerce are increasingly at the core of
ASSESSMENTS AND STRATEGY strategies aimed at achieving the goals of sustainable
FORMULATION development and stimulating economic growth. To
that effect, the Government is taking the opportunity to
The past 18 months have seen a remarkable increase integrate new technologies into different policy areas to
in both the business’ and Government’s interests in reduce the development divide and increase the quality
capturing the untapped potential of e-commerce in of life of its citizens.
Nepal. Several studies such as those listed in Annex II
Nepal’s 2015 National Information and Communication
have highlighted the potential of e-commerce in the
Technology Policy (NICTP) aims to promote a stable,
country from different perspectives.
fair and competitive climate to facilitate e-commerce
The studies reviewed and interviews conducted for this development in the country. The policy touches on
assessment underscore the same factors as to why different aspects of e-commerce: development of effective
Nepal is considered to be on the verge of embracing laws and regulations governing e-commerce; monetary
e-commerce fully: and fiscal policy measures that increase consumers’
✓✓ Increasing Internet penetration; confidence; promotion of e-payment solutions: and the
culture of e-commerce in the country, among others.
✓✓ Existence of a basic ICT infrastructure; The policy is intended to create the groundwork for an
✓✓ Readiness of the private sector; overarching vision of a “Digital Nepal”. In the realization of
this vision, ICTs will be a key driving force in transforming
✓✓ Commitment of several regulatory and facilitating
Nepali society into a knowledge and information-based
agencies;
society and strengthening Nepal’s pursuit of equality
✓✓ Development of a rapidly expanding educated and sustainable growth by leveraging information and
workforce; communication technology (Table I).
✓✓ Increased use of social platforms and apps, in- Similarly, on the trade side, the Ministry of Commerce
cluding business transactions; (MoC) has started to recognize the role of IT services
✓✓ Increasing demand for digital payments, includ- and the potential of the BPO sector to diversify exports
ing for utility bills and e-government services. (Table II).FINDING UNDER THE SEVEN eTRADE FOR ALL POLICY AREAS 5
Table I: National ICT Policy Objectives
NICTP Overall Objectives selected from NICPT 2015 Report
11.3 To promote ICT to further productivity among the sectors that are key drivers of the national economy.
11.6 To further streamline clear strategies and obligations for licensed ICT service providers with respect to universal access/service goals
and Quality of Service (QoS) and ensure cost-effective connectivity to ICT services such as Internet, e-commerce and e-government
services.
11.9 To promote cost-effective and qualitative last-mile access technologies for providing secure access to Internet including commercial
and public information services, e-government applications by communities.
11.17 To facilitate the participation of youths and women in ICTs particularly in media and content development initiatives.
11.30 To promote a stable, fair and competitive investment climate to facilitate the development of e-trade and e-commerce activities in the
country.
11.31 To develop a highly competitive ICT industry capable of driving Nepal’s active participation in global trade.
11.32 To facilitate the adoption of e-commerce especially by SMEs in agriculture, tourism and manufacturing as well as non-traditional
exports to ensure productivity and growth.
11.40 To support formulation of a development strategy for ICT-converged services to support and plan for mid- to long-term solutions to
overcome the digital divide.
Key NICTP Action 7.3: Promoting public access and content development
7.3.2 The initiative to transform Postal Offices and Community libraries as public access points for e-commerce, e-government and
Internet-based services with the support of the private sector and civil society will be strengthened.
Key NICTP Action 7.6: ICT in SMEs and promotion of e-commerce
7.6.1 Measures will be taken to encourage and strengthen electronic payment system in the country to facilitate enhanced growth of
e-commerce and enable on-line payment transactions in e-government services.
7.6.2 A comprehensive national e-Commerce Readiness Assessment, which will feature benchmarking with international best practices
will be carried out.
7.6.3 Steps will be taken to create an internationally compatible legal and regulatory framework that accommodates rules for commercial
transactions.
7.6.4 Appropriate monetary and fiscal policy measures will be established to ensure consumer confidence in e-commerce.
7.6.5 Mechanisms to protect intellectual property rights related to e-commerce will be strengthened.
7.6.6 Special program will be formulated in conjunction with trade and commerce related organizations to drive the uptake of e-commerce
in Nepal.
7.6.7 In advancing its e-commerce strategy, the Government will promote its collaboration with the private sector and its international
counterparts to position and promote e-commerce.
7.6.8 A conducive system for the protection of intellectual property rights in cyberspace will be put in place.
7.6.9 Measures will be taken to address issues relevant to privacy, such as protection of personal information and confidentiality of
consumer-related matters.
Source: NICTP 20156 Nepal Rapid eTrade Readiness Assessment
Table II: NTIS 2016 priorities for the IT and BPO sector
Outcome and Actions 2014 Baseline Target by 2017 and 2020 Responsible Agencies
Outcome 18: IT Services Exports of IT and BPO Exports of IT and BPO increased to at least MoIC, MoSTE, MoF, IT and
and Business Process services are estimated at USD100 million BPO Private sector
Outsourcing: New market USD30-35 million in 2014.
for IT and BPO sectors
developed and its export
increased significantly.
Short-term Actions: 2016-2017
Action 1: Ensure a clear Mandates and Clarified mandates and a single government MoIC, MoSTE, OPMCM
oversight structure to responsibilities of MoIC and agency defined responsible for supervising
support the sector. MoSTE in the sector are not the sector
properly defined and are
overlapping.
Action 2: Provide incentives Robust and competitive (1) Corporate income tax holiday until 2020; MoF, MoI, NRB
to attract investments in the investment tax incentives
sector. for the sector are lacking. (2) Zero (0) % excise tax on imported
telecom and
computer equipment;
(3) 100% ownership and dividend / capital
repatriation for foreign investors
Action 4: Lower the cost of The cost of bandwidth is Reduced cost of bandwidth MoIC, MoSTE
bandwidth. 30% higher than in India. on par with India
Medium-term Actions: 2018-2020
Action 1: Improve legal Foreign Investment and Foreign Investment and Technology Transfer MoI, MoC
framework for FDI in the Technology Transfer Act Act 1992 and Rules are amended to take into
sector by making necessary 1992 and Rules have account the needs of the
changes in FDI and not been amended in IT and BPO sectors.
Technology Transfer Act and accordance with WTO
Rules. requirements.
Source: NTIS 2016
To substantiate the above actions, and to initiate the Overlapping mandates and spheres of influence
coordination of efforts at the policy level, MoC has surrounding the ICT sector in Nepal has complicated
recently constituted a high-level committee (Task policy implementation and hampered the smooth
Force), consisting of Nepal Rastra Bank (NRB), the rollout of public and private ICT projects.
Ministry of Information and Communication (MoIC),
the Ministry of Science and Technology (MoST), Currently, the consensus among respondents and
the Financial Comptroller General Office (FCGO), interviewees is that while an ICT policy does exist,
the Ministry of Finance (MoF), as well as private a single shared vision for ICT and e-commerce
sector representatives, to follow through with policy development has yet to materialize. At the time of
implementation. the production of this report, the National ICT Policy
(NICTP) had been adopted, but no act or regulation
However, disparate policy initiatives and institutional had been enacted to support it. Overall, private sector
arrangements for the development of the ICT sector respondents perceived that an overall vision would be
in Nepal underscore the lack of a coherent strategy difficult to develop. At the core of this is the belief that
that is in line with technological trends, such as e-commerce may disrupt existing business models,
Internet and mobile wireless communications. These and that Government and private sector views on this
technological advancements have been accompanied disruption are not aligned. This highlights the need for
by security and privacy concerns, personal safety and a continuous public-private dialogue.
intellectual property rights. The wider uptake of ICTs
also raises new regulatory issues that traditionally The assessment also showed that there was a broad
would be separated from telecommunications policy perception among the private sector respondents that the
and regulations. Government is ill-equipped to regulate the e-commerceFINDING UNDER THE SEVEN eTRADE FOR ALL POLICY AREAS 7
Figure 2: Priority technical assistance needs under the e-commerce strategy policy area
Please rank the following technical assistance areas on their importance to create an
environment conducive to e-commerce in your country (by number of occurences)
Development of a national
e-commerce strategy
Assessment of a country’s
readiness to engage
in e-commerce
Review of the legal/
regulatory framework
for e-commerce
Enhancing the capacity of
policy/law makers on
e-commerce
0 0.5 1 1.5 2 2.5 3 3.5
Source: UNCTAD
development process. Some respondents were also primarily to create a reliable ecosystem for
of the opinion that less Government intervention in the e-commerce, recognizing its crosscutting
sector that is prone to move all its business procedures nature (versus treating ICT and e-commerce as
online would be welcome, as this would imply fewer a subset of retail commerce);
dealings with the bureaucracy and less red tape. Most –– Acceleration and expansion of the scope
respondents concurred that the development of a of e-government applications: this can be
national e-commerce strategy for Nepal - one that would possible by selecting a lead institution able
recognize the specificity of the phenomenon and give it a to integrate e-commerce application in its
proper status - was crucial and a priority. This will ensure services and provide public support to facilitate
that all stakeholders collaborate and are guided by and adoption by MSMEs and citizens.1
work toward the same goals, as seen in Figure 2. An illustration of the lack of confidence of the private
sector in the capacity of the Government to promote
To develop a national shared vision on e-commerce a business-friendly development of the sector is
development, the following steps were recommended/ shown in Figure 3. Most respondents expressed that
have been identified during this rapid assessment: they would rather turn to private sector organizations
for assistance in the development of e-commerce
–– Appreciation of the role of ICT for development: solutions than to a government entity.
e-commerce cannot be fully developed without
robust hard and soft ICT infrastructure; Nonetheless, support for major Government institutions
–– Recognition of the need to co-ordinate is considered critical to address the knowledge and
initiatives amongst various service providers skills gap of the disruption of existing business models
and relevant regulatory institutions; facilitated by ICT and other e-commerce services and
solutions and of developing e-government services (for
–– Creation of a regulatory environment conducive a fee) through dedicated e-commerce platforms. This
to e-commerce: in such a rapidly evolving
ecosystem, traditional ways of regulating 1
For instance, the Ministry of Finance partnered with
among public institutions will not match the ADB, the European Union (EU) and UKAid to
develop an ambitious e-Government procurement
the pace of technological and business system for Nepal (e-GP). See www.adb.org/
advancements. The Government’s role is knowledgeshowcases8 Nepal Rapid eTrade Readiness Assessment
Figure 3: Possible providers of technical assistance
As a business/owner, or e-commerce practitioner, in case you need technical assistance to start
developing e-commerce solutions, who likely are you to turn for help ?
Business
association
Bank
Donor
Government
Ministry
Chamber of
Commerce
UN agency
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Source: UNCTAD
is essential if a national e-commerce strategy is to be Table III: IT Development Ranking in Selected
developed and promoted and can help foster trust and Countries in Asia
create a conducive environment for e-commerce in the Country Ranking
country.
China 81
Sri Lanka 116
2. ICT INFRASTRUCTURE AND
SERVICES Bhutan 117
India 138
a. ICT Infrastructure Nepal 142
Bangladesh 145
Recent international rankings confirm that there is
Pakistan 146
significant room for improvement in ICT infrastructure Source: ITU IDI 2016 report
development in Nepal to be at par with its regional
neighbours. Nepal ranked 108th out of 144 economies coverage, international Internet bandwidth, secure
in the 2017 UNCTAD B2C E-commerce Index, which Internet services and electricity production.
measures the readiness of countries to engage in
online commerce, using four indicators: Internet use Estimates of Internet penetration differ. While the above
penetration, secure servers per one million inhabitants, rankings generated in 2016 indicated average Internet
credit card penetration, and a postal reliability score. penetration of 17 to 20 per cent in 2015, most recent
updates provided by the Nepal Telecommunications
Nepal ranked 142nd out of 175 economies in the 2016 Authority (NTA) indicated that, as of April 20172,
International Telecommunications Union (ITU) ICT Internet penetration in Nepal is now estimated at
Development Index and 118th out of 139 economies 58.31 per cent, with approximately 15 million Internet
in the World Economic Forum (WEF) Networked users. An estimated 97 per cent of total Internet users
Readiness Index. Nepal’s performance in the rankings are doing so through 2G or 3G mobile data services.
differs drastically depending on the sub-index Almost all the growth in web connectivity is attributed
considered, with good scores for affordability and to development in mobile data services.
poor scores in terms of infrastructure development. 2
http://kathmandupost.ekantipur.com/news/2017-05-
This confirms the current gap in mobile network 09/one-in-two-nepalis-use-internet-nta-report.htmlFINDING UNDER THE SEVEN eTRADE FOR ALL POLICY AREAS 9
Table IV: Data subscribers, breakdown by operators, investments for extending ICT infrastructure
2017 throughout the country.
Number of data subscribers /
Mobile operators
Market share The increased subscriber base and greater data use
Nepal Telecom 7.85 Million (54 per cent) has led ICT companies to put more emphasis on
Ncell 6.21 Million (40 per cent) the data segment. Likewise, increased competition
Smart Telecom 118,772 (1.8 per cent) among service providers has helped to bring down
Others (Less than 1 per cent)
tariffs, making it more affordable. For instance, Nepal
Internet Service Providers
Telecom has introduced 4G service in Kathmandu
WorldLink, Subisu and Vianet 200,000 (3.2 per cent)
Valley and in limited areas in Pokhara, while Ncell
Source: Nepal Telecommunications Authority (2017)
has received permission from the NTA to launch
its 4G service. Internet service providers (ISPs),
Growth in the number of private sector operators in
which have already begun to introduce value-added
the ICT sector has resulted in a dramatic increase
services, have also been expanding their cable and
in ICT coverage in Nepal. Effective teledensity3
fibre networks to tap into the market.
increased from 18.8 per cent in 2009 to 64.9 per
cent in 2012 to 131 per cent in 20164. The increase
However, there are concerns regarding the future
in the subscriber base meant great success for
growth in the number of users, as there are significant
past investments, both domestic and foreign.
gaps in coverage in the remote areas of Nepal (see
Survey respondents confirmed that private sector
Figure 4 below). In this regard, the NTA has initiated
enterprises have already committed to increase
a program of investment in fibre-optic backbone
3
Telephone density or teledensity is the number of networks, which will allow mobile operators to
telephone connections for every hundred individuals extend their service coverage. Currently, there are
living within an area. It varies widely across countries
and also between urban and rural areas within a three (3) complete East-West fibre-optic backbones
country (Source: Wikipedia) in the country. A fourth Kathmandu-Hetauda
4
Source: NTA backbone is available through the Nepal Electricity
Figure 4: ICT Infrastructure priorities
Please rank the following areas according to their relative importance to create an environment that is
conducive to e-commerce, 1 being the more important issue and 8 the least important one.
7
6
5
4
3
2
1
0
Increase Increase usage Reduce cost Reduce cost Increase Invest in Promote Promote greater
usage of mobile of Internet use of mobile usage broadband greater competition
of Internet telephony telephony of broadband deployment competition among
use among Internet services
telecom providers
providers
Source: UNCTAD10 Nepal Rapid eTrade Readiness Assessment
Authority, which has commenced hauling optic fibre international payments in Nepal. This remains a critical
cable with the roll-out of high power electrical lines barrier to “international e-commerce”.
infrastructure. In addition, a fifth backbone running
through Kathmandu, Pokhara and Butwal has Online shopping is currently the most popular usage of
likewise been rolled out5. e-commerce in Nepal7. Electronics, home appliances,
fashion and beauty products are some of most popular
b. ICT Services (Government-led) products sold online. Most online shopping portals are
operating under the B2C model, with popular services
To bridge the digital divide, the Government supports including platforms that connect buyers and sellers
the development of ICT services specifically for and offer a wide catalogue of products.
remote provinces, where the gap is most apparent.
It has sponsored programs to establish Community Similar to many other LDCs, Nepal hosts interesting
Information Centers (CICs)6 at 81 different locations cases of businesses starting out on Facebook8,
in 52 districts and to construct five model-CICs in becoming profitable, and then opening physical
each of the development regions under SAARC stores to keep up with demand. Such businesses
Development Fund (SDF). As of September 2015, use their social media pages as advertisement
two CICs had been established in Sipapokhare platforms for their products, providing detailed
and Irkhu Village Development Committees (VDC), descriptions and prices. Instant messaging
the latter located in the Sindhupalchowk District. applications such as Viber and WhatsApp are also
Similar CICs are being established in two locations being used to sell different products. Businesses
in the Dolakha, Kathmandu, Lalitpur and Bhaktapur operating over social media and messaging
Districts. platforms represent an informal market and are,
therefore, unregulated. These platforms are
At a central level, the Government has established not designed to be commercial platforms and
an authorized single window National Business lack many of the features that are required for
Web Portal (http://www.nepal.gov.np) as well e-commerce platforms - e.g. mechanisms for
as a License Portal (http://www.licenseportal. electronic payments.
gov.np), which provide information related to the
services that the different Government bodies offer A supporting infrastructure, capable of reinforcing
and licensing businesses online. In summary, the services in a suitably reliable, efficient and secure
relatively recent and rapid growth in Nepal’s ICT manner, is needed. This requires, inter alia: (1)
sector can be attributed to the developments in secure, payments-grade hosting services, with
the telecommunications industry as well as to the reliable uninterrupted power supply; (2) high-speed
improvement in Internet services crucial to the broadband connectivity, supported by multiple,
development of e-commerce. redundant routing (not two wires down the same
single pipe); and (3) disaster recovery sites. There
c. Leading services and sectors are a number of hosting services in Nepal that are
capable of offering such services, although there
The survey respondents indicated that the retail industry, are questions about their overall capacity, in terms
banks and mobile operators are the sectors that benefit of the number of e-commerce services that could
the most from e-commerce in Nepal. Remarkably, be hosted by the infrastructure that is in place.
the tourism sector, one of the important providers of
foreign currency in the country, was not mentioned. The In conclusion, there will be intensified demand
Nepali online travel market remains a largely untapped for ICT services driven by increased public sector
potential. For example, there are currently no reliable deployment of ICT application and services. In turn,
domestic online platforms for making hotel reservations these will create conditions to stimulate private
in Nepal. This is primarily due to the impossibility for sector investments. The risks perceived by the
small- and medium-enterprises (SMEs) to receive Government, as described in the NICTP, include
5
Source: NICTP 2015, NTA 7
Source: Kaymu.com.np
6
The basic idea of CIC was to create access points for 8
There are an estimated 6.4 million Facebook users in
the delivery of basic e-government services to citizens Nepal (Source: http://www.internetworldstats.com/
all over the country though access to Internet. stats3.htm)FINDING UNDER THE SEVEN eTRADE FOR ALL POLICY AREAS 11
Table V: Main online shopping platforms
Platform Description
Hamrobazar Hamrobazar is free online classified store that allows all types of sellers to list a variety of products online for potential
consumers.
Daraz Nepal Daraz.com.np (previously Kaymu.com.np) is the leader of online retail in Nepal, offering e-commerce services for
apparel, accessories, shoes, beauty products, electronics and general merchandise.
Nepbay Nepbay online store provides a platform for buyers and sellers. Sellers can easily retail their products online on the
website while the consumers can order whatever they want.
Sasto Deal Sasto Deal is one of the largest online shopping site in Nepal. They have got a variety of products with affordable prices;
deliveries are mostly free inside Kathmandu Valley.
Muncha Muncha is an extension of Muncha House, a general store that has been in Nepal for over 70 years. It helps all Nepalese
residing abroad to send gifts and money to Nepal, as well as for locals to shop online locally.
delays in legal, regulatory and institutional reforms business has been limited, with no dedicated freighter
and may hamper much-needed investments in the services. Transportation of goods over land is largely
sector. Chronic power shortages and associated dependent on trucks operated by cartels, which have
persistent challenges could also dampen overall rendered transport costs to be some of the highest
demand for ICT services and create disincentives in the region, and have also affected the quality of
for investment. transport infrastructure.
3. TRADE LOGISTICS AND TRADE As observed in all LDCs surveyed by UNCTAD in the
FACILITATION framework of Rapid e-Trade Readiness Assessments
thus far–Bhutan, Cambodia, and Samoa–two (2)
a. At the infrastructure level common bottlenecks also affect Nepali logistics.
Logistics and transport infrastructure have long suffered First, the lack of a reliable physical addressing system,
from underinvestment and have been vulnerable to both in the Kathmandu Valley and beyond, remains a
natural disasters. Despite this difficulty – i.e. Nepal’s key logistics bottleneck. Delivery of goods in a city and
geography will always present a challenge – and with country without street addresses creates a problem.
the exception of 2015, in the aftermath of the deadly To overcome these challenges, several providers have
earthquake, there has been marked progress in the developed innovative GPS-based solutions, which
past 10 years. Logistics remain a challenge because involve reference to landmarks or the use of collection/
of the lack of transport infrastructure; with limited pick-up points in delineated delivery zones. Second,
road access, e-commerce has been confined to the while most e-commerce packages are small in volume
Kathmandu Valley and certain urban areas. and weight, there is no dedicated solution for Micro,
Small and Medium Enterprises (MSMEs), for example
Goods come to Nepal through India by land or via in the handicraft sector, to export small individual items.
air, and a marginal part is traded over the border with An exporter cannot economically post small items
China. While the air network is extensive, the air cargo internationally – it does not make economic sense to use
Table VI: Comparative Analysis of the Quality of Transport Infrastructure of Nepal
Indicators Rank Rank Rank Rank
Nepal Bhutan Bangladesh India
Quality of roads 118 67 105 55
Quality of airport infrastructure 133 84 115 61
Quality of port infrastructure 135 133 85 47
Quality of overall infrastructure 117 54 118 46
Source: World Economic Forum, The Global Competitiveness Report 2014-201512 Nepal Rapid eTrade Readiness Assessment
Figure 5: Trade Logistics and Trade Facilitation Solutions
Please rank the following areas according to their relative importance to create an environment that is
conducive to e-commerce, 1 being the more important issue and 8 the least important one.
7
6
5
4
3
2
1
0
Availability Single Window De minimis Low No or Full Clear Availability
of online to submit customs shipping minimal electronic information of
payment regulatory regime costs risk of online tracking of about VAT and physical
methods documents fraud all shipments other taxes addresses
at a single applicable
location
Source: UNCTAD
international couriers for small items - and such a service cover the whole of Nepal, including remote areas.
is not offered yet by the Nepalese Postal Service. However, it would appear that domestic courier
services have not fully integrated technology into
Limited quality and reliability of the Nepal post services their delivery services.
is a major concern. In the 2017 UNCTAD B2C
E-commerce index, Nepal’s postal reliability score is In the long run, it is envisaged that the Nepal Postal Services
52 out of 100. The Nepal Postal Services Department could be made more efficient and become a key player in
has been negatively affected by digital advancements e-commerce delivery nationwide. The Postal Services, a
– reliance on e-mails and increased dependence on valuable national resource with good networks and strong
advanced technologies in mobile phones. These have physical presence in all the districts of Nepal, could be
severely restricted their income stream from both letter used in e-commerce delivery system. As one respondent
delivery and telephone landlines, resulting in a lack to the UNCTAD survey indicated, “Just because a service
of investment over a period of years. Consequently, cannot reach 100 per cent of the population doesn’t mean
the Postal Service is currently unable to offer suitable that its potential should be ignored; instead, consideration
e-commerce logistics services. should be given to adopting a dynamic, “launch with what
you have, and seek to grow” approach.9” Other services
Given the challenges cited above, the private sector (e.g. handling COD transactions) could potentially be
has developed innovative delivery and logistics carried out by the Postal Services.
solutions, generally bundling several services into
one to add value. For instance, third party logistic b. At the regulatory level
service providers that provide logistics services to
Nepali e-commerce businesses have emerged. In spite of the introduction of UNCTAD ASYCUDA in
Since almost all e-commerce transactions operate Nepal, customs clearance remains a key bottleneck
on a cash-on-delivery basis, collecting cash and affecting Nepal’s trade competitiveness (Figure 5 above).
managing it are handled by logistics providers. Most respondents involved in international trade cited
customs clearance as their main difficulty. They often
Logistics/courier service providers include described the customs laws in Nepal as “convoluted
international couriers (e.g. DHL, UPS and TNT) and 9
UNCTAD eTrade Readiness Assessment online
a significant number of domestic Nepalese firms that survey questionnairesFINDING UNDER THE SEVEN eTRADE FOR ALL POLICY AREAS 13
Figure 6: Nepal Trade Facilitation Indicators, 2016
Source: Trade Facilitation Indicators, OECD, 2016
and confusing”. At present, there are no regulations in In this context, it can be inferred that significant
Nepal that govern cross-border e-commerce, while progress in improving customs procedures has
more than 60 per cent of Nepal foreign trade is with India. been made and that Nepal has a well-designed
The potential benefits of e-commerce cannot be realized plan for continued customs reform helped by the
unless the Government and businesses exert effort to introduction and recent upgrade of the ASYCUDA
create a strong foundation for e-commerce involving platform. Priorities are well-identified and
Indian counterparts. The implementation of the new understood; thus, the focus is primarily on further
framework under BBIN Motor Vehicle Agreement (MVA) implementation of relevant reforms.
is expected to enhance and ease cross-border trade10.
The Fifth Customs Reform and Modernization
10
Source: Confederation of Nepalese Industry (CNI) Strategic and Action Plan (CRMSAP) 2017-2021
includes several actions geared towards improving
Table VII: Trading across borders in Nepal and in customs procedures:
other regions
South OECD High
Table VIII: Nepal Enhanced Customs Automation
Indicator Nepal
Asia Income and Data Management Priorities
Border compliance Strategy 3: Enhanced Customs Automation and Data
Time to export (hours) 56 59 12 Management
Cost to export (USD) 288 376 150 3.1 Improve the Nepal Customs Automation System (NECAS)
Time to import (hours) 61 116 9
3.1.1 Assess and extend NECAS functionality to include expedited
Cost to import (USD) 190 645 115 shipment, pre-arrival processing, digital signature,
Documentary compliance e-payment, selectivity module, performance module. 12
Time to export (hours) 19 78 3 3.1.2
Update/adjust the path for expedited shipment, pre-
Cost to export (USD) 85 183 36 arrival processing, digital signature, e-payment, selectivity
module, performance module relating to 3.1.1.
Time to import (hours) 48 1106 4
Cost to import (USD) 80 348 26 3.1.5 Develop mobile application for NECAS functionalities.
Source: Doing Business in Nepal 2016 Report (“Trading Source: Fifth Customs Reform and Modernization Strategic and
Across Borders” Category) Action Plan (CRMSAP) 2017-2021, Department of CustomsYou can also read
