If Nepal’s digital economy were a download, it would be stuck at 52%—and buffering. The Himalayan republic has made imposing strides in building the pipes, data centres and cloud platforms that underpin the modern internet. Yet for all this infrastructure, the country’s digital transformation remains conspicuously incomplete. High-speed broadband is widespread among firms, however fewer than half maintain a website. Mobile coverage blankets nearly nine-tenths of the population but average speeds still lag the region. And although policymakers speak fluent tech jargon, many households remain offline, offline and off the radar.
It is not for lack of ambition. The government has declared 2024–2034 the “Information Technology Decade”, setting lofty goals for job creation and GDP growth through digital means. The Digital Nepal Framework, launched in 2019, outlined 80 initiatives spanning eight sectors. The 16th development plan targets a 5% GDP contribution from the IT sector (versus the current 1.7%) and 250,000 new jobs by 2029. The underlying logic is sound: digital infrastructure boosts competitiveness; fosters innovation; and cuts costs for everyone from small shopkeepers to software engineers. But digital growth, like electrical current, requires a closed loop: investment alone achieves little without uptake and use.
Physically, hard infrastructure is not the weakest link. Notwithstanding being landlocked and reliant on costly bandwidth imports from India and China—NPR 4.7bn’s worth in 2023—the country has built a robust domestic network. Its fixed broadband backbone stretches nearly 5,000km, albeit with a glaring hole: about half the population lives more than 10km from a fibre-optic line. Mobile networks are more inclusive. By 2023 4G coverage reached 88% of the population while 3G extended slightly further. Even 5G has been piloted, though with only 5% coverage and no commercial availability, it remains a promise rather than a product.
Data infrastructure is arguably Nepal’s crown jewel. The Nepal Internet Exchange Point (NIXP), established in 2002, connects ISPs, telecoms and government agencies, routing local traffic domestically and trimming expensive foreign transit. It has more members than most South Asian peers, and the country hosts six colocation data centres—a higher-than-average density for the region. These shared facilities lessen costs for firms and grease the transition to cloud services. Alongside a growing ecosystem of content providers and cloud platforms, this positions Nepal well above its neighbours (with the exception of India) on digital plumbing.
But the pipes carry surprisingly little water. Internet usage remains stubbornly low. Only 37.8% of households are online. Just 15% own a computer. Most formal firms have broadband—96.7% of large ones, 93.7% of medium, 92.1% of small—but barely half have a website. Digital payments are rarer still: only 9.6% of firms make payments electronically, well below the regional average and even below consumer-side adoption. By contrast, 23.3% of sales are paid for electronically, suggesting customers are more ready for digital than the businesses serving them.
The manufacturing sector is particularly digitally underpowered. ICT capital—both hardware and software—remains negligible. Between 2011/12 and 2018/19 tangible ICT investment per worker rose from NPR 7,049 to NPR 9,562 (a mere 3.9% compound annual growth). Intangible ICT capital fell by 5.8% a year. ICT’s share of total capital is a dismal 1.1%, compared with over 5% in China and around 4% across the OECD. The consequence is predictable: slower innovation, lower productivity and constrained competitiveness.
Where digital technologies have taken root, the effects are unambiguous. Website usage is associated with a 27% boost in labour productivity for manufacturing firms. A 1% bump in ICT capital yields a 10% productivity gain. Pandemic-era adopters who invested in digital tools posted an 8% hike in digital sales relative to their offline peers. Retail, unsurprisingly, has led the charge: website usage in the sector grew by 47.2 percentage points over the last decade. Platforms like Daraz, Nepal’s answer to Amazon, expanded their seller base eightfold between 2019 and 2024. CloudFactory, a business-process outsourcing firm founded in 2010, now employs 325 full-time staff and more than 4,000 gig workers, mainly in Nepal and Kenya.
COVID-19 proved to be a digital inflection point. The share of firms investing in ICT doubled from 15.3% to 27.4% between June 2021 and May 2022. For the first time, many businesses recognised digital tools not as luxuries but as lifelines. The effect was broad-based across firm sizes and sectors. Yet post-pandemic momentum is already showing signs of fatigue. Regulatory inertia has slowed down core initiatives. Digital signatures are still not widely adopted. 5G rollout has stalled. The Rural Telecommunications Development Fund (RTDF), designed to expand fibre to underserved areas, is bogged down in legal and managerial delays.
The deeper issue is one of incentives. In remote or rural areas broadband expansion is rarely commercially viable without state support. Digital skills remain unevenly distributed, particularly among older populations and low-income households. Even when firms go online, their use of technology often remains superficial: focused more on connectivity than transformation. Many businesses lack the know-how, capital or risk appetite to digitise internal processes, adopt cloud platforms or engage in data analytics. For now the country has a 21st-century infrastructure and a 20th-century business culture.
Some progress is being made. Government policy increasingly recognises the importance of soft infrastructure—regulation, standards, skills—alongside hard infrastructure. Plans are in motion to expand digital literacy training in schools and communities. There is talk of subsidising devices for low-income households. If implemented properly, these could help close the yawning “usage gap” that plagues Nepal’s digital ecosystem.
What would success look like? Not only more fibre or faster mobile speeds but deeper integration of technology into everyday economic life. Digital tools should diminish search costs, replication costs, verification costs—making firms more efficient and citizens more connected. Used well, they could augment inclusion, create jobs and enable Nepal to leapfrog some of the labour-intensive stages of industrialisation.
All along the watchtower
The country has already built more digital support than many expected. But support alone does not make a skyscraper. Unless the country can convert infrastructure into usage, and connectivity into productivity, it risks being a high-bandwidth nation with low-bandwidth outcomes. In a world where everything is going online, it must avoid becoming the country that forgot to click “submit”. ■
