The world’s most ambitious trade agreements now span continents, linking factories in Thailand to ports in Turkey. Nepal, sandwiched between two of the biggest economies on earth, cannot even crack its own neighbourhood.
From 1996 to 2023 its exports grew by less than 5% a year in nominal dollar terms, a performance that would look weak even without three decades of booming global trade. Nepal has missed both the manufacturing surge that enriched East Asia and the services boom that transformed parts of South Asia. Its export machine is narrow and technologically backward.
This is not for lack of market access. Nepali goods reach more than 125 countries. But they rarely travel far. Two-thirds of merchandise exports go to India. The United States and the European Union take another fifth. Sales to China, despite shared geography and participation in the Belt and Road Initiative, barely register at 1.1%. Trade with other South Asian partners is negligible: 0.4% with Bangladesh, 0.04% with Pakistan. Nepal trades like an isolated outpost rather than a regional hub.
The content of its exports is as limited as their reach. Most of what leaves the country is low-value, low-complexity fare: food, beverages, textiles and raw farm goods. In 2022 only 0.5% of manufacturing exports qualified as high-tech, measured by the share of research and development in production. That placed Nepal near the bottom of global rankings. Cambodia, with similar income levels and development challenges, managed 6.3%. Kyrgyzstan, another landlocked economy, exceeded 10%. Nepal’s backwardness in technology is both a symptom and cause of its trade failures.
A narrow export base makes the economy fragile. The Covid-19 pandemic exposed this sharply. Services exports, which had peaked at $1.7bn in 2018, collapsed to under $700m by 2021 as tourism dried up. Sales of food and beverages rose—from under $200m in 2019 to $640m in 2021—but not enough to fill the gap. In real terms, total exports have fallen since 2019. Few cushions remain when crises strike.
The country’s failure is not mysterious. It attracts little foreign direct investment, the most reliable vehicle for transferring technology, skills and market access. Unlike Bangladesh, Nepal has no big garment buyers to anchor its export base. Unlike India, it has not lured global technology firms. Unlike Vietnam, it has no export-processing zones humming with activity. Regulatory inconsistency, poor infrastructure, a small domestic market and constant political churn deter the investors who might change this trajectory.
And yet the potential is striking. A World Bank study estimates Nepal’s “missing” exports at $9.2bn, compared with the $1.24bn it actually shipped last year. The figure reflects not hypothetical demand but realisable flows given the country’s resources and location as well as existing capacity. Much of this untapped trade lies in the region, in agriculture and light manufacturing that could be scaled with small technological upgrades. India is an obvious market. China, in theory, an even bigger one.
The developmental stakes are high. Each $1m in additional exports could create 38 jobs in agriculture and 13 in manufacturing. Closing the $9.2bn gap could add more than 220,000 formal jobs—no small number given that the economy is dominated by informality and outmigration. Exporting firms pay better wages and offer more stability than domestic employers. An export surge could help shift the labour force away from Gulf-bound remittances and towards home-grown employment.
Yet policy has lagged behind promise. Export promotion agencies are weak and underfunded. Customs remain slow, logistics creaky, digital infrastructure thin. Regional trade negotiations lack ambition. Most importantly, Nepal has no industrial strategy that links domestic capabilities to global demand.
Policymakers prefer to talk up tourism or hydropower as national bets. But both are hostage to environmental risks and geopolitical uncertainty. Exports of garments, processed foods, light manufacturing and ICT services give faster returns and wider employment, as well as stronger integration, into world markets. They demand less faith in the mountains and more faith in markets.
Neighbours have shown what is possible. Bangladesh turned garments into a national engine. Vietnam built supply chains that stretch into every corner of East Asia. Even small economies, with planning and persistence, have grown big through trade. None of this was automatic: it took infrastructure and incentives on top of institutional reform.
Geography has given Nepal a privileged location, its rivers flowing to the plains and its roads linking China to India. Without vision and execution, however, those advantages count for little. The choice is either stay a bystander in the global economy or join it by building the export capacity that others already take for granted. ■
A version of this piece appeared earlier in August
