FOR MOST countries, a mid-table position in the World Bank’s now-defunct Doing Business rankings would barely raise an eyebrow. In Nepal it is a warning sign of serious institutional failure. Sandwiched between two economic giants, the country should be attracting capital, instead of watching it vanish. Yet its 94th-place finish out of 190 economies only hints at the real problem: a state that cannot, or will not, get out of the way.
Nepal seems to have the basics in place. Starting a business looks straightforward on paper: no minimum capital and eight procedural steps. In reality it is anything but. What should take a week drags on for more than three. The legal cost of opening a business swallows over a fifth of an average citizen’s income. The rules exist. The bureaucracy is the problem, which is slow as well as arbitrary, making compliance the central headache of entrepreneurship.
The same dysfunction runs through the life of a firm. Constructing a warehouse or shop is a test of endurance. Getting a construction permit requires twelve approvals and nearly four months—longer than in war-torn Syria. Connecting to the electricity grid takes 49 days. The cost? 795% of per capita income. Electricity is effectively a regressive tax on business, and its reliability scores zero.
Taxation, one of the easiest fixes, is where Nepal’s failure is most baffling. Firms must make 46 tax payments a year and spend 377 hours on compliance, almost twice as long as in India. The total tax rate, about 42% of profits, is not outrageous. The burden comes from the system: paper-heavy and redundant. Digital reforms are trumpeted, rarely delivered. Policy and reality are miles apart.
Some areas are competent. Cross-border trade is slightly easier than the regional norm. Customs are fairly efficient and logistics manageable. Domestic laws on secured lending are sound, giving a 37th-place ranking for credit access. But these bright spots only highlight the gaps. Only 7.3% of Nepalis appear on the credit bureau. Courts are slow and inconsistent. Insolvency law exists but is unclear in application. Legal frameworks are being built faster than the institutions that should enforce them.
Investor protection is a similar illusion. Shareholder rights exist in theory but not in practice. Directors face almost no legal risk. The liability index is 1 out of 10. Minority investors are warned: enter at your peril. The equity market is shallow. Savings flow into property or gold rather than into productive enterprise.
None of this is unusual in the region. Bangladesh and India have faced similar hurdles. The difference is action. Bangladesh boosted manufacturing exports after streamlining permits and digitising customs in the 2010s. India, despite its red tape, has improved insolvency resolution dramatically. Nepal meanwhile talks modernisation while leaving its regulatory plumbing in the last century.
Entrepreneurs have adapted. Small businesses go informal to dodge taxes. Larger firms hire expensive fixers—or avoid the market altogether. Foreign direct investment is anaemic: less than 1% of GDP, among Asia’s lowest. Vietnam pulled in $25bn last year. Even landlocked Laos did better.
The irony is that Nepal has what it takes. Its location is strategic. Labour is abundant and increasingly skilled. Hydropower could become a regional earner. But energy alone will not drive growth.
The solution is neither radical nor costly. Build basic infrastructure: a tax platform that works; a single-window system for permits; enforceable, time-bound court procedures. Digitise the credit registry, and improve land and property rights. Coordinate utilities so electricity, water and internet do not need separate pilgrimages. No foreign aid or new laws needed: just political will and administrative discipline.
Nepal has spent too long chasing donor approval while ignoring domestic credibility. That may keep aid flowing. It will not attract serious investment. Business is not persuaded by promises; it responds to proof. ■
