IMAGE: BOOGIE FOTO
WHEN A NEW government promises to double the size of the economy in five to seven years, the instinct is to applaud the ambition. Who could object to faster growth, more jobs, a bigger slice of prosperity?
The trouble is that ambition does not show up in the trade statistics. And the trade statistics, in a country that does not export much, are a brutally honest mirror. Nepal’s latest numbers show a nation moving in the opposite direction: importing machinery and fuel by the lorry-load while exporting little more than carpets, tea and the odd shipment of re-exported cooking oil. You cannot double an economy that cannot make anything the world wants to buy.
The scale of the gap is staggering. In the first seven months of this fiscal year, Nepal imported goods worth Rs1.12trn and exported just Rs168bn. For every Rs of machinery exported, it imports 83; for electrical equipment the ratio is an absurd 1,518 to one.
Those are not the figures of a country industrialising at speed. In fact they suggest a country consuming capital it has not earned. Even the headline export growth of 32% turns out to be an illusion: nearly half came from processing and re-exporting edible oils, a trade that can vanish with a change in Indian policy or global prices. Strip it away and the real export base is as slim as it was a decade ago.
Geography makes the bind tighter. India takes 82% of Nepal’s exports and supplies 56% of its imports. That is not a trading relationship: it is a condition of subordination. China supplies a fifth of imports but buys virtually nothing in return. The much-celebrated Belt and Road corridors flow one way. Trade data do not lie: Tatopani customs handled Rs26bn of imports and barely measurable exports. A country that cannot sell to its two giant neighbours has not yet learned to sell at all.
Fiscal reality makes reform harder still. Import duties brought in Rs106bn in seven months, anchoring government revenues. This creates a perverse trap: successful import substitution would cut the revenue the state depends on. No serious industrial policy can succeed when the budget is hostage to the very imports it seeks to replace. The incoming government has yet to explain how it would manage that transition.
Agriculture is an even older embarrassment. Nepal is a farming nation that struggles to feed itself, importing cereals, vegetables, fruit and fertiliser worth Rs118bn. The fertiliser figure alone—Rs43bn in imports, zero exports—is a symptom of policy failure. Agricultural productivity has stagnated to the point where food security is now an import category. The one exception, tea, coffee and spices, which run a surplus, get a fraction of the policy attention they deserve.
The main problem is that Nepal tried to climb the development ladder as if it were a ramp. In the classic model surplus labour moves from farms to factories; industry creates jobs, savings and productivity; services grow later on rising incomes. East Asia followed the sequence. The Four Tigers built export industries. China’s rise was driven by factories that pulled millions out of subsistence farming. Nepal skipped this stage and is paying the price.
From 1996 to 2023 services drove most growth; industry contributed less than a point a year. Manufacturing now makes up only 5.7% of GDP, far below the minimum for emerging economies. What passes for industry is largely construction, fuelled by remittances and post-disaster rebuilding—a short-lived boom that masked a weak core until import controls in 2022 exposed it.
Other poor countries have done better. Ethiopia built a manufacturing base through industrial parks and heavy infrastructure investment. Bangladesh, starting poorer in the 1980s, turned garments into a $45bn export industry. Vietnam used trade deals to pull in high-tech manufacturing. Each case shared clear policy, an export focus and disciplined institutions. In Nepal none of these lined up.
To its credit, Nepal has expanded hydropower fast. Installed capacity has risen from under 800 megawatts in 2016 to nearly 3,900 today. With stronger grids and firm export deals, this could cut energy costs and support industry.
But power alone does not transform an economy. Transmission lines carry electricity, not skills or supply chains. Without firms, workers and institutions to use that power productively, dams become assets in search of an economy. Ghana found that oil brought revenue and not transformation. Laos built dams and exported power but domestic industry barely followed. Infrastructure can race ahead of capacity.
Digital services provide a hopeful spark. ICT now accounts for about 10% of service exports. Kathmandu hosts a growing army of freelancers—coders, designers as well as remote support workers. By 2023 digitally delivered services made up half of all service exports, an achievement few neighbours can match.
Yet the model is fragile. It brings in money rather than mass jobs. The Philippines built its business-process outsourcing industry over decades, with education reform and state-backed skills programmes. Nepal’s version is scattered and exposed to exchange-rate swings and the whims of global platforms.
Underneath these sector stories is a more troubling problem: stalled productivity. Between 1996 and 2023 most growth came from piling on capital. Labour added little; total factor productivity, a measure of efficiency, has been negative since 2014. Shocks like the 2015 earthquake and India’s blockade hurt, but the root is structural: firms are small; informality is high; and linkages are weak. In Nepal growth rarely builds lasting capacity or global competitiveness.
Employment provide scant reassurance. Jobs in agriculture have fallen but industry and services have barely picked up the slack. Non-agricultural jobs now lag those in comparable Asian and African economies. The gender gap is severe. Women participate in the labour force at high rates, but mostly in unpaid family work or informal roles. East Asia’s boom relied on women filling factories, offices and shops in big numbers. In Nepal cultural and institutional barriers keep women on the margins.
Migration keeps the economy afloat but weakens its future. Remittances fuel real estate and consumption. Yet sending workers abroad is no replacement for domestic jobs. A slowdown in Gulf construction or visa restrictions could cut inflows sharply. Permanent outmigration is even more worrying: if one in five migrant households never returns, the World Bank estimates GDP could be more than 10% below projected levels by 2050.
So what would doubling the economy actually require? Five things. An energy transition that turns hydropower into export earnings, reducing the fuel import bill. An agricultural transformation that reverses the food import habit. Export diversification beyond India, building commercial relationships where Nepali goods are scarce. Value-chain development in textiles and agro-processing, scaling up sectors where Nepal already has a foothold. And fiscal reform to wean the budget off import duties and onto income and corporate taxes. Each is essential. Progress on one without the others will deliver only marginal gains.
Yet all five depend on institutional overhaul. The bureaucracy is fragmented and ineffective. Ministries duplicate functions. Budgets are poorly executed. Federalism, introduced in 2015, added layers of government without strengthening local capacity. Industrial policy exists on paper but coordination is missing. Competitors like Vietnam, Rwanda and Morocco invested heavily in state capacity. Without the same, reforms stay empty slogans.
The Rastriya Swatantra Party’s $100bn dream is sound in principle. But it is incompatible with the trajectory the trade data describe. The new administration talks as if industrialisation is a matter of political will. In reality it is a matter of hard work: a private sector that can export and an infrastructure that connects power to production. Until then the target is best seen as a political aspiration rather than an achievable goal. An economy cannot float forever on remittances and hope. Sooner or later it must produce something that lasts. ■
