ILLUSTRATION: ALBERTO MIRANDO
NEPAL HAS a nasty way of making entrepreneurs timid. Banks have money to lend. Workers need jobs. The country has enormous hydropower potential and a diaspora with cash to invest. Yet businesses hesitate to expand. Factories run below capacity and foreign investors stay scarce. The problem is usually blamed on bureaucracy, corruption or poor infrastructure. True, those are real costs. The deeper damage is that Nepal makes the future too damn difficult to price.
Consider the numbers. Foreign direct investment has hovered around 0.2% of GDP in recent years. Nepal has rolled out the welcome mat for foreign investors for more than three decades. The capital that actually arrives remains a pathetic fraction of what a country chasing industrialisation needs.
The usual explanation is that Nepal needs better incentives. Investors need something more basic: confidence that the rules used to calculate a return today will still apply tomorrow. A change in customs duties can wreck a factory’s cost estimates. A delayed approval can leave equipment rotting idle. A dispute over electricity charges can turn a profitable industrial project into a legal bloodbath. Each risk raises the return an investor demands before committing money. Many projects simply fail that test.
This is the hidden tax on Nepalese business. It shows up in projects that never begin, machines that never get imported and employees who never get hired. Government revenue records capture the taxes collected. They capture zero of the investment scared away.
The World Bank’s Nepal Country Economic Memorandum identifies weak logistics, inadequate infrastructure, trade policies and low labour productivity as constraints on growth. Geography makes Nepal’s position between India and China look attractive on a map. In practice landlocked businesses depend heavily on transit routes, border procedures and transport networks beyond their control. Moving goods can swallow time and working capital before a manufacturer has sold a single item.
This screws exporters especially. A business in Nepal must compete on price and quality while carrying logistical costs a rival closer to a major port dodges. High tariffs and excise taxes on imported inputs add another penalty. Protecting domestic producers may look sensible, but expensive machinery and materials also make it diffciult for those producers to become competitive.
The upshot is a trap. Nepal wants firms to manufacture more and import less, while parts of its trade regime raise the cost of producing goods at home. Cheap finished products arrive from abroad. Local manufacturers face expensive inputs and a smaller domestic market. Consumers buy the cheaper imports. The country then wonders why its factories bleed.
The labour market creates a second contradiction. Nepal produces educated young people who seek work overseas because domestic wages and career prospects stink. Employers at home must recruit and retrain workers, while skilled employees compare local salaries with those available abroad. Training costs rise and businesses become reluctant to invest in staff who may flee. Low wages, in turn, reduce the incentive for young people to build careers at home.
Remittances soften the consequences. They support consumption and provide foreign currency, helping Nepal maintain large reserves. The World Bank reported remittances equivalent to 35.8% of GDP in fiscal year 2025-26. Yet money earned abroad cannot fully replace the productive capacity lost when workers leave. A family can receive money from a son in Qatar while a local factory struggles to find the technician it needs.
The banking system offers another revealing clue. Nepal’s banks are drowning in deposits yet private credit remains weak despite lower interest rates. The World Bank reported that private-sector credit barely changed relative to GDP in FY26, while bad loans reached 5.7% of total loans by mid-July 2026. Businesses and lenders are both scared. Cheap credit helps little when demand is weak and investment rules are uncertain.
The government itself adds to the mess through its inability to turn budgets into completed projects. Capital expenditure execution fell to 46.8% in FY26, according to the World Bank’s October economic update. A road budget creates little value until a road exists. A planned transmission line helps manufacturers only once electricity can reach them reliably. Announcements create expectations; unfinished projects leave firms paying the cost.
Nepal’s answer should begin with predictability. Customs duties and tax rules need consistency. Commercial disputes need faster resolution. Permits should have clear deadlines, with published reasons for delays. Public procurement should reward delivery and quality rather than political access. Infrastructure spending should be judged by completed assets and their economic use, rather than the size of the budget.
These reforms sound administrative because they are. That is the point. Nepal has spent years drooling over grand ambitions while the daily mechanics of running a business remain expensive. A single spectacular investment summit will achieve little if an ordinary firm still struggles to secure reliable power or enforce a contract.
The country also needs to measure the cost of its own procedures. How long does a factory take to obtain approval? How many days does a shipment spend at the border? How often do tax interpretations change? How much private investment is delayed by unresolved disputes? Publishing such figures would turn complaints into targets that ministries could be held accountable for meeting.
The ultimate cost of doing business in Nepal is the shrinking ambition of the people who do it. Entrepreneurs learn to preserve cash, avoid expansion and keep their plans small. Young workers leave. Investors wait. Banks hold their money. The economy continues, but its productive capacity grows too slowly.
A country becomes expensive when every decision carries a surcharge for uncertainty. Nepal’s challenge is to remove that surcharge before another generation concludes that building a business abroad is easier than building one at home. ■
