Nepal is designated by the UN as one of the world's
poorest and least developed countries (LDCs). About 25 per
cent of the country's inhabitants live below the poverty
Nepal has no coastal access and lacks significant
resources for economic development, and development is
hampered by an inadequate transport network. The economy is
heavily dependent on imports of most products and exports
some forest and agricultural products to foreign markets.
COUNTRYAAH, the country imports important goods, such as fuel,
building materials, fertilizers, metals and most consumer
goods, and exports products such as rice, jute, timber and
textiles. Economic policy has contributed little to
promoting economic growth and attracting foreign capital.
Foreign aid funds most of the government's development
Heavy earthquakes in 2015 caused even more people to fall
below the poverty line, and important infrastructure was
destroyed. The earthquake slowed the country's economic
development. The political instability in recent years and
political protests, predominantly in the southern Tarai
region, have hindered post-earthquake reconstruction and
prevented much-needed economic reform. Other challenges for
Nepal's economic growth are the country's geographical
location, persistent power shortages and underdeveloped
Agriculture is the most important industry. Nearly
three-quarters of the workforce is employed in agriculture,
which accounts for about a third of the country's GDP. The
industrial activity is mainly the processing of agricultural
products such as lentils, jute, sugar cane, tobacco and
The economy has largely depended on loans and external
assistance. In 1992, the government initiated a deregulation
of the economy to attract foreign investors, and several
state-owned companies were privatized. At the turn of the
millennium, about a third of the state's expenditure was
covered by aid. Despite the war, Nepal has also recorded
economic growth in recent years, albeit from a very low
level. Growth is largely due to labor migration. Nepal
became a member of the WTO in 2004.
The frequent changes in government in recent years have
also led to an unstable economic situation. Political
instability has delayed state budgets and economic reforms
in recent years.
Tourism has gradually grown to become an important source
of income for the country. However, this has also made many
of the country's inhabitants vulnerable to political
turbulence as tourists do not show up when there are unrest.
Most of Nepal's population (about 75 per cent) is
employed in the agricultural sector, and agricultural
products account for well over half of the country's export
revenue. Nevertheless, agricultural productivity is very
low, and agricultural income is only one third of the
The low yield from agriculture is due to a lack of
fertilizers, seeds and little use of modern technology. Only
a small proportion of Nepal's cultivated land is under
irrigation, and therefore much of the agricultural
production is vulnerable to weather conditions.
The Tarai region is the area with the greatest potential
for agricultural production. In the mountainous areas, the
potential for increasing production is limited.
Rice, sugar cane, corn, wheat, potatoes, millet, legumes,
barley, jute and tobacco are grown. Spices are also grown in
the valleys and on the plains in the south. Important
medicinal plants are cultivated on the slopes of the
Himalayas. There is breeding of cattle, buffaloes, goats and
sheep. At over 3000 meters in height, feeding is the most
In 2001, the government passed a land reform resolution,
which was one of the foremost demands of the Maoist
About one-third of Nepal's total area is covered by
forests, and most of the forest is state-owned. The forest
provides wood and products such as rubber, resin and dyes.
Much of the wood is used for fuel (80 per cent of total
energy consumption). This has contributed to deforestation
with subsequent erosion problems.
Despite over-harvesting, timber is one of the country's
most valuable resources. Exports of forest products are an
important source of income and almost all timber is exported
Large projects have been carried out to prevent soil
erosion and deforestation.
Nepal is one of the least industrialized countries in the
world, with industrial revenues accounting for about 14 per
cent of GDP (2017).
The politically unstable situation has put a damper on
the country's industrial growth. Traditional small
industries in the home account for part of the value
Industrial production is small, but still growing. Most
companies are small and most of them work with agricultural
products. The jute industry, has a certain importance for
foreign currency earnings. Sugar mills are located in
Birātnagar, Birganj and Bhairahawā. There are a number of
rice and oil mills in Tarai. Other industries include brick
and tile production, processing of building materials,
cigarette production and cement production.
Generally, there are more industrial companies in the
private sector than in the public sector. The main areas of
industrial activity are Birātnagar, Birganj-Hitaura corridor
and Kāthmāndu valley.
Nepal has a large untapped hydropower potential. In 2014,
Nepal and India signed a trade and investment agreement that
increases the potential for utilizing hydropower resources.
The Norwegian Tibet Mission (now HimalPartner) was a
pioneer in the development of hydropower in Nepal,
especially small power plants.
Development has also been contested for environmental
reasons. There is some oil exploration in Nepal. Otherwise,
the mineral deposits are to a small extent mapped.
Transport and Communications
Two smaller railways connect Nepal to India's railway
network. The road network and road links with India and
Tibet have been developed with the help of the USA, India
and China. The road network is a total of approximately
28,000 kilometers. Nepal Airlines is owned by Nepal's
government, and in addition there are several private
Carpets, textiles and pashmina shawls have traditionally
been the country's most important export goods. Food and raw
materials (copper, lead, quartz, lignite) are also exported.
India is the most important trading partner, and in
addition, China, Japan, Singapore and the US are important
trading partners. Nepal has been a member of the South Asian
Free Trade Agreement SAFTA since 2001; since 2004 also a
member of the WTO. In 1993, the currency rupee became
Hundreds of thousands of Nepalese are guest workers
abroad, and their remittances to their home country are of
great importance to the country's economy.