Nepal is a small landlocked country in South Asia, located between India and China. Its economy is largely based on agriculture, which accounts for about one-third of the Gross Domestic Product (GDP). Nepal has a population of around 28 million people and its GDP per capita is around US$ 795. The main sources of foreign exchange are remittances from Nepalese working abroad, tourism and exports. Agriculture is the mainstay of the economy, contributing nearly one-third of GDP, consisting mostly of subsistence farming in rural areas. It employs over two-thirds of the labor force and provides food security to most households. Nepal’s main agricultural products are rice, maize, wheat, pulses, oilseeds and jute. Livestock rearing is also an important activity—over one-third of total agricultural output comes from livestock products such as milk, meat and eggs.
According to cheeroutdoor, the manufacturing sector contributes about 14% to GDP with textiles being the largest component followed by food processing and leather goods production. Other industries include cement production and engineering goods production. Manufacturing activities have been growing steadily during the last few years due to increased investment in infrastructure such as electricity generation capacity expansion projects. The service sector accounts for more than half of total GDP with trade being its largest component followed by financial services and transportation activities. Tourism also plays an important role in Nepal’s economy; it contributed US$ 1 billion in 2018 alone making it one of the top earners for Nepal’s foreign exchange earnings.
Abbreviated as NPL by abbreviationfinder.org, 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 line (2016).
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.
According to 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 programs.
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 infrastructure.
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 cereals.
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 percent) 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 country’s GDP.
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 important.
In 2001, the government passed a land reform resolution, which was one of the foremost demands of the Maoist movement.
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 percent 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 to India.
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 creation.
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 airlines.
Note: the capital city of Nepal is Kathmandu with a population of 1,200,000 (UN calculation 2015). Other major cities include Pokhara with a population of 329,400 (UN calculation 2015).
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 fully convertible.
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.