In-depth analysis of economic situation and business opportunities in Nepal (Kathmandu region) for 2025-2030

This report is an in-depth analysis of the current economic situation in Nepal, with special emphasis on the Kathmandu Valley, with the aim of identifying promising business niches and directions for the next five years (2025-2030). Nepal’s economy is showing signs of gradual recovery from the recent turmoil, with GDP growth projected in the range of 4.0%-4.6% in FY2025 and average growth of about 5.4% over the medium term.¹ The drivers of growth are the revival of domestic demand, the services sector, increased electricity production and improved indicators in agriculture.¹ The Kathmandu Valley remains the undisputed economic center of the country, generating up to 30% of the national GDP and concentrating major business activity, especially in the services and trade sectors.⁶

Despite the positive trends, the recovery remains fragile, dependent on external factors such as migrant remittances (although their growth is slowing) and the stability of world prices.¹ Serious challenges remain, including significant deficits and unreliability of infrastructure (especially energy and transport), gaps between ambitious government plans and their implementation, bureaucratic obstacles, risks in the financial sector (rising non-performing loans) and political instability.¹⁰ Foreign direct investment (FDI) inflows remain low despite stated attraction policies.¹⁶

Analysis of key sectors reveals the most promising areas:

1. Information Technology (IT) and Outsourcing: Using growing human resources and government support to export IT services, software development and BPO.¹⁸
2. Hydropower and Renewable Energy Sources (RES): Investments in generation, as well as related services, improving network reliability and energy efficiency.¹
3. Niche Tourism: Development of cultural, health, MICE tourism, use of improved airport infrastructure (in the medium term).⁹
4. Agricultural technologies and modernization of agro-industrial complex: Implementation of technologies to improve efficiency, logistics, value chains targeting the Kathmandu urban market.¹⁹
5. Affordable Urban Housing and PropTech: Meeting the growing demand for housing in the suburbs of Kathmandu using modern technology.²⁴
6. Professional Education and Advanced Qualification: Meeting the demand for skilled workers in growing sectors.²⁶
7. Fintech: Development of digital payments, SME lending, money transfer management.¹⁹

Success in the Nepali business environment over the next five years will require careful strategic planning, managing risks associated with infrastructure and political instability, and the ability to adapt business models to local realities.

2. Economic Landscape of Nepal: Forecast 2025-2030.

2.1 Macroeconomic fundamentals: Gradual recovery amid challenges

Nepal’s economy is showing signs of recovery after a period of slowdown. GDP growth forecasts for fiscal year 2025 (FY2025) vary, with IMF expecting 4.0% ⁴, Asian Development Bank (ADB) – 4.4% ¹, World Bank – 4.5% ², and Nepal National Statistical Office (NSO) is 4.61%.³ These figures are higher than the estimated growth of 3.9% for FY2024.¹ In the medium term (FY26-FY27), growth is expected to accelerate to an average of 5.4% per year.² The Nepal government has a more ambitious target of 6% growth in FY25.³ The main drivers of the recovery are a gradual recovery in domestic demand, ongoing reforms in the private sector, growth in the services sector (including tourism), increased power generation and improved agricultural performance due to favorable monsoons.¹

Inflation is showing a slowing trend. Annual consumer price growth rates in recent reporting periods ranged from 3.75% to 5.41%, broadly in line with the central bank’s target ceiling.² This was facilitated by stable world prices for raw materials and energy resources, as well as prudent monetary policy.¹ However, food inflation, especially vegetables, remains elevated (eg 7.5% in the first half of FY25 ⁹ or an increase in prices for vegetables by 26.6% ⁹, although there was a decline later ³¹), which is a cause for concern.⁹ Maintaining the peg of the Nepalese rupee to the Indian rupee (100 INR = 160 NPR ²³) means that inflation dynamics in India will continue to have a significant impact.⁵

The fiscal situation remains manageable, but is fraught with risks. The fiscal deficit in FY25 is expected to remain at 2.5% of GDP, the same as in FY24.² However, it is forecast to increase slightly to 2.9% of GDP by FY27 due to rising interest payments on debt and capital expenditure.² A serious problem remains the shortfall in planned budget revenues, which has already led to the sequestration of expenditures, including capital ones.¹⁰ This forces the government to rely on domestic borrowing and external concessional loans to finance the deficit.² Public debt is growing, but still remains within the established sustainability standards (forecast to 43.4% of GDP by FY27 ²). Chronically low level of capital expenditures utilization (less than a third of the planned ¹⁰) is a major impediment to infrastructure development and long-term growth.²

The external sector has stabilized due to the accumulation of sufficient foreign exchange reserves to cover more than 14 months of imports of goods and services.¹ This was facilitated by a significant influx of remittances from Nepalese migrants.¹ However, the growth rate of remittances is slowing down (from 18.3% to 9.4% year-on-year in 8 months FY25 ³²), which reflects the reduction in migration flows in the previous year.² The trade deficit, although narrowed slightly in FY25 due to contraction in imports and growth in exports (mainly from refined and soybean oils ²), remains structurally high and is projected to expand again in the medium term.²

Nepal’s economic recovery, although remarkable, is showing signs of vulnerability. Heavy dependence on external factors such as remittances ¹ and stability of world prices for raw materials ¹, creates risks. Slowdown in transfer growth ² and exposure to global economic and geopolitical shocks ¹ highlight this dependence. Internal factors, such as chronically low execution of capital budget expenditures ² and potential problems in the financial sector, including rising non-performing loans ⁹, may further hinder sustainable progress. This means businesses need to account for potential volatility and not rely solely on growth forecasts, with an emphasis on diversification and risk management.

There is a significant gap between the declared policy and its actual implementation. The government regularly announces ambitious growth targets (e.g. 6% ³) and reform programs aimed at improving the investment climate and infrastructure development.¹⁸ However, actual results often do not meet expectations. This is evidenced by regular budget cuts due to lack of revenue. ¹⁰, low level of capital investment utilization ² and persistent bureaucratic barriers that the business community complains about.¹² Investors should critically evaluate the likelihood that announced policy actions will lead to tangible improvements in the business environment over the next five years. Realities on the ground often differ from official statements.

2.2 Kathmandu Valley: An Economic Powerhouse

The Kathmandu Valley is the dominant economic center of Nepal. According to various estimates, its contribution to national GDP ranges from 23.4% to 30%.⁶ A significant part of the country’s urban population is concentrated here (more than 10% in three districts of the valley ⁷) and the bulk of economic activity.⁷

The dynamics of the valley are characterized by rapid urbanization fueled by internal migration.⁶ This creates high demand for housing, commercial real estate, consumer goods and services. However, spontaneous population growth puts a heavy burden on existing infrastructure, exacerbating problems in the areas of transport, utilities, waste management and the environment.⁷

Most businesses are concentrated in the valley, especially in the services sector (IT, finance, tourism, retail), wholesale trade, as well as some manufacturing clusters.⁸ Kathmandu is the main market for many goods and services in the country ⁸ and the center of the emerging startup ecosystem.¹³

Kathmandu serves as the main transport hub of the country, where the main international airport (Tribhuvan International Airport – TIA) is located. Its ongoing modernization has a temporary negative impact on tourism and transport links.² The valley is the center of planned major transport projects such as rail and metro, but their implementation faces significant challenges.⁴⁸ Smart city initiatives are being discussed and pilot tested, but large-scale implementation is not yet available.⁴¹ Reliability of power supply also remains an issue affecting business operations.¹⁴

The Kathmandu Valley clearly illustrates how Nepal’s potential (talent concentration, market demand, service sector growth) ⁸) and its critical limitations (infrastructural bottlenecks such as traffic congestion ⁴⁴, power outages ¹⁴, chaotic urbanization ⁴², problems with the implementation of large projects such as the metro ⁴⁹). The valley’s economic health disproportionately impacts the national outlook. Solving Kathmandu’s problems (transport, energy, urban planning) is key to unlocking the nation’s potential. Companies targeting the Kathmandu market must take these city-specific challenges into account, while solutions developed for the capital can potentially be scaled up across the country.

2.3 Key economic drivers and vulnerabilities

• Money transfers: They remain a vital pillar of the economy, supporting consumption, generating foreign exchange and helping to reduce poverty.¹ In FY25, remittances are projected to account for about 25.89% of GDP.³ However, slower growth rates and potential volatility associated with the economic situation in migrants’ host countries pose risks.² The government aims to channel some of these funds into productive investments, such as hydropower.²⁷
• Tourism: Has significant potential and was a significant contributor to the economy before the pandemic. The sector is currently recovering.²² However, the industry is vulnerable to infrastructural problems (TIA airport modernization ²), global economic conditions and needs to diversify offerings beyond trekking and mountaineering.¹⁹
• Foreign aid and loans: Nepal depends on foreign aid and concessional loans to finance development and support the budget.⁵ However, aid volumes may be reduced due to changes in the geopolitical situation.²⁰
• Foreign Direct Investment (FDI): Recognized as necessary, but their level remains extremely low (0.1-0.2% of GDP ¹⁶), despite the attraction policy. In recent periods there has been an increase in declared liabilities, especially in relation to small enterprises ⁶³, but delivering on these commitments and attracting large-scale investment remain key challenges.
• Political environment: Government reforms are aimed at improving the investment climate, supporting the private sector (which provides 81% of the economy ¹⁷) and simplification of procedures.¹ However, political instability, gaps in policy implementation and insufficient consultation with stakeholders remain vulnerabilities.¹⁰
• Structural weaknesses: Low labor productivity, declining export competitiveness (except for certain items), stagnation of the industrial sector (risk of deindustrialization), infrastructure shortages and brain drain are persistent problems holding back higher economic growth.¹¹

Remittances are a lifeline for the Nepalese economy ¹, ensuring stability and inflow of foreign currency. However, this dependence masks underlying economic weaknesses, such as low domestic job creation and weak export potential ¹¹, and makes the economy vulnerable to external shocks affecting migrant destination countries.² High level of consumption fueled by remittances ³, also contributes to the low level of domestic savings (only 6.55% of income ³) and potentially creates inflationary pressure.¹¹ Efforts to channel remittances into investments ²⁷ are critical but face challenges in implementation. This creates risks for businesses focused solely on consumption fueled by remittances. At the same time, opportunities are emerging in services for migrants and their families, as well as in initiatives that use remittances for investment (e.g. special financial products, remittance-linked SME financing).

3. Sectoral analysis: Identification of niches with high potential

3.1 Agriculture and agribusiness: The need for modernization

Agriculture remains an important sector of Nepal’s economy, contributing about 25% of GDP ³ and a significant share of employment, including in urban areas.⁸ However, its growth remains modest (forecast around 3.2% for FY25 ²) and depends on weather conditions (favorable monsoons promote growth ²). The sector is predominantly subsistence-based and faces challenges of low productivity, poor infrastructure and vulnerability to climate change.¹¹

Government policy emphasizes modernization, mechanization, commercialization, youth engagement and support for agro-startups.¹⁹ Budgetary measures include the abolition of VAT on some agricultural products.⁹ The “Decade of Investment in Agriculture” (2081-2091 according to the Nepali calendar) has been announced.³⁵

Opportunities (focus on Kathmandu):

• High added value chains: Meeting Kathmandu’s growing urban demand for organic produce, processed food, dairy products, vegetables, fruits and niche products (e.g. coffee, cardamom, medicinal and aromatic plants – MAPs).¹⁹
• Agro-processing: Creation of added value for agricultural products targeted both at the domestic market (Kathmandu) and for export. Potential for creating integrated agro-industrial zones.²³
• Agricultural technologies (AgTech): Developing and implementing solutions to improve production efficiency, improve market access, supply chain management, precision agriculture and climate change resilience.¹⁹ Solving the problem of post-harvest losses.
• Urban Farming / Hydroponics: Meeting the demand for fresh food directly in or near the Kathmandu Valley.
• Cold storage and logistics: Address critical infrastructure gaps that limit access to markets and lead to product losses.⁶⁸

There is a noticeable gap between Kathmandu’s large consumer market ⁸ and predominantly traditional farming methods in the surrounding rural areas and Terai.⁷ There is inconsistency in supply chains, quality control and meeting specific urban needs (eg processed, packaged, organic products). Government policy aims to bridge this gap ²⁶, but weak infrastructure (roads, cold storages ⁶⁸) and market linkages remain obstacles.¹² This creates significant opportunities for businesses to effectively link rural production with urban demand in Kathmandu through improved logistics, processing, quality assurance and technology adoption (AgTech), solving the problems of both farmers and urban consumers.

Table 1: Promising directions in the agro-industrial complex for Kathmandu and exports (2025-2030)

Product/Service	Potential market	Expected growth	Key challenges
Organic vegetables/fruits	Kathmandu, Export (premium)	High	Certification, logistics, scaling
Processed dairy products	Kathmandu, other cities	Average	Quality of raw materials, storage, competition
Packaged spices (cardamom, etc.)	Kathmandu, Export (India, etc.)	High	Quality standards, supply chain, branding
Specialty coffee/tea	Kathmandu, Exports	High	Quality, branding, marketing, certification
Medicinal and Aromatic Plant Processing (MAPs)	Export, Pharmaceuticals (domestic)	High	Sustainable collection of raw materials, processing standards
AgTech Services (platforms, consulting)	Farmers (all regions), Agribusiness	High	Availability of technology, training, internet connection
Cold chain logistics	Agribusiness, Retail	High	Investments in infrastructure, energy supply
Urban farming/Hydroponics	Kathmandu	Average	Cost of technology, access to water/energy, land

3.2 Industry and production: Hydropower is ahead, others are lagging behind

The industrial sector contributes relatively little to Nepal’s GDP (about 13.7% ⁵⁶), and the share of the manufacturing industry is stagnating or even declining (about 5% of GDP ¹²), which indicates the risks of deindustrialization.¹² Industrial growth is projected to be robust over the medium term, but mainly driven by the electricity and construction sectors.² Key challenges remain high production costs, infrastructure deficits, policy inconsistencies and import competition.¹²

Hydropower: The sector has enormous potential (economically viable potential is more than 42,000 MW ²¹). Significant capacity expansion projects are currently underway or planned.¹ Hydropower is a key driver of industrial growth and a potentially major export (target is 10,000 MW exports to India ⁶⁹). Government policy supports the development of the sector through various models (PPP, private investment, attracting migrant funds).¹² However, the sector requires huge investments and faces financial and regulatory barriers.¹¹

Construction: The sector is forecast to recover after a period of decline ¹, its contribution to GDP is about 5.2%.³ Growth is supported by infrastructure projects and government support measures (for example, extending loan repayment periods for contractors).⁹ However, the sector is constrained by weak imports of construction materials and slow execution of government projects.³

Manufacturing industry: The sector is experiencing difficulties. Some promising areas include cement, pharmaceuticals, footwear, food and beverage processing, textiles/yarn.³ The government intends to revive idle state-owned enterprises through PPP ¹⁸ and offers incentives (tax breaks, reduction of customs duties on raw materials).¹⁸ Special economic zones (SEZs) have potential but require effective management.¹² A focus on import substitution and export promotion is needed.¹²

Mining industry: The sector’s contribution is small (projected growth of about 2% ³). There is potential for the extraction of limestone, dolomite, iron, and possibly oil and gas.²³

Possibilities:

• Investments and services in hydropower: Direct large-scale investments, support services (consulting, equipment supply, maintenance), development of cross-border transmission infrastructure.
• Construction materials and technologies: Ensuring a recovering construction sector, potential for local production of imported materials, introduction of modern and environmentally friendly construction technologies.
• Niche production: Focus on areas with competitive advantages or strong domestic demand (eg pharmaceuticals using cost advantages, processed food for urban markets, assembly industries based on specific incentives).
• Development of industrial infrastructure: Construction and management of industrial parks, SEZs, provision of reliable utilities (electricity, water) for industrial zones.

Hydropower represents the most significant industrial opportunity for Nepal, promising energy security and export earnings.¹ However, its development requires huge capital investments and faces bureaucratic obstacles ¹¹ and is highly dependent on India for export market access and transit.¹⁹ Moreover, the current reality of frequent power outages, especially for industrial plants ¹⁴, contradicts claims of energy abundance and undermines confidence in energy security, which is a necessary condition for widespread industrial growth. So while investment in hydropower itself is a major opportunity, it reliability remains a critical factor for others industries. Businesses requiring a stable power supply must consider current instability and the potential costs of backup generation, despite long-term potential. Opportunities exist in improving grid stability and energy efficiency solutions.

Nepal faces significant difficulties in competing in a wide range of manufacturing industries due to its landlocked nature, high transportation costs, infrastructure deficits, and competition from India and China.¹² Trend towards deindustrialization ¹² suggests a large-scale revival is unlikely in the short to medium term. However, certain niches such as pharmaceuticals ¹², cement production (due to internal construction) ¹² and possibly agro-processing ²³, look promising due to local demand, the availability of specific resources or targeted incentives.¹⁸ Consequently, business strategy should focus on identifying and exploiting specific niche manufacturing opportunities with clear competitive advantages, rather than attempting large-scale, diversified industrial projects. Use of SEZ ²³ and specific government incentives ¹⁸ will be decisive.

Table 2: Major Prospective Hydropower Projects and Investment Needs (Indicative)

Project	Power (MW)	Estimated Investments	Status	Possible investment model
Aaron III	900	~$1.4 billion (estimate)	Under construction	FDI (India)
Upper Tamakoshi	456	Completed	Operation (expansion potential?)	State/NEA
Budhi Gandaki	1200	~$2.5 billion+ (estimate)	Planning/Revision	Not defined (PPP/State/FDI?)
Western Network	750	~$1.8 billion (estimate)	Planning/Searching for an investor	Not defined (PPP/FDI?)
Projects “People’s Hydropower”	Different	Capital mobilization required	The initiative has been launched	Internal Investments/Transfers

(Note: Data is indicative and subject to change. Status and cost of projects require clarification from official sources.)

3.3 In-Depth Analysis of the Services Sector: Engine of Growth

The services sector is the largest component of Nepal’s economy, contributing about 62% of GDP ⁵⁶, and is the main driver of recent and projected economic growth.¹ It is a diversified sector that includes tourism, IT, trade, real estate, finance, education, healthcare and other areas.

3.3.1 Tourism and Hospitality: Recovery and Innovation

The sector has seen a strong recovery since the pandemic. In 2024, Nepal received about 1.15 million foreign tourists, which is 96% of the 2019 level and 13.1% more than in 2023.²² There has been a strong increase in arrivals from most regions, although the number of tourists from India has declined slightly.²² Upgrading of the main Kathmandu International Airport (TIA) caused major disruptions in late 2024 and early 2025, negatively impacting arrivals and sector growth (for example, growth in the accommodation and food segment slowed sharply from 21% to 5% ³).² The average length of stay of tourists has increased.⁵⁹ Tourism income is also recovering.⁵⁹

The government aims to exceed pre-pandemic indicators (plan – 1.5 million+ tourists in 2025 ²²), promotes niche markets (adventure, cultural, spiritual, wellness, MICE tourism), develops new routes and products, improves infrastructure (airports) and supports sustainable development.¹⁹ The plan is to position Janakpur as a ‘wedding hub’ and Lumbini as a ‘birth hub’.¹⁸

Opportunities (focus on Kathmandu):

• Growth after TIA modernization: Leveraging improved airport capacity and efficiency in the medium term.⁹
• Niche tourism: Development of specialized tours (cultural immersion, photography tours, wellness retreats, spiritual tourism with a focus on the heritage sites of the Kathmandu Valley).¹⁹
• MICE tourism: Leverage Kathmandu’s improving hotel infrastructure to host meetings, conferences and exhibitions.
• Accommodation and services for digital nomads: Meeting the needs of a growing category of remote workers.¹⁹
• Luxury and experiential tourism: Upscale resorts, personalized experiences.
• Technologies in tourism: Virtual tours, booking platforms, trekker safety apps.¹⁹
• Hospitality training: Meeting the demand for skilled personnel in a recovering sector.²³

Significant negative impact of TIA airport upgrades ² highlights the extreme vulnerability of the tourism sector to infrastructure bottlenecks, especially in terms of air connectivity. Although there are regional airports ²², TIA remains the main gateway to the country. Future growth depends not only on marketing, but also on reliable, efficient airport operations and improved domestic connections. This means that tourism businesses need to consider possible infrastructure disruptions. Opportunities exist in improving ground handling, airport transport links and possibly developing services around regional airports to reduce the burden on Kathmandu. Diversification of entry points is strategically important.

Table 3: Dynamics and forecast of tourist arrivals in Nepal (by main markets)

Market	2019 (Fact)	2023 (Fact)	2024 (Fact)	2025 (Forecast)	2027 (Forecast)	2029 (Forecast)	Key Factors/Risks
India	~320,000+	~319,000	317,772	330,000	360,000	390,000	Proximity, culture; Indian economy, competition
China	~170,000	~60,000	101,879	130,000	160,000	190,000	Post-COVID recovery, air travel; Politics of China
USA	~93,000	~100,000	111,216	120,000	135,000	150,000	Trekking, adventure; US economy, exchange rates
Great Britain	~61,000	~52,000	57,554	62,000	68,000	75,000	Historical connections, trekking; UK Economy, Brexit
Bangladesh	~25,000	~36,000	48,848	55,000	65,000	75,000	Religious tourism, proximity; Air traffic
Australia	~38,000	~38,000	43,980	48,000	55,000	62,000	Adventure tourism; Air travel, AU economy
Another Europe	~180,000	~187,000	206,841	220,000	240,000	260,000	Trekking, culture; EU economy, geopolitics
Other countries	~310,000	~222,000	260,000+	285,000	327,000	368,000	Varied; Global trends, air accessibility
Total	1,197,191	1,014,885	1,147,567	~1,250,000	~1,410,000	~1,570,000	Restoration, marketing; Infrastructure, stability

(Sources:²² Forecasts are estimates based on current trends and government objectives.²²)

3.3.2 Information technology (IT) and digital economy: Construction of a hub

Nepal’s IT sector is experiencing rapid growth and has been identified as a key priority by the government.¹⁹ There are significant exports of IT services (NPR 14.3 billion in 8 months of FY25), creating a positive trade balance in this sector.²⁰ The country has significant human resources potential (about 50,000 IT graduates annually ⁴⁵). Software development, business process outsourcing (BPO), and data processing are growing.¹⁹ Digital payments are developing rapidly (eSewa, Khalti are leading ¹⁹) and e-commerce.¹⁹

The government has announced the “Information Technology Decade” with a target of achieving NPR 3 trillion in exports and creating 1.5 million jobs in 10 years.¹⁸ The policy aims to make Nepal an IT hub, develop digital infrastructure (5G, data centers, IT parks), digital banking, e-government (Citizen App), develop and regulate AI, and provide incentives (for example, tax incentives for capitalization of profits of IT companies through bonus shares).¹⁸ The investor guide also highlights opportunities in the ICT sector.²³

Despite its ambitions, the sector faces challenges: the need for constant human resource development, lagging behind global technological trends, competition, infrastructure shortages (reliable power supply, high-speed Internet, especially outside Kathmandu), uncertainty with the deployment of 5G.¹⁹ There is also the problem of “brain drain” – the outflow of IT specialists abroad.¹³

Opportunities (focus on Kathmandu):

• Software development and IT outsourcing: Leveraging skilled labor and cost advantages for international clients.
• Fintech: Development based on the success of digital payments; opportunities in lending, insurance, asset management, blockchain applications.
• E-commerce and logistics: Creation of platforms, marketplaces and supporting delivery infrastructure (for example, Upaya ⁴⁶).
• EdTech: Digital learning solutions for the domestic market and potentially for export.¹⁹
• HealthTech: Solutions for healthcare, medical data management, telemedicine.
• AgTech: As stated in the Agriculture section.
• Digital Marketing and Content Creation: Supporting a growing online business presence.¹⁹
• Cybersecurity services: Growing need with digitalization.²⁸
• Data centers and cloud services: Fundamental infrastructure for the digital economy.²³

Government ambitions to create a large IT hub ¹⁸ supported by a growing talent pool ⁴⁵ and some export success.²⁰ However, these ambitions face significant fundamental challenges: unreliable electricity supply ¹⁴, delay and uncertainty with 5G rollout, lagging behind regional competitors ⁷³, as well as significant brain drain.¹³ Although the policy offers incentives ¹⁸, to realize the hub’s vision, key infrastructure and talent retention issues need to be addressed. Capabilities are strong in software development and BPO leveraging current strengths. However, businesses that require advanced communications (5G dependent) or absolute power reliability face higher risks. Significant opportunities exist in creating the most supporting infrastructure (improved communication solutions, data centers, possibly private power solutions for IT parks). Addressing talent retention through creating better opportunities domestically is critical.

Table 4: Key government initiatives in the field of digital transformation (Tentative)

Initiative	Goals	Dates (Planned)	Responsible departments
Decade of IT 18	Exports 3 trillion NPR, 1.5 million jobs	10 years	Ministry of Communications and IT (MoCIT)
Digital Nepal Framework 73	Digitalization of 8 sectors (core, agro-industrial complex, healthcare, education, etc.)	2019 – n.v.	MoCIT, relevant ministries
Citizen App Extension 27	Integration of public services, “faceless” services	Current	MoCIT, government agencies
Creation of a Digital Bank 27	Modernization of finance transactions, cashless payments	MY 2025/26+	Ministry of Finance, Central Bank (NRB)
AI Policy Development 73	Development, promotion and regulation of AI	Current	MoCIT
Provincial Incubation Centers 78	Support for startups in the regions	MY 2025/26+	Ministry of Industry, IEDI
5G rollout 74	Launch of commercial 5G networks	Undefined	NTA, Telecom operators (NTC, Ncell)

3.3.3 Real estate and urban infrastructure: Growth and affordability issues

Nepal’s real estate market is undergoing a transformation driven by urbanization, economic growth, infrastructure development and remittances.²⁴ There has been steady growth, especially in major urban centers such as Kathmandu and Pokhara.²⁴ High demand for residential (apartments, houses) and commercial (offices, retail) real estate.²⁴ Investment in land remains significant.³⁹ Property prices are high, creating affordability issues.²⁴ The real estate sector makes a significant contribution to GDP (around 8.3%) and shows moderate growth (forecast around 2.7% for FY25 ³). There are some concerns about speculative bubbles and their impact on the stability of the financial sector (past problems are mentioned ⁷⁹).

Key trends include a shift in demand towards affordable and middle class housing in peri-urban areas (e.g. surrounding Banepa, Bhaktapur ²⁴), growth of commercial real estate (coworking spaces, shopping centers, hotel business ²⁴), increased interest in sustainable and green buildings ¹⁹, as well as the growing adoption of technology (PropTech, online listings, virtual tours ³⁹). Initiatives for planned urban development (smart cities, satellite cities) exist, but their implementation is slow.²⁴

Challenges include bureaucratic delays (registration, permits), high prices, limited and complex financing options, lack of transparency, and policy uncertainty regarding foreign ownership.²⁴

Opportunities (focus on Kathmandu):

• Construction of affordable housing: Targeting the middle income segment in the developing suburban areas around Kathmandu.²⁴
• Commercial real estate: Development of modern office premises, shopping centers, logistics/warehouse complexes to meet growing business needs.
• Hotel properties: Hotels, resorts, serviced apartments focused on tourism recovery (especially around Kathmandu and Pokhara).²⁴
• Sustainable/Green Building: Introduction of environmentally friendly projects and technologies.²⁴
• PropTech solutions: Platforms for listings, transactions, property management, data analysis.³⁹
• Development related to infrastructure: Projects near new transport corridors or modernized urban infrastructure.²⁴

Rapid urbanization ²⁴ and inflow of investments (including remittances ²⁵) are driving high demand and rising property prices in Kathmandu.²⁴ However, this growth creates serious problems with housing affordability for the middle class ²⁴, pushing demand into suburban areas.²⁴ Government policy mentions affordable housing ²⁵, but implementation and effect seem limited.⁷⁹ This contradiction creates opportunities in the affordable housing segment, but also carries risks of market instability if prices are too far removed from household incomes. The luxury segment of the market may be saturated or face limited demand growth. The greatest opportunity lies in developing well-planned, affordable housing solutions in affordable suburban areas around Kathmandu. Success requires overcoming land acquisition challenges and potential partnerships through government schemes. Commercial real estate growth is linked to overall business confidence and activity.

Table 5: Estimated real estate market trends in Kathmandu Valley (next 5 years)

Segment	Current trend	5 year forecast	Key drivers	Key locations
Luxury housing	Stable/Growth	Moderate growth/Stable	Investments, status	Inside the Ring Road, prestigious areas
Mid/affordable housing	Strong growth	Strong growth	Urbanization, accessibility, government. politics (potential)	Suburbs (Bhaktapur, Banepa, Lalitpur outside CD)
Offices (Prime)	Height	Moderate growth	Business growth, IT sector	Central business districts, new hubs
Offices (Suburban)	Height	Moderate/Strong Growth	Decentralization, cost	Developing suburbs
Trade areas (Retail)	Height	Moderate growth	Consumption, urbanization	Shopping centers, main streets, new residential areas
Industrial/Warehouse	Stable/Growth	Moderate growth	Logistics, E-commerce, manufacturing (niche)	Industrial zones, transport corridors

3.3.4 Financial services: Liquidity and risks

Monetary policy remains cautiously accommodative, which previously led to excess liquidity and historically low lending rates.² Private sector lending growth is moderate (around 6-8% year on year) ³¹). The financial sector is facing challenges with non-performing loans (NPL) growth reaching record levels (around 4.9% at the end of the first half of FY25 ⁹), which negatively affects the profitability and capital adequacy of banks.⁹ The Central Bank introduced support measures (reducing the countercyclical buffer ⁹). Digital payments are actively developing, including cross-border compatibility with Indian UPI and local platforms.¹⁹

The government is promoting the development of digital banking, cashless transactions and is considering the creation of a dedicated digital bank.²⁶ Financial inclusion remains an important goal. The reforms are aimed at increasing the stability of the financial sector.²

Possibilities:

• Digital Banking and Fintech: Expanding digital payment ecosystems, developing neo-banking services, P2P lending, InsurTech, RegTech.
• SME financing: Eliminating the shortage of credit resources for small and medium-sized businesses, possibly using alternative credit scoring models or specialized credit products.
• Money transfer management and investment products: Services for the efficient transfer of migrant funds and their channeling into savings/investment instruments.
• Microfinance: Continued demand in rural and semi-urban areas, potential for digital inclusion.
• Private Equity / Venture Capital: A growing (albeit small) ecosystem supporting startups and growth-stage companies.⁴⁷

Sharp rise in non-performing loans (NPL) ⁹, despite accommodative monetary policy ², signals underlying tensions in the economy and potential weaknesses in lending practices or companies’ financial health. Although the authorities are taking measures ⁹, further deterioration of the situation could lead to a significant tightening of lending conditions ⁹, which will affect all sectors, especially SMEs, and potentially trigger wider economic instability. Nepal’s presence on the FATF “grey list” adds another layer of risk.⁹ Businesses need to closely monitor the state of the financial sector. Access to credit may become more difficult or expensive. Opportunities exist for fintech solutions that improve credit risk assessment, NPL management or provide alternative funding channels, but navigating the regulatory environment is key.

3.3.5 Other services: Education and health capacity

Education: Government policy is aimed at reforming school and higher education to improve quality and meet labor market requirements, eliminate skills shortages, and promote entrepreneurship education.²⁶ The sector has shown one of the slowest growth rates in recent estimates (around 2% ³). The significant outflow of students abroad indicates perceived gaps in quality or opportunity within the country.⁶⁵

Healthcare: The policy focuses on improving access, affordability and sustainability, restructuring health insurance.²⁶ There are plans to expand specialized services to all provinces.⁷⁵ The role of the private sector is growing. Opportunities have been identified in health tourism, pharmaceuticals, and medical education.²³

Possibilities:

• Professional training and advanced training: High demand for professional skills that meet the needs of growing industries (IT, hospitality, construction, medical support staff).
• EdTech platforms: Online learning, advanced training courses, exam preparation for students and professionals.
• Private medical institutions: Specialized clinics, diagnostic centers, hospitals focused on urban demand and potentially medical tourism.²³
• Telemedicine and HealthTech: Improving access to healthcare in remote areas and increasing efficiency in urban centres.
• Pharmaceutical production/distribution: Taking advantage of domestic market growth and potential export opportunities.¹²

3.4 Emerging Startup Ecosystem: Kathmandu Innovation Hub

The startup ecosystem of Nepal is actively developing, concentrating mainly in Kathmandu.¹³ The government formalized the definition of a startup and launched preferential lending programs (for example, a fund of NPR 1 billion, loans up to NPR 2.5 million at 3% per annum).¹³ There are a number of incubators and accelerators (for example, IEDI, Idea Studio, Rockstart Impact, university hubs, private initiatives).²⁸ There are notable gains in FinTech (eSewa, Khalti), E-commerce/delivery (Sastodeal, Foodmandu, Upaya), EdTech (Programiz).⁴⁵

Despite progress, the ecosystem faces serious challenges: limited funding beyond the initial government scheme (low approval rate for loan applications ¹³), lack of angel and venture capital investments ¹³, significant brain drain and youth migration ¹³, gaps in policy implementation, a complex regulatory environment and a risk-averse culture.¹³ Political instability also undermines trust.⁶⁵

Opportunities (focus on Kathmandu):

• Use of government support: Use of available credit schemes and incubation programs.¹³
• Solving local problems: Startups solving specific Nepalese problems (e.g. waste management – Khaalisisi ⁷², logistics – Upaya ⁴⁶, AgTech, access to finance/education/health).
• Cross-border cooperation: Leverage Indian ecosystem for funding, mentoring, market access (e.g. India-Nepal Startup Connect, SMK 2025).²⁸
• Development of supporting infrastructure: Creation of platforms for angel investments, specialized mentoring programs, co-working spaces outside the center of Kathmandu.

Formalization of the definition of a startup and launch of a preferential lending program ¹³ are positive steps that respond to long-standing requests. However, limited coverage of the loan program (only 165 startups funded out of 5,158 applications in FY24/25 ¹³) highlights the huge funding gap. The ecosystem still lacks sufficient private investment (angel, venture capital) ¹³, she suffers from an outflow of talent ¹³ and operates in a complex general business environment (political instability, bureaucracy ¹³). While government support provides a starting point, startups cannot rely on it alone. Making connections with the emerging PE/VC scene ⁴⁷, exploring cross-border financing opportunities ²⁸ and developing highly sustainable business models are essential. Significant opportunities exist for structures that can fill the funding gap or provide critical support to the ecosystem (mentoring, access to markets).

Table 6: Leading incubators and accelerators in Kathmandu

Name	Focus	Stage	Key offers	Affiliation
IEDI (Govt Loan Program) 13	All sectors	Early/Growth	Preferential loans	State
Idea Studio Nepal 45	Social Entrepreneurship, Innovation	Idea/Startup	Mentorship, Incubation (KUSOM)	University/NGO
Rockstart Impact 81	Growing Companies	Height	Acceleration, Investments, Network	Private (International)
Nepal Community 47	Innovation, Social change	Idea/Startup	Coworking, Makerspace, Incubation	NGO/Hub
NYEF (Various Programs) 45	Youth entrepreneurship	Idea/Startup	Training, Network, Mentoring	Business Association
Accelerator Nepal 45	Different sectors	Idea/Startup	Acceleration	Private
Impact Hub Kathmandu 45	Social Enterprise, All Sectors	Idea/Startup	Coworking, Programs, Community	International network
Dolma Impact Fund 47	Sustainable companies	Growth/Maturity	Investments (PE/VC)	Private Foundation (FDI)
NEXT Venture Corp 47	All sectors	All stages	Solutions for startups, Investments	Private
Aadhyanta Accelerator 80	Agriculture, Tourism, IT (Koshi Province)	Height	Mentoring, Willingness to invest	Private/Affiliate

(Note: This list is not exhaustive and programs and their focus may change.)

4. Investment and operating environment

4.1 Policy and regulatory framework: Intentions and reality

The Government of Nepal declares a pro-investment position. Key legislations (FDI and Technology Transfer Act 2019 – FITTA, PPP and Investment Act 2019 – PPPIA, Industrial Enterprises Act 2020 – IEA), Investor Guidelines 2024 and annual budgets articulate commitments to attract FDI, promote private sector growth and facilitate procedures.¹¹ The Constitution guarantees private property rights.²³ A One-Stop Service Center (OSSC) has been established.²³

The budget for the financial year 2025/26 puts emphasis on economic reforms, promotion of the private sector, support for specific sectors (agribusiness, energy, IT, tourism, industry), infrastructure development, reform of the tax system (simplification, use of IT, incentives such as abolition of VAT on vegetables/fruits, tax breaks for the IT sector, adjustment of customs duties) and support for start-ups (fund, incubation centers).¹⁸

Nepal showed significant improvement in the 2020 Doing Business rankings, rising to 94th place ³⁶, especially thanks to progress in credit and international trade.³⁶ However, problems remained in areas such as registering a business, paying taxes and obtaining building permits.³⁶ Although the ranking itself is no longer published, the underlying problems likely remain. Businesses often complain about bureaucracy, procedural complexities and inconsistent policies.¹²

Key regulations include FITTA, which regulates the entry of foreign investment, repatriation of profits and technology transfer ¹²; PPPIA, creating a framework for public-private partnerships ¹²; IEA covering industrial registration, classification and incentives ¹²; and the Labor Act 2017, which impacts costs and compliance in employment.⁸³

Despite numerous laws and policy initiatives aimed at improving the business climate ¹², businesses continue to report significant difficulties associated with bureaucracy, administrative barriers, policy inconsistency and lack of effective implementation.¹² Jump in DB rankings 2020 ³⁶ was a positive signal, but it masked weak performance in critical areas such as starting a business and paying taxes.³⁶ Existence of OSSC ²³ is a step forward, but its effectiveness in practice requires confirmation. This creates a regulatory maze that requires patience, local expertise and significant resources to navigate. Businesses should not assume that stated policies are fully operational or readily available. Developing strong local partnerships and seeking legal/consulting support is recommended. There are opportunities for services to help businesses manage this complexity.

4.2 Infrastructure Assessment: Critical Gaps Remain

Energy security: Remains a serious problem despite the enormous hydroelectric potential. Frequent power outages (especially for industry, up to 12+ hours in the recent past) are caused by a drop in dry season generation and dependence on uncertain supplies from India.¹⁴ Although recent agreements have ensured additional power supplies from India at night, reducing industrial blackouts ⁵⁵, long-term reliability remains unproven. This directly impacts industry productivity and costs.¹⁴ The government assures that there will be no blackouts for the population, sometimes at the expense of industry.⁶⁹ Planned outages also occur due to maintenance of NEA networks.⁸⁶

Transport connectivity: The road network is expanding, but its quality is uneven and maintenance is a problem.²³ Key projects such as the Kathmandu-Terai Expressway are facing delays. TIA airport upgrades have caused major disruptions.² The Raxaul-Kathmandu railway project raises questions of profitability due to high costs and low projected financial returns.⁴⁸ Proposals to build a metro/rapid transport in Kathmandu face significant challenges of feasibility, cost, coordination and land acquisition, with little concrete progress being made.⁴² World Bank projects are aimed at improving key highway corridors and trade connectivity.⁸⁸

Digital readiness: Broadband Internet penetration is high, mainly driven by mobile communications.²³ The government is promoting the development of digital infrastructure (IT parks and data centers are planned).¹⁸ However, 5G rollout has been significantly delayed compared to neighboring countries, and there is uncertainty regarding commercial launch timing and operator readiness/investment appetite.⁷³ Smart city initiatives (in Kathmandu and other cities) largely remain on paper or in pilot stages, facing implementation hurdles.²⁴

Despite the policy focus and existing potential (hydropower, strategic location), inadequate and unreliable infrastructure remains perhaps the biggest constraint to economic growth and doing business in Nepal. The energy crisis is directly affecting industry.¹⁴ Poor transport increases costs and limits access to markets.⁶⁴ Digital infrastructure (5G) delays are reducing competitiveness in the critical IT sector.⁷³ Slow progress on major projects (rail, metro, smart cities) reflects systemic problems in planning and execution.⁴² This is the Achilles heel of the Nepalese economy. Businesses should include infrastructure risks in their plans (eg, power backup costs, logistics buffers). Significant opportunities exist in providing infrastructure solutions (private generation for industrial zones, logistics services, potentially specialized communications solutions), often through PPP models ²⁶, if the policy allows it and the framework is clear.

4.3 FDI climate: Open door policy, investment flow is trickle

Trends and volumes: FDI inflows are historically low (0.1-0.2% of GDP ¹⁶), significantly lagging behind the potential and regional indicators.¹¹ The data shows fluctuations: a decline in 2022, but an increase in 2023.¹⁶ Recent commitments (first 9 months of FY25) are showing an uptick (around US$430 million announced), mainly through the certification system for large projects and the automated system for smaller ones, predominantly targeting small businesses.⁶³ Actual inflows often lag behind stated commitments.⁹⁰

Sectoral interest: Commitments span a variety of sectors, with a recent focus perhaps on small businesses, but historically large investments have been in hydropower. IT, tourism, manufacturing are also of interest.²³ Investments from India are significant.³⁸

Government position and policy: The government is actively seeking to attract FDI by promoting Nepal as an investment destination (Investment Summits, Investor Guide ²³). The policy offers incentives (tax breaks, repatriation guarantees, SEZs, hedging, VGF).²³ Efforts are being made to simplify approval procedures (IBN for large projects, DOI for others, OSSC).²³ FITTA 2019 provides the legal framework.²³

Investor Perceptions and Challenges: Despite policy efforts, investors cite policy inconsistency, administrative barriers, infrastructure gaps, political instability and regulatory hurdles as key headwinds.¹² Business confidence remains low.²⁰ There is a lack of consultation with stakeholders.³⁸

Although Nepal attracts significant obligations on FDI, especially during investment summits or after new policies are announced ⁶³, actual FDI inflows materialized often remain low and volatile.¹⁶ This gap between commitment and implementation suggests that while initial interest may be generated, its translation into actual investment is hampered by persistent challenges on the ground related to implementation, bureaucracy, infrastructure and the general level of trust in the business environment.¹² Potential investors should be wary of liability figures. Success requires effective navigation of the implementation phase after initial approvals are obtained. Understanding and mitigating operational risks is just as important as obtaining initial approvals. Opportunities exist for advisory services to help investors bridge this gap.

5. Strategic recommendations and prospects (2025-2030)

5.1 Synthesis of opportunities with high growth potential (Top niches for Kathmandu and Nepal)

Based on the analysis, the following most promising and practically implementable business areas for the period 2025-2030 are identified:

1. AgTech and Modernized Food Supply Chains: Leveraging the strengths of the IT sector to address agricultural inefficiencies and connect rural producers to the Kathmandu urban market. Focus on tracking systems, logistics, market platforms, cold chain solutions. (Based on analysis of the gap between urban demand and rural supply).
2. Niche tourism products and infrastructure: Leveraging sector recovery and (in the medium term) modernization of TIA airport by offering specialized products (wellness, cultural, MICE tourism) and addressing infrastructure gaps (digital tools, transport links). (Based on an analysis of the dependence of tourism on infrastructure).
3. IT Services and Business Process Outsourcing (BPO): Building on existing strengths in software development and outsourcing, targeting international markets while lobbying for improvements to domestic infrastructure (electricity, internet). (Based on an analysis of the IT hub’s ambitions and infrastructure constraints).
4. Services in the field of renewable energy sources (in addition to generation): Focusing on grid stabilization solutions, energy efficiency services for industry, deployment of rooftop solar panels, creation of electric vehicle charging infrastructure, considering hydropower potential and reliability issues. (Based on an analysis of the “dual” role of hydropower and infrastructure problems).
5. Affordable Urban Housing and PropTech: Addressing the critical housing shortage in the periphery of Kathmandu using efficient construction techniques and sales/management technology. (Based on an analysis of the tension between rising prices and availability).
6. Professional training and advanced training: Meeting the demand for skilled labor in growing sectors such as IT, hospitality, construction and healthcare, possibly using hybrid online/offline models.
7. Fintech for financial inclusion and efficiency: Expanding digital payments, developing solutions for SMEs to access credit and possibly using remittances for investment products. (Based on an analysis of financial sector risks and digitalization opportunities).

5.2 Innovative business models for the Nepalese context

The specifics of the Nepalese environment require adaptation and application of innovative approaches:

• PPP to solve local infrastructure problems: Instead of focusing solely on megaprojects facing delays, it is proposed to develop smaller and more manageable PPP projects to solve specific urban problems (e.g. waste management technologies, localized transport solutions, utilities for industrial zones). Using the new PPP framework.¹²
• Technologization of traditional sectors: Deep integration of digital tools in agriculture, handicrafts, retail to improve market access, efficiency and quality control (e.g. traceability platforms, integration of artisans with e-commerce platforms).
• Circular Economy Enterprises: Opportunities in waste management (building on models like Khaalisisi ⁷²), recycling and upcycling, especially relevant to urban Kathmandu.
• Franchising and scalable local brands: Develop strong local brands in food service, retail or services and use franchising models to expand in Kathmandu and potentially other cities.
• Community-based tourism models: Partnering with local communities to create authentic guesthouses, cultural programs, ensuring benefit sharing and promoting sustainability.²²

5.3 Overcoming Challenges: Risk Mitigation and Strategic Considerations

To operate successfully in Nepal, it is necessary to consider and minimize key risks:

• Political and political instability: Diversify risks, build strong local partnerships, remain flexible in business plans, interact with industry associations (FNCCI, CNI, NICCI ¹⁷) for lobbying interests. Focus on sectors with cross-political support (eg hydro, IT).
• Infrastructure deficit (energy, transport): Consider back-up power costs, explore in-house generation where possible, optimize logistics, select locations based on existing/planned infrastructure, advocate for improvements.
• Bureaucracy and implementation gaps: Dedicate resources to navigating the administrative environment, seek expert legal/consulting assistance, use OSSC ²³, where it is effective, build relationships with relevant departments.
• Financial sector risks: Monitor NPL trends, maintain a strong financial position, diversify funding sources where possible, explore non-traditional sources (PE/VC, impact investors).
• Attracting and retaining talent: Offer competitive compensation/benefits, invest in training, create a positive work culture, potentially use remote work models to access a wider talent pool. Cooperate with vocational educational institutions.

5.4 A final look at Nepal’s business potential (with a focus on Kathmandu)

Nepal, and particularly the Kathmandu Valley, presents a landscape of tangible opportunities coupled with significant operational challenges. Period 2025-2030 unlocks potential in specific, targeted niches, especially those that leverage digital transformation, address infrastructure challenges, meet urban needs and benefit from a recovering tourism sector.

Success will require the ability to navigate political uncertainty, minimize infrastructure risks and implement innovative, sustainable business models. Although large-scale industrialization faces obstacles, the greatest promise lies in service-based growth, especially in IT and specialty tourism, along with hydropower development and agricultural modernization. Kathmandu will remain a critical hub and addressing its urban challenges is key to unlocking the nation’s broader potential. Strategic investments, coupled with patience and local adaptation, can yield significant returns in this emerging market.

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