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Country Commercial Guides for FY 2000: Nepal Report prepared by U.S. Embassy Kathmandu, released July 1999 Note*

CHAPTER V. LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENT

* BEST PROSPECTS FOR NON-AGRICULTURAL GOODS AND SERVICES

1. Computers/Peripherals (CPT, CSF)

Nepal's overall potential as a market for U.S. exports is modest. Total U.S. exports to Nepal in NFY 98/99 amounted to only $25 million. However, U.S. computers and peripheral equipment are highly competitive in the local market. Total annual imports of computer hardware is estimated at around $20 million, involving goods that are generally transshipped through Hong Kong or Singapore. Customs statistics understate the U.S. market share, since, as in the case of computer hardware, much American equipment is imported via distributors in Hong Kong or Singapore and is therefore not captured in official statistics.

2. Telecommunications Equipment (TEL)

Local microwave and cable TV services depend on U.S. firms for much of their equipment, as do Kathmandu's two satellite/cable TV networks. There is also demand for paging and cellular phone systems. Private paging systems are allowed, and a mobile telephone service has been established by the Nepal Telecommunications Corporation. The Nepal Telecommunications Corporation (NTC) is also expanding its land-line phone system and will continue to issue tenders for optical fiber lines, digital switching equipment, and telephone sets. Plans call for commercialization and privatization of NTC within two years. By the end of the year 2000, NTC's current monopoly on basic services, including long-distance services, should be ended.

3. Aircraft and Parts (AIR)

The mushrooming of private airlines in Nepal will provide opportunities for the sale of short-hop passenger turboprop aircraft, including both used and new equipment. Domestic Nepalese private airlines prefer twin-engine aircraft such as the Beechcraft 1900D, Canadian Twin Otter, the British Avro and the German Dornier. The market for rotary-wing aircraft is also growing, particularly for tourism-related passenger and cargo services. The national flag carrier, the Royal Nepal Airlines Corporation (RNAC), has traditionally preferred Boeing aircraft for its international routes, but financial problems have made it difficult for the airline to purchase any new aircraft. However, RNAC has recently announced its decision to purchase five new aircraft, one wide-body and four twin-engine aircraft. RNAC is also regularly in the market for wet and dry leases. Several private international airlines have also been licensed in Nepal, but none has yet assembled the capital required for operations.

4. Water Resources Equipment/Services (WRE)

Nepal is moving ahead rapidly with a variety of public and private hydroelectric projects. The $453 million, 144 MW Kali Gandaki A Project is already under construction, with financing from the Asian Development Bank. Also under construction is the first fully private power development project -- the $100 million, 36 MW Upper Bhote Koshi Project -- by two U.S. firms, Harza Engineering and Panda Energy. In prospect are the 750 MW West Seti Project, which is being developed by an Australian syndicate, and projects at the Pancheshwore and Karnali-Chisapani sites. In addition, the government has identified a set of 24 small and medium-scale projects for immediate development. If all are developed, Nepal will add approximately 5,000 MWs to its generating capacity over the next decade.

5. Autos/Light Trucks/Vans (AUT)

An electric vehicle project sponsored by USAID may lead to market demand for small electric taxis and vans within the next few years. The pollution caused by diesel vehicles is compelling Nepal to explore alternatives and a recent decision by the Government of Nepal to reduce the customs duty to five percent for electric vehicle parts and ten percent for electric buses, cars, and vans (compared to 110 percent plus sales tax for diesel and gasoline powered vehicles) should stimulate demand for such equipment in the Kathmandu Valley.

6. Renewable Energy Equipment (REQ)

There is scope for increasing U.S. exports of solar power equipment components to Nepal. Such equipment is well suited to hilly regions, which are not connected to national or local electrical grids. Furthermore, the Danish Aid Agency, DANIDA, is reportedly considering a program which would subsidize the installation of 35,000 solar power units in Nepal over the next several years. Windpower units could also find applications in the agricultural sector for pumping water and at least one local firm is contemplating a larger installation to provide power directly to the national grid.

7. Management Consulting Services (MCS)

Current investment rules make it impossible to set up and maintain business consultancy services in Nepal. When and if these rules are relaxed, there will be opportunities for entrepreneurs to set up small consultancy and market research services to service local businesses and foreign assistance projects.

8. Medical Equipment and Drugs/Pharmaceuticals (MED and DRG)

These categories grouped together traditionally have topped the list of U.S. exports to Nepal. Sales should continue to grow steadily.

* BEST PROSPECTS FOR AGRICULTURAL PRODUCTS

Given the small size of Nepal's market in terms of purchasing power and the fact that most of the population is engaged in subsistence agriculture, there is extremely limited scope for exports of U.S. food products. In 1998/99, total imports of agricultural products from the United States reached only about U.S. $500,000. The statistics reveal that exports of dry fruits and nuts (almonds) and of fresh peas have been relatively strong recently. Rising incomes and the concentration of tourist facilities in the Kathmandu Valley have resulted in the import of some prepared foods from the United States, mainly via brokers in Singapore and Hong Kong.

Nepal is totally dependent on imports of fertilizers such as urea. The Government engages in open tenders for import of such items and U.S. firms have proved competitive in the past.

* SIGNIFICANT INVESTMENT OPPORTUNITIES

There are two main investment opportunities in Nepal: hydropower and tourism. While Nepal has some 83,000 megawatts in hydroelectric potential, less than one percent of this potential has been developed. However, agreements struck with India in 1996 and 1997, which define the terms for the joint development of hydropower projects (the Mahakali Treaty) and sanction a cross-border trade in private electric power have opened up the Indian power market, where shortages are chronic, to producers in Nepal. There is currently one U.S.-Nepal joint venture working to develop a 36 MW site in Nepal. Another 60 MW project (the Khimti Khola Project, which is being completed by a Norwegian consortium) came to financial closure in early 1996. In February 1998, the Government of Nepal requested expressions of interest on 17 small and medium scale hydropower projects and received replies, and applications on 12 projects. In addition, one major U.S. developer is considering the 10,800 MW Karnali Chisapani Project.

Nepal's rugged terrain and exotic culture have an enduring fascination for tourists. Most current U.S. direct investment in the country is concentrated in the tourism-related areas of hotels, restaurants, and casinos. Notable examples are the Soaltee Holiday Inn Crown Plaza Hotel, the Radisson Hotel and the Hyatt Taragaon Hotel.

The Government of the United States acknowledges the contribution that outward foreign direct investment can make to the U.S. economy. U.S. foreign direct investment is increasingly viewed as a complement or even a necessary component of trade. Nearly 60 percent of total U.S. exports originate with American firms with investments abroad. Recognizing the benefits that U.S. outward investment brings to the U.S. economy, the Government of the United States undertakes initiatives, such as Overseas Private Investment Corporation (OPIC) programs, bilateral investment treaty negotiations and business facilitation programs, that support U.S. investors.