Management Notes

Reference Notes for Management

Effects of Liberalization in Nepal – 14 Major Effects of Changing Business Environment | Management Notes

Effects of Liberalization in Nepal

1) Private investments in core businesses have increased:

There are several core businesses in Nepal that require heavy investment and a high level of managerial skill. Electricity, communication, and transportation are some of these businesses. Prior to the government’s liberalization policy, these businesses were only conducted by the government. The private sector has now invested significantly in these businesses as a result of liberalization.

2) The rise of financial institutions:

A commercial bank was established in Nepal in 1937 called Nepal Bank Ltd., which was the first commercial bank in Nepal. The Nepal Rastra Bank was established 19 years after the first commercial bank was established. After establishing the NRB, Rastriya Banijya Bank was established a decade later. In the 1980s, there was a major structural change in the financial sector. The government stressed the importance of private sector investment for the financial sector. Foreign banks were able to open joint venture banks in Nepal as a result of the liberalization of the financial sector.

In July 1984, the first foreign joint venture bank in Nepal, Nabil Bank Limited, was founded. A tremendous increase in financial institutions has occurred in Nepal during the last two decades. By mid-July 2015, there were 233 banks and nonbank financial institutions licensed by the NRB. The bank includes 30 commercial banks of “A” class, 76 development banks of “B” class, 47 finance companies of “C” class, 38 microcredit development banks of “D” class, 15 savings and credit cooperatives, and 27 non-government organizations.

Nepal has a total of 26 insurance companies. The number of insurance companies has increased considerably since liberalization. Among them, 3 are subsidiaries of foreign insurance companies, 3 are joint investment companies, 18 are privately owned, and 2 are owned by governments.

3) FDI growth:

Over the years, Nepal has experienced an increase in Foreign Direct Investment (FDI) as a result of government liberalization policies. In the first eight months of 2015/16, the government received a total of Rs. 2.34 billion as Foreign Direct Investment (FDI). The new Foreign Investment Policy, 2015 has its main features:

  • Previously restricted industries such as accounting, law, engineering, and film are now open to foreign investment.
  • Multi-brand retailing is open to foreign investment. Foreign institutional investors are allowed to invest in listed securities.

4) Multinational corporations on the rise:

A rapid increase in multinational companies in Nepal has resulted from the liberalization of the economy. These multinational companies collaborate with Nepalese companies to enter Nepal. The companies have become a source of technology transfer and foreign investment, creating jobs and contributing to the country’s economic development. In addition, they contribute to the development of an industrial culture.

5) Increasing trade deficits:

As a result of the external liberalization of the economy, the country’s trade deficit has skyrocketed. Nepal’s foreign trade has increased by 57.8 percent in the first three months of fiscal year 2016/17, reaching Rs.240.64 billion in comparison to the same period last year, according to preliminary data provided by the Trade and Export Promotion Centre. The exports have increased by 9.2 percent.

However, the imports have increased by 64 percent. According to the second quarter of fiscal year 2016/17, the ratio of exports to imports has increased from 1:7.8 to 1:11.7. It indicates that foreign trade liberalization policies have not yielded the anticipated benefits.

6) Growth of the capital market:

Small savings are mobilized through capital markets. Nepal has been giving due attention to the development and expansion of the capital market since liberalization. Nepal Stock Exchange Limited is involved in the over-the-counter market of security. The Securities Board of Nepal regulates and monitors listed companies.

7) Changing government roles:

Governments are gradually changing from being regulators to facilitators as the economy liberalizes. As a result, the government is gradually shifting to building infrastructure for economic development. To facilitate the business sector, the government has promulgated and implemented a variety of laws.

The foreign investment and technology transfer act, the company law, the industrial enterprise act, and the income tax act are some of them. Nepal’s government has enacted a number of policies to facilitate the business sector.

8) Market scenario changing:

With the liberalization of the Nepalese market, imported goods are increasingly occupying it. As a result of this, the Nepalese society is modernizing, and it is also a reason for the increase in income level of the people. Two-wheelers, mobile sets, TVs, refrigerators, mobile phones, vacuum cleaners, and fashion items are in great demand.

The products that were once considered luxurious are now considered essential. It is in this way that the Nepalese marketplace is rapidly changing.

9) Population growth in urban areas:

As urbanization has been associated with specialization, industrialization, and economic development in Nepal, it has been growing over the years. Urbanization has been attributed to the growth of the population in urban areas. In 2013, the urban population in Nepal grew by 3.11 percent. In 2000, the urban population in Nepal was 13.4%. However, in 2010 it grew to 18.2 percent.

Due to the rapid urbanization of Nepal, business opportunities have also increased. The urban population has a higher purchasing power.

10) A growing economic agenda:

Economic issues dominated Nepal for a long time. In the country, democracy and human rights were often discussed. However, economic issues seem to have gained some momentum after 2006. The draft of the new constitution of 2015 emphasizes the importance of the private sector to the country’s economic development. Economic issues create a favorable environment for the development of Nepal’s trade and business.

11) The use of modern technology:

There has been a steady increase in the level of technology adopted by Nepalese business organizations over the past few years, including cement, iron, food, etc. Modern computer-based technologies have been used by the manufacturing industries. It is found that Nepalese financial institutions are also using relatively modern technology.

Information technology is used increasingly by Nepalese service sectors. Hospitals and educational institutions are also using the latest technology to operate. Using technology enables Nepalese companies to compete internationally as well as within their national borders. For instance, most financial institutions provide customers with e-banking services through the use of technology.

12) World economic integration:

Nepal is the member of the regional organizations such as SAARC and BIMSTEC: Similarly, it also got the membership of WTO. These are the efforts of Nepal to integrate its economy to the global economy. Nepal can have ample of benefits through this in terms of market expansion. However, Nepalese organizations are likely to face severe competition as well. The liberalization policies of the government have supported the trade diversification.

13) Service industry shift:

Over the years, Nepal has seen an increase in the service sector as a result of liberalization. Banks, insurance companies, and other financial institutions have grown rapidly. Recent years have also seen growth in other service sectors such as hospitals, schools and colleges, consultancy services, entertainment, hotels, and travel agencies.

14) Diversity in the workforce:

It is due to changing population dimensions that Nepalese organizations are experiencing increasing workforce diversity. Over the years, the workforce has become increasingly diverse based on age, gender, and ethnicity. In addition to cost reduction, marketing, creativity, and flexibility, diversity may also cause conflicts within organizations.


Leave a Comment