At MC11, Nepal looks to e-commerce to hasten development in Himalayas

12 December 2017

UNCTAD's eTrade Readiness Assessment of the mountainous nation, presented at WTO's MC11, shows the majority of Nepalese are now online, and that this is empowering consumers and businesses alike.

E-commerce in Nepal represents an untapped market with great potential for trade and economic growth, according to UNCTAD's eTrade Readiness Assessment of the country, being presented later today in Buenos Aires, at an event organized with the Enhanced Integrated Framework (EIF) on the side-lines of the Eleventh WTO Ministerial Conference (MC11).

Over the past seven years, the portion of Nepali consumers online has grown from 8% to almost 60% thanks to improved information communications technology infrastructure and services. Most shoppers in the country now access the Internet through 2G or 3G mobile data services.

"The emerging e-commerce opportunities in Nepal are possible in part because the government has done what is needed to ensure the country's young men and women are IT-savvy," UNCTAD Secretary-General Mukhisa Kituyi said ahead of the event.

"A growing youth population that is educated and equipped with the necessary digital skills has the power to transform a country's economy," Dr. Kituyi said.

The assessment says that the rapid spread of Internet access in the landlocked central Himalayan country, especially in the Kathmandu Valley, is creating new growth opportunities for businesses such as retailers, mobile operators and payment service providers.

And new eTrade niches are opening up as domestic and foreign players vie to satisfy the demands of an increasingly "e-commerce-ready" population. This is creating healthy competition, especially among financial services.

"E-Commerce offers huge opportunities for more than 100,000 SMEs in Nepal, especially those owned by women and young entrepreneurs, to reach foreign markets and get their products known to global consumers," EIF Executive Director Ratnakar Adhikari said, adding that e-commerce also gives these small-business owners access to a wider array of products at more competitive prices.

But all is not perfect in the Himalayan eTrade landscape, and the assessment identifies several factors that continue to hamper e-commerce uptake in Nepal. The major challenges have to do with online payment and transportation and distribution channels.

E-commerce will really take off only when online purchases become the norm. In Nepal, cash-on-delivery is still the preferred means of payment for those buying and selling goods on the Internet. Only 4% of online purchases are paid with a credit or bank card.

And high commissions charged by electronic payment providers discourage businesses from using digital payment gateways such as eSewa and IMEPay, which account for just 10% of all e-commerce transactions.

Similarly, the difficulties that foreign exporters and retailers encounter when trying accept money from Nepal through international payment methods means that the country's consumers are unable to purchase goods from international e-commerce platforms such as Amazon.

Such difficulties are "collateral damages" from restrictions imposed on the Nepali banking system as a whole, and are not confined to e-commerce financial service providers and payment service providers.

But even if it were easier and more popular for Nepali shoppers to make payments on the Internet, the delivery of goods bought online would still be bogged down by the lack of a proper addressing system for houses, and by inadequate logistics and transportation infrastructure. According to the assessment, e-commerce volumes are still well below the levels needed to attract major transportation and logistics players.

E-commerce uptake and online trust is further hampered by a slightly outdated legal and regulatory framework, the assessment says, especially regarding consumer protection and privacy and restrictions on foreign direct investment for retail (since e-commerce is not recognized as its own separate industry).

"Putting in place enabling conditions for e-commerce, especially e-payment solutions, more reliable internet connections and logistics services, should be initiated as soon as possible to unleash the full potential of the fast growing digital economy," Mr. Adhikari said.

The Nepalese government, through Nepal Rastra Bank (the Central Bank of Nepal), the Ministry of Commerce and the Ministry of Information and Communication have taken steps towards addressing constraints faced by the nascent e-commerce ecosystem. This includes developing an ambitious national ICT policy, singling out information technology enabled services and business process outsourcing as services export priorities, as well as setting up a joint task force on e-commerce.

Taking such steps is both timely and instrumental, as e-commerce is expected to grow exponentially over the coming years. To help the government speed up the reform process, the assessment report provides an action matrix with recommendations in seven policy areas:

  • E-commerce readiness assessment and strategies formulation

  • ICT infrastructure and services

  • Trade logistics and trade facilitation

  • Payment solutions

  • Legal and regulatory framework

  • E-commerce skills development

  • Access to financing

The Nepal eTrade Readiness Assessment, funded by the Enhanced Integrated Framework (EIF), the global Aid for Trade programme designed specifically for Least Developed Countries (LDCs), is the fourth such assessment carried out by UNCTAD.

UNCTAD has been giving special attention to the needs of what were once called the "less developed among the developing countries" since its first ministerial conference in Geneva in 1964.