Nepal Rapid eTrade Readiness Assessment

The eTrade for all Initiative seeks to raise awareness, enhance synergies, and increase the scale of existing and new efforts by the development community to strengthen the ability of developing countries to engage in and benefit from e-commerce. The Nepal Rapid e-Trade Readiness Assessment is the fourth such assessment conducted by UNCTAD under the eTrade for all Initiative.

The e-commerce industry in Nepal is at a nascent stage and represents an underexplored market. The fast-increasing Internet penetration, especially in the Kathmandu Valley, has opened opportunities for several e-trade niches. Domestic and foreign players are trying to address the needs of the e-commerce ready population, creating healthy competition, in particular among financial service and payment service providers.

This marked increase in demand for e-commerce in Nepal is attributed to a growing segment of the population that is young, educated and technology-dependent. Sectors benefiting from this e-commerce development includes retail, mobile operators and payment sectors.

Despite these promising trends, e-commerce is currently not achieving its full development potential in Nepal. E-commerce could become a key contributor to economic growth and foreign trade in years to come, thanks to better ICT infrastructure and innovation. The steady rise of Internet use in Nepal has improved accessibility of e-commerce for the population. As of April 2017, Internet penetration was at 58 per cent, from 8 per cent in 2010. Most consumers in Nepal access the Internet through 2G or 3G mobile data services.

Several factors continue to hamper e-commerce development in Nepal:

  • Transportation and distribution channels are major challenges, as volumes are well below the levels that will attract main logistics players. Cash-On-Delivery is the preferred e-commerce payment method; around 85 per cent of e-commerce users indicating preference for that method. Digital payment gateways such as eSewa, IMEPay are the second most popular method with 10 per cent of e-commerce transactions, leaving only 4 per cent of e-commerce customers using payment cards to buy online.

  • Difficulties in cross-border money transfer, in accepting payments for both the exporter and retailer through international payment methods, means that Nepalis cannot use their payment cards to purchase goods from international e-commerce platforms. High commissions charged by electronic payment services discourage businesses from using these services. These are “collateral damages” from the restrictions imposed on the Nepalese banking system as a whole and are not confined to the e-commerce Financial Service Providers (FSPs) and Payment Service Providers (PSPs).

  • A lack of adequate logistics and transportation infrastructure, critical to supply chain management, and a lack of proper addressing system for houses hamper deliveries.

  • A slightly outdated legal and regulatory framework, especially regarding restrictions on FDI for retail (since e-commerce is not recognized as its own separate industry), data protection and privacy and electronic transactions, is slowing down e-commerce uptake and online trust.

The Government of Nepal, through Nepal Rastra Bank (the Central Bank of Nepal), the Ministry of Commerce and the Ministry of Information and Communication have taken steps with a view to address constraints faced by the young e-commerce ecosystem. This includes developing an ambitious national ICT policy, singling out Information Technology Enabled Services (ITES) and Business Processing Outsourcing (BPO) as services export priorities, and setting up a joint task force on e-commerce.

Moving forward, it will be crucial for the Government to take steps to facilitate e-commerce and to seize opportunities from it. This involves dealing with potential cost and challenges arising from e-commerce development. Taking steps in that direction would be both timely and instrumental as e-commerce is expected to grow multi-fold in the coming years.

The action matrix contained in this report includes recommendations to accompany and accelerate this process, along the seven policy areas promoted by the eTrade for all Initiative.

11 Dec 2017