Why is becoming an entrepreneur difficult in Nepal? What can be done?

In addition to allocating a budget and creating forums for entrepreneurship promotion, the government should focus on facilitating entrepreneurs by removing the red tapes and market entry barriers.

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Anmol Purbey

  • Read Time 4 min.

Doing business in itself is a challenging task. The poor performance of Nepali startups sheds light on the fact that the entrepreneurs in the country face challenges in their endeavor of establishing and growing a business venture.

One such problematic area that can explain the additional challenges is the poor and archaic policy environment including the bureaucratic hurdles. It is reported that the business registration process in Nepal takes 7-10 days. There are various documents such as application for registration, Memorandum of Association and Articles of Association of the proposed company and many more documents need to be submitted to register their businesses.

In addition, multiple layers of tasks have to be conducted under the same government agencies. Entrepreneurs themselves have to move from one desk to another to get services from different government officials (like getting signatures and approvals). The service delivery mechanism is such that the entrepreneurs have to seek services from individual bureaucrats within the same government agency and not from the agency as a whole. As bureaucrats are responsible for providing services, this has created room for corruption. 

Using the online registration process for establishing a business helps ease the restrictions. In Hong Kong, for example, the business registration process takes only one hour. 

With there being various forms of restrictions by the governmental institutions it has made it very difficult for people without any political influences, even if they have innovative ideas to dwell into entrepreneurships. The evidence of corruption can be seen in the Corruption Perception Index where Nepal is ranked as the 117th least corrupt nation out of 180 countries. One such case of corruption is the case where The Commission for Investigation of Abuse of Authority in January 2022 filed cases against 27 individuals, including government officials of the Department of Mines and Geology, and nine businessmen, at the Special Court, for causing the revenue losses of Rs 1.24 billion to the state.  

Not only for entrepreneurs that are about to dwell into the ventures, these restrictions have also caused problems for already established businesses as seen in the case of the Tootle-Pathao controversy in the country in 2019. The controversy happened due to the conflicts between taxi drivers and the workers of the company, and also because the company was registered with the Office of the Company Registrar and not with the Department of Transport Management, making the companies’ services unregulated.

The company and ride sharing apps were nearly about to be banned in the country but due to outrage and public demand the closing of the company did not happen. This happened due to various procedures and restrictions made by the government and also archaic and non-transparent laws for business registrations, which have not been able to keep up with innovations and technological development in the country.

Another such case of restrictions is the minimum threshold for bringing in FDI. The decision to put a minimum threshold has restricted business sectors to enhance their capital accumulation capabilities, in a country where capital accumulation is a very difficult process. Furthermore, according to the 2022 Index of Economic Freedom, Nepal’s economic freedom score is 49.7, making our economy the 148th freest in the Index.

Similarly, it is ranked 31st among 39 countries in the Asia–Pacific region, and its overall score is below the regional and world averages. There has been a sharp decrease in the country’s economic freedom index with a 5.4-point overall loss of economic freedom since 2017 and has fallen from the “Mostly Unfree” category to the “Repressed” category. The rankings are further evidence that shows Nepal has not built a good environment for the entrepreneurs and their innovations to thrive. 

Ways to promote entrepreneurship  

The government, in addition to allocating budget and creating forums for entrepreneurship promotion, should also focus on facilitating entrepreneurs by removing the red tapes and market entry barriers. Doing so will not only help cultivate the entrepreneurial ecosystem, but will also foster innovation in the market and efficiency in terms of service delivery by the government. We can also take inspiration from countries like Hong Kong, Singapore, Japan and New Zealand that are in the top 10 ranking in the economic Freedom Index and Global Competitive Index, on ways to create a good environment for entrepreneurs.

The economic freedoms ranking can be used as an indicator to see the progress of entrepreneurship in the country. The countries have been successful for entrepreneurship because of its remarkably open and corruption-free business environment, prudent monetary and fiscal policies, and a transparent legal framework. They also have provisions that actively support and encourage start ups with grants and tax incentives. The governments in these countries encourage the protection of intellectual property rights, and have very modern legal frameworks for patent, copyrights and trademark laws, which is very essential for the growth of entrepreneurs and needs to be taken as an example.

There are various policy restrictions for entrepreneurs when trying to establish a business in our country. So, one such step that can be taken to ease the restrictions of starting a business is to use the online registration process for establishing a business, as used in Hong Kong where the business registration process only takes one hour. This will make it easier for entrepreneurs to register their businesses without any hassle from bureaucrats and political influence.

The step to use the online registrations process will also make the information for establishing a business more transparent for people. Furthermore, it will reduce the chance of people being the victims of corruption. Hong Kong ranks 12th least corrupt nation, while Singapore is ranked as 4th least corrupt country. So, Nepal which ranks the 117th least corrupt country and since the economic freedom rank also takes the corruption index as a category to determine the rank, the country needs to take inspiration from these countries to make it easier for entrepreneurship and  increase their ranking.                                                                                                     

Another such step that needs to be taken is the FDI minimum thresholds currently imposed by the government being removed. With these changes the foreign investments for the business sectors might increase which is necessary for the country where capital formation is abysmal. The changes can help the business sector to thrive which is essential for the development of the country.

Without the minimum threshold, the enterprises will also be able to expand their venture into other parts of the country and not just be concentrated in urban areas. With these inspirations and provisions from countries like Singapore and Hong Kong being implemented in the country, entrepreneurship will thrive in the country and reach its potential, which is a necessity for Nepal.

Entrepreneurship is a crucial component that impacts development as a whole. In order to advance the economy, entrepreneurship needs to be encouraged. A favorable atmosphere should be fostered by the state, and regulations ought to be supportive of it. 

Anmol Purbey ​​is a Researcher at Samriddhi Foundation, an economic policy think tank based in Kathmandu. The views expressed in this article are the author’s own and do not represent the views of the organization. [email protected]