Obstacles in Business

A World Bank study into Nepal’s private sector business lists down the biggest obstacles in doing business in Nepal and ranks these problems in order of their severity. A summary of the still unpublished report*

The problems in doing business in Nepal fall into eight broad categories. Government in all its forms – its policies and regulations and bureaucratic burden imposed on firms in complying with the regulations – turns out to be the number one obstacle for about 36% of the firms surveyed.

Bureaucratic burden is cited most often by the respondents as one of the three topmost problems in doing business in Nepal. (For what problems included under bureaucratic burden, refer the box in the next page). This is followed by government policy and lack of aggregate demand as the other most often cited business problems. Interestingly, labour and high interest rate are cited less frequently as major problems by the firms surveyed. Over 85% of firms reported that there had not been a labour dispute during the last one year of the interview.

The study report also finds that more of the medium, large and conglomerate size firms complain of the problems related to government policy and regulations than the smaller size firms. Micro and small size firms were found to be affected more by the lack of access to finance and business support services (see box). Labour problems are more serious among the micro, large and conglomerate firms than in the small and medium size firms. The possible explanation may be that small firms find it difficult to retain manpower with technical expertise while bigger ones find difficulty in dealing with unionized labour and diversified work force.

Nearly 80% of firms contacted are reported to have complained of difficult in complying with income tax regulations. Virtually none of the firms interviewed indicated that they paid taxes on the basis of actually audited books.

Government related problems are found to be more acute for export firms than non-exporters and for big firms located in Birganj and Butwal compared to those in rest of the country. Firms in Biratnagar are less worried about the government, but are constrained by problems in timely availability of raw material and business support services such as training and technology transfer. Competition is a bigger problem in Birganj, Butwal and Nepalgunj (all border towns) where cheap substitutes from India are easily available. But firms in Biratnagar (another bordering town) do not regard Indian competition so big a problem. Larger firms in Hetauda and Birganj are more affected by government bureaucracy and policy than the smaller firms located in Pokhara and Dhangadhi.

Biggest Obstacle to Doing Business by Category

Ranking of Business Problem Categories

Variations in business Problems by Firm Size

Variations in Business Problems across Firm Locations