Lockdown Economy Nepal

The Nepali economy is highly reliant on international aid. The aid primarily focuses on infrastructure development and Sustainable Development Goals. The three main contributors to Nepal’s GDP are tourism, remittances, and agriculture. Additionally, it is important to note that inward remittances (23% of GDP as per Coface for trade research) largely contribute to disposable income that supports domestic consumption across sectors. 

As per the Central Bureau of Statistics’ 2019 data, 99% of registered enterprises in Nepal are Micro, Small, and Medium Enterprises and they created 95% of employment in the country. The United Nations estimates that 3.5 million people are engaged in the enterprise sectors, of which 59% are micro-enterprises. A 2020 UNDP - OECD research concluded that Nepali SMEs are less equipped with strategies and resources to cope with crises.

For the Lockdown Economy Nepal analysis, there were a total of 30 interviews, including 13 micro-businesses and 17 small businesses. All are taxpayers. One is based in Pokhara, two in Lalitpur, and the rest in Nepal’s capital Kathmandu. Twelve of the businesses interviewed fall under the services category and the balance majority in retail: handicraft-based items, food, and clothing.  

Not surprisingly the businesses that focused on domestic consumers dealt with fewer issues during the lockdown and also saw a faster recovery. The businesses that focused on tourist consumers were harder hit and needed to make bigger adjustments to survive the lockdowns.

To better understand the challenges faced by the businesses it is important to keep the following in mind: 

1) Several of the enterprises are traditional brick-and-mortar businesses with no online presence. They relied on tourist consumers who most likely preferred their offline stores. 

2) Even though remittances were negatively affected, it was a very short-term phenomenon. That income stream has restarted. 

3) The tourism sector is likely to take much longer to recover. 

Access to Capital

With the exception of two interviews, one of the biggest issues the businesses faced was access to capital. The majority struggled with cash flow problems due to a drop in revenue, exacerbated by the strict lockdowns. Even businesses which were able to sell online struggled.

Speaking with Ne Nepal, a business that works with artisans to create traditional Nepali products, their expectation was access to microfinance products not just to survive the lockdowns but also in order to expand. We heard similar feedback from NoChini, a business that sells freshly made juices. Since they are considered high-contact businesses, until the government vaccinates the population, they are forced to operate at a lower capacity.

Interestingly, even businesses that had robust sales during the pandemic mention access to capital as one of their biggest problems. For them, the pandemic was an opportunity to grow, but due to the lack of access to cheap capital they could not. Prithvi Agro Farms mentions access to microfinance as a way to compete with internationally funded GMO farming activity. JeeVee Health, an online medical service provider, discusses access to capital with a focus on FDI regulation. Veda, a business that provides MIS systems for schools, was not able to expand into international markets due to a lack of funding. Basically pointing to a need for financial support for startups. 

Government Support

The Nepali government has allocated in their budget subsidies on interest rates and loan repayment schedules for SMEs and additionally made available credit lines for them as well. Interestingly, except for Prithvi Agro, no one mentioned taking advantage of these provisions in the interviews. An October 2020 ESCAP report finds that over the years the Nepali government has introduced several policies to improve financial inclusion and improve access to capital. Although, there continues to be a financing gap in the micro-small bracket. 

Navigating the inter and intracity movement during lockdowns

During the multiple lockdowns, only businesses that were considered essential were given permits to operate. This included allowing their employees to commute to work from home, make deliveries, etc. With an exception of two, none of the businesses interviewed were considered “essential”. That meant that in order to make deliveries for online sales these businesses not only needed a permit to make the delivery, they also needed permits for any employee that needed to commute to the office. 

Unclear permit regulations coupled with the flexible implementation of the rules added to the problems. The other option was high-cost delivery services operating in Kathmandu. 

House of Palettes: a business that allows a client to paint their own art under the guidance of an artist. Pre-pandemic they had 200-300 customers per month. This dropped to 150 customers per month during the pandemic. They felt that if they had been able to deliver supplies to clients’ homes for online classes, they would have been able to capture additional business. 

As mentioned in their interviews, Pizza Pasal, Helmets Nepal Pvt Ltd., and Sinka, all had to break curfew regulations after the first lockdown in order to keep their businesses alive. Pycus Holdings (brand and online consultancy) and Helmets Nepal openly talk about getting caught by the police, getting their scooters confiscated, and having to pay fines. They shrugged it off as the cost of doing business. 

Prithvi Agro Farms was not able to deliver their produce (lemons) to their Kathmandu vendors because of transport and road closures even though they are in the “essential category”. They decided to sell in the local markets instead. 

UG Bazaar, a Nepali online marketplace started just as the pandemic hit, mentions difficulties in making deliveries for online sales as one of their biggest hurdles. What they found was that the existing delivery services were too costly and they were not able to find low-cost delivery services that catered to MSMEs. Similar to Helmets Nepal, in the end, they started making the time-sensitive deliveries themselves without a permit. 

Informing Policy

Overall this is a tricky situation. Once the international borders were shut, community transmission of the virus became the biggest concern. It is important to note that as lockdowns were lifted the government did allow some movement: staggered on odd/even number plates and business locations. Even today low vaccination rates in Nepal equate to a high risk of community transmission. The Asian Development Bank has granted a $165 million loan towards vaccinations. 

Assistance with creating and maintaining an online presence

When Nepal instituted the first lockdown, many of the businesses interviewed had to change focus to online sales and advertising. The majority did not know what to do and struggled to connect with service providers. For example, Kayo Creative Studios asks for assistance with going online and Jamarko asks for collaborative platforms which indirectly take care of the online space.

Interestingly Dynavativ Pvt Ltd. and Pycus Holdings, two businesses that provide IT services domestically, talk about how existing clients scaled down on projects and slashed budgets. This points to a potential market mismatch: micro and small businesses are looking to partner with an economically viable service, while the IT service providers felt that customers were downsizing projects due to a slowdown in business and they were not able to connect with new customers. 

Success Stories

There were a few success stories. Businesses like Helmets Nepal, Beauty Bar, and Ne Nepal successfully used social media and other online avenues to connect and engage with customers. In all three cases, the owners piloted and maintained the online presence. They did not rely on a third-party service. 

The Beauty Bar owner started a blog on the beauty space giving online tutorials to maintain contact and communicate with existing clients. Helmets Nepal focused on playing online games with clients especially during the first lockdown since many people were bored at home. Ne Nepal took a more traditional approach of using Instagram to generate sales.

The Physique Workshop transitioned to online classes during the lockdown. Since it is considered a high-contact business, they have been offering online classes along with in-person options. 

Creating positive synergies between Nepali businesses with an aim to promote “Made in Nepal” products

The Lockdown Economy interviews from Nepal make it clear that many micro and small businesses prior to the pandemic focused on tourist consumers: a consumer group that would be willing to pay higher rates and appreciate a more intimate or rustic shopping experience. Meaning no need for an online presence.

When the COVID-19 pandemic hit and lockdowns were instituted, these businesses had two options: either go online and sell to the domestic consumer or go online but focus on international consumers. For the first option, there are multiple domestic marketplace platforms. It is not clear if it was not viable or not known to the businesses interviewed. 

Whichever path they chose, most of the micro-artisan businesses struggled to find affordable service providers to help them go online. With no revenues, paying for these services may not have been possible. To that end, many needed collaborative partners and platforms to start generating sales. 

Once online, focusing on domestic consumers was easier since there were additional hurdles for international marketing and deliveries. Interviews with Pycus Holdings and The Local Project mention how the government needs to update certain foreign exchange rules to allow businesses to use online marketing services targeting international and domestic markets. 

On the other hand, breaking into the domestic market may not have been very easy. Based on the interviews, “Made in Nepal” products are not considered quality products by the domestic consumers who prefer foreign brands. It is possible that product prices may have needed to be discounted in order to generate sales. 

Sinka, a restaurant that sells momos (a type of dumpling), specifically states that people should buy local and support local over foreign brands. Lakhey Nepal and Namaslay Artisans both mention the need for a “Buy Nepal” campaign. Jamarko (which focuses on making handicrafts using recycled material) takes it one step further by suggesting that the Nepali government should use Nepal-made products as much as possible. Bodhisattva Gallery,  which sells very high-end Newar Art talks about the need for better copyright laws and PSAs on Newar Art and Artists.  

We did not get this feedback from House of Palettes, Ratna Raaz, and Helmets Nepal - all businesses that had always focused on domestic consumers. 

Success stories

The Local Project Nepal, a platform (started as a cafe and moved online) for Nepali artisans to display and sell their products, continued functioning and by the second lockdown managed to create a successful online platform. Lakhey Nepal collaborated well with a local artisanal-accessories company and has continued to grow. 

Main Takeaways

One of the main takeaways from Lockdown Economy interviews from Nepal is that it is important to have a diversified, robust domestic economy. The policy should focus on creating opportunities for businesses in all sectors, not just the main contributing sectors of the economy. 

The three main sectors that contribute to the Nepali economy are tourism, remittances, and agriculture. When considering the tourism sector it includes both businesses that provide direct services to tourists and businesses that sell Nepali-made traditional products to them. 

Several Lockdown Economy interviews indicate that the COVID-19 pandemic pushed these businesses to change focus from tourist-driven demand towards domestic consumers. It is possible that it added to their problems and result in slower recovery.

Domestic consumption is fueled by inward remittances. Research on consumer habits in communities that rely on inward remittances shows that for the most part, these communities prefer buying low-cost foreign products over higher quality domestic products. What that means is that the domestic consumer would buy a local product only when its cost is considerably less than the cost of the foreign one. 

Across the board, all the business owners mention that their businesses were doing well prior to the pandemic. A few domestically-focused businesses are already seeing positive growth since the end of the first lockdown. Not all of them transitioned to online sales - for example, Ratna Raza, which offers bespoke tailoring services, and Home Automation Nepal,  helping with digital security and other automation systems for homes and offices. 

How can we explain the difference in experience? One clear division is businesses that were focused on domestic consumers versus businesses that were focused on tourist consumers. Businesses that focused on tourist consumers needed to make larger structural changes to their product line, pricing, and also start connecting with the local consumer. A local consumer whose consumption decisions were potentially influenced by their family members working abroad. 

Mr. Shrestha of Home Automation Nepal makes an excellent point during his interview: "The Nepali government has always focused on tourism and agriculture. They have not created policies that support the businesses which provide services to domestic consumers. As such, that part of the economy does not thrive."

The pandemic laid bare this problem. Under the current policies, many MSMEs focused on tourism, and when the pandemic hit, both these businesses and the government were not prepared. Since the COVID-19, the Nepali government has budgeted for skill development, and strengthening of domestic industries to rely less on imports.  

Creating a robust domestic economy where local services and products are consumed will lead to a stronger, more well-rounded diversified economy. Many issues such as access to capital, the ability to find economically viable services, and collaborations to grow - stem from a weak non-diversified domestic economy. Creating policies that will allow domestic business across sectors focusing on domestic consumption will lead to home-grown market-based solutions for many of these issues. 

Written by Natalia Nagree, an independent strategy consultant with a Master’s degree in Public Policy and 7+ years of hands-on experience managing a small manufacturing and retail business. She combines her public policy background with her business and private sector experience to evaluate and inform policy decisions.  

Edited by Nelisa Rianne

Editor-in-Chief - Julia Skupchenko

References

1 - Ecorys & Nathan. A roadmap to post-COVID recovery for Nepal’s agri and tourism SMEs. Available at: https://www.nathaninc.com/wp-content/uploads/2020/09/Roadmap-to-Post-Covid-Recovery-for-Nepals-SMEs.pdf

2 - UNESCAP. (October 5, 2020). Webinar On: Micro, small and medium-sized enterprises’ access to finance in Nepal. Available at: https://www.unescap.org/sites/default/files/WebinarDeck-MSME-financingNepal.pdf

3 - Asian Development Bank. Nepal country page.  Available at: https://www.adb.org/countries/nepal/overview

4 - Nepali Times. (October 22, 2020). Small, medium businesses get lifeline. Available at: https://www.nepalitimes.com/business/small-medium-businesses-get-lifeline/

5 - Dango, Chitrakar, Kee-Seon. (December 15, 2020) . Impact of COVID-19 on Nepalese Small and Medium Enterprises.  Available at: https://www.nepjol.info/index.php/jbssr/article/download/35230/27587

6 - Coface for Trade. Nepal Country page. Available at: https://www.cofacecentraleurope.com/Economic-analysis/Nepal

7 - OCHA. (August 10, 2020). Kathmandu, Nepal – Young people lead innovative initiatives during COVID-19 pandemic. Available at: https://reliefweb.int/report/nepal/kathmandu-nepal-young-people-lead-innovative-initiatives-during-covid-19-pandemic

8 - Think Tank Alter Contacts, Lockdown Economy initiative. (January 19, 2020) Lockdown Economy Nepal in a Health Tech Company with Aabhushan Jyoti Kansakar. Small Business Respond to Coronavirus COVID19. Available at: https://youtu.be/jN2F56K4zrc

9 - Think Tank Alter Contacts, Lockdown Economy initiative. (January 17, 2020) Lockdown Economy Nepal in a Cold Pressed Juice company with Sonam Shrestha. Small Business Respond to Coronavirus COVID19. Available at: https://youtu.be/G7jeCSOytWA

10- Think Tank Alter Contacts, Lockdown Economy initiative. (Feb 2, 2020) Lockdown Economy Nepal in Edu-Tech industry with Nirdesh Dwa. Small Business Respond to Coronavirus COVID19. Available at: https://youtu.be/O-T4jzlJCos

11- Think Tank Alter Contacts, Lockdown Economy initiative. (January 19, 2020) Lockdown economy Nepal in a Design House with Tulja Kedia. Small Business Respond to Coronavirus COVID19. Available at: https://youtu.be/OjteSDQf56Q

12- Think Tank Alter Contacts, Lockdown Economy initiative. (January 15, 2020) Lockdown Economy Nepal in Fitness industry with Sushant Pradhan. Small Business Respond to Coronavirus COVID19. Available at: https://youtu.be/FgRBmphYI5w

13- Think Tank Alter Contacts, Lockdown Economy initiative. (Nov 30, 2020) Lockdown Economy Nepal in Textile and Tailoring Industry with Rajeshwor Raaz Shrestha. Small Business Respond to Coronavirus COVID19. Available at: https://youtu.be/Qqcybpbr_Ws

14- Think Tank Alter Contacts, Lockdown Economy initiative. (Feb 7, 2020) Lockdown Economy Nepal in Handicraft Industry with Sajan G. Joshi. Small Business Respond to Coronavirus COVID19. Available at:   https://youtu.be/O33O6W_PHCU

15- Think Tank Alter Contacts, Lockdown Economy initiative. (Nov 16, 2020) Lockdown Economy Nepal in an Art Studio with Rahul Aggarwal. Small Business Respond to Coronavirus COVID19. Available at: https://youtu.be/FXDOAM9QJtc

16- Think Tank Alter Contacts, Lockdown Economy initiative. (Dec 27, 2020) Lockdown Economy Nepal in an Agricultural Business with Shristi Shrestha. Small Business Respond to Coronavirus COVID19. Available at: https://youtu.be/GEb4kSp90bo

17- Think Tank Alter Contacts, Lockdown Economy initiative. (Dec 31, 2020) Lockdown Economy Nepal in a Traditional Art Gallery with Anjana Shakya. Small Business Respond to Coronavirus COVID19. Available at: https://youtu.be/ccPipW0QJ-w

18- Think Tank Alter Contacts, Lockdown Economy initiative. (Dec 22, 2020) Lockdown Economy Nepal in a Recycled Paper Handicraft Organization with Kritica Lacoul. Small Business Respond to Coronavirus COVID19. Available at: https://youtu.be/hs4qnX1VxCA

19- Think Tank Alter Contacts, Lockdown Economy initiative. (Dec 20, 2020) Lockdown Economy Nepal in Handcrafted and Customized products Business with Kushal Karmacharya. Small Business Respond to Coronavirus COVID19. Available at: https://youtu.be/UGanNQz49HA

20- Think Tank Alter Contacts, Lockdown Economy initiative. (Dec 28, 2020) Lockdown Economy Nepal in an Online Retail Platform for Local Brands with Sachin Shrestha.  Small Business Respond to Coronavirus COVID19. Available at: https://youtu.be/1sau37_7qbc

21- Think Tank Alter Contacts, Lockdown Economy initiative. (Dec 21, 2020) Lockdown Economy Nepal in E-commerce Industry with Nikita Acharya. Small Business Respond to Coronavirus COVID19. Available at: https://youtu.be/Wy0KBCSI980

22- Think Tank Alter Contacts, Lockdown Economy initiative. (Feb 2, 2020) Lockdown Economy Nepal in a Home Automation firm with Keyur Shrestha. Small Business Respond to Coronavirus COVID19. Available at: https://youtu.be/6HTTwho9jQQ

23- Think Tank Alter Contacts, Lockdown Economy initiative. (Feb 22, 2020) Lockdown Economy Nepal in an IT company with Ashish Naulkha. Small Business Respond to Coronavirus COVID19. Available at: https://youtu.be/WWwvvMOAQWY

24- Think Tank Alter Contacts, Lockdown Economy initiative. (Feb 11, 2020) Lockdown Economy Nepal in a Homemade Pizza Outlet with Payal Dhakal. Small Business Respond to Coronavirus COVID19. Available at: https://youtu.be/LUPjZG0eYNs

25- Think Tank Alter Contacts, Lockdown Economy initiative. (January 29, 2020) Lockdown Economy Nepal in a Restaurant Chain with Paras Shrestha. Small Business Respond to Coronavirus COVID19. Available at: https://youtu.be/JzXCP52UuOc

26- Think Tank Alter Contacts, Lockdown Economy initiative. (January 31, 2020) Lockdown Economy Nepal in a Clothing Brand with Erina Shrestha. Small Business Respond to Coronavirus COVID19. Available at: https://youtu.be/5ZCrciivkXU

27- Think Tank Alter Contacts, Lockdown Economy initiative. (January 15, 2020) Lockdown Economy Nepal in a Brand Consulting Firm with Kashyap Shakya. Small Business Respond to Coronavirus COVID19. Available at: https://youtu.be/uKQPhinh0bA

28- Think Tank Alter Contacts, Lockdown Economy initiative. (February 11, 2020) Lockdown Economy Nepal in a Beauty Salon with Itchya Karki. Small Business Respond to Coronavirus COVID19. Available at: https://youtu.be/R7Hycgo_AXg

29- Think Tank Alter Contacts, Lockdown Economy initiative. (February 22, 2020) Lockdown Economy Nepal in a Road Safety Gear and Accessories Company with Prarthana Saakha. Small Business Respond to Coronavirus COVID19. Available at: https://youtu.be/m3iE6T7b4QE