The start-up scene in Nepal is okay, if not too well. The launching of start-ups didn’t slow down although all other sectors of the economy were held back by the COVID-19 pandemic for over two years. Similarly, there is no dearth of innovative business ideas introduced by the budding and young entrepreneurs in the country. That certainly gives us a glimmer of hope in these torrid times. But right government policies, implementation of government commitments made to the start-ups in the past, and investors willing to take risks are lacking.
At a time when Nepal’s major economic indicators are declining, the emergence of start-ups has thankfully not seen a slowdown. Start-up companies usually focus on solving problems with innovative ideas to make people’s lives easier, if not better. Even as the impact of the COVID-19 pandemic has slowed down everything in the country, the pace of launching start-ups with an aim to solve problems has gone up. As the country struggles to check the fast depletion of its foreign currency reserves, start-ups can play an important role to bring the ailing economy back on track, offering local solutions to the local problems. Experts believe that start-ups can help produce products and services also at home, reducing the ballooning trade deficit.
Start-ups and economy
The start-ups ecosystem, despite having a limited share in the country’s economy, has an intertwined relationship with each other. Narottam Aryal, president of Kathmandu-based King’s College that offers courses on start-ups and entrepreneurship, argues that start-ups not only help to substitute imports but also increase the country’s export of goods and services. “Technology can be one of the best examples. Outsourcing tech-related services and freelancing for clients abroad can bring enough foreign currency to Nepal,” he adds.
The development of technologies and digitalization of various sectors have also allowed start-ups to help boost the production of goods and services. One example is ride-sharing applications. Who would have thought that ride-sharing apps like Pathao and Tootle would become a daily necessity for people in Nepal? These kinds of start-ups have become a part of the people’s lives. Start-ups provide employment opportunities to people - both novice and experienced young professionals.
The addition of start-ups in the business ecosystem generates competition in the market inspiring more people to invest and nurture their ideas into an established entity. A healthy competition among the start-ups also leads to bringing quality to their clients, ultimately contributing to the growth of businesses and their sustainability, which helps in strengthening the national economy.
“Start-ups can help revive the economy through their own products. Most start-ups in Nepal are unique. However, it is quite difficult for them to expand their projects abroad as Nepali entrepreneurs cannot invest abroad. Thus, if we can let our innovative ideas go global, then it can provide a great help for Nepal’s declining economy,” says Aalok Subedi, Co-Founder of Mero Adda, a tech driven company specializing in developing and implementing digital products for lawyers, law firms, entrepreneurs and the general public.
Start-ups in federalism
Almost every sector including education, health and digitized businesses in Nepal are heavily Kathmandu-centric. Start-ups are no exception to this. “Every sector is Kathmandu-centric. However, with the country embracing a federal system of governance, the start-up movement appears to have already started in various parts of the country such as Chitwan, Butwal, Biratnagar, among other cities,” shares Aryal. “But, if we compare the growth of the start-up ecosystem, the rest of the country lags far behind Kathmandu.”
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Aryal argues that it is important to figure out the ecosystem perspective on entrepreneurship which includes various components such as renovation, funding, mentorship, education and human resource in order to help start-ups grow equally in other provinces as well. “The government should take an initiative to develop a concept to determine the situation of these components in all seven provinces. Also, the demand for products and services in the market and the development of the education sector will also lead to the growth of start-ups at the local level,” he adds.
Impact of COVID-19 pandemic
The COVID-19 pandemic took a big toll on almost every sector in Nepal including start-ups. However, some entrepreneurs also tried to seize the pandemic as opportunities to extend their business activities using innovative ideas in the time of crisis.
Start-up entrepreneur Subedi says cash flow has decreased in the start-ups with the pandemic affecting the country’s economy. However, the pandemic also led to a rise in adaptation of e-commerce technology. Many start-ups were introduced to solve the problems that arose during the time of pandemic. A number of entrepreneurs improvised their business ideas to fit into the changed lifestyles of people due to the pandemic.
Aryal, however, believes that start-ups have some common challenges both before and after the outbreak of pandemic as the government has not yet given priority to this sector. “In both pre and post pandemic eras, the government has not given any priority to start-ups. Also, financing has still become a major problem.” he adds. Experts maintain that people who have capital are not able to invest while those with innovative ideas for start-ups are not able to receive the capital. This is mostly because there is a lack of proper knowledge and understanding about how start-ups work.
Challenges
If we look through history, start-ups have been growing throughout the years in Nepal despite the fact that there are a number of challenges a start-up company has to go through to become successful in Nepal. Kavi Raj Joshi, the Founder and Managing Director of Next Venture Corp, says there are multiple challenges a start-up has to face in Nepal. One of the major challenges being no proper clarity in policies that the government has brought for start-ups. “Many small companies have to face problems due to the lack of proper plans and policies. Also, it is difficult for such companies to play around with policies like big companies as they don’t have proper legal guidance and expertise,” he adds.
Another major challenge for start-ups in Nepal is financing. It is not always true that everyone will have a required budget to launch their start-ups and to fill up the gap they require loans or certain investments to initiate their businesses. And in Nepal, it is quite challenging to get loans from banks and investments from venture capitalists. “Despite the increasing number of people or companies investing in start-ups, with the economic condition worsening, the country is in need of more entrepreneurs,” says Joshi.
As the country lacks risk-taking venture capitalists, a start-up should be properly established to be eligible for funding. Not only this, it is also quite a hassle for Nepali start-ups to get required loans from the banks. Some of them even fail to meet the basic requirements imposed by banks to be eligible for a loan. Entrepreneurs complain that even Kathmandu-based start-ups are having a hard time adjusting to the ecosystem, facilitation for entrepreneurs from outside the valley is a far cry.
Start-ups also depend heavily on skilled human resources to run smoothly and sustain. Human resource plays a vital role not only in the initial phase but also in the long run. However, finding skilled manpower in Nepal is another challenge many start-ups face. While it is easier to hire young and fresh graduates, Nepal lacks skilled and experienced people. According to Joshi, in a company, it is easier to on board individuals just to work, however, for a company to have a good human resource, it requires skilled manpower with the strong will to do good for the company and this is lacking in the context of Nepal.
Meanwhile, most startups in Nepal have not got much global recognition. While these startups have great potential in both inside and outside Nepal, lack of publicity has not allowed them to expand globally.
Government efforts
In the budget of the current FY 2021/22, there various provisions for start-ups were made, such as free company registration, renewal and other taxes for start-ups (Point 68), full discount on the income tax for the initial five years for Startups (Point 483) and Nepal government to bear the Social security Fund for all the employees for the month of June and July (Point 60). There are also tax subsidies and waiver provisions such as 90% tax exemption for a company having transactions up to Rs 2 million and 75% tax exemption for a company having transactions from Rs 2 million to Rs 5 million in the current fiscal year.
Likewise, the Business Credit Flow Work Procedure 2021 was supposed to be implemented from the FY 2021/22. The procedure brought by the Oli-led government would allow startup entrepreneurs to receive Rs 2.5 million in seed capital at 1 percent interest. Unfortunately, entrepreneurs say this has not been implemented till now. It is said that as the government has changed, the work procedure is under consultation in the ministry to make it more effective.
Aryal at King's College laments that the government does not have any vision regarding start-ups. “The government does not have focus and seems to work without any logical basis regarding the development of start-ups. They announced various plans and policies in the budget, however, till date nothing has been executed,” he claims.
Arjun KC, founder of Taximandu, adds that despite there being provisions for free company registration, exemption of renewal and other taxes for start-ups, these provisions have not been implemented. “If we go to a tax office, there has not been any updates on the provision of tax subsidies and waivers and startups still have to pay taxes,” he shares.
Start-up entrepreneur Joshi maintains that start-up entrepreneurs will never be able to trust the government again if the government delays the implementation of its promises. “Various provisions were brought for start-ups in the budget of the current fiscal year. And to our dismay, we do not even know whether they are being implemented at all. If the people who are working in the field of startups don’t even know about the implementation of such provisions, this shows the scenario of the government's policies for startups in Nepal,” he adds
Measures to promote start-ups
Despite a plethora of challenges, Nepal is a place where start-ups have a huge potential. With the implementation of pragmatic solution measures to address problems seen in this field, not only will these start-ups grow but they will also help to bring the economy of the country back on track. The first and foremost important task that should be done for the upliftment of status of start-ups in Nepal is to execute the plans and policies that are brought for startups to sustain. “The government does not have to do anything big for the proper development of start-ups in Nepal. It is enough for Nepali start-ups if the government can just implement and execute the plans and policies that it has brought in the budget of various fiscal years,” argues Joshi. “Fooling the common people and fooling the entrepreneurs are two different things. In case the government keeps discouraging the entrepreneurs here, they can go to countries like India, Singapore, Mexico and work on their innovative ideas there. This later hampers the economic condition of Nepal itself.”
Similarly, the education sector can play an important role to attract youths to the field of entrepreneurship and start-ups. The curriculum should include chapters on entrepreneurship, investment, taxes, finance and business from a young age. It is good to see that a few colleges in Nepal have already started providing courses on entrepreneurship studies due to which the students can make up their mind for the journey of entrepreneurship from a young age and will be motivated to do something in their own country.
Likewise, proper guidance and mentorship is what they need the most while planning to launch a start-up. With proper mentorship from experienced people, a vision of a start-up can turn into reality. The angel investors, venture capitalists and other incubators can help young entrepreneurs to identify the right strategy to enter the market as well as refine their products and services. At present, there are organizations like Antah Prerana, One to Watch and Nepal Communitere that are trying to help young entrepreneurs to achieve their goals.
Experts argue that the government and development sector can also extend their support in the early stage or high risk funding of start-ups where capital is needed for innovation, prototyping, testing, validation and other stages. Local governments can tie up with incubators and facilitate entrepreneurs to build a company that can go global while equally contributing to the country’s economy. “If there is no proper support during the initial stage, how can any start-up grow to be successful?” asks Aryal. If the government really believes in the importance of start-ups, then it should bring an integrated policy or vision along with an integrated institution to drive those policies. At present, the start-ups are divided among various ministries such as the Ministry of Agriculture, Ministry of Women and Ministry of Science and Technology, which does not provide a holistic vision. This is not helping the start-ups to grow.
