Nepal is witnessing a concerning trend of businesses shutting down across various sectors. Several factors contribute to this issue, creating a challenging environment for both entrepreneurs and established enterprises. Understanding these challenges is crucial to devising strategies for a more resilient and thriving business ecosystem in Nepal.
Economic Downturn and Recession
Experts have indicated that Nepal entered a recessionary phase several weeks ago, which is now confirmed by official reports. A recession signifies a period of economic decline, characterized by reduced industrial activity, decreased consumer spending, and a contraction in the gross domestic product (GDP). This downturn adversely affects businesses, leading to decreased revenues and, in severe cases, closure.
Inflation and Rising Cost of Living
The soaring cost of living in Nepal has significantly impacted consumer behavior. With essentials becoming more expensive, individuals allocate a larger portion of their income to basic needs, leaving less disposable income for non-essential purchases. This shift results in decreased spending on products and services such as cosmetics, dining out, and entertainment, thereby affecting businesses operating in these sectors.
Declining Consumer Spending Power
Closely linked to inflation is the reduction in consumer spending power. As prices escalate, the real income of consumers diminishes, leading to cautious spending habits. Many individuals opt to save their earnings in anticipation of tougher times ahead, further reducing the circulation of money within the economy and impacting businesses that rely on discretionary spending.
Youth Migration and Demographic Shifts
A significant demographic challenge Nepal faces is the mass exodus of its youth population. The 18-30 age group, typically the most active consumers, are migrating abroad in search of better opportunities. This migration leads to a decrease in domestic spending on items such as clothing, makeup, dining, and entertainment. Moreover, this age group is associated with life events like marriages and childbirth, which stimulate economic activity. Their absence means a reduction in such economic stimuli within the country.
Conservative Consumer Behavior
Nepali consumers are traditionally conscious buyers, often calculating and deliberating before making purchases. This cautious approach means that many opt to buy only when absolutely essential, leading to lower sales volumes for businesses, especially those dealing in non-essential goods and services.
High Operational Costs
The financial burden of running a business in Nepal is substantial. For instance, a business owner reported a monthly rent of NPR 57,500 with daily sales averaging NPR 15,000, yielding a meager profit of around NPR 1,500 after expenses. When factoring in staff salaries, utilities, and other operational costs, sustaining such a business becomes financially unviable, leading many to shut down operations.
Impact of E-commerce and Online Shopping
The rise of online shopping platforms, including Instagram, Facebook shops, and marketplaces like Daraz, has transformed consumer purchasing habits. Many consumers prefer the convenience of shopping from home, especially considering factors like adverse weather conditions and infrastructural challenges such as dusty and polluted roads. This shift, accelerated by the COVID-19 pandemic and subsequent lockdowns, has led to decreased foot traffic in physical stores, adversely affecting their sales.
Challenges Faced by Small and Medium Enterprises (SMEs)
SMEs are the backbone of Nepal’s economy, contributing approximately 22% to the GDP and employing about 1.75 million people. However, these enterprises face numerous challenges, including limited access to financing, bureaucratic hurdles, and inadequate infrastructure. The COVID-19 pandemic exacerbated these issues, leading to business closures and labor displacement. Many entrepreneurs, frustrated by these challenges, have chosen to seek opportunities abroad, further impacting the domestic business landscape.
Political Instability and Policy Challenges
Nepal’s political landscape has been marked by instability, with frequent changes in government and policy directions. This unpredictability creates an uncertain business environment, deterring investment and long-term planning. Businesses often struggle with inconsistent policies, regulatory challenges, and a lack of effective governance, all of which hinder growth and sustainability.
Supply Chain Disruptions
Geographical challenges, coupled with infrastructural deficits, lead to frequent supply chain disruptions in Nepal. Businesses face difficulties in sourcing raw materials and delivering products to market, resulting in increased costs and delays. These challenges are particularly pronounced for businesses in remote areas, where transportation and logistics are more complex.
Limited Access to Credit and Financial Services
Access to finance remains a significant hurdle for many businesses in Nepal. Stringent lending criteria, high-interest rates, and a lack of tailored financial products make it difficult for businesses, especially SMEs, to secure necessary funding. This financial constraint limits their ability to invest in expansion, technology, and talent, thereby affecting their competitiveness and sustainability.
Conclusion
The closure of businesses in Nepal is a multifaceted issue stemming from economic, demographic, infrastructural, and political challenges. Addressing these issues requires a comprehensive approach involving policy reforms to stabilize the economy, investment in infrastructure to improve supply chains, financial sector reforms to enhance access to credit, and initiatives to retain the youth population. By tackling these challenges head-on, Nepal can create a more conducive environment for businesses to thrive, ensuring economic growth and prosperity for its citizens.