IT and Computer Service Sector Policy Reform

IT and IT Enabled Services in
Nepal: Prospects and challenges
Manohar K Bhattarai
Anup Banskota
Presentation overview
Overview of ICT/IT Services sector
Regulations/Institutions/Policy Measures
Trade Liberalization
SWOT analysis
Action framework
• IT/ITES : fast becoming a growth area
– ITES/BPO – US$ 475Bn, 35% annual growth
• IT: identified as one of the potential service
sectors for Nepal
• Ref: UNCTAD desk study, SAWTEE study etc.
• IT: indentified as a priority area by GoN
• Policy focus in IT and Knowledge economy
• IT/ITES space slowly getting energized within
the country
Overview of ICT/Computer Services Sector
• Telecommunication
Increasing Tele-density: 22.07% of entire population
Internet subscriber >> 0.64% of population
6 private companies operating as telecom providers
8 network service provider, 94 VSAT users, 38 internet/email
service provider
• Connectivity
Connected with China and India by Optical Fiber
East-west Optical Fiber project completed
All the districts to be connected via OF by 2014
Wi-fi opened for public use (no permission/fee required for
two frequency bands)
Overview of ICT/Computer Services Sector
• IT/ITES : Nepal scenario
– Nepal’s foray into IT/ITES dates back to early 90’s
– Himalayan Infotech (late 90’s)
– ….
– Export volume: Approx. USD 10 million
– 3 types of companies
» Local solutions providers focusing on local market
» Export oriented (e.g. offshore center)
» Hybrid (both local and export oriented
Overview of ICT/Computer Services Sector
– Service areas
• Call centers
• Medical Transcription
• Geographical Information System
• Data mining
• Animation
• Back office data processing
Overview of ICT/Computer Services Sector
• Human resource
–Every year, a sizable number of IT graduates/
persons with varying competency profiles
released into job market
–4 Universities producing IT graduates
–Industry –Academia mismatch
• Only KU has formal industry partnership
Overview (contd..)
• Status of MDG with respect to IT
– Participation of private sector in ICT (section 8.F) is
quite encouraging.
– Telecom facility has increased remarkably
• Cell phone density in 2006 : 2.9%
• Cell phone density in 2009 : 18.84%
– Almost all the districts of Nepal are connected
– Internet penetration has increased from 0.43%(2006)
to 0.64%(2009)
– All the district will be connected through optical
fiber by 2014
• Key Institutional actors
– High Level Commission for Information
– Line Ministries
– Nepal Telecom authority (NTA)
– National Information Technology Center
– Controller of Certification Authority
• Trade Association
– Computer Association of Nepal (CAN)
– Federation of Nepal Chamber of Commerce
and Industries
– Internet Service Provider Association of
– Information Technology Professional Forum
– Information Technology Association of
• Policy Frameworks in place
–Telecommunication Policy 2004
–IT policy, 2000 (revised policy underway)
–Electronic Transaction Act 2006
–Industrial Enterprise Act/ Foreign
Investment and Technology Transfer Act
Trade Liberalization
• Liberalization measures
– Industrial Enterprise Act, Foreign Investment and
Technology Transfer Act (FITT) in Place
– ICT not in restricted list of FITT
– Favourable FDI regime : WTO
– Lack of full commitment on GATS-Mode 4
making the technology transfer difficult
Trade Liberalization
• Assessment of liberalization
– Growing foreign investment in Telecom sector
– e.g. Spice Nepal Pvt. Ltd., UTL
– Constantly improving HR scenario
– Growing foreign investment in Software
– E.g. D2HawkEye, IT@Himalaya, JavraSoft , DeerWalk,
Incessant Rain
– Repatriation of investment is facilitated to the
fullest extent (through FITT act)
Trade Liberalization
• Assessment of liberalization (contd..)
– Tax and duties
• 20% export tax on IT/ITES export
• 1% import tax on hardware
• No clear taxing rule on warranty related issues
• Within 5 years, 5 major companies started telecom services
• Various value added services has been introduced
• State of the art technology are in place (3G, ADSL etc.)
• WTO enforce to establish IPR regime within negotiated
• Nepal has signed TRIPS agreement and committed for gradual
implementation of IPR regime.
Trade Liberalization
• Assessment of liberalization (contd..)
– Basic regulations/acts/laws in place
– Copyright act 2002 : not that effective
– Patent, design and trademark act not effective in IT
– Full fledged electronic transaction not
practiced following the weak implementation
of act and policies
– Policy level commitment on Special
Economic Zone, etc.
Trade Liberalization
• Prospect of trade agreements and
– Advocacy and negotiation for IT/ITES
friendly provisions in bilateral and multilateral
– Unilateral policy revisit on access to foreign
currency for IT promotion/marketing
– Relaxation on Mode 4 constraints
– Establishment of MNC friendly policies
• South-South cooperation
– Bilateral cooperation with the country of
matching interest (e.g. South Korea, Japan) for
HR and technology transfer
Trade Liberalization
• Policy recommendation and strategies
– Enforce balanced IPR regime
– Expedite the enactment of necessary
– Establish PKR and IT-Tribunal ASAP
– One window policy for IT/ITES related activities
– Relax the constraint on all mode of services
(specially Mode 4)
– Declare IT/ITES sector as essential service
• Strength
– Proximity with India and China (growing IT
• Talent shortage in India (McKinsey), wage inflation
– English language proficiency
– Improvement in skills ecosystem: educational and
training institutes (formal/informal)
– Basic policies/laws/acts in place
– Clear investment policy (both foreign and private)
– Commitments to protect IPR through TRIPS
• Strength
– Steady improvement in infrastructure arena
– Labor cost arbitrage
– Favourbale policy posturing on SEZ and other
related incentives
– Maximum flexibility in repatriation of foreign
– Implementation of E-government master plan,
interoperability framework and government portal
in the offing
– Growing internet user-base
• Weakness
– Political instability and investment security
– Country brand positioning
– Weak basic infrastructure (e.g. Electricity)
– Lack of HR management and relatively high
attrition rate
– Lack of middle and higher level IT project
– Constraints on Mode 4 and intricate visa procedure
– Uneven distribution of infrastructure (mostly KTM
• Weakness
– Inadequate trade facilitation>> one window policy
– Ineffective implementation of policies/laws
– Unavailability of up-to-date empirical data
– Very few companies benchmarked by international
– Insufficient effort to support
– Lack of international promotion
– Average small size of the firms
– Low level of M&A activities
– Poor urban infrastructure
SWOT Analysis
• Opportunity
– Compelling cost arbitrage advanctage
– Nepal slowly featuring on MNC radar (e.g. IBM/Microsoft)
– Increasing level of strategic focus on part of International
agencies (e.g. UN, Worldbank, ADB)
– Potential offered by Government as a major consumer of
domestic service sector
– Lowering bandwidth cost with expanding connectivity
– Growing free and open source movements
– Extension of IT services to the rural community through
telecenters and mobile devices.
SWOT Analysis
• Threat
–Inconsistent commitments and policy
reversals due to unstable government
–Looming power woes
–Frequent “bandhs” and negative travel
–Global economic crisis
–Inadequate IPR enforcement
• Policy recommendation and strategies
– Devise targeted policy incentive measures
– Leverage platforms like FNCCI, CAN to attract
investors by organizing expo, workshop, visits
– Review import/export regime to make it more
IT/ITES friendly
– Establish an IT/ITES caucus to develop informed
positions on international trade negotiations
– Promote IT/ knowlegde industry specific
• Tax holidays through 2015
Proposed Action Framework
• IT policies should be aligned with the dynamism of
the sector
• Initiate activities to implement the fiscal incentives as
committed in IT policy
• More coordinated response mechanism to IT/ITES
• Full implementation of Electronic Transaction Act
• PKI and data security
• Execute one window policy to provide end-to-end
support for IT/ITES industries
• More conducive foreign exchange regulatory regime
targeted to IT/ITES sector
Proposed Action Framework
• Plan more IT parks backed by targeted policy
instruments to promote the shared resource and
coordinated development effort
• Encourage private sector for industry readiness
program and human resource pool management
• Prepare middle and higher level IT managers by
funding the intensive training programs
• Establish a venture capital fund and encourage the
bank and other VCs to participate for
innovation/incubation related funding
• Establish IT/ITES sector promotion center for
“Brand Nepal”
Proposed Action Framework
• Encourage IT/ITES industries to work in a clustered
• Come up with a facilitation scheme to help industries
to acquire international standards/certifications
• Ensure supply capabilities are aligned with demand
side requirements
• Formulate policy guidelines of IT related technology
• Encourage merger and acquisition of successful
SMEs by providing incentives in doing so
• Internet penetration should be increased by expanding
ADSL in the tier-2 cities.
• Nepal needs to develop an
ecosystem for the growth IT/ITES
• Effective implementation of
regulatory/polices provisions
• Strategies must be targeted at
making Nepal a competitive
Thank you for your attention
Trade Liberalization
• Export opportunities and potentials
– Software Export
• Presence at onshore (physical/virtual)
– NRB should initiate the provision of foreign currency investment
• Acquisition of standards like CMMI
• Domain of prospects:
– Financial package, MIS, CRM, Commodity management, process
automation, web enabled services.
– ITES export
• Domain of prospects:
– Call centers, Medical transcription, data processing, data mining, Map
digitization, Animation, digital content development, CAD
• Data security enforcement
– Heart of the ITES service sector