Describes how major projects are secured and financed. Explains activities of the multilateral development banks in and other aid-funded projects.
Selling to the Government
Nepal has prioritized infrastructure development, so opportunities exist for building/constructing as well as consulting in the fields of power (especially hydro and solar), transport (airports, aircraft and parts, roads, tunnels, bridges), urban infrastructure, information and communications technology (ICT), and healthcare. The COVID pandemic has exposed weaknesses in public health infrastructure and the Government of Nepal has prioritized spending in this area in 2021/22.
Competitiveness factors, government processes, requirements, and challenges
Government of Nepal tenders are announced publicly in local newspapers. However, in order to be competitive, bidders are advised to work with local partners in respective fields to research and identify opportunities before they are announced. Local procurement law requires public contracts to be awarded to the lowest-cost bidder (rather than best-value over time), hence cost generally becomes the overriding criterion on which contracts are awarded. Price competitiveness is therefore a major challenge to U.S. companies, especially when vying against companies from neighboring India and China. However, quality-consciousness is increasing, and American products and services are held in high regard.
Differences in central, regional, and local procurements
- With the advent of federalism, procurement by provincial and local governments are expected to increase.
- Legal requirements for selling to the host government
- Government of Nepal procurement is governed by the Public Procurement Act 2007. Nepal is not party to the WTO Agreement on Government Procurement.
U.S. companies bidding on government tenders may also qualify for U.S. government advocacy. A unit of the U.S. Commerce Department’s International Trade Administration, the Advocacy Center coordinates U.S. government interagency advocacy efforts on behalf of U.S. exporters bidding on public sector contracts with international governments and government agencies. The Advocacy Center works closely with our network of the U.S. Commercial Service worldwide and inter-agency partners to ensure that exporters of U.S. products and services have the best possible chance of winning government contracts. Advocacy assistance can take many forms but often involves U.S. embassies or other U.S. government agencies expressing support for the U.S. bidders directly to the foreign government. Consult Advocacy Center for additional information on foreign government contacts.
Financing of Projects
Major projects are usually financed through foreign consortium financing. Infrastructure projects developed by the public sector are funded by forming a consortium of multilateral funding agencies, such as the World Bank and the Asian Development Bank, and bilateral funding agencies. Similarly, projects developed by the private sector are usually funded by forming a consortium of a number of foreign commercial lenders. The Nepal Infrastructure Bank will likely play an increasingly noticeable role in financing infrastructure projects in the coming years.
Both the World Bank and the Asian Development Bank are active in lending for development activities, including roads, telecommunications, hydroelectric power, and other infrastructure projects. Both provide loan and grant financing for public sector projects and loan financing for local companies.
The U.S. Export-Import Bank (Ex-Im Bank) can lend to both the private and public sectors in Nepal, but only against a public sector guarantee. Availability of credit varies from year-to-year depending on Nepal’s risk rating. The newly created U.S. Development Finance Corporation (DFC), will bring together the capabilities of the Overseas Private Investment Corporation (OPIC), which has made limited financing available to projects with U.S. investment interest, and USAID’s Development Credit Authority. Agreements with Ex-Im Bank, DFC, and the International Finance Corporation (IFC) are in place. There are also numerous bilateral financing and insurance arrangements. The U.S. Trade and Development Agency (TDA) funds feasibility studies for projects that include significant commercial implications for exports of U.S. goods and services.
The Nepali banking system is small, fragmented with some institutions plagued by bad loans. Banking system assets totaled approximately $28.4 billion as of mid-July 2018 and was backed-up by $3.6 billion in total capital funds implying a total capital-to-assets ratio of 12.5%. The total amount of loans and advances of commercial banks to the private sector was $19.9 billion. Non-performing loans as a percentage of total loans declined to 1.49% in July 2018 compared to 1.67% a year earlier. As of December 2019, the gross foreign exchange reserves of the country stood at $8.7 billion, which is sufficient to finance merchandise imports for 8 months. Banks are only willing to consider loans with terms no longer than five years. It is difficult to borrow in excess of $20 million from any combination of banks in Nepal. Similarly, liquidity constraints restrict to less than $5 million, the capital that can be raised on the Nepal Stock Exchange through any single public issuance. There is no regulatory system to encourage and facilitate portfolio investment in the industrial sector. Local commercial banks occasionally form a consortium to finance major projects in hydropower and other infrastructure sectors.
Foreign commercial lending is scarce and expensive. Currently, there are no resident or non-resident foreign commercial banks that have standing credit limits for loans of a maturity beyond one year. The government permits foreign institutional investors to own up to 25 percent of the shares of listed Nepali firms in certain sectors, such as hydropower and tourism. Promoters can sell their shares and repatriate capital. Nepal Rastra (Central) Bank allows up to 85 percent foreign equity participation in domestic financial institutions.
Multilateral Development Banks and Financing Government Sales
Price, payment terms, and financing can be significant factors in winning a government contract. Many governments finance public works projects through borrowing from the Multilateral Development Banks (MDB). A helpful guide for working with the MDBs is the Guide to Doing Business with the Multilateral Development Banks. The U.S. Department of Commerce’s (USDOC) International Trade Administration (ITA) has a Foreign Commercial Service Officer stationed at each of the five different Multilateral Development Banks (MDBs): the African Development Bank; the Asian Development Bank; the European Bank for Reconstruction and Development; the Inter-American Development Bank; and the World Bank.
Learn more by contacting: