Nepal's IT Industry: A Growing Force with High Potential for Economic Growth

In a recent discussion organized by the Nepal Economic Journalists Society (SEJAN), stakeholders emphasized the significant foreign currency earnings generated by the IT sector in Nepal. According to their estimates, IT professionals and companies in Nepal are earning approximately NPR 1.25 trillion (about USD 1 billion) annually through foreign exports, showcasing the potential of the sector to contribute substantially to the country's economy.

Promising Growth in IT Services Export

The discussion, titled ‘The State, Opportunities, and Challenges of Nepal's IT Industry,’ highlighted the growing success of the sector in terms of service exports. Gaurav Raj Pandey, President of NASSCOM Nepal (NASIT), presented findings from a study that showed that in 2022, the IT industry in Nepal exported services worth NPR 67 billion (about USD 500 million). He further indicated that the sector is estimated to generate annual revenue of USD 1 billion through service exports alone.

Pandey also emphasized the vast potential of Nepal’s digital services and Artificial Intelligence (AI) industry. He highlighted that Nepal could significantly strengthen its economy by focusing on the development of IT services. “Nepal missed out on past industrial revolutions, but the ongoing IT revolution is one that we cannot afford to miss,” he stated. Pandey called on the government to create an investment-friendly environment to attract foreign investments, similar to what developed countries have done in the IT sector.

Increasing Companies and Workforce in the IT Sector

Alisha Shrestha, General Secretary of NASSCOM, pointed out the increasing number of IT companies and professionals in Nepal. She mentioned that NASSCOM has already affiliated 80 companies with the organization. This growth reflects the sector's burgeoning strength, which is expected to continue as more companies see the benefits of digitalization and IT services.

Abhay Poudel, Treasurer of NASSCOM, shared insights into how the sector has evolved into a service-based industry. He emphasized that the government should prioritize the development of the IT industry to unlock its full potential. Poudel laid out ambitious targets for the sector, including growing exports to USD 30 billion in the next ten years and creating five hundred thousand jobs. However, to reach these goals, policy facilitation is crucial.

Policy Recommendations for Sustainable Growth

To foster the development of the IT sector, Poudel urged the government to offer substantial tax relief, particularly for companies in the IT industry. He suggested a tax reduction to below 5% for at least 10 years to support the growth of IT companies. Drawing from the success stories of countries like Vietnam and the Philippines, which have made considerable progress in the IT sector by offering similar tax incentives, Poudel advocated for this model to be adopted in Nepal.

Another key recommendation was to give Nepali companies priority in software procurement by the government, especially for contracts up to NPR 10 million (about USD 80,000). This would help foster local industry growth and encourage more international collaboration. Poudel also emphasized the need for major foreign contracts to include at least 30-40% of work to be done in collaboration with Nepali companies, which would not only assist in technology transfer but also strengthen local expertise in international markets.

Connecting Education to Industry Needs

Shrestha also raised the need for education reforms to better align with industry requirements. She suggested making IT and AI education mandatory from class 5 onwards, allowing students to gain foundational skills early on. Furthermore, she emphasized the importance of providing additional training to university graduates to equip them with the necessary skills for the IT industry. This would help bridge the gap between educational institutions and the industry, ensuring that graduates are ready to meet the sector's demands.

Establishing an IT Promotion Board and Tax Relief for Investors

In addition to tax incentives, the discussion also focused on the need for a dedicated IT Promotion Board, similar to the Tourism Board, to address the challenges of the IT sector and promote Nepal’s branding in international markets. Shrestha further recommended that Nepal sign double taxation avoidance agreements with major markets such as the USA, UK, Japan, and Australia, which would make it easier for international investors to operate in Nepal.

Conclusion: The Road Ahead for Nepal’s IT Sector

The IT sector in Nepal is at a pivotal point, with increasing exports, a growing workforce, and ample opportunities for expansion. However, to capitalize on this momentum, it is crucial for the government to create an enabling environment through policy facilitation, tax incentives, and strategic international partnerships. If these recommendations are implemented, Nepal could become a key player in the global IT industry, fostering economic growth and creating substantial job opportunities for its youth. The IT revolution may just be the key to unlocking Nepal's future economic prosperity.