Digital Entrepreneurship

What Will it Take for Nepal to Build a Digital Business Ecosystem?

According to a new report of ADB, Nepal has a long way to go develop an ecosystem to foster digital entrepreneurship

the HRM
At a time when the government has been claiming that the rules and regulations introduced in recent years have helped in the speedy digitalization of the economy, a new Asian Development Bank (ADB) index shows Nepal has a long way to go to develop an ecosystem that fosters digital economy and entrepreneurship.

In the Global Index of Digital Entrepreneurship Systems (GIDES) 2021 published by ADB, Nepal sits among four-fifths of developing Asian economies towards the bottom of the index. Released as part of the Asian Development Outlook (ADO) 2022 Update, the index has Nepal in the 104th spot, among 113 countries of the world. With an overall score of 11.5, the Himalayan nation has the weakest digital entrepreneurial ecosystem in entire Asia, as per the report. According to ADB, 17 of the 21 developing Asian economies included are ranked toward the bottom—underscoring the need for many of them to nurture digital entrepreneurship.

Singapore ranks first in GIDES 21 scoring 81.3 out of 100 followed by the United States, Sweden, Denmark, Switzerland and Netherlands. After Singapore, Israel (16th spot), United Arab Emirates (21st spot), South Korea (22nd spot), Malaysia (27th spot), Saudi Arabia (30th spot), Qatar (36th spot) and China (39th spot) are the best Asian performers.

The latest update of ADO 2022 has been published with the theme chapter “Entrepreneurship in the Digital Age”. According to ADB, the digital entrepreneurship system in Nepal, the weakest performer, is hampered by its culture and informal institutions, human capital, and market conditions. The index constitutes eight GIDES pillars each of which captures conditions relevant to entrepreneurship. “Nepal scores well below the average for the 21 Asian economies for all pillars,” reads the report. The scoring and ranking of economies were based on General Framework conditions and Systematic Framework conditions with both categories having four pillars each. General framework conditions consist of (i) culture and informal institutions; (ii) formal institutions, regulation, and taxation (iii) market conditions and (iv) physical infrastructure as pillars. Similarly, Systemic Framework conditions consist of (i) human capital (ii) knowledge creation and dissemination (iii) finance, and (iv) networking and support—which are assessed at three different stages of entrepreneurship development: stand-up, start-up, and scale-up.

Nepal’s condition is also weak in three areas of overall digital indicators as the country is below the average in stand-up, startup and scale-up systems indicating that not only digital but also no reliable system for entrepreneurship has been created in Nepal. A reliable legal framework, access to finance, competitive markets and robust infrastructure are some of the key factors required to foster an entrepreneurial ecosystem. However, GIDES 2021 shows Nepal has done little in these crucial areas.

Highlighting the importance of developing a digital ecosystem, ADB in its report said that digitalization offers big growth opportunities for businesses in Asia and the Pacific. According to the report, digitalization is a driver of innovation, which is key for economies striving to achieve high-income status. It can also make economies more resilient, as seen when digital technology helped many businesses survive the Covid-19 pandemic, and it can promote inclusive growth by lowering the cost of starting a business.

“Digital entrepreneurship helped economies stay afloat during the Covid-19 pandemic, and it can become a major engine of growth and innovation in the post-pandemic world,” the report quoted ADB Chief Economist Albert Park as saying. “For this to happen, there needs to be a supportive environment enabled by conducive policies and incentives. While the environment for Asia’s digital entrepreneurs made substantial strides in the past couple of years, there’s still a lot of room for improvement.”

ADB suggested that in addition to investing in digital infrastructure such as broadband networks, governments need to promote political stability, reliable legal systems, open and competitive markets, and strong property rights. An ADB analysis shows that a strong rule of law has a positive effect on enterprise innovation, while less corruption in a society is correlated with an increase in the entry of new entrepreneurs into the market.

In Nepal, the government introduced the 2019 Digital Nepal Framework with the aim to develop a digital ecosystem. The Framework has a focus on eight ICT-based sectors including digital foundation, health, education, finance, agriculture, energy, tourism and urban infrastructure, and 80 digital initiatives. But experts say that without proper policies in place, the objectives will not be achieved. “Nepal lacks policies to create a digital ecosystem. No policies have been introduced to achieve the objectives in the Digital Nepal Framework,” said Sanjib Subba, CEO of Nepal Electronics Payment System.

According to Subba, different barriers exist for aspiring people to become entrepreneurs. “Even in this age where most countries of the world have digitalized their services, one still has to go through several paper-based processes to register a company which is the major barrier for entrepreneurship,” he said. Subba says that there is an absence of a central KYC repository which is an important part of digital registration and permits to operate a business and there are taxation-related matters which are mostly done manually. He views the bureaucratic red tape as the major bottleneck to digitalizing government services and fostering an environment conducive to digital entrepreneurship in the country.

The significant growth of e-commerce and electronic payment system in recent years, particularly after the start of the Covid-19 pandemic in early 2020, has increased hopes about developing an environment conducive to doing business digitally in the country. Nevertheless, barriers still exist to the growth of e-commerce in Nepal. “Cash-on-delivery is still the most preferred mode of payment for e-commerce transactions. This is one of the hurdles in creating a cashless economy,” said Subba.

In the financial sector, there are laws with arrangements related to digital payments and the monetary policy of Nepal Rastra Bank has also prioritized electronic transactions and digital services in the realm of banking. Nonetheless, there is no legal framework that recognizes digital banking. According to Subba even the Bank and Financial Institution Act (BAFIA), 2017 does not recognize digital banking.

He also observes that the price and quality of internet connectivity also have a major role to play in the digitalization of the country’s economy. “It is said that Nepal is among the countries with high internet and data tariff rates which hinders the development of digital entrepreneurship,” mentioned Subba.
There are also issues related to cyber security. Not only the payment systems but also legal frameworks need to be robust for secure and safe electronic transactions.

“Legal frameworks related to data security and overall cyber security are absent in our country,” said Subba.
In the context of human capital in the ICT sector, Nepal lacks structures and mechanisms for the training and development of ICT professionals and firms have to rely on the hit-and-trial method and on-the-job training to develop talents for the ICT industry. “Here, the government and other stakeholders need to work on talent development which is essential to developing digital entrepreneurship,” suggested Subba.

Subba is of the view that the private sector is well-ready and much ahead of the government in terms of developing an ecosystem where digital entrepreneurship can flourish. “I think the general public is also more than ready to embrace the digital ecosystem with their smartphones and devices. It will require a robust support system to promote and develop a digital ecosystem,” he concluded.

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