With cell phones emerging as Nepal's third largest import product, the telecom regulator is mulling allowing firms to assemble or refurbish sets domestically to create jobs.

There is massive consolidation and stiff competition in the telecommunications sector, and companies could venture into the mobile phone assembly business, the Nepal Telecommunications Authority said.

According to the Department of Customs, Nepal imported 7 million mobile phones worth Rs36.90 billion in the last fiscal year 2020-21 ended mid-July. Imports in the previous fiscal year 2019-20 totalled 4.36 million units valued at Rs18.17 billion.

The country also bought mobile parts worth Rs2.79 billion during the same period.

“That's a lot of imports,” said Dinesh Shrestha, vice-president industry of the Federation of Nepalese Chambers of Commerce and Industry. “Assembling phone sets is viable if they can be exported. Government policy will be crucial to encourage investors.”

Smart phone developer Samsung Electronics has invested $17.3 billion in factories in Vietnam.

Shrestha said that it could be the first step towards industrialisation. “Obviously, the government has an important role in making domestically produced goods competitive in the international market,”

But ever changing governments and unpredictable policies are a challenge, according to him. Stable government policy is key to convincing investors to set up mobile assembly units in the country, insiders say.

The Nepal Telecommunications Authority has prepared a consultancy report on the prospects for assembling and refurbishing mobile phones in Nepal with a long-term regulatory framework.

According to the study report, a widening gap between exports and imports, depletion of valuable foreign exchange reserves and accumulation of electronic waste are crucial enough to explore the possibility of establishing assembly plants and refurbishing centres in Nepal.

“Establishing a mobile industry can make Nepal economically strong and generate employment,” the report said.

Most of the phones sold in Nepal are imported from China and India followed by Vietnam.

In January 2020, the authority had formed a working committee consisting of representatives from government bodies and the private sector to study and explore the possibility of establishing handset assembly plants in Nepal.

According to the report, establishing a plant would require complete infrastructure on par with the standards defined by original equipment manufacturers such as Samsung, Apple, Oppo and other brands.

The company would also require complete support with supply of the required parts, tools and technology for the production of phones of original quality. Such phones would be identical to the original product complete with warranty and support.

“The phones will be sold in the domestic and international markets with ‘Made in Nepal’ labelling. Suitable strategic policies are required which will help attract foreign investors,” the report said.

The report has also highlighted the challenges in establishing mobile phone assembly plants in the country. Nepal's market size is relatively very small, and since assembly plants require a large investment, domestic sales alone will not suffice to make the venture economically feasible.

Considering the huge economic benefits, Nepal needs an export oriented policy, said the report.

The development of assembly hubs in Vietnam and more recently in India has come as a result of government-led initiatives.

Unlike assembling handsets, refurbishing has become almost essential, the report said. Even without government initiatives, the refurbished handset market will flourish, but the scale will be very limited and unregulated.

Such a market will face challenges in gaining customer trust, and growth will be limited. An unregulated and informal market also means the government will miss out on revenue, according to the report.

The report stated that with the current rate of growth in mobile device imports, electronic waste or e-waste is going to become an issue which needs serious attention. Nepal has a Solid Waste Regulation and Management Act 2018, but it has no specific provision for e-waste management.

As per the data of the Mobile Phones Importer Association of Nepal, there are about 3,500 repair shops across the country.

Along with standard repair, these shops usually also sell second-hand and refurbished phones. It is estimated that 25,000-30,000 such handsets are sold in the market each year. As per the information, this market is totally informal without any kind of accounting, the report said.

The association's figures show that there are around 2,000 mobile repair centres, with each of them employing two persons on average. About 500 people are employed by national and regional dealers. The total technical employment figure is about 4,500.

According to the Nepal Mobile Distributors' Association, there are currently 10,700 persons employed in marketing and sales. Including the 3,700 business owners too, the total employment figure in the sector stands at 18,900.

Based on the informal sales data of 35,000-40,000 second-hand mobile phones annually, the refurbished phone market is estimated to amount to less than 1 percent of the total, in contrast to 10-20 percent in other countries.

The report said that favourable trade agreements with other countries, sustainable tax systems and government incentives would support establishing assembly plants in the country.

With regard to the refurbished phone industry, the government may have a bigger role as after investing in a refurbished phone, the consumer will expect certain quality in looks, performance and battery which can only be achieved through standardisation of the refurbished industry with minimum requirements for facilities, testing and certification.

“This can come in a legal form such as guideline, working procedure and bylaw from the authority,” the report said.

The report said that it might be good to create a Telecom Manufacturing Fund for providing venture capital to indigenous manufacturers in the form of equity and soft loans for supporting pre- and post-commercialisation product development and brand creation.

Hempal Shrestha, information technology and legal specialist with 20 years' experience in the sector, said that assembling mobile phones in the country would be possible as the country has been assembling other electronic equipment too.

“In the initial phase, we can target semi-premium brands being produced in China or even in Taiwan as top brands might not be willing to come here,” he said. “As students are taking online classes, assembling phones targeting these customers would also create demand.”

The government needs to create an investment environment for potential investors, he said, adding that if the government provided subsidies on equipment and parts of mobile phones, prices could be competitive.

The country can export Nepal-assembled mobile phones if they are provided tax waivers like on other products.

Shrestha said that there would be no problem with human resources as people can be trained since the country has laws for technology transfer which can help to invite investors. “Refurbishing is vitally needed in the country as e-waste has been piling up,” he said.