Faced with rows of vacant lots inside the Bhairahawa Special Economic Zone, the government had said it would slash the rental charges to entice firms to set up factories there, but it has not happened even though more than a month has passed.

“We are still holding discussions regarding the reduction of the rental fee,” said Chandika Prasad Bhatta, executive director of the Special Economic Zone Authority. "But the delay should not discourage investors as the rent for the first year of operations has already been reduced significantly."

In March 2016, the government had cut the monthly rent from the original Rs150 per square metre to Rs20 as there were few takers. But that still did not attract investors.

The Special Economic Zone Authority then decided to halve the rent to Rs10 per square metre to go into effect by March 23.

Industry insiders say no decision has been made in this regard, even though the revised rental fee is still too high.

"The rent should be nominal to promote industry and generate jobs, and the government should not look at commercial benefits all the time," they say.

The special economic zone or export processing zone was established with the objective of attracting foreign and domestic investors to invest and establish factories to boost exports.

The Special Economic Zone Authority, which is under the Ministry of Industry, Commerce and Supplies, is in charge of running the industrial estate.

Located in south central Nepal, the Bhairahawa Special Economic Zone contains 69 industrial plots ranging in size from 1,400 to 3,700 square metres. It has leased out 45 plots where 23 new manufacturing plants will be set up.

The factories have a combined investment of Rs7.8 billion and will create 2,534 jobs. They are expected to export goods worth Rs10 billion annually from the second year of operations.

Seven factories are currently operating inside the special economic zone. Altogether, they exported goods valued at Rs1 billion in the last fiscal year ended mid-July 2021.

The Bhairahawa Special Economic Zone was built in 2003 and its administrative building was inaugurated in November 2014, that is, a full 11 years after construction started.

It has been nearly two decades, but the zone has been able to lure only a few firms. Officials say potential investors have shown renewed interest after the construction of Nepal’s second international airport in Bhairahawa.

On February 27, the Special Economic Zone Authority published a notice asking potential investors to submit proposals to establish and operate factories in Block A of the Bhairahawa Special Economic Zone.

The authority had also invited proposals to establish factories at the Simara Special Economic Zone, located about 70 km to the south of Kathmandu. According to Bhatta, out of the 68 plots in Simara, 65 have been taken.

The authority called for applications for Simara twice, on February 27 and April 20. The total investment commitment at the Simara Special Economic Zone is around Rs10 billion and 5,200 jobs are expected to be created.

In May 2019, the Special Economic Zone Authority had invited applications from prospective industrialists to set up factories in the Garment Processing Zone within the Simara Special Economic Zone, but there were no takers.

The government spent Rs2.5 billion to build the garment processing zone that takes up 163 bighas out of the 843 bighas in the Simara Special Economic Zone.

The Garment Processing Zone in Bhairahawa is larger than the special economic zone.

According to Bhatta, the government has allowed the private sector to build special economic zones too. But due to the high investment requirements, no private party has shown interest in opening special economic zones, he said.

“Due to the cost factor, private parties are not interested in opening economic zones.”

Nepal plans to build four cross-border economic zones—two on the border with India and two on the northern border with China—as part of an effort to develop economic corridors to link the two immediate neighbours.

On the southern border, the special economic zones will be located in Dodhara-Chandani in Kanchanpur and Jogbani in Morang. On the northern border, the special economic zones will be constructed in Kimathanka in Sankhuwasabha and Korala in Mustang, according to officials.

Nepal’s foreign trade was worth Rs1.62 trillion in the first nine months of the current fiscal year. According to Nepal Rastra Bank, while exports came to Rs160.57 billion, imports totalled a staggering Rs1.46 trillion.

Nepal’s trade deficit had bloated by 28.5 percent to Rs1.30 trillion as of the third quarter ended mid-April 2022.