The next big thingNepal should capitalise on the growing prominence of e-commerce to fuel inclusive growth
Globally, the market for electronic commerce, or e-commerce, accounted for an approximate $25.3 trillion in 2015. As one of the leading market players, neighbouring China’s figures alone amounted to $1.9 trillion, 8 percent of the global market share. Likewise, India’s e-commerce market is also keeping pace, growing at an annual rate of 51 percent—one of the highest rates in the world.
The shift from brick-and-mortar retail to online commerce has been rather swift for the two Asian giants due to their timely global information and communication technology (ICT) advancements. A slow mover towards digitisation, Nepal can reap benefits from the opportunities these global and regional developments in digital technologies offer.
The benefits of e-commerce are manifold, especially for promoting women entrepreneurs and micro small and medium enterprises (MSMEs), where women are heavily represented. According to the Ministry of Industry, SMEs alone accounted for 80 percent of the total registered industries in FY2013/14. Approximately 370,000 people are employed in this sector, the number will easily exceed half a million if micro enterprises are also taken into account.
Nepal has set two ambitious development goals of graduating from Least Developed Country status by 2022, and transforming into a middle-income country and attaining Sustainable Development Goals by 2030. To ensure inclusive and sustainable economic growth, it is important to mainstream contributions of women who are currently largely eclipsed under informal economy. With reduced start-up, operating and transactional costs, e-commerce can open up avenues for women entrepreneurs to come to the forefront of digital economy. An example from the World Development Report (WDR) 2016 includes Anou, an online shop set up by rural artisans in Morocco. These rural artisans are mostly women from poor backgrounds who sell handmade rugs, jewellery and housewares online to customers from all over the world. Digital markets can thus be a place where home-grown businesses can thrive, as they cater not only to domestic markets, but to cross-border markets as well. The need to promote export and tackle the unsustainably accelerating trade imbalance has become more pertinent than ever—the trade deficit of Nepal stood at a troubling 26 percent of Gross Domestic Product in FY 2016/17.
Traditionally, various socio-cultural, economic and geographical barriers have hindered women from engaging in economic activities. Online commerce can help reduce these barriers, increase access to markets, and expand opportunities for populations that would otherwise be excluded. With the advent of digital technologies, particularly with the increasing availability of mobile broadband networks and affordable smartphones, poor and disadvantaged groups have increased access and choices to participate in the economy. As internet penetration grows, micro-enterprises are going global through the use of e-commerce platforms that provide equitable opportunities to compete with larger firms. The WDR also highlights the tremendous scope for integration of SMEs into online commerce—only 5 percent of SMEs are online in the developing world and there is huge potential for wider and more inclusive penetration.
Likewise, female labour force participation in Nepal is one of the highest in South Asia at 79.6 percent in 2016, higher than China (63.3 percent), Bangladesh (43.1 percent) and Vietnam (74 percent). Similarly, the ICT sector has also witnessed increased participation of women, which promises a brighter future for women’s enhanced engagement in e-commerce. Investing in the sector now will reap substantial benefits in the future.
Leapfrogging or snail-pacing
The impending departure from traditional ways of doing business to online commerce is manifested in the government’s recent initiatives for promoting e-commerce in the country. Nepal Rastra Bank (NRB) has established a Payments Settlement Department to facilitate, foster, manage and oversee domestic payment. Furthermore, it has formulated various policies that will be fundamental in opening avenues for advancing e-commerce in the days to come. An important example includes the Monetary Policy for FY2017/18 which has made numerous encouraging provisions on e-payments such as expediting work on installing Real Time Gross Settlement (RTGS) and expediting works on National Payment Gateway/Switch. NRB has already licensed 28 banks and a few payment system operators/service providers for online banking; and NABIL bank launched a national payment gateway in the second week of September.
Despite the ongoing initiatives to promote e-commerce in Nepal, some key hallenges remain. Lack of adequate ICT infrastructure is a major hindrance. So are the absence of legal frameworks and regulatory guidelines on security and privacy of personal data. International as well as national payment gateways are still at a nascent stage. Most of the businesses cite the inability to accept international card payments as a major obstacle. Domestically, most of the merchants are reliant on payment based on cash on delivery (CoD). Likewise, logistics/fulfilment facilitation is another challenge—the postal system as it stands today lacks the adequate capacity to serve as a delivery channel to propel e-commerce market. The merchants are mainly using their own delivery network or private courier services. Likewise, trade facilitation is another key area of reform; issues such as complicated customs procedures are dissuading entrepreneurs from exporting their products.
Along with a lack of awareness among SMEs about e-commerce coupled with low technical knowledge and know-how and lack of easy access to technologies, there is a notable capacity gap among entrepreneurs. Similarly, recognition of Nepali exporters on international online platforms is also opaque.
Targeted inclusive policies
As new regulatory and procedural frameworks are being developed with respect to advancing e-commerce in Nepal, it is important to ensure inclusivity, particularly with targeted policies to support women entrepreneurs as well as women-led MSMEs. A starting point could be to provide support for the formal registration of MSMEs, particularly in opening a business bank account which is necessary for linkages with payment gateways. Thus, building on the recent efforts, the government can take the necessary steps to ease regulatory hurdles for MSMEs—from business registration to integration of small merchants and businesses into the banking system.
Likewise, the government can start dialogues to help facilitate the registration of Nepali MSMEs as vendors on global online e-commerce platforms. Lack of biometrics and proper business identification remains a major issue for facilitating international e-commerce. In addition, investments in complementary ICT skills, including expanding digital financial literacy is also necessary.
Relevant ministries, the private sector and media can play an important role in encouraging women’s engagement in this sector. The government of Nepal, particularly the Ministry of Finance and Ministry of Commerce, can facilitate women’s participation in e-commerce by offering various fiscal incentives.
As e-commerce is gaining prominence, it is important to ensure that an inclusive ICT and legal and regulatory infrastructure are put in place, taking into consideration the specific needs of women entrepreneurs in line with the spirit of Nepal’s vision for 2030 of an inclusive, equitable and prosperous middle-income country.
Dharel is associated with Economic Policy Incubator; views expressed in this article are personal