Promotion of Small and Medium Enterprise Partners (SMEs)

Nepal joined the World Trade Organisation (WTO) on April 23, 2004. As a result of membership, Nepal is committed to progressively reducing tariff barriers for foreign goods. This move will not only benefit Nepal but other South Asian developing countries.

Since the Nepalese trade and production sector is dominated by Small and Medium Enterprises (SMEs), these SMEs must be developed in order to be able to compete in the international market place.

One reason that most SMEs are not internationally competitive is that they are family enterprises created through family savings and controlled by one family member. Most employees are relatives, unskilled, have no employment contract, and/or well defined job responsibilities. As the decision making process is not participatory, this slows development.

Access to capital is restricted since all banks require some form of collateral to obtain a loan. The absence of good business practices such as business plans, cash flow management, make SMEs questionable loan recipients. As a result, most SMEs secure their capital from the informal market at high interest rates, thereby reducing productivity and increasing production costs.

SMEs lack technical innovation. They use the same production, distribution and communication practices used fifty (50) years ago, investing little in research, innovation and new technologies. This hurts productivity and increases cost; products no longer match with market demand.

Poor product quality and standards are major constraints in exporting. In addition, raw material price variation adversely affects the production planning process. The lack of infrastructure, on going political crisis's, communication and transportation difficulties, and inconsistent imported raw materials challenge SME exporters.

Producers work independently of each other and do not cooperate with large producers. Cooperating with them could ensure the purchase of large quantity of goods at a fixed price and would develop long term business relationships. Each year SMEs must rethink their market(s) and buyer(s).

Lastly, questionable government policy affects the development of the SME sector. SMEs face administrative difficulties and the lack public investment to develop quality standards, quarantine rules, and public and private certification agencies. All of these steps are necessary before an effective entry into the international market.

Despite these difficulties SMEs are successfully exporting in the international market. Nepal has certain unique products and services to offer the international market: pashmina, jewellery and gems and a unique form of community based tourism. Nepal is a valued travel destination for mountaineers and trekkers.

Nepal's participation in WTO will reduce tariffs barriers as well as open foreign markets for Nepalese products. SMEs will then have the opportunity to enter and take full advantage of the international market's potential.