Nepal makes strides in IT service exports

Competitiveness and competence of Nepal’s IT services industry have grown tremendously in the past few years with the country exporting IT services worth $515.4m in 2022.

A new report by Institute for Integrated Development Studies (IIDS) on the Nepali IT industry shows IIT service exports accounted for 1.4 percent of the country’s GDP and 5.5 percent of the foreign exchange reserves.

The report shows Nepal is gradually making strides in IT service exports, especially through an increment in software development and digital services through offshore outsourcing.

The report titled ‘Unleashing IT: Advancing Nepal’s Digital Economy’ says IT services exports witnessed a whopping 64.2 percent growth in 2022. “Both IT companies and freelancers experienced substantial growth, with IT companies recording an 80.5 percent increase in service exports and freelancers achieving a growth of 55.2 percent,” says the report.

The report, the first of its kind to map the Nepali IT services export industry throws many interesting facts. There is significant involvement of youth in the IT sector, with 83.5 percent of freelancers working in the IT sector falling within the age bracket of 20-29.

Among the IT companies operating in Nepal, 75.3 percent are solely registered within the country, while 24.7 percent are registered both in Nepal and abroad. The primary areas of export services provided by Nepali IT companies include programming, coding, design, software development, and testing. A significant majority (78 percent) of the companies receive project-based work, although they express a desire for long-term assignments despite currently taking on monthly or hourly task-based work. Around 58.3 percent of the companies frequently receive export services work, with approximately 28.4 percent experiencing no operational issues. However, 12.3 percent of the companies only receive occasional assignments.

In terms of clients, 77.8 percent of IT companies receive assignments from the United States, followed by Europe, the United Kingdom, and Australia. However, there has been a shift in the trend in recent times, with more companies working with countries in Asia and the Middle East, such as the United Arab Emirates, Bahrain, Bangladesh, Bhutan, Indonesia, Japan, the Republic of Korea, Malaysia, Singapore, and Thailand.

Approximately 44.4 percent of the companies have been co-founded as private limited companies, while others operate in partnerships with international companies or as sole proprietorships in certain cases. Among the partnerships, 87.5 percent exclusively involve Nepali partners, 3.1 percent foreign partners, 6.3 percent both Nepali and foreign partners, and 3.1 percent involve both Nepali and Non-Resident Nepalis (NRN) partners.

“The surge in IT services exports has contributed to the economy and created employment opportunities for IT professionals,” says the report. There are over 106 IT export services companies and 14,728 IT freelancers in software development and technology and 51,781 Information Technology Enabled Services  (ITeS) freelancers engaged in exporting IT services through various digital platforms.

With growing prospects for exports, there has been a promising growth trend in both revenue and investment in the IT industry.  The revenue growth signifies that a high number of companies are successfully offering IT services to international clients, resulting in a higher influx of foreign exchange into the country.

On average, the yearly salary for IT workers in Nepal is $2,810 (Rs 365,300) at the entry-level, $6,395 (Rs 831,350) for the mid-level, and $15,322 (Rs 19,91,860) for the senior-level. Currently, the estimated number of jobs generated by IT service export companies is 7,228 and there are 66,509 online freelancers.

The report shows a gender divide in the number of hired employees. There is a stark gender disparity in terms of hiring regular and full-time staff, favoring men over women. As per the report, 84 percent of the employees (both full-time managerial and technical staff) are men while the remaining 16 percent are women.

According to Dr Amrita Sharma who led the study, reliable supply of electricity and internet connection are major challenges in Nepal. “With the growing demand for IT services, strengthening IT infrastructure should be the keen focus,” said Sharma.

The number of data centers in the country must be increased to secure data storage and management as well as enable remote access to data, disaster recovery, and energy efficiency.

According to the report, in order to boost the growth of Nepal’s IT sector, it is essential to provide the industry with adequate financial support across three major areas—research and development, investment support to start-ups and scaling up successful companies, and the creation of efficient payment systems. The lack of funding for early-stage financing and company incubation has hindered the growth of IT startups. “As many startups are struggling, early-stage funding is crucial,” said Sharma.

In Nepal, the IT sector, according to the report, presents an opportunity for contributing to steady economic growth in the digital era. “Unlike such sectors as tourism, hydropower, and agriculture, which could face challenges due to geographical limitations and competition from neighboring manufacturing hubs, IT service exports can thrive with fewer challenges,” says the report.