Current State of Tourism Services

Sector in Nepal and Ways Forward

Presentation by
Dr. Ramesh C. Chitrakar
Rameshc977@yahoo.com
Expert 1

At

Second National Stakeholder Workshop on Services

(27th 28th October 2009)
Co-organized by UNCTAD-Ministry of Commerce and Supplies
Kathmandu, Nepal

October 27, 2009

Role of Tourism and Travel-Related

Services
Sector of comparative advantage instrumental in
spreading benefits & providing alternative economic
opportunities
Located between the two fastest growing countries
namely India and China
Endowed with rich and diverse natural resources and
cultural attractions - Incomparable cultural heritage
as well as a rich environmental spectrum from the
highest mountains to the Terai plains.
2

Effect of the Tourism Service Sector on the National

Economy

Contributes to the economy (GDP), employment (including women & youth),

foreign exchange earnings.
Helps in meeting MDGs & poverty reduction: Sector with high multiplier and
positive spill-over effects etc.
Three Year Interim Plan (2007-2009): Formulated new plans and policies for
tourism infrastructure development (creating awareness about tourism, developing
skills, expanding tourism activities); improving standards of tourism services; and
undertaking international promotion and marketing.
Tourism Vision 2020 (May, 2009): Valued tourism as the major contributor to a
sustainable Nepalese economy, having been developed as an attractive, safe,
exciting and unique destination through conservation and promotion, leading to
equitable distribution of tourism benefits and greater harmony in society.
The Tourism Vision 2020 also envisaged two goals:
Increase annual international tourist arrivals to Nepal to two million by 2020,
and
Augment economic opportunities and increase employment in tourism sector to
one million.
Declared Nepal Tourism Year 2011 as a national campaign looking at the
encouraging trend in 2008 and 2009
3

Market Trends
The opening of Nepal for foreigners: 1949 when Arnold Heim made an
aerial flight over Dhaulagiri, S. Dillon Ripley searched for mountain
quail in Rekcha (Surkhet) and Chainpur (Sankhuawasabha), H. W.
Tilmans party explored and climbed Lamtang and Ganesh Himal, and
Sutter-Lohners expedition made a 99-day alpine trek around
Kanchanjungha
No. of tourists increased since then, but decreased during a decade long
Maoist movement.
Year 2007: re-started to attract more tourists. In the year 2006/07,
tourists visiting Nepal reached 516,000, with foreign exchange earning
of $205 million, average stay 13 days and average spending about $60 a
day.
About 100,000 people directly employed in providing tourism services
while 125,000 indirectly involved.
Economic survey records only the contribution of hotels and restaurants
(2.6% in 2008/09).
4

Table: Number of Tourists by Purpose

of Visit

Growth Rate of Tourist Arrivals by Major

Regions

UNWTO: developed tourism satellite account in 2001

According to the World Travel & Tourism Council (WTTC),
the TSA is based on a demand-side concept of economic
activity
Tourism industry does not produce or supply a homogeneous
product or service like many traditional industries
Diverse collection of products (durables and non-durables)
and services (transportation, accommodation, food and
beverage, entertainment, government services, etc) that are
delivered to visitors
Policy makers to understand that this diversity has many
complex links to different parts of the economy, which makes
the economic impact of tourism so significant
7

WTTC (2008) gives a comprehensive picture

about the economic impact of tourism to Nepal

According to 2008 update, T&T expected to contribute directly

3.0% to GDP in 2008 (NPR20.5 bn or US$318.9 mn), rising in
nominal terms to NPR50.8 bn or US$538.1 mn (3.6% of total) by
2018
Of total exports, T & T is expected to generate 14.8% (NPR16.6
bn or US$257.3 mn) in 2008, increasing to NPR52.1 bn or
US$552.1 mn (14.8% of total), in 2018.
Employment estimated at 548,000 jobs in 2008, 5.3% of total
employment, or 1 in every 18.8 jobs. By 2018, this is estimated to
total 824,000 jobs, 6.2% of total employment or 1 in every 16.0
jobs.
WTTC projection seems to match with 20/20 plan of creating a
total of 1 million jobs.

Contribution to National Development

Objectives and Economic Diversification
Contributes to development and poverty reduction in a number of ways.
Not only economic benefits, but also social, environmental and cultural
benefits
In terms of poverty reduction:
provides employment and diversified livelihood opportunities.
Reduces vulnerability by increasing the range of economic
opportunities available to individuals and households living in
conditions of poverty.
Generates taxable economic growth since taxes can be used to
alleviate poverty through education, health and infrastructure
development.
Its contribution at micro level is explained in terms of its contribution to
MDG.
One direct contribution is in terms of foreign exchange earnings, which
9
however, is fluctuating over the years

Table: Foreign Exchange Earnings from Tourism

10

Table: Mountaineering Expedition

Teams

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Contribution to National MDGs

MDGs- agreed set of goals to be achieved by 2015 based on all
actors working together at global, regional and national levels
World's main development challenges: poverty reduction,
opportunities for education, better maternal health, gender
equality, and reducing child mortality, AIDS and other diseases.
International tourism contributes to MGDs by generating benefits
to poor people and poor communities in the context of sustainable
tourism development, usually without specifically targeting the
poor
Targeted interventions to address the issues raised in MDGs also
require that the linkages between tourism and poverty be
identified. Figure 3 illustrates many of these linkages.

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Figure 1: Linkage between tourism and

poverty

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Contribution of tourism to achieving MDGs

Goal

Contribution of tourism

1. Eradicate extreme
poverty and hunger

(a) Tourism stimulates economic growth both at the national and local
levels and promotes the growth of the agricultural, industrial and service sectors;
(b) Tourism provides a wide range of employment opportunities easily
accessible by the poor. Tourism businesses and tourists purchase goods and
services directly from the poor or enterprises employing the poor. This
creates opportunities for micro, small and medium-sized enterprises in which
the poor can participate;
(c) International
and
domestic
tourism
spreads development to poor
regions and remote rural areas of a country that may not have benefited from
other types of economic development;
(d) The development of tourism infrastructure can benefit the livelihood of the
poor through improvement in tourism-linked service sectors, including transport
and communications, water supply, energy and health services.

2. Achieve universal
primary education

(a) The construction of roads and tracks to remote areas for tourists also
improves access for school-age children and for teachers;
(b) Tourism can help local resource mobilization, part of which can be spent on
improvement of educational facilities.

3. Promote gender equality

and empower women

a) The tourism industry employs a high proportion of women and creates

micro enterprise opportunities for them. It promotes womens mobility and
provides opportunities for social networking.

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4. Reduce child mortality

5. Improve maternal health
6. Combat HIV/AIDS, malaria
and other diseases

(a) The construction of roads and tracks to remote areas for tourists also improves access to health
services;
(b) Revenues accruing to national and local governments through taxes on the tourism industry can be
used to improve health services and nutrition for young children and their mothers;
(c) Tourism raises awareness about HIV/AIDS issues and
supports HIV/AIDS-prevention
campaigns;
(d) Tourism aggravates the spread of HIV/AIDS (negative effect).

7. Ensure environmental
Sustainability

(a) Tourism can generate financial resources for conservation of the natural environment;
(b) Tourism raises awareness about environmental conservation and promotes waste
management, recycling and biodiversity conservation;
(c) Uncontrolled
tourism
may
generate
negative externalities as a result of pollution,
congestion and depletion of natural resources (negative effect).

8. Develop a global partnership

for development

(a) Tourism
contributes
to
the
socio-economic development of least developed countries,
landlocked countries and island developing countries through foreign exchange earnings and
the creation of job opportunities;
(b) Tourism stimulates the development of the transport infrastructure, which facilitates access to
and from the least developed countries, landlocked countries and island developing countries;
(c) Tourism stimulates internal and external trade and strengthens supply chains;
(d) Tourism promotes the integration of isolated economies with regional and global flows of
trade and investment;
(e) Tourism reduces the burden on government budgets through implementation of public-private
initiatives;
(f) Tourism creates decent and productive work for youth;
(g) Tourism
provides
opportunities
for
bilateral, multilateral and sub-regional
cooperation among countries;
(h) Information technologies play an important role in integrating tourism enterprises into
global tourism markets.

Source: United Nations ESCAP, Transport and Tourism Division, Transport Policy and Tourism Section, adapted from UN
15
(2007), Study on the Role of Tourism in Socio-Economic Development

Tourism Regulation
Tourism services regulated by various acts: Industrial Ent. Act, Tourism Act,
2035 (1978) amended in 2053 (1997), the Hotel, Lodges, Restaurants, Bar
and Tourist Guide Rules, 2038 (1981), the Travel and Trekking Agency
Rules, 2037 (1980), the Trekking and Rafting Rules, 2044 (1985), and the
Mountaineering Rules, 2036 (1979).
FITTA 1992: no foreign investment in Travel Agencies, Trekking Agencies,
Water Rafting, Pony Trekking, Horse Riding, and Tourist Lodging.
Opened up foreign investment in travel agency and tour operator service
after WTO membership, but limited to 51%
FDI permitted in hotel industry with government's permission. As per WTO
commitments, up to 80% foreign equity allowed in hotel, lodging services
and graded restaurants.
MOTCA/ Tourism Industry Division: tourism regulator dealing with
registration, licensing, categorization of star hotels, providing facilities and
incentives and monitoring and evaluation.

16

Civil Aviation Authority of Nepal (CAAN): Regulator in aviation since its existence
in December 1998. Three activities: regulation, growth and monitoring. Provides Air
Operator Certificate (AOC) and enters into air service agreements with other
airlines. Out of 35 air service agreements, only 17 have schedule flights at present.
Prior to liberalization in 1993, civil aviation department used to perform such
activities.
Lack of domestic regulation to abide by the WTO commitments is a regulatory
problem. WTO commitments: opened up the travel agency and tour operator service
for foreign investment up to 51 percent of foreign equity capital. Not happened so
far for lack of domestic regulation.
China provided Nepal with the approved tourist destination status since 2001.
However, only three agencies in China known to provide approval for Chinese to
travel to Nepal hindering the free flow of Chinese tourists.
People with international linkages required for tourism promotion abroad. Requires
huge capital investment. Not possible at present as Nepal has not allowed capital
account convertibility so far.
Service Enquiry Point established under the WTO division of the Ministry of
Commerce (See annex .for detail). At present, there is a coordinating body, which
is represented by 17 Ministries/agencies. However, it is not functioning effectively
for lack of necessary manpower, equipments and activities
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Potential for Medical Tourism

Broadly defined as provision of cost effective private medical care in collaboration
with the tourism industry for patients needing surgical and other forms of
specialized treatment
Potential in Nepal. Will have to consider how to position itself as a medical tourism
provider in the global market.
The New Tourism Policy (NTP) 2008-identified health tourism as one of the
potential tourism products of Nepal
Famous for natural method of treatment: NTP emphasizes to develop Nepal as a
place of traditional Aurveda and naturopathy method for treating diseases with
greater participation of the private sector
As Nepal is equipped with valuable natural, historical and cultural heritage, NTP
also highlights to publicize the importance of post-treatment rest around natural
heritage sites in Nepal - requires infrastructure development with the participation of
private sector.
High altitude sports like cricket may also be included in Nepals health tourism.
Qualified doctors, having their master and doctorate degrees from developed
countries with several years working experiences are also available in Nepal.
Medical check up, diagnosis, lab facilities, indoor service, surgery and follow ups
are possible at a very low cost compared to developed countries.
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Effect of Trade Liberalisation on Tourism

GATS and WTO
Reforms to achieve higher demands for services began in
1992: Efforts to remove licensing and quota requirements in
imports, reduce tariffs, liberalize investment laws,
restructure the tax system and privatize a number of state
owned enterprises (SOEs)
Moved towards integration with the global economy:
countrys active participation in numerous international
organizations and trade agreements.
Nepals membership in WTO in 2004. Upon accession,
Nepal assumed a large number of general and specific
commitments.

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Nepal's Commitments

Broadly, the commitments made by Nepal in the services sector are divided into:

(A) General Commitments:

Extended market access to both imports and exports in a specified manner except a
restriction of providing only US dollar 2000 for Nepalese citizens while going abroad.
Supply of services by an existing foreign supplier will not be made more restrictive
than they exist at the time of Nepals accession to WTO.
However, movement of natural person has been made unbound or restrictive except in
the categories of services sales persons, persons responsible for setting up a commercial
presence, and intra-corporate transferees.
In commercial presence, no limitation on national treatment placed on foreign
investments and reinvestments except two conditions, i.e. approval of DOI and
incentives and subsidies provided available to wholly owned Nepalese enterprises only.
The schedule restricts foreigners to buy and sell real estate in Nepal. The present civil
code prohibits selling, mortgaging, gifting or endowing or disposing real estate to
foreigners.
Provide decisions within 30 days of the date of application for investments except
where of environmental impact assessment (EIA) is needed.
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4 supply of services modes: (1) Cross border supply (2)

Consumption Abroad (3) Commercial Presence (4) Presence
of Natural Person, the commitments made in tourism under
each mode are as follows:

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SAFTA
15th SAARC summit: Head of State underscored the vital
contribution that tourism could afford to the economic
development of the SAARC region.
Agreements made to facilitate the movement of people through
improved travel infrastructure, collaboration in human resource
development, and the promotion of SAARC as a common
destination through public/private partnership and joint
campaigns.
Key elements for tourism growth & environment : Harmonization
of customs procedures, improvement in transit facilities and
improvement in communication systems.
Recognizing this, Nepal also proposed a SAARC tourism board, a
SAARC Visa that allows easy movement of nationals of the
SAARC countries within the Contracting States, and discount on
travel fares for SAARC nations. (Frontline Magazine)
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Table: Trade in Travel Services

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Table: Tourists Arrivals from SAARC

Countries, 2008
More than 91,000
i.e. 58% has been
from India,
followed by Sri
Lanka and
Bangladesh, with
tourists visiting
from other SAARC
countries limited to
2 %, implying the
possibility of
increasing tourists
from other
countries as well

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Constraints to Inter-SAARC tourism

Internal factors: inadequate infrastructure, insufficient
funding of tourism promotion, shortcomings in quality
and efficiency in other sectors like educations, and
health. (CEDA: 2007+ World Bank: 2004)
External factors include among others; immigration
laws, documentation requirements, restriction on
currency movements, lack of transparency, and policies
that work as a disincentive for specific destinations
(CEDA: 2007)

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Nepal
Strengths

Unmatched natural products: Mt. Everest, Himalayan range and

eight of the worlds fourteen 8,000m peaks, diverse landscape,
sublime natural scenery, protected areas with diverse flora and
fauna, fast flowing rivers, year-round pleasant weather.

Ultimate adventure destination: Number one destination for

mountaineers and trekkers, white rafting, largest assortment of
aerial, terrestrial and aquatic sports.

Rich Culture: Multi-cultural, multi-ethnic; multi lingual yet

harmonious society; unique Newari architecture of Kathmandu
valley, Limbini and other UNESCO world heritage sites;
Kumari-the Living Goddess; more festival than days in a year;
tourist friendly and hospitable people, diverse cultures in Terai
region etc.

Others: A model of successful peace process, able private

sector, awareness of community level, public-private-people
partnership approach, gateway to the Himalaya region.

Weaknesses

Insufficient infrastructures

Inadequate investment in
tourism sector

Limited air connectivity

and weak national carrier

Poor coordination among

different agencies

Weak public-private
partnerships

Scarcity of resources for

massive publicity and
consumer promotion

Tourism patterns limited to

only in a few geographic
areas

Opportunities

Government has placed high priority on tourism

Growing tourism outbound of immediate neighbors

Competitive ground handling costs

Spill over effects from adjoining destinations of India and

China

Growing demand for adventure travel

Sustainability of nature and cultural heritage through tourism

economic development

Threats

Transitional phase of
political environment

Global terrorism

Cross-border disease

Strong competing
advisories

unfavorable travel
advisories

Global economic downturn

Climate change

Source: GON/MOTCA (2009), Tourism Vision 2020: Tourism for Peace, People and prosperity.

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SWOT Diagram 2: Prepared by UNCTAD-DITC

Nepals Tourism Sector
Strengths
Natural assets
Cultural diversity
Religious sites
4 World Heritage Sites
Acquired image as an adventure and cultural theme tourism
destination
Good service, hospitable nature of the Nepalese people
Expanded air access to major markets
Government promotion of sustainable tourism
Wide array of ecotourism offerings

Weaknesses
Lagging capacity expansion relative to targeted volume of
tourists
Infrastructure limitations in rural regions: utilities, telecom,
water treatment.
Road network limitations / traffic congestion
Limited capacity of Kathmandu airport to accommodate
growing traffic
Moderate levels of leakage
Foreignbased local businesses do not repatriate profits
towards Nepal
Lower quality service provided by small restaurants,
guesthouses, taxies
Limited access to new investments and financing
Inadequate safety regulations

Opportunities
Strengthen inter-sectoral linkages
Strengthen community-based tourism
Restored in-country stability, safety and security
Restored political stability
Improving tourism and transportation infrastructure and service
New tourism themes: healthcare and educational tourism,
business and conference tourism

Threats
Environmental degradation in high-traffic areas
Increasing incidence of theft and violence targeting tourists
Global economic crisis
Over-development may damage the image of the destination
Competition for land between tourists and local needs

Required spill-ins from other sectors: requires improved supply of services from the transport, financial, ICT, recreation, healthcare,
utilities and security services sectors
Anticipated spill-overs into other sectors: provides improved market for services from the transport, recreations and healthcare
sectors; conservation and improved land management related environmental benefits; expanded offering of infrastructure in tourism
zones; propagation of quality standards to other sectors.
Key stakeholders: relevant government ministries and parastatals; tourism sector firms hotels, restaurants; transport firms
airlines, taxies, car-rental; local communities; labour unions; recreation and sports firms and interest groups; advertising agents and
e-tourism suppliers.
27
Source: UNCTAD-DITC-TNCD, Strategies for advancing development of the services sector of Nepal, Draft Version, February 2009.

Points to be re-emphasized
Strengths:
Rich in natural resources, cultural diversity and religious sites
Number one destination for mountaineers and trekkers, and other
adventure tourism (rafting, aerial, terrestrial and aquatic sports)
Tourism is Nepals dominant service export
Weaknesses:
Poor services provided by small restaurants, guest houses and
taxis
No direct air connection to Europe and very few international
flights having connections to Kathmandu
Weak national flyer
Unable to reap benefits from intra-regional tourism
Failure to provide attractive and incentive packages to travelers
from India and China compared to competing destinations
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Points to be re-emphasized (Contd)

Opportunities:
Adding new tourism products like health and wellness tourism, educational tourism,
community tourism, sporting vacations, ethnic tourism etc.
Attracting middle income tourists during off season and from non-traditional markets
Decrease costs through e-tourism
High prospect of attracting surface travelers in future, both from India and China, with the
opening and development of new tourism destinations on both sides of border
Prospect of opening new border points like Rasuwa for the Chinese tourists
Reducing negative environmental impacts for ensuring long term stability of biodiversity
WTO membership helped integrate Nepals tourism services into the global economy,
stimulating development through employment creation, and foreign exchange earnings.
The positive spill over effect of this aided rural development: reducing dependency on
agriculture, distributing the benefits to the population, and boosting GDP growth to reduce
poverty.
Threats:

Lack of political stability and the status quo bureaucratic structure

Political interference and mismanagement in Nepalese airlines
Threat of international terrorism and insurgency within the country in the past
Regular bandas, road blockades, highway obstruction and landslides
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Policy Recommendations Ways Forward

Socio-economic and political
aspects
Tourism be made free from politics and conflict: Any renewed worsening in the

political situation could again send tourist arrivals into decline

The linkages between tourism and poverty be identified and established as
depicted in figure 1.
Focus tourism on the local or community level and aim at increasing tourism's
contribution to poverty reduction - pay attention to the village tourism like
TRPAP
Trekking and mountaineering tourism provides royalty income
Emphasis on religious and cultural tourism
Make necessary provision of infrastructure facilities and services (roads,
communications, and health and sanitation services) - designed to benefit local
communities & contribute to the achievement of Millennium Goals 4, 5, 6 and 7
Specific programmes to increase inflows of tourists coming from North America
and India
Travel industry to produce trade surplus - surplus provided up to 2004 tuned into
deficit since 2005.
Introduce TSA developed by WTTC. Also make service sector classification
compatible with SNA 1993 and WTO classification

30

Regulatory and institutional aspects

MoTCA to improve its Monitoring and Evaluation system
Airport be opened round the clock. Also need of interagency coordination for working effectiveness of different
agencies operating at the airport
Formulate domestic regulations to make the country able to
abide by the WTO commitments. Need of strengthening
WTO Reference Centre established under MOCS
The Service Enquiry Point established under the WTO
division of MoCS be strengthened with necessary
manpower, equipments and activities for its proper
functioning
Need of further work in implementing and introducing
medical tourism
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Related to Liberalization:
GATS etc.

Nepals commitments under GATS in twelve sectors, tourism being one. Need of
a comprehensive service plan in the tourism sector to:

Access Nepals capabilities and resources to compete in the global tourism industry.
Find the optimum balance between local and foreign participation in this industry
Access the ability and resource to fight barriers to market access created by other
counties through technical standards, subsidies, discriminatory access to information
and distribution channels etc.
Identify supply constraints created by the lack of human resource, technology, and
quality standards
Develop plans and policies to overcome supply constraints and barriers to market
access

Tourism: industry to have the largest monetary turnover in the world by the year
2020 (Frontline Magazine.), so, trade liberalization constraints in tourism must be
acknowledged and differences between the SAARC nations must be rectified in
order to reap the highest benefit of this growing industry.
Re-examination of the trade policies for enhancing FDI in tourism sector.
Consideration be given to increase the coverage of GATS commitments in
tourism services by scheduling new commitments for food and beverage services,
tourist management services, education and health accommodation services, and
other non-conventional services.
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Action Plan Matrix

33