Nepal’s Transformation to an Inclusive Digital Economy

This article is taken from the Special Section of NEFport 43, published on December 2020.

The Covid-19 pandemic will be remembered as a boon to the digitalization agenda, as it has catalyzed digital access and adoption of digital services across the Nepali market. With the pandemic, companies and different segments of businesses have been forced to adopt digital channels and modalities to protect employees and serve customers. Banks and financial institutions have launched digital outreach to customers, e-commerce platforms have become popular, schools have adopted online teaching and learning methods, and increasingly people are choosing digital channels to pay for goods and services. These recent developments in digital adoption seem to be making everlasting structural changes in the economy. This is because customer behavior has changed significantly. Accordingly, firms and companies have adapted to deliver goods and services through digital means. The supply chain is adjusting itself to the advent of digital technology.

Digital transformation at the organization level means enhancing digital investments, analyzing the market using new data and artificial intelligence to improve business operations, and increasing organizational agility to deliver more quickly. At the country or market level, digital transformation requires a comprehensive and concerted approach that allows the development of conducive policy and regulatory frameworks, incentives for innovation, supportive infrastructure, and empowered citizens. If one of these is missing or weak, digital transformation will be flawed and would not lead to intended results. Its benefits will not reach women, men, youth, migrants, farmers, the poor, and persons with disabilities.

Nepal stands at a critical juncture with immense possibilities in terms of digital transformation to help build a more inclusive digital economy. This is because of impressive mobile penetration and internet coverage. The groundwork has already been established for inclusive payment ecosystems, which can be a game changer for reaching and serving poor people in remote areas with a range of services. Nepal’s policy and regulations on digital issues, mainly the digital finance-related acts and directives from the central bank, do not pose any threat to digital transformation. Improvements in policies and regulations are steadily being adopted, and this trend is likely to continue as the market innovates and expands.

The Government of Nepal’s Digital Nepal Framework provides a broader policy and programmatic framework for interventions to promote digital transformation. However, the willingness and ability of public and private sector agencies to implement the activities under the framework have not been encouraging so far. Since the digital sector is relatively new, the public naturally perceives risks, many of which are poorly understood and not easily addressed. Fraudulent acts are difficult to control if there is limited regulatory and oversight capacity. The increased number and diversity of actors engaged in delivering financial services makes it even more difficult to identify and hold actors accountable for fraud and negligence. For the private sector, investments in innovation are costly and risky. A lack of or limited innovation within the industry is a major barrier to offering appropriate services across sectors.

Understanding the limitations of both the public and private sectors, and addressing their specific constraints, is key to transforming the economy into an inclusive digital economy. UNCDF’s Inclusive Digital Economy Scorecard (IDES) helps track the development of inclusive digital economies at the country level. It provides a framework to identify key market constraints hindering the development of an inclusive digital economy. It also guides stakeholders to work together to remove these constraints and foster digital economies that leave no one behind.

In Nepal, the critical piece in driving digital transformation is to improve skills at the customer level and empower people to use digital services. The services offered should allow people to transact from their homes at any time with greater privacy and confidentiality. We should be watchful that digitalization does not lead to a greater economic divide. That is where the focus of our digital transformation agenda should be.