Will COVID-19 herald the growth of e-commerce in Nepal?

The tenacious nature of COVID-19 has sent countries under lockdown as consumers start to shun human contact; this has retailers scrambling to adapt in a dynamic market. As paranoia around social distancing and public spaces heightens, customers will be less likely to visit stores in person. Could this fear trigger a change in customer’s perception of retail shopping and consequently lead to the development of e-Commerce in Nepal?

Retail Market in the context of Nepal

Consumer and retail businesses contribute to 14.37 percent of Nepal’s GDP. It employs more than 1,240,000 people[1]. Thus, stagnation in this sector due to COVID-19 restrictions will be detrimental. The consequences seem inevitable as the virus keeps spreading, leading to subsequent lockdown extensions. With major disruptions in transportation due to COVID-19, supplies for raw materials are getting scarce. Retailers’ supply-chain difficulty has been exacerbated by shifts in consumer behavior and stepped up health restrictions. The retail sector is already being affected by the drastic downfall in imports from China and India. While these are the prevailing state, a shortage in supply will eventually lead to a rise in prices resulting in inflation. This is where the e-commerce industry could step in, retain, and obtain new customers. The shortcomings in the traditional retail market provide suitable conditions for e-commerce businesses to improve their market penetration.

What is E-Commerce?

Electronic commerce or e-commerce is a business model that lets firms and individuals buy and sell things over the internet. E-commerce, which can be conducted over computers or phones may be thought of like a digital version of in-person catalog shopping. E-commerce has helped businesses around the world establish a wider market presence by providing cheaper and more efficient distribution channels for their product or services. E-commerce has been around the blocks for around three decades, and in that period, it has revolutionized the process of buying and selling goods. Between 2003 and 2016, retail e-commerce has averaged 17 percent annual growth around the world[2]. The meteoric rise in technology led to rapid globalization; as a result, buyers and sellers are increasing their connectivity and the speed with which they conduct sales transactions. Global retail e-commerce sales have grown from NPR 156 billion (USD 1.3 billion) to NPR 492 billion (USD 4.1 billion) between 2014 to 2020[3]. Moreover, the growth of e-commerce retail sales has reduced consumer’s search cost, placed downward pressure on many consumer prices, and reduced-price dispersion for goods[4]. The application and internalization of e-commerce can open new opportunities for doing businesses. E-commerce has the potential to connect Nepali micro, small and medium enterprises, rural women and youth entrepreneurs, traders, and exporters with global value chains. Moreover, businesses that lack the capital to own a brick and mortar store can easily advertise their product/service via e-commerce.

E-commerce in the context of Nepal

Gradual penetration of information and communication technology to rural Nepal have created favorable conditions for e-commerce. Nepal Telecom Authority (NTA) reports that mobile phone penetration has reached 130 percent, and 62 percent of the population is connected to the internet[5]. The use of smartphones and different mobile apps is growing rapidly. More than half of Nepal’s population is between 15-54 years of age and the median age is 22 years[6]. With a young demography that is ready to embrace the evolving digital landscape, the proliferation of technology in business and retail is bound to increase. The young majority have the potential to drive economic transformation by employing technology in everyday transactions. The challenge, however, is to inculcate an entrepreneurial mindset among Nepali youth and provide a level playing field for their advancement to make e-commerce a means of economic transformation.

Despite the potential, Nepal is already lagging in localizing e-commerce as a business tool compared to many Asian countries. However, there are private sector providers that have been at the forefront of e-commerce development pushing digital development. Ride-sharing applications such as Tootle and Pathao; payment platforms such as eSewa, IMEpay, and Khalti; or websites such as Daraz and Muncha have already shown the potential of e-commerce as an alternative tool to drive local business. Despite the emergence of such online retail businesses, the majority of the business transactions still take place via the ‘cash-on-delivery’ method. This too is limited due to poor road infrastructure and lack of street address as online business activity occurs mainly in Kathmandu and half a dozen major cities. Lack of prevalent digital payment systems and a low number of debit/credit card owners poses a challenge towards sustainable growth of e-commerce as banks are hesitant to extend their services to a niche market like e-commerce. Rise in e-commerce is also highly dictated by consumer behavior and their sentiments towards adopting e-commerce. Unfortunately, consumer sentiment towards e-commerce remains doubtful- lots of consumers do not trust online businesses due to the lack of a strong legal framework to protect them from fraudulence.

Moving forward

To capitalize on the changing consumer sentiment by establishing sustainable e-commerce growth, the government needs to do a lot more than the bare minimum of establishing a national strategy. Rise in e-commerce is not feasible without adequate internet penetration across the target market. Massive investment is required in enhancing mobile data and making internet data affordable. Success of e-commerce businesses relies on efficient delivery of products and services which requires accurate location system. However, the physical address system is weak in Nepal; it needs the proper naming of streets and houses. It is estimated that currently over 85 percent of the payments for e-commerce is done using cash in Nepal[7]. To fully digitize the transactions and make e-commerce truly electronic, Nepal Rastra Bank (NRB) and the Ministry of Communication and Information Technology (MoCIT) need to focus on building a secure digital payment framework and endorse it to promote public trust. Nepal also needs quality control, data privacy, and protection of customer rights through a legal system. In looking for ways to develop a sustainable e-commerce growth in Nepal, the public and the private sectors need to look no further than our neighbor, India.

E-commerce companies in India have focused on developing applications tailored for mobiles/smartphones, enabling customers to make transactions through their devices with ease. Focusing on phone applications helps to serve a larger market base as the majority of the customers have easier access to phones than computers and other devices in Nepal. Similarly, Indian companies’ use of digital advertisements has enabled e-commerce players to reach out to a wider audience. Likewise, the Indian government has been taking major steps to enhance e-commerce in India. It has been leveraging e-commerce digital platforms to organize traditionally offline markets. It launched flagship initiatives including Digital India, Start-up India, Make in India, and Skill India for the growth of e-commerce. Digital India focuses on transforming India into a digitally empowered and knowledge economy by building digital infrastructure as a core utility. Start-up India intends to build a strong eco-system for growing innovation with incentives like tax exemptions for the initial three years and faster exit. To increase the participation of foreign investors in e-commerce, the Indian government hiked the limit of foreign direct investment (FDI) in the e-commerce marketplace model up to 100 percent in business to business e-commerce. If Nepal wants to nurture a strong e-commerce environment, the government and private sectors need to work together and analyze strategies adopted by India, who had similar technology proliferation but have made significant growth due to the initiatives of the government. Like India, Nepal needs to capitalize on the opportunities arising from planned digital development and use them for employment, amendment of present trade terms, and gain economic transformation.

In terms of navigating a COVID-19 ridden world to sustain an e-commerce business, concerned stakeholders can take inspiration from e-commerce giants Amazon and Alibaba. Both companies have reported sustained growth in business despite the upheaval caused by COVID-19. Consumer spending on Amazon is up 35 percent from the same period last year[8]. To fight such a surge in demands during these testing times, Amazon has hired 100,000 new employees. As consumers get fiscally conservative because of the pandemic, they prioritize purchasing only the essentials. Realizing this, Amazon has started prioritizing the sale of must-have products like groceries and hygiene products and temporarily stopped accepting shipments of nonessentials to its U.S. warehouses. It also constantly tests its frontline workers and supply chain staff for COVID-19 to ensure a safe environment. Similarly, Alibaba’s supermarket chain Freshippo focused on the delivery of essential groceries and fruits via special delivery vans to combat lack of sales due to COVID-19. Learning from these companies, Nepali e-commerce businesses should tap into the essential product’s market such as groceries and hygiene amidst the pandemic. This way they can provide products to customers when it is not easily accessible which helps to grow and retain a customer base.

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References:

[1] “Potential Impact of COVID-19 on Nepalese Economy”, Reanda Biz Serve, April 2020. Retrieved from- http://www.reanda-international.com/News_Photo/pdf/P_i_C_N_E.pdf

[2] “The growth of e-commerce”, David Deull, IHS Markit, 14 August 2018. Retrieved from- https://ihsmarkit.com/research-analysis/the-growth-of-ecommerce.html#:~:text=Between%202003%20and%202016%2C%20retail,grew%2016.4%25%20year%20on%20year.

[3] Ibid [2]

[4] Ibid [2]

[5] “Digital development and e-commerce in Nepal”, Madhu K Marasini, The Kathmandu Post, 15 July 2019. Retrieved from- https://kathmandupost.com/columns/2019/07/15/digital-development-and-e-commerce-in-nepal

[6] “Inclusive and Sustainable Industrial Development Working Paper Series”, United Nations Industrial Development Organization (UNIDO), Harish Pal Kumar, 2017. Retrieved from- https://www.unido.org/sites/default/files/2017-10/WP_15_2017_.pdf

[7] Ibid [5]

[8] “Amazon has the right businesses to weather coronavirus, but spending could grow even faster”, Jon Swartz, Market Watch, 1 May 2020. Retrieved from- https://www.marketwatch.com/story/amazon-has-the-right-businesses-to-weather-coronavirus-but-spending-could-grow-even-faster-2020-04-13