Nepal ICT Sector Note March08

Progress and Challenges of ICT Development in Nepal

Executive Summary

Nepal is a challenging country in which to advance the development of information communication technology (ICT). The first computer was introduced to Nepal as late as 1971, and it was only in 2004 that a second mobile phone operator was licensed. The general population is poor and with limited literacy, and spread over hard‐to‐access mountainous terrain. Furthermore, Nepal is in one of the more competitive regions of the world in terms of the IT industry, with its two neighbors, China and India, fast establishing their dominance in hardware and software exports respectively.

However, it is for these very reasons that ICT is receiving considerable attention in Nepal’s development efforts. Technology can play a key role in linking Nepal’s often isolated rural villages to each other and the outside world, enabling its citizens to better access government services and tie their economies to market opportunities beyond their immediate geography. Meanwhile, India and China’s IT sectors can also offer excellent partnership opportunities for Nepal’s IT industry, offering a channel to access some of the most sophisticated customers from across the globe.

Therefore, Nepal has taken an active approach to advancing its e‐agenda, initially embodied by an IT Policy established in 2000. It has increasingly opened the infrastructure sector to competition, increased the government’s on‐line presence, built an IT park, grown IT exports at a healthy 20% a year, and is annually graduating a cadre of well‐training ICT professionals from a mix of universities and smaller private training institutions.

After some years of progress that has seen the launch up of a number of worthwhile ICT initiatives, some foundations are in place and good experience has been gained. Much of what can and should be done in the future has been started; however, a gap has also opened up between stated policy and what has happened on the ground. Nepal is at the stage where it now needs to consolidate gains made, fix areas where execution has fallen short of expectations, and venture into a limited number of new areas of ICT opportunity.

This report focuses on what to do next to consolidate and grow Nepal’s ICT sector in four areas:

• Information infrastructure/connectivity • E‐government • IT industry • ICT human resources.


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Each is reviewed in turn, looking at key developments in the sub‐sector over the past ten years, highlighting examples of successes, and recommending key areas where the Government of Nepal, the World Bank and other development partners can focus their future efforts to support the development and growth of ICT in Nepal.

The recommendations for next steps combine an extension of interventions started earlier with the launch of new areas of opportunity. They are summarized in the table below.

Information Infrastructure E‐Government IT Industry ICT Human

Resources

Analysis & Strategy

• Rural Strategy and Roll‐out

• Taxation and Incentives

• Government Network Development

• Public‐Private Partnership Development / E‐Government Outsourcing

• Legal and Regulatory Framework

• IT Cluster Support* • IT Park Launch and

Management Support*

• ICT Incubator Development*

• ICT Human Resource Development Policy and Strategy

• ICT Human Resources Sector Support Organization*

Capacity Building

• NTA Capacity Support

• Strategy‐Implementation Bridging Support

• CAN Institutional Capacity Support

• Institutional Leadership Development

Implementation • Telecommunica

tions Sector Governance

• Continued Liberalization

• e‐Procurement Platform Revival

• TBD (Result of strategy finalization)


Management Support*




* These initiatives begin with strategy or business planning work, after which (and based on which) implementation activities will follow.


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Table of Contents Acronyms and Abbreviations ...............................................................................................5 Introduction ............................................................................................................................7 Outline.................................................................................................................................8 Scope and timing .................................................................................................................9

Conceptual Framework: The Interrelation of the Four Focus Areas............................9 Information Infrastructure .................................................................................................11 Background........................................................................................................................... 11 Policy and Institutions......................................................................................................... 13 Progress and Outstanding Challenges.............................................................................. 14 Profile of Success: Spice Nepal........................................................................................... 17 Potential Areas for Intervention ........................................................................................ 18 1. Telecommunications Sector Governance .......................................................................18 2. Continued Liberalization ...............................................................................................19 3. Rural Strategy and Roll‐out ..........................................................................................19 4. NTA Capacity Support..................................................................................................20 5. Taxation and Incentives.................................................................................................21

E‐Government.......................................................................................................................21 Background........................................................................................................................... 21 Policy and Institutions......................................................................................................... 22 Progress and Outstanding Challenges.............................................................................. 25 Profile of Success: Supreme Court Case Tracking System............................................. 27 Potential Areas for Intervention ........................................................................................ 29 1. Strategy‐Implementation Bridging Support .................................................................29 2. Government Network Development ..............................................................................29 3. Public‐Private Partnership Development / E‐Government Outsourcing.....................30 4. e‐Procurement Platform Revival ...................................................................................31 5. TBD (Result of strategy finalization) ............................................................................31

IT Industry.............................................................................................................................31 Background........................................................................................................................... 31 Policy and Institutions......................................................................................................... 33 Progress and Outstanding Challenges.............................................................................. 33 Profile of Success: Mercantile Communications ............................................................. 36 Potential Areas for Intervention ........................................................................................ 37 1. Legal and Regulatory Framework..................................................................................37 2. Institutional Capacity Support......................................................................................38 3. IT Cluster Support.........................................................................................................39 4. IT Park Launch and Management Support...................................................................40 5. ICT Incubator Development ..........................................................................................41

ICT Human Resources ........................................................................................................42 Background........................................................................................................................... 42 Policies and Institutions ...................................................................................................... 43


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Progress and Outstanding Challenges.............................................................................. 44 Profile of Success: Kathmandu University....................................................................... 45 Potential Areas for Intervention ........................................................................................ 46 1. ICT Human Resource Policy and Strategy ...................................................................46 2. Institutional Leadership Development ..........................................................................47 3. ICT Human Resources Sector Support Organization...................................................47 4. TBD (Result of strategy finalization) ............................................................................48

Linkages: Developing a Coherent ICT Transformation Program ..............................48 Analysis and Strategy Formulation................................................................................... 49 Institutional Capacity Building.......................................................................................... 49 Project Implementation (Operations)................................................................................ 50 Next Steps..............................................................................................................................51 References..............................................................................................................................54 Annex I: List of Interviewees.............................................................................................56 Annex II: Key Laws and Regulations...............................................................................57 Annex II: Key Laws and Regulations...............................................................................57 Annex III: List of Assessments and Analyses ................................................................58 Annex IV: Sample ICT Initiatives in Nepal ...................................................................59


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Acronyms and Abbreviations

ADB Asian Development Bank

BPO Business Process Outsourcing

E‐GMP E‐Government Master Plan

GoN Government of Nepal

G2B Government to Business

G2C Government to Citizen

G2G Government to Government

HLICT High Level Commission for Information Technology

KIPA Korea IT Industry Promotion Agency

KU Kathmandu University

ICT Information Communication Technology

IT Information Technology

ITPF Information Technology Professional Forum

ISP Internet Service Provider

MoES Ministry of Education and Sports

MoEST Ministry of Science, Environment and Technology

MoIC Ministry for Information and Communication

NITC National Information Technology Center

NRNs Non‐Resident Nepalis

NT Nepal Telecom

NTA Nepal Telecommunications Authority

PCO Public Call Offices


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PMU Project Management Unit

RTDF Rural Telecommunications Development Fund

SASEC South Asia Sub‐regional Economic Cooperation

STM STM Telecom Sanchar

UT United Telecom

VDC Village Development Center

VOIP Voice Over Internet Protocol

VSAT Very Small Aperture Terminal


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Introduction

Nepal is a relative newcomer to the use of information communication technology (ICT): its local exchange reached 300 lines in 1955; its first computer was introduced in 1971; and it was only in 2004 that it licensed its second mobile operator. It is also a difficult country in which to aggressively expand ICT. With GDP per capita at $270 and literacy levels at 49%, there are few people who can easily afford to use ICT and take advantage of the diverse opportunities that technology offers. Furthermore, the population is largely rural, dispersed through mountainous terrain that is difficult to access.

However, it is for these very reasons that ICT has received considerable attention in Nepal’s development efforts. Technology can play a key role in linking Nepal’s often isolated rural villages to each other and the outside world, enabling its citizens to better access government services and link their economies to market opportunities beyond their immediate geography. Technology can also enhance the reach and efficiency with which Nepal’s government can deliver key public services, from education to healthcare. Furthermore, through connecting Nepal to global markets – in particular through the fast growing IT industries of its two neighbors, India and China – ICT can provide good opportunities for Nepal to overcome some of barriers it faces being a landlocked nation.

Recognizing the role of ICT as a spur to development, the Government of Nepal’s (GoN) Tenth Five‐Year Plan (2002‐2007) stresses the need to promote the access and use of ICT, thereby “generating employment opportunities, contributing to form knowledge‐based societies and promoting knowledge‐based businesses and industries.”1 The country’s IT Policy goes further, aiming to “Place Nepal on the global map of Information Technology within … five years.” As part of this process, the telecommunications sector has been increasingly opened up to private competition, rural telecenters have been established across the country by a range of public and private organizations, and new initiatives, such as establishing an IT Park, are underway. The government has also recently launched a far reaching e‐government program, designed to streamline government back office operations and increase the availability of on‐line services.

However, Nepal’s ICT sector has a long way to go to maturity. Only 8.84% of the population has access to a telephone (plus this average masks a heavy concentration in the Kathmandu Valley, which means that effective teledensity is actually a low 1.71%), while the telecommunications sector is still dominated by the incumbent

1 World Bank, 2007; “Development and Innovation of ICT in Nepal.”


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public operator. Meanwhile, some good efforts have foundered during execution: a telecommunications sector regulatory authority has been established but has yet to develop enough clout to ensure a level playing field for private competition; a government e‐procurement platform was developed but is seldom used; the IT Park registered its first tenant, but then lost them within six months.

After years of enthusiasm that has seen the launch up of a number of worthwhile ICT initiatives, some foundations are in place and good experience has been gained. Much of what can and should be done in the future has been started; however, a gap has opened up between stated policy and what has happened on the ground. Nepal is at the stage where it now needs to consolidate gains made, fix areas where execution has fallen short of expectations, and venture into a limited number of new areas of ICT opportunity.

As the country embarks on this phase of consolidation and enhanced growth, it will have make strategic choices about where to direct its efforts, bearing in mind human and financial resource limitations and the absorptive capacity of both its lead institutions and the general population. The key to its success will be to limit the scope of its efforts, to be selective in were it channels its efforts, and through doing so make real gains in areas that matter most.

Outline

This report focuses on what to do next to consolidate and grow Nepal’s ICT sector in four areas:

• Information infrastructure/connectivity • E‐government • IT industry • ICT human resources.

Each will be reviewed in turn, looking at key developments in the sub‐sector over the past ten years, highlighting examples of successes, and recommending key areas where the GoN, the World Bank and other development partners can focus their future efforts to support the growth and development of ICT in Nepal.

On the whole, the recommendations fall into two categories: do more of what is already being done, though in some cases doing it better; undertake new initiatives were there is unmet or latent demand. However, in the cases of the IT sector and ICT human resources, there is limited knowledge available about the nature of demand for these two sub‐sectors’ services and how best to meet it. This means that more research needs to be done on demand, based on which a clear strategy for change can be developed.


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The report begins by introducing a conceptual framework for how the four focus areas are interrelated, to then look at each in turn, concluding each section with recommendations for key actions. The report concludes with a review of how the individual actions in each of the main areas are interrelated, ending with suggestions for next steps.

Scope and timing

This is primarily a desk‐research effort and is therefore bound by the amount and quality of research available to date on Nepal’s ICT sector, as well as the time allotted for the work.

There is limited information available on Nepal’s ICT sector, particularly with regard to quantitative and qualitative data and more particularly with regard to the IT sector and ICT human recourses. This means that some of the end recommendations call for more targeted research before specific guidelines for a way forward can be advanced.

A number of substantial ICT‐related efforts are also currently underway. These include the new ICT Development Project funded by the Asian Development Bank (ADB); new guidelines for the interconnection regime conducted by the Nepal Telecommunications Authority (NTA); and the issuing of licenses for unserved rural areas (also by NTA). These initiatives are central to the areas that this report reviews, yet it is still too early to be certain what results they will achieve. This means that recommendations in any of these areas will either run the risk of being duplicative, or fail to address an area that has not been effectively addressed by the lead agency.

Conceptual Framework: The Interrelation of the Four Focus Areas

The four focus areas of information infrastructure, e‐government, the IT industry and ICT human resources are closely interrelated. Information infrastructure is foundationally important, forming the base without which Nepal cannot seriously consider developing e‐government applications, an IT sector or the necessary ICT human resources.2 Making sure that this base is secure, primarily through ensuring a predictable and fair investment environment for private participation, is one of the more important steps that Nepal can take to advance ICT growth.

2 It is conceivable to advance information technology usage in government, grow an IT sector and develop technology‐related skills without high communications components to them – IT without the ‘C’. However, this would entail embarking on a sub‐optimal strategy for development from the start, delivering only a fraction of the potential benefits of information technology usage.


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With high quality and expanding information infrastructure, development of the other three focus areas can take place. However, growth in e‐government, the IT sector and ICT human resources will require understanding the nature and strength of demand for the goods and services that each produce.

Supply and demand among the three sub‐sectors are inter‐related and overlapping. For example, the IT industry is a source of demand for the ICT human resources sector, while serving as a supplier to the government of IT goods and services. The government and the IT industry serve as important sources of demand for the ICT human resources sector (but not the only source –traditional businesses and foreign firms also recruit Nepal’s ICT experts). IT firms and ICT learning and training institutions are also consumers of government e‐services.

In general, demand in Nepal for a large and varied portfolio of ICT products and services is weak, and likely to remain so in the near future. As of 2005, just over one‐half of its population was illiterate (let alone ‘e‐literate’) with per capital electricity consumption at 50% of Bangladesh’s level and merely 15% of India’s.3 In this context, the average Nepali citizen is still a long way off from demanding that the government provides them an array of on‐line services – their demands are more likely to be for basic public services such as schools with teachers, health facilities within reach, and roads that are passable year round.

Furthermore, Nepal’s IT sector is located in one of the most competitive regions of the world. China, its neighbour on one side, dominates global hardware trade, while India, its neighbour on the other, is fast establishing its place as the software development and business process outsourcing (BPO) capital of the world. So with limited demand for the government to be on‐line, and an IT sector that exists in one of the most competitive regions of the world, domestic demand for ICT human resources is likewise bound to be limited.

Despite low overall demand and stiff competition in the region, there are opportunities for Nepal to usefully leverage

3 World Development Indicators database, data for 2004.

ICT INFRASTRUCTURE

E-GOVT IT INDUS.

ICT HR

DEMAND

Demand pull

1.Citizens2.Businesses3.Employees

1.Government 2.Businesses• Foreign• Domestic

1.Government 2.Businesses• ICT & tradl.• For. & dom.

ICT INFRASTRUCTURE

DEMAND

E-GOVT ICT HR

Important other sources

of demand

IT INDUS.

E-Government as a demand

anchor


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ICT to improve governance, find market niches where it can prosper despite its neighbouring ICT behemoths (or even in partnership with them), and develop ICT human resources to serve both ends.

Among the most attractive demand opportunities lies with e‐government. E‐government provides an excellent opportunity to pull up the other two sectors: increased government demand for goods and services from the IT sector will fuel its growth; in turn, the IT sector will demand more trained professionals from the ICT human resources sector (as will the government itself). This, however, puts considerable pressure on the success of the e‐government strategy and the availability of public financing as a key demand anchor. Furthermore, little is known about the nature and strength of demand for e‐government from within Nepal, as e‐government services delivered to date have been rudimentary.

Therefore, while e‐government currently presents a good source of demand for the IT industry and the ICT human resources sector (both through the IT industry and more directly), other sources of demand – particularly foreign and domestic business demand for ICT products and services – must also be identified and pursued as sources of growth. Defining these demand opportunities will require additional research, based on which realistic strategy formulation can follow. Guided by good strategy, planned and persistent implementation will offer its rewards.

However, important as e‐government programs are as a relatively reliable (and domestic) source of demand, many of them will not achieve the success they hope for unless the information infrastructure sector on which they depend to deliver electronic services is well developed. Without reliable and cost effective telecommunications services, efforts in e‐government (and the other two areas) will be difficult and remain inefficient.4 This must therefore be the first focus for development and, as is the case in Nepal, continued, concerted reform.

Information Infrastructure

Background

Teledensity in Nepal has grown well over the past few years, particularly with the opening up of the mobile telephony sector to private competition. With a combined fixed and mobile teledensity of over 8%, Nepal has bettered targets set some years

4 In a policy note on deploying e‐government programs, the World Bank notes that: “Governments should promote strategies that promote ICT infrastructure as a pre‐requisite to e‐government: an ‘I before E’ strategy.” (R. Schware and A. Deane, 2003: “Deploying E‐government Programs”).


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ago. Yet it is still far from outperforming other countries in the region: Afghanistan and Bangladesh, two countries that were doing poorly in 2004, have a teledensity of over 8% and 16% respectively. Internet usage is also particularly low at 4 people per 1000, compared to 49 in the South Asia region and 44 for low income countries in general.5

Most network coverage is dominated by the public incumbent operator, Nepal Telecom (NT), which provides both fixed and mobile telephony. However this is changing as more private operators are entering the field, including a fixed wireless local loop operator in the Kathmandu Valley (United Telecom), a new mobile phone operator (Spice Nepal), and a rural operator that provides VSAT‐based connectivity (STM Sanchar).6 There are also a number of independent VSAT linkages, which the majority of internet service providers (ISPs) – over 30 in all – rely on for their connectivity.

However, the network backbone remains dominated by NT, with some isolated exceptions of private institutions, such as banks, building private VSAT networks for their own use. NT’s dominance in this area has also increased further, as it was recently given ownership of the publicly‐funded (with grant aid from the Government of India) East‐West fibre optic cable that runs across Nepal’s length. NT is further on track to receive ownership of a new fibre link from Kathmandu to India, also publicly funded (by the South Asia Subregional Economic Cooperation).

Rural coverage is defined by a minimum requirement of two public phone booths (referred to as public call offices or PCOs) in each village development center (VDC),

5 NTA July 2007 data; World Bank, 2007: “Aide mémoire: Nepal Telecommunications Sector Reform Project Implementation Support Mission,” Draft; World Bank 2006, “ICT at a Glance: Nepal.” 6 A Very Small Aperture Terminal (VSAT), is a two‐way satellite ground station with a dish antenna that is smaller than 3 meters commonly used to transmit narrowband but also broadband data.

Service Provision Outside of Katmandu Valley(Percent of VDCs w ith at least one PCO by

operator)

0%

20%

40%

60%

80%

100%

Western Central Eastern M id-Western

Far-Western

STM NT

Subscripton by Service Provider

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

NT Spice UTL STM (rural)

Subs

crib

ers

(thou

sand

s)

Fixed Mobile


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of which there are 3,915 outside of the Kathmandu Valley. However, it tends to be tracked by the existence of at least one PCO in each VDC.7 By this measure, very basic access to telecommunications is on average 72%, though this varies across regions.

To support network coverage in areas where services cannot be profitably provided, the government has established a fund financed by a combination of World Bank funding and a Rural Telecommunications Development Fund (RTDF) tax on all service providers of 2%. To date, RTDF stands at over $13 m, supplemented by $10 m of World Bank financing. The roll‐out of telecommunications services in the Eastern Region by STM has been supported through subsidies from RTDF, as is a new license for coverage in the Western region (for which bids are currently under consideration).8 Between a combination of investment subsidy and identification by operators of good profit opportunities, NTA is confident that complete coverage of Nepal’s VDCs with at least two PCOs will be possible. The main barrier now is logistical, in terms of developing and awarding licenses and then rolling out service.9

Policy and Institutions

Nepal officially opened its sector to competition with its 1992 Communications Policy, and established an independent regulatory authority, the Nepal Telecommunications Authority (NTA), with the 1997 Telecommunications Act. 1999 saw further opening of the telecommunications sector with the licensing of independent VSAT operators, which led to a huge increase in ISPs’ bandwidth. The new millennium saw the launching of an ambitious but high‐level IT Policy. However, greater telecommunications sector opening came with the 2004 Telecommunication Policy that aimed to fully open the sector to competition through open licensing and restructuring NT, the incumbent public operator, and divesting the government’s ownership. Since then international voice service has been fully opened to private participation, and the government is in the process of legalizing voice over IP (VOIP) service provision.

The lead policy institution in Nepal for information infrastructure is the Ministry for Information and Communication (MoIC). Its mandate is to “develop and expand the

7 On the ground this can translate into as much as an 8‐hour walk to the nearest PCO. Operators also report wait times of many hours to use PCOs in certain VDCs. 8 RTDF subsidies are awarded using a least cost approach, where the contract and subsidy is competitively awarded to a firm that demands the lowest subsidy to meet the service requirements set by the government. 9 Interview with NTA chairman, October 2007.


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information & communication sector up to the rural level in the form of infrastructure for social and economic development through wide spread participation of the private sector as well with emphasis on the dissemination of information and communication technology.” It is the main policy‐making body for telecommunications infrastructure, as well as postal and broadcast services.

However, the MoIC goes beyond policy making, mainly through other organizations that it oversees and which formally fall under it. Key among these is the incumbent public operator, NT (which is chaired by the MoIC Secretary), and NTA (whose board members are appointed by the MoIC).

• Communications• Administration• Frequency &

Technology Mgt.

Divisions

• Information• Postal• Print

Departments

• Nepal Telecommunications Authority• Nepal Telecom• Gorkhapatra Corporation• Radio Broadcasting Development

Committee• Nepal Television Corporation• Rastriya Samachar Samiti (RSS)• Film Development Board• Press Council

MOIC OrganizationsLegal Advisory

MOIC

Summary Organizational Chart of the MOIC

Progress and Outstanding Challenges

The picture that emerges of the telecommunications sector in Nepal over the past decade is mixed. Most of the right policy measures have been put into place, beginning as early as 1992 when it embraced the idea of competition in the sector. However, the development of the information infrastructure sector has been held back by a gap between stated intention and actual changes on the ground.

To date, the sector’s growth has been hampered by the monopoly of a public provider, NT, shielded from market pressures to aggressively expand coverage, reduce costs and improve service quality. This has not been good for Nepal’s consumers of ICT services, both businesses and individuals.

Where the market has been opened, and consumers have been able to enjoy service options other than those provided by NT, the response has been notable. For example, when VSAT licensing was opened, thereby allowing ISPs to connect to the internet through means other then those provided by NT, the response from ISPs was enormous: international bandwidth shot up from 320kb in May 1999 to over


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5MB before the end of the same year.10 The mobile telecommunications market is exhibiting similar signs. It is only in 2004 that a second mobile operator was licensed by NTA. Mobile subscription has grown at over 240% over the past year, compared to fixed line growth of just under 30%. And while both NT and Spice Nepal (the new private operator) are fueling this growth, Spice accounts for the majority, growing almost 540% over the past two years, taking market share from NT year on year.11

The record from a demand perspective is clear: consumers are voting with their feet for an end to any form of monopoly in the telecommunications sector and the provision of alternative service providers to NT across all services.

The GoN has formally committed to responding to this demand, and more than once. However, so long as the MoIC continues to sit on NT’s board, a conflict of interest exists between it serving the role of a fair policy maker and being the owner of the largest operator in that sector, and one that is facing increasing competition from its private rivals. The MoIC will find it difficult to push through reform that may be bad for NT as an organization but good for the larger body of consumers (of both NT’s services but also others’).

This conflict of interest also inhibits NTA from doing its job of regulating the sector. Through reporting to the MoIC, NTA is too closely tied to one operator, NT, over others. Thus the conflict of interest experienced by MoIC spreads to NTA, which reports to have clout over private operators, but in the case of NT can only “convince” it to take the actions that NTA deems necessary.12 This inability to effectively regulate the incumbent seriously undermines NTA’s authority, which bodes badly for the future growth and stability of the information infrastructure sector.

The relative weakness of NTA is leading to unnecessary tension in the telecommunications sector, particularly with regard to establishing and enforcing a fair interconnection regime.13 For example, one private operator claimed that “the most contentious problem is the tendency of the incumbent regarding interconnection,” while another complained that “NTA can only ‘suggest’ [to NT]; when it has to be able to dictate.”

10 ITU 2000: “Nepal Internet Country Case Study.” 11 NTA data. 12 Interview with NTA chairman, October 2007. 13 This regime determines the costs that different operators pay to each other when linking their respective networks.


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Where the majority of the existing network was developed by the incumbent operator under monopoly conditions, as is the case in Nepal, an interconnection regime is crucial to allow new operators to enter the market and use the incumbent’s infrastructure, paying a fair usage price for this access. In cases where services are provided to largely rural communities (as is the case of STM and its services in the Eastern Development Region), such interconnection rates may have to be designed to take into the account the higher operating costs of the rural service provider and different usage patterns in their rural markets.14

Aside from managing business relationships between existing operators, a transparent and fair interconnection regime will also play a key role in governing the usage of the new East‐West fibre optic cable and future backbone infrastructure. NT plans to provide full access to the cable to other operators and ISPs within 6‐8 months. This is a move in the right direction, but is much overdue. Progress in providing access to the cable has been too slow, and is rightly cause for complaint among other operators and ISPs who, however, have no recourse.

Solutions to these issues lie in a combination of a stronger regulator, as well as greater competition in backbone provision. To date, there has been little private initiative to build an alternative network to the incumbent’s, despite a high degree of dissatisfaction with the services and pricing offered by NT. This is an opportunity that should be explored further, and one in which operators have expressed an interest. This is also something which NTA is itself looking to encourage, and is particularly interested in the private sector taking an ownership stake in the SASEC fibre link from Kathmandu to India that will be complete by 2008. To support this process, NTA is in the process of developing a new category of license for a network service provider.15

Finally, Nepal imposes among the highest telecommunications‐specific taxes in the region, and is one of only 16 countries world‐wide that impose telecommunication‐specific taxes. At 29%, telecommunications taxes in Nepal are as high as in Bangladesh (also at 29%) but much more so than India (at 20%). Compared to other

14 More calls tend to originate in urban areas and terminate in rural areas due to the fact that rural populations are comparatively less well off than their urban counterparts. This ends up with urban operators taking a larger share of the call revenue than rural operators, despite being dependent on the (often higher cost) network that rural operators provide. Balancing this requires that a greater share of the call revenue to go to the rural provider than would be the case in a call that originates and terminates between two operators both of which are in urban areas. 15 Interview with NTA chairman, October 2007.


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regions, telecommunications taxes in Nepal are among the highest (some countries in East Africa also tax between 20‐30%).16

Such taxation levels retard telecommunication penetration and, with positive correlation between telecommunication coverage and GDP growth, economic growth in general.

However, clearly few governments are reluctant to forfeit such important revenue streams, which in Nepal account for X% of the government revenues (compared with 30% in India and 35% in Bangladesh). However, while lowering taxes may initially lead to a fall in government receipts, in the medium to long‐term it will lead to increased revenues through increased penetration.17 For example, models of the impact of tax reductions in East Africa show that, in the case of Kenya, a 5% cut in telecommunications‐related taxes may cause an initial drop in government receipts but leave the country with 5% higher receipts after 10 years (and revenue neutral within 6 years). Similar scenarios also apply to the other countries in the region.

Profile of Success: Spice Nepal

Spice Nepal Private Ltd., popularly known under its brand name “Mero Mobile” (meaning My Mobile), is the first private GSM mobile operator in Nepal. Established in 2004 and commercially launched in September 2005, it has experienced strong growth, averaging almost 540% annually over the past two years. This has meant that it is increasingly taking market share from NT, its main rival (though Spice staff prefer to see this as “filling a gap” that NT is unable to serve).

16 Data and analysis from World Bank, 2007: “Analysis of Taxation of Telecommunication services in Afghanistan”; Nepal taxation data from NTA. 17 Increased penetration leads to higher receipts through: higher revenues from telecommunication operators and other actors in the value chain, and so increased direct tax receipts over the medium and long term; higher imports of handsets and network equipment and so receipts from import duties; increased benefits to the overall economy and so the general tax base.

Indicative Telecommunication-Specif ic Taxes

0%

5%

10%

15%

20%

25%

30%

35%

Asia-Pac. M /East Africa L/Amer. Nepal

Taxa

tion

perc

ent


18

Spice’s main focus has been on pre‐paid service, with post‐paid plans accounting for less than 1% of its subscriber base (compared to 13% for NT, though this share too is going down yearly). They have therefore focused on creating an effective distribution system, described by one customer as follows: “While one can easily get Mero SIM‐cards from any paan‐shop or telephone booth, one would have to go through a lot of drama to get one NT SIM‐card.”

Spice defines its key competitive advantage in terms of a high quality network (if any major part of the network goes down, all technical heads as well as the CEO automatically receive an SMS notification) and its value–added services, focused particularly on the youth market.

Spice has also put considerable emphasis on inter‐network connection, with formal roaming relationships with operators in 21 countries. However, connections between Spice and NT networks still remain difficult, as a result of what Spice’s technicians feel is an inferior NT network. Spice’s technical staff say that the weakness of NT’s network relative to its own reduces the quality of the call experience, but complain that from their customers’ perspective the source of the problem is unknown, and most probably simply attributed to them. However, this may not always be the case, as the following customer comment indicates: “You can send SMS to Nepal Spice phones from Italian mobiles … Skype users with a SkypeOut account can send an SMS to a Mero mobile. Otherwise Mero struggles even to send [an SMS] to NT.”18

Potential Areas for Intervention

1. Telecommunications Sector Governance

Perhaps more than the other ICT focus areas, the change agenda for advancing the information infrastructure sector in Nepal is clearest. Most of this revolves around completing the reform process started in 1992 to establish a competitive, fair market for communications infrastructure, in particular separating NT from the MoIC and eventually moving it to closer towards privatization.

This should begin with reconstituting NT’s board, most importantly removing the MoIC from it. The chairmanship could pass to another government official, such as from the Ministry of Finance (MoF), or to an independent person appointed by the

18 NTA data; interview with Spice Nepal staff, October 2007; blogs at http://www.nowpublic.com/nepals_corrupt_telecommunications_sector and http://prax.wordpress.com/2007/02/12/spice‐nepal‐website‐wwwspicenepalcom/.


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government. However, distancing the dominant incumbent from the policy‐making body is crucial.

The GoN and NT will likely require advisory expertise on how to reconstitute its board, based on similar, successful cases from other parts of the world. This advisory work can be extended to developing a transition plan towards greater private participation in NT’s management and ownership.

2. Continued Liberalization

Following reconstitution of its board, NT can move towards greater private ownership, potentially beginning with a private management contract (as was recommended by an in‐depth review conducted three years ago).

However, so long as NT maintains its monopoly on the backbone, even as a private entity, the information infrastructure sector will be held back. Increasing private sector investment in Nepal’s backbone will greatly help increase competition and improve the quality and price of access enjoyed by telecommunications operators and ISPs.

As a good first step in this direction, NTA is going to create and issue a network operator license. This should happen soon and be widely publicized. There is a risk, however, that this may not be sufficient to ensure private participation in backbone development. Despite interest expressed by operators in investing in Nepal’s backbone infrastructure as a consortia – with interest being expressed by telecommunications providers and ISPs a like – no private initiative has been undertaken to date. This is likely to be a product of a combination of both a lack of familiarity with the investment opportunities that exist, as well as issues related to collective action among potentially firms (whereby the lead firm would incur greater upfront business development costs in forming a consortia of investors than firms that join at a later date, thereby deterring them from taking the lead).

Addressing these issues may require early‐stage support by NTA in terms of publicizing investment opportunities and forming a linkage role between potential consortia and investment consultants who can develop the business case for key infrastructure investments. This can potentially begin with the SASEC‐financed Kathmandu‐India fibre, over which ownership has not as yet been established.

3. Rural Strategy and Roll‐out

With average teledensity at 8.84% but effective teledensity at 1.71%, there is much work to be done in expanding rural information infrastructure coverage. Yet the considerable funds of the RTDF remain undisbursed.


20

Addressing this will require that NTA develops an aggressive schedule to expand rural coverage, increasing both geographic coverage and its depth (moving beyond one PCO per VDC to at least two, as specified in the Telecommunications Policy). This will have to take into account independent plans of operators to provide rural services, as well positive trends of some operators requiring minimal‐to‐no subsidy for rural coverage.

This strategy should be undertaken in close coordination with (or as part of) government plans to build its own access to information infrastructure, which is a major component of its e‐government program. This is particularly the case should the GoN depend on private operators for its information infrastructure provision (as is advised below that it should), as this will have both capacity and cost implications. On the one hand, the government is likely to have larger bandwidth requirements than has traditionally been the case in rural Nepal, requiring rural infrastructure to effectively carry both voice and data traffic. On the other hand, the government will serve as a large and consistent customer for operators, improving the revenue potential of rural networks and therefore lowering their subsidy requirements.

4. NTA Capacity Support

NT has a lead in Nepal’s telecommunications sector that it will likely maintain for at least the next few years. The ability of other service providers to enter the market and serve Nepal’s businesses and individuals will require a clear interconnection regime to be established and enforced.

Addressing this falls firmly within NTA’s mandate. New interconnection guidelines call for a cost‐based interconnection tariff structure. Fortunately, NTA staff have recently received training in conducting such cost assessments. This is a good start; the next step lies in enforcing these guidelines, beginning with all operators formally publishing cost‐based interconnection rates (with technical support, as necessary, from NTA).19 At the same time, an incremental penalty system for non‐compliance with interconnection regulation should be developed and incorporated into the new guidelines.20 In addition, NTA should conduct a review of quality of service standards across the industry, developing minimum standards with which all operators must comply.

19 NTA may be required to offer technical support to operators in this regard, as some may be unable to conduct the necessary cost assessments. 20 Currently the main sanctions prescribed in the guidelines are suspension of an operator’s license. In the case of large operators, this will be very difficult to enforce and can only be used in cases of the worst infractions. Interim measures will be required.


21

Creating greater distance between the MoIC from NT will help NTA’s enforcement efforts. In addition, NTA will require strong leadership and internal technical capacity, the confidence to sanction telecommunications operators, and encourage growth in markets that are undersupplied (i.e. rural supply and private participation in backbone development).

Initial points of focus for NTA capacity building are:

• Interconnection, whereby NTA staff proactively monitor interconnection agreements and related quality of service provision across networks, actively imposing sanctions on non‐compliant operators.

• Rural roll‐out, whereby NTA ramps up a more aggressive rural access effort, in coordination with the government’s own infrastructure development efforts.

• Encourage private backbone investment, whereby NTA actively publicizes investment opportunities and facilitates linkages between investors and financial consultants.

This will require undertaking an institutional audit of NTA, based on which an institutional change and training program can be developed. This may require developing a transition plan whereby external experts are brought in to NTA to support discrete elements of its operations while local staff build their experience.

5. Taxation and Incentives

The taxation regime that governs a telecommunications sector can have an important impact on the sector’s growth. By many indications, Nepal’s taxes may be growth retarding, leading to a net loss in economic benefit as well as long‐term taxation revenue.

A brief study of the taxation regime and how it can be optimized from a combined sector growth and taxation revenue perspective should be conducted, based on which taxes can be realigned.

E‐Government

Background

The GoN and its partners are in the early stages of launching an ambitious e‐government change program. This began in 2006 with the development of an e‐government master plan (e‐GMP) by the Korea IT Industry Promotion Agency (KIPA) in partnership with the High Level Commission for Information Technology


22

(HLICT). Following this, at the request of the GoN, the Asian Development Bank (ADB) recently completed a program plan that specifies how to implement the larger ideas and programs embodied in the e‐GMP.21 Based on this document, it is expected that the GoN can issue vendors and private service providers requests for proposals to begin implementing the program’s core components.

These recent efforts build on a base of recent e‐government efforts that were begun with the launch of the ICT Policy in 2000.22 For the most part, this resulted in different government agencies building their web presence: establishing agency web sites that primarily provide basic information on each agency’s structure and key activities. The web sites are primarily informational and not transactional, with the closest transactional functionality provided being the ability to download and print forms required for a variety of government services.

However there have been some noteworthy exceptions, including:

• The Supreme Court allows users to track on‐line the progress of their cases • The Inland Revenue Department allows for on‐line taxation filing • The Cottage & Small Industry Office in the Kathmandu District allows

businesses to register online, process renewals, and receive on‐line counseling • An e‐procurement platform has also been established; however, it remains

largely unused.


The priority placed on e‐government was initiated in the 2000 IT Policy, which stated that “information technology shall be used to assist e‐governance” and aimed to “computerize the system in all government offices and build their websites for the flow of information.” Overall leadership for the IT Policy falls to the HLICT (which was established 3 years after the Policy, in 2003), and on the National Information Technology Center (NITC) to implement specific initiatives. Both HLCIT and NITC, fall under the Ministry of Science, Environment and Technology (MoEST).

21 The ADB report is formally called “The Information and Communications Technology Development Project: Program of Modernization for Nepal,” but is for the most part focused on the public sector’s use of ICT. This program uses the e‐GMP as a “framework” but does not strictly adhere to all of the e‐GMP’s recommendations. 22 Other technologies were already in use by various government departments, which had initially begin in the early 1970s with the introduction of the first computer for managing census data. However, this was the first attempt to introduce comprehensive change in how the government used technology, in particular web based applications.


23

To date, it appears that HLCIT has taken the lead in defining the ICT agenda, primarily in terms of commissioning reports and managing the development of the IT Park at Kavre (more on this below). Though it formally reports to MoEST, it appears to have been running relatively independently from the ministry. The NITC, supposedly the secretariat of the HLCIT, in reality has limited links with the HLCIT and has yet to clearly define its own organizational role. So far, its main activities have involved general IT training to government staff.23 The new e‐GMP process and follow‐on implementation plan development has been led by HLCIT, with MoEST becoming increasingly involved as the plan nears finalization.

•Telecenters•Training•E-technology promotion•E-government

IT Development and Promotion

• Information• Postal• Print

Planning and Management

• Nepali Language in Information Technology

• Information Technology Standardization• Rural Tele-centre Co-ordination• Information Technology Awareness• Information Technology Education,

Training and Research

Committees*IT Park, Kavre

HLCIT

Summary Organizational Chart of the HLCIT

* Committees added based on information from web site

The initial e‐GMP developed by KIPA put “33 projects in sectors comprising G2C, G2B, G2G and infrastructure.” It stated that: “All the projects are vital for Nepal, but there is a limitation of time, budget, human resource and capability of implementing such projects. Thus, the priority was given by considering the availability of technologies, institutional readiness, emergency handling capacity as well as environmental impact. 21 priority projects will cost about $ 500 million.”24 However, at a cost of $500 million, the list of twenty‐one projects was also considered too ambitious, and so KIPA further narrowed the list to eight priority projects, the majority focused on back office or G2G systems.25

23 Interviews with leadership form HLCIT and NITC, October 2007. 24 KIPA, 2006; “E‐Government Master Plan Consulting Report.” 25 The list of eight are: groupware, government portal, national identification, e‐education, communication network, enterprise architecture, public key infrastructure and an integrated data center.


24

The ADB was asked by MoEST and HLCIT to support them in transforming the e‐GMP into an actionable implementation plan. In addition, the ADB team went through a re‐validation effort, making changes where necessary to the approach that KIPA recommended.

Below is a summary of the main areas where the ADB recommends that the government focus it efforts. In each area the ADB has developed an outline of the system requirements that its authors feel from a sufficiently robust basis for moving directly to selecting implementation partners and signing contracts.

Needs based On-line Services

• Village WiFi• Govt intranet• Enterprise

Architecture• Integrated Data

Center• Groupware

Broadband Infrastructure Regulations

Sustainable Information and

Services Network

Key Pillars of the Proposed ADB E-Government Program

• Village VoIP• Rural ISPs• Price predation• Citizenship regs

• E-health• Education• Vital

registrations• Drivers license• E-government• etc.

One substantial deviation in the ADB’s approach from that of the e‐GMP is less of an emphasis on back office systems. Consultations with the government indicated that the e‐government program would have to balance the development of important back office systems with delivering applications that offer tangible, more immediate benefits to Nepal’s citizenry.

Implementation of the complete project outlined by the ADB was originally projected to cost a little over $70 million. Later, when the government decided not to take on the Korean government loan, ADB worked with MoEST and HLCIT to reduce the scope of the project (by approximately one half), prioritize main activities, and confirm funding sources for each. It is envisaged that the management of the project will be undertaken by a new project management unit (PMU) established in the Prime Minister’s office.26 The table below presents the initial and revised program list and their projected costs.

26 HLCIT is also in the Prime Minster’s office. How this new PMU would differ from HLCIT is not certain.


25


Nepal has made a good start at building its e‐government efforts. Most lead government agencies have a web presence, and some have moved beyond on‐line information provision to limited on‐line transaction. Nepal is now at the stage where it is ready to move beyond such pilots to developing a comprehensive e‐government program. In this regard it is well on its way: the e‐GMP has establishes strong foundations for such a comprehensive e‐government program, and this has since been elaborated by the ADB‐supported implementation plan.

Though Nepal’s experience with e‐government is too young for many substantial problems to have occurred, there is the case of the unsuccessful e‐procurement (or e‐tendering) initiative that raises cause for concern. An assessment of the initiative conducted by the World Bank found that the basic technology product was up to standard, but that the platform foundered due to a lack of sufficient leadership support: “Nepal’s e‐tendering system has much of the required functionality, [but] in order for it to begin operating, the policies operating rules, templates, leadership, resources, support and training required for it to succeed still need to be specified


26

and put in place.”27 The same assessment therefore presents a program to revive the existing procurement platform, but this time remedying management and support constraints by establishing a formal public procurement management office, adding additional e‐procurement functionality onto the original platform at a later date. Therefore, a plan to revive a potentially successful product is in place, and ready to move forward.28

Finally, a clear role for the private sector in the e‐government program needs to be developed. The government of Nepal can play a crucial role in the development of a domestic IT sector through its e‐government expenditures. The government will need to define to what degree it will develop its IT capacity in‐house and how much it will depend on private service providers to meet its e‐government needs. Involvement of the private sector can be structured to go beyond initial systems development to actual service delivery, with the government outsourcing the daily management and delivery of certain e‐government services to the private sector.

This crucially applies to information infrastructure, whereby the government can contract private network providers for its communications infrastructure needs, guaranteeing the private sector a predictable supply of business while also reducing duplication in infrastructure investment.

However, to date the government appears to be focused on developing its own network. This component of the planned e‐government program also appears to have gained the most traction in government circles. Yet, many important questions remain unanswered. For example, whether such a network would be only accessible to government agencies or also open to the public is unknown, though the working assumption so far is that parts of it will be made available for public use. Yet, should the latter occur, this may lead to unfair competition to private network providers, creating a new government operator just as NT is being privatized.

More thought, therefore, has yet to be given to such investment, and in particular the role that the private sector can play in supporting government network access. In many cases, it is likely that the government could use existing private networks, thereby reducing the need for new investment.

27 World Bank, 2007; Nepal Electronic Government Procurement: Readiness Assessment and Roadmap. 28 The report recommends establishing the e‐procurement system under a planned Public Procurement Management Office which is to fall under the Prime Minister’s office. It then suggests that it is later moved to an ICT‐focused organization, such as NITC.


27

Opportunities for private participation go beyond infrastructure development, and can apply to a host of e‐services that the government will offer. There is substantial precedent for such outsourcing, such as:

• Company e‐registration and documentation compliance services in India; the Ministry of Company Affairs and TATA Consultancy Services)

• Taxation filing and management in the United States; the Virginia Department of Taxation and CGI‐AMS, an IT consulting and systems integration company

• On‐line delivery of land titles in India; the Revenue Department of Karnataka and 3i Infotech with Comat Technologies.29

However, such opportunities will not come to the surface unless the private sector is consulted and included in the government’s decision‐making process. As one senior manager of Mercantile Communications, a leading IT firm, put it: “We always hear about e‐government but we are not sure what it is going to cover.” Mercantile recently rolled out a private network for over 40 branches of the Rastriya Banijya Bank as part of a larger IT implementation project. The government’s failure to not draw on firms like Mercantile and other private actors while shaping its new e‐government program is a large missed opportunity, not only in terms of being able to access ideas and expertise but also potential investment partners.

Finally, private sector involvement in e‐government is particularly important with regard to recruiting and staffing. It is likely that the GoN will face substantial problems attracting and retaining the necessary caliber of IT professionals for its e‐government initiatives on current civil servant wages. Yet, it is unlikely that the GoN will be able to develop a different wage scale for ICT‐related staff. However, the government does have more flexibility in contracting services to private providers, who will be able to pay competitive wages and so attract the right caliber talent.

Profile of Success: Supreme Court Case Tracking System

In February 2006, the Supreme Court went live with its own custom‐built case tracking system. The system allows the public to view basic information on cases being heard by the court via its website, showing each case’s progress status. Usually within a month a full transcript of the case is available on‐line. For the parties involved in the case, a user name and password enables them to access more

29 Examples from World Bank (Bangladesh), 2007: “Country Assessments for Identifying Potential Public Private Partnerships in e‐Government.”


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detailed status information, while the Chief Justice has a monitor in his chambers with a customized dashboard of the key information he requires.

Previously, the system was purely paper based, with lawyers having to park themselves all day at the courts from 10 am to 5 pm, unsure when their case may come before the bench. Now they can log‐in from their offices to review their case’s status and the progress of the ones that precede it on the same day.

The current system covers the Supreme Court and seven district courts, with two appellate courts about to come on‐line shortly. The past three years of court cases have been uploaded into the system, though this is only 20% of the total that needs to be loaded electronically. The plan is to have all courts in Nepal on‐line by 2010.

However, none of this was achieved easily. The Court’s MIS Director, who developed and implemented the system, says, “When we started, computer literacy was totally zero.” This called for draconian measures. All staff were given 6 months in which to become computer literate or risk being transferred. While limited cash incentives were paid as encouragement, staff were expected to sign‐up for in‐house training during their lunch break or after office hours, amounting to between 7‐15 hours of staff time. Staff complaints made it into the press, but senior management stuck to their policy. Now all 300 court staff are basically computer literate, and while the main data entry is undertaken by officers of the court, it is not uncommon for judges to themselves update their daily records.

A key factor in the successful roll‐out of the system was consistent, unwavering support from the top. The Court’s MIS Director also believes in a certain degree of centralization. Previously, all courts had their own IT departments, but now that function is centralized and managed by his team. He does not believe that this degree of centralization should carry through across all government ministries, as they all have needs that are too different from each other and unique to themselves. But some form of coordination and standardization from a central agency is required, particularly in terms of setting basic standards and guidelines for system interoperability. (For example, the Supreme Court plans to link its system to the police database, which in turn would need to be linked to the national ID system).

Aside from expanding the coverage of the existing system to other courts, the Court’s MIS Director plans to extend its functionality. The Court is developing a library management system for its records and is planning on adding a telephonic interface to its main system. This will allow users to dial‐in to receive an update on their case, receive voice information on key dates, progress status, the final decision, and a summary of the judge’s ruling.


29


1. Strategy‐Implementation Bridging Support

To date the leadership role in advancing the e‐government agenda has been undertaken by MoEST and HLCIT. While both are well positioned to continue to play a leadership role, it is unlikely that they have the capacity to coordinate implementation. It is for this reason that a PMU is planned, with considerable support from ADB. Yet despite recognition of a capacity gap, these same institutions are currently leading the final definition and scoping of the future e‐government program, despite members of their leadership readily admitting to not having sufficient experience in many of the areas that the e‐government plan covers which is rather common in developing countries.

Decision‐making without the required expertise can lead to unnecessary errors, and there are already some casualties of this beginning to surface (such as developing a government network in isolation of the private sector). The final stage of strategy formulation and choice‐making can be among the most crucial, during which the GoN would benefit from experts with the necessary technical knowledge and experience in areas where the government plans to focus. These staff can also play a role in managing external communication with regard to the e‐government program, which has to date been minimal, particularly with an eye to increasing private sector input and ideas. If necessary, they may need to add further detail to programs that have been adjusted or re‐scoped. In time, their responsibilities can be taken on by the PMU.

2. Government Network Development

The information infrastructure market in Nepal is a home to some of the country’s most dynamic and well known companies. With the exception of NT, most are new and all are fast growing. More new entrants are on track to enter this market as NTA issues new licenses and as VOIP is legalized. The GoN has an opportunity to not only support this burgeoning market, but also benefit from it. As a result of these private providers, considerable investment in underway and extensive experience is already in‐country. In contrast, the government’s investment in its own networks to date has been limited, and so its own experience in running such networks is minimal.

Instead of investing in building its own network to link its offices and provide public services to its citizens, the government ought to consider using existing private networks where they exist, or partnering with the private sector to build new ones where they do not. This is also consistent with Nepal’s Telecommunications Policy, which states that, “His Majestyʹs Government shall keep its bodies open to use the service of the various service providers on the basis


30

of price and quality.” It also follows precedent in the region, where the government of Afghanistan, Mongolia and India (both central and state governments) rely on private network operators for their information infrastructure.

While government representatives appear receptive to this idea, they claim that this is a level of detail that will be addressed later. However, as the government is currently allocating its budget to various components of the e‐government program, this is in fact the best time to ensure clarity on how it can partner with the private sector for connectively and what this will require in terms of both investment capital and recurring costs.

This will require undertaking a rapid scoping of the coverage and bandwidth that the government requires for its e‐government efforts, and then assessing to what degree this can be supplied by the private sector and under what type of contractual framework. It is likely that much of the work can be done by private firms, who if brought in to the process soon will be able to quickly assess how they can serve the government. This assessment should also be conducted in tandem with the GoN’s plans to increase rural telecommunications coverage through use of the RTDF.

Conducting this process effectively will require staff to coordinate private sector consultations as well as provide the government with technical support in scoping its requirements, assessing private actor’s responses, and gauging whether subsidies will be required in hard to reach rural areas.

3. Public‐Private Partnership Development / E‐Government Outsourcing

E‐government efforts can play a vital role in stimulating the growth of a local IT industry. This will require that:

• The government is pro‐active in outsourcing e‐government initiatives to the private sector wherever appropriate

• That probable resistance to the idea of private sector involvement in the ‘business of government’ is managed and ultimately overcome.

This will require developing an internal government communication campaign around the concept of e‐government outsourcing based on successful case studies from other parts of the world. Running in tandem with this, and as part of the strategic choice‐making process, the government should actively look at how its e‐government initiatives can be outsourced to the private sector, potentially going beyond product development to include service delivery, such as taxation filing, land title access, company registration, and e‐procurement. Again, external expertise with specific experience in e‐government outsourcing may be required to steer such efforts.


31

Clearly, none of this can be done without the active participation of the domestic IT sector. However, few private firms in Nepal have extensive experience with e‐government delivery. Therefore, they will likewise require guidance in understanding the concept and the opportunities that it potentially provides for them. (More on this support is addressed below as part of the IT industry support recommendations).

4. e‐Procurement Platform Revival

The limited use of the e‐procurement platform is a pity. It also bodes badly for the planned (and much more extensive) activities that the government intends to start. The assessment of e‐procurement opportunities is complete, advising that the existing platform be re‐launched, initially under a planned Public Procurement Management Office under the Prime Minister’s office. This can serve as a valuable demonstration project and learning process for a range of government agencies. It is particularity valuable because the upfront investment in terms of building the technology has been undertaken, therefore allowing the implementation to focus more on changes to business processes (arguably one of more important elements of e‐government‐led change).

5. TBD (Result of strategy finalization)

The choice of a final e‐government initiative can be undertaken once the finalization of the change program being led by ADB is complete. Two options exist:

• Filling coverage gaps in programs that have been limited in geographic scope • Undertaking initiatives that have been altogether cut.

In both instances, it is likely that the approach and costing will have to be reviewed and adjusted. From here, functional requirements can be developed and requests for proposals circulated.

IT Industry

Background

Nepal’s IT industry has an estimated turnover of $42 M. Its growth over the past few years has averaged a reasonable 8% a year, bettering the national average but lackluster for a comparatively young business sector.30

30 CAN estimates: http://www.can.org.np/SofTech2007/softwaremarket.php;


32

The industry is dominated by firms that serve the local market. A 2004 survey by HLCIT of the IT sector found that firms that focus on the domestic economy tend to focus on hardware sales and service provision. Many are small, with annual turnovers in the region of $37,000. Yet among them are a number of successful ventures, developing sophisticated products for a range of industries from airlines to the banking sector. One firm developed a computer aided design product initially focused on the local carpet sector, but which now sells in over 15 textile producing countries. However, many firms are increasingly feeling the pinch of international competition, as their clients are turning towards cheaper imported software developed abroad.31

In comparison, the export sector has established comparatively more successes. With IT exports in region of $7.2 million and growing at 20% a year, the ICT products and services now rank among Nepal’s larger exports (though only at 2% of total exports, if tourism is counted), serving customers from Australia and Japan, to Switzerland and the United States. Driving this growth are firms involved in software development, call center services, and data entry.32 One of Nepal’s newest ventures, called Incessant Rain, has recently begun offering outsourced movie animation.33 These firms are also comparatively larger than ones focused on the domestic market: of the firms surveyed by HLCIT, export‐focused firms formed only 8% of the total respondent group but accounted for one‐third of the survey group’s turnover, with average firm sales of over $223,000 – six times the average domestic‐focused firm’s turnover.34

The performance of Nepal’s ICT exports is all the more impressive in light of the fact that Nepal is in a region with China and India, home to among the world’s most competitive hardware and software industries respectively. These countries are clearly a competitive threat, in terms of dominating the domestic market with cheaper imports and leaving few profitable niches in international markets for

31 Industry interviews, October 2007. 32 Combined exports for 2006 based on ITC data of $279 m; tourism revenues for 2006 estimated at $160 m (www.gorkhapatra.org.np); ICT exports in 2006 extrapolated from HLCIT data of $5 m in 2004 at a CAGR of 20%. 33 HLCIT, 2004: “Desk and Field Research on ICT Resources in the Kingdom of Nepal,” (by MountDigit Technology) and Nepal Times, Issue 371, October‐November 2007. 34 HLCIT, 2004: “Desk and Field Research on ICT Resources in the Kingdom of Nepal,” (by MountDigit Technology).

Top 5 Exports (US$ millions, 2006)

Tourism*, 160

Carpets, 106

Apparel, 99

Other, 66Leather

articles, 5

Precious stones, 9

*Toursim data from gorkhapatra.org; rest from ITC database


33

Nepal to exploit. However, they also offer opportunities, both as markets for which to develop products and business partners for pursuing international opportunities.


Leadership of the IT sector comes predominantly from a private business association, the Computer Association of Nepal (CAN). CAN is a non‐profit business association whose mandate is to:

• Promote the use IT in Nepal • Develop computer literacy • Support and protect the rights of its members.

One of CAN’s flagship activities is the convening of an annual IT conference – a key source of revenue for the organization – added to this year by the holding of a first ever trade conference, that brought together “national and international software developers/products under single umbrella for business promotion, exhibition, and knowledge transfer.”35 In addition, CAN has also supported outbound business delegations’ participation at international trade fairs, and is beginning to establish foreign chapters to build linkages with non‐resident Nepalis (NRNs) and local businesses.

The 2000 IT Policy was aggressive about the prospects of the IT sector. It officially proclaimed it to be a priority sector, laid out the regulations required to support the sectors’ growth, offered a variety of duty and tax concessions for IT firms, launched an IT Park, and planned the establishment of a $1.5 million venture capital fund. The intended cumulative result of these and other efforts was to have an export industry (hardware, services and software) of $154 million by 2005, which would have made it Nepal’s largest export, second only to tourism.

In addition, in 2004, the government passed a Cyber Law (the Electronic Transaction and Digital Signature Act), clarifying the legal framework for conducting of e‐commerce and e‐government.


The IT Policy’s ambitions for the IT sector were probably, and quite reasonably, caught up in the dot‐com euphoria at the time that it was written. Against these targets, progress seems insignificant: the IT sector’s exports by 2005 were one‐thirtieth of what the policy intended. Underperformance against such targets is

35 CAN website.


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more likely to be a product of excessively ambitious target setting as opposed to poor performance. But this has not been the case in all areas.

Key among these is the IT Park at Kavre which, costing over $4 m, is among the more expensive and high profile public support functions that the government has undertaken in support of the IT sector. The initiative itself is well conceived. Clustering a number of different firms together in an IT Park improves the flow of knowledge and information among them. It creates opportunities for more intensive and regular interaction, increasing the chances of successful partnership formation and collaboration. Furthermore, where public infrastructure is not reliable, a business park that ensures access to high quality infrastructure is particularly useful, more so for the IT sector, which requires fail‐safe electricity supply and network connectivity.

However, the Park remains without any tenants. Its first tenant left within six months, and no new applications are being accepted to date. Among the tenant’s complaints, was a lack of fast and reliable enough bandwidth, unresponsive management, and unreliable physical access (mainly because the highway leading to the park was often closed due to security concerns). The distance of the park from Kathmandu was also highlighted as an issue; however, this was generally felt to be compensated for by the superiority of the work and natural environment of the Park.

A study by the World Bank’s infoDev program found four factors critical for success of IT Parks: private management and anchor investor; location of the Park near airports, large urban centers, universities, housing and recreational facilities; qualified and skilled manpower; and availability of angel investment, venture capital and private equity36. The Kavre IT Park exhibits few of these elements; however, they can be introduced. As it stands now, the Park presents a large missed opportunity that could be remedied without the need for substantial additional

36 Price Waterhouse Coopers, 2007 (forthcoming publication): “International Best Practice for Establishment of Sustainable IT Parks.”

Areas for Improvement of IT Sector (based on survey of 317 respondents)

0

20

40

60

80

100

120


35

resource outlays. The bulk of the work has been done, it now needs to be completed.37

However, the IT Park alone is not likely to be enough to secure continued and improved growth for the IT sector. The 2004 survey shows that aside from an improved policy environment, where the GoN has made some progress since 2004, IT firms also require support in market access (awareness building) and market intelligence (surveys). In general, the industry feels that its successes are one‐off cases captured by a fortunate few, and that more needs to be known about how to consolidate and expand them.

As Nepal’s IT sector matures, it will need to be strategic in deciding how and where to compete in the international marketplace, particularly with regard to its two neighbors. However, it also has the advantage of being able to chart its course with little legacy. Defining how Nepal’s IT sector can carve out profitable niches in export markets and establish the means by which to successfully compete in the domestic market against imports can do much to ensure that the sector collectively expends its resources in a direction that offers the highest opportunities for success.

This will require a clear export strategy, one that is based on a thorough understanding of opportunities that both domestic and international markets hold for Nepal’s IT sector, both independently and in partnership with companies from neighboring countries. In particular, the strategy should focus on the role Nepal can play in serving as an alternative or additional business process outsourcing (BPO) destination to India. Finally, aside from market‐focused solutions, the strategy should address and advance solutions to local business barriers faced by firms in Nepal. Market interventions alone are not likely to succeed unless upstream barriers to competitiveness are also addressed.

Based on this strategy, support interventions can be developed. It is likely that the required interventions will cover a wide range of areas, from access to finance, through to operations and market access. Such support may have to go down to a transactional level, for example, assisting IT firms in undertaking often demanding

37 Industry interviews.

Areas for Improvement of IT Sector (based on survey of 317 respondents)

0

20

40

60

80

100

120


36

bidding processes for international business. This experience is also likely to have positive spill‐over effects for responding to large local contracts, particularly those related to the e‐government program.38

Profile of Success: Mercantile Communications

Mercantile Communications began selling typewriters in Nepal in the 1950s. By the mid‐1980s it had begun hardware sales and maintenance, subsequently moving into software. By 1994, it had launched that first ISP in the country. Mercantile’s ISP is Nepal’s second largest, and the firm develops software for both the domestic market (it recently completed a multi‐branch financial software installation and network development project for Rastriya Banijya Bank) and for foreign clients (it is also part of the new animation venture, Incessant Rain).

Mercantile is also currently actively moving into network development, building on its experience in building private networks for its clients as part of larger multi‐function projects. It has begun investing into remote internet kiosks, with over 20 sites located at a range of sites such as cyber cafes, schools, health centers and hydro‐electric power plants, with plans to add another 100 sites over the next two years. Along these lines, it has started a partnership with Winrock International, whereby with partial financing from the United States Agency for International Development, Mercantile and Winrock are developing 15 rural ICT centers, with Mercantile leading the installation and connectivity and Winrock developing the content. Mercantile has recently bid for the licenses to provide communications services in the Western and mid‐Western regions.

Mercantile is an active firm and one that is not shy of venturing into new product territory. It is partly its ability to offer a total solution, from hardware supply and software development to information infrastructure development and support, that defines its competitive position.

However, large as the firm is, it is not large enough, particularly when it comes to bidding for government or public contracts. GoN and donor procurement rules require service providers to have revenue that considerably higher than what Mercantile’s generates. This obliges Mercantile to bid for contracts in partnership with larger foreign firms, forming joint ventures primarily to address this issue

38 This will help to respond to a common industry perception that government contracts are “packaged such that only international corporations can realistically be expected to win [them]” (Asian Development Bank, 2007: “The Information and Communications Technology Development Project: Program of Modernization for Nepal”).


37

alone. In the case of the Rastriya Banijya Bank contract, they were obliged to partner with an international firm despite the fact that they were independently well positioned to offer all of the services demanded. For the infrastructure contracts for which they have recently bit on the Western and mid‐Western regions, they have again been obliged to partner with a large India‐based telecommunications provider, despite the fact that Mercantile will be almost fully responsible for delivery on the contract. The firm’s management feels that this unnecessarily increases their costs of doing business, forcing them to profit share with partners who bring little more than their balance sheet to the engagement.

Mercantile is looking to the GoN for certain changes. At the most obvious level, changes in procurement guidelines so as to align them better with what IT firms in Nepal can independently respond to. They are also interested in supporting the government in its new e‐government initiatives, but are looking for more information on what this will actually entail. Finally, Mercantile’s managers feel that the government can play an expanded role in providing strategic leadership and insight, particularly at a sectoral level. As one senior manger put it: “We need to know more about how to compete in the international market. IT can be a bigger revenue earner than even tourism. But the government should take the lead, lay down plans, and say this is the direction. This can really help to take the [IT] sector and the country forward.”39


1. Legal and Regulatory Framework

Nepal’s IT industry will require a comprehensive and thorough set of IT‐related regulations if it is to grow further, particularly if it is to fulfill its ambition of becoming an alternative BPO destination to India. This will require an unambiguous legal framework and equally reliable enforcement mechanisms to ensure the confidence of local firms and foreign partners, and the clients of both.

Recent advances have been made, such as the passing of the 2004 Cyber Law. Among other things, the law gives legal status to electronic transitions, electronic records and digital signatures. It also makes a number of cyber‐related offenses illegal, and establishes a cyber tribunal and a cyber appellate court.40

39 Interview with Mercantile Communications staff, October 2007. 40 ____, 2004: “E‐Transaction Act of Nepal: An Ordinance Made for Provisions Relating to Electronic Transactions.” (Draft translation).


38

However, there have been concerns that the law is not comprehensive enough, and that enforcement capacity still remains weak, in particular with regard to protection of intellectual property rights.41

Addressing this will require establishing a public‐private committee that will review the legal framework and identify both legislative and enforcement capacity gaps. Leadership can come from CAN, but the government must also be actively involved. The committee will also require assistance from legal experts who are able to draw on best‐practice legal frameworks from other parts of the world.

A public information campaign aimed at legislators, judges, attorneys, and industry members should be conducted in tandem with this process. This will raise the profile of key legislative issues, and ensure access to a wider range of opinions. With this base, the necessary legislative changes can be more effectively passed in to law.

In addition, support in building judicial capacity may be required, including ensuring easy access to alternative dispute resolution mechanisms, such as arbitration.

2. Institutional Capacity Support

As the flagship institution for the IT industry, CAN should play a key coordination and implementation role in all interventions focused on the IT industry (with the exception of revival of the IT Park which may instead fall under the HLCIT). CAN can lead the IT sector in upgrading regulation, supporting export and domestic market access, providing e‐government linkage services, supporting firms in certification and standards (such as ISO certification or establishing BPO standards), creating Nepal’s brand identity, etc. Through successfully undertaking these activities, CAN’s value proposition to the IT sector will be greatly enhanced.

However, CAN will have to build its internal capacity before it can play this leadership role. While much of the heavy lifting for the above interventions can be undertaken by professional services firms with experience in competitiveness strategy development, business linkage, and the like, the ability to manage and coordinate such projects will require skills that CAN may not currently have in‐house. Furthermore, there may be certain services that CAN may wish to deliver itself, particularly with regard to brokerage or linkage services, for which CAN may require initial technical support as its staff build their experience in new business

41 Asia Media: http://asiamedia.ucla.edu/article.asp?parentid=14934 and ITPF, 2002: “Consultations, Documentation, and Advocacy Regarding Draft IT Bill of Nepal.”


39

areas. This will require working with CAN to define its potential leadership role, and then develop a business plan that defines its service offerings and how its expanded activities will be financed.

While CAN is likely to play a key leadership role for the ICT sector, the GoN also has a role in supporting the sector’s growth. Therefore, staff from MoEST should be involved in many of the capacity building initiatives offered to CAN. For this purpose, MoEST may chose to develop a specific desk focused on the IT industry and second staff to work at CAN on a limited‐time basis.

3. IT Cluster Support

There are good market opportunities that Nepal’s IT cluster needs to capitalize on, both export and domestic. However, capturing the advantages that they offer will require support in terms of information and strategic insight, as well as to address business barriers faced by IT firms.

Export Support: As a new business sector, the Nepal’s IT sector needs to be able to clearly define how it will compete in the global market, both against its two neighbors and in partnership with them. The IT industry would benefit considerably from a clear strategy to guide its efforts and investments in this area. In particular, Nepal needs to focus on the role it can play in light of trends in India towards establishing IT sectors in second tier cities and increased constraints in access to human resources faced by India’s BPO industry.

The strategy should also define key market activation channels so as to ensure that businesses can move quickly towards implementation, in particular taking into consideration the role NRNs can play in supporting new market access. The project can also consider providing initial market access support, through supporting out‐bound trade fair participation and in‐bound delegations of potential business partners and clients.

In addition to specifying market opportunities, the strategy would also highlight specific business barriers that exist within Nepal to growing IT exports, making concrete recommendations for change. These may entail the need for certification and standards (in particular with regard to BPO), additional legislation to build investor confidence, or different forms of financing mechanisms required to support IT firm start‐up and expansion.

Domestic Market Support: As the IT sector defines new opportunities in international markets, it can likewise focus on building opportunities in the domestic market. Demand for ICT in the domestic market is more latent – many businesses have to still define how ICT can be utilized to increase their competitiveness. Cultivating


40

this understanding can do much to stimulate demand for ICT in the domestic market, to the mutual advantage IT firms and their clients alike.

This will entail conducting a diagnostic of a number of high opportunity sectors (such as leading exports, tourism, power supply, education) and defining the types of ICT applications that can lead to bottom line gains for businesses in these sectors.

The project can then play a supply‐demand linkage or brokerage role between IT firms that provide relevant products and traditional businesses that are looking to utilize them. In addition, the project may consider the limited use of a cost‐sharing mechanism as a demand stimulant to offset some of the initial costs of purchasing new, and at times untried, ICT services.

One of the most important domestic clients for the IT sector in Nepal will be the government, particularly if the government proactively pursues an e‐government outsourcing approach. However, whether the local IT sector will be able to take advantage of such opportunities is questionable. Many firms are simply too small, and would, from the government’s perspective as a buyer, be too high risk a supplier.42 Therefore, providing local IT firms with training on how to form effective partnerships (with both local and foreign firms) and comply with the government’s procurement procedures can do much to improve their chances of capitalizing on the government’s e‐program.

This will be similar to the supply‐demand brokerage that serves to link traditional private firms with IT services providers, and can therefore be developed as a component of it. However, it will have a very specific focus on e‐government.

At the same time, government procurement procedures should be reviewed to identify potentially onerous supplier requirements that may not be necessary.

4. IT Park Launch and Management Support

The IT Park at Kavre is an underutilized opportunity. Ensuring that IT firms can take advantage of it will not likely require considerable additional effort. However, a clearly a management breakdown has occurred.

42 According to the 2004 survey, the average domestic market‐focused IT firm had an annual turn over $37,000 and many face difficulty in complying with government bidding procedures. This is less likely be the case with the few export‐oriented firms that serve demanding international clients. However, they are very few (less than 25 according to the same survey), while the benefits of the government’s expenditure should be available to a wider base of firms.


41

Fixing this will require undertaking a rapid appraisal of the current breakdown so as to address flaws. There may also be more fundamental infrastructural issues to be addressed. Therefore, beyond resources for an initial assessment and potential managerial support, capital may be required for final stage investment. However, this will be key to exploiting the substantial resources that have already been invested.

Moving Kavre forward to where it can begin taking in tenants will require hiring experts who have built and/or managed similar IT parks, who can rapidly identify major bottlenecks and develop a turn‐around plan to re‐launch the Park. Should further capital be required, they should also play a role in locating potential investors.

5. ICT Incubator Development

Perhaps more than any other business sector, the IT sector represents the ideas of entrepreneurship and independence. Encouraging the growth of IT entrepreneurs requires not only investing in the technical skills of individuals, but also supporting them as they try to develop new and products and services and launch profitable businesses around them.

Supporting this process through an ICT‐focused incubator can help to reduce the risks and uncertainty faced by young entrepreneurs, and increase their chances of business success.

A business plan for a multi‐sector incubator in Nepal has already been developed by the IT Professional Forum for the Department of Cottage & Small Industry. The incubator is currently in the process of hiring a manager, after which it is expected to launch.43 Developing a business and financial plan for an ICT‐specific incubator will be required. This should be conducted in conjunction with plans to revive the IT Park at Kavre, as this can serve as a good location for an ICT incubator, providing incubatees opportunities to learn from and partner with established firms, while also providing them an established business environment to move to once they graduate from incubation.44

43 The Department of Cottage & Small Industry falls under the Ministry of Industry, Commerce & Supplies. The GoN has renovated and equipped a premises and set aside an annual budget for the incubator. 44 KU has plans to develop a multi‐purpose incubator within the next five years. Its location next to the IT Park make it a good potential partner for the incubator; however, partnership opportunities with other universities should also be developed.


42

ICT Human Resources

Background

Nepal is a late starter in ICT education. The first secondary school level computer courses were launched in the 1990s, while Kathmandu University offered the first undergraduate degree in computer engineering in 1994.

Today, there are four different tertiary‐level institutions with full degrees in computer science, including undergraduate, masters and PhD‐level courses. Some have also developed affiliations with institutions from other parts of the world. Enrollment has grown very rapidly, with most of the four universities taking in increasingly more students than the year before. Tribhuvan University, for example, admitted almost three times more students for ICT‐related courses in 2004 than the total number it had enrolled over the three years before that.45

In addition, there are over a thousand private training institutions that offer a wide variety of IT‐related courses, from basic computer literacy to more complex software programming. Some of these are franchises from training institutions in Singapore, India and the United Kingdom, offering opportunities to do foundation courses in Nepal for a few years (at a comparatively lower cost) to then transfer the credits to a partner institution abroad. Predictably, the majority of these institutions are located in Kathmandu, though not exclusively so.

There is a variety of people getting trained in ICT for a range of purposes. The most committed are aspiring IT professionals, enrolling for full‐time programs (over 12 months duration) in ICT‐related disciplines so as to work in the IT industry. Of this group, their top three focus areas are hardware, software and network engineering.

45 HLCIT, 2004: “Desk and Field Research on ICT Resources in the Kingdom of Nepal,” by MountDigit Technology. It should be noted that 2004 was a year of exceptional growth (potentially excessive), which was then followed by contraction.

Duration of ICT Course Enrollment (No. of months, total 39,808 students)

1-360%

4-621%

7-128%

>1211%

1. Software2. Hardware3. Networking

1. M S Office2. Graphics3. Web pages

ICT Tertiary-level Enrollment

0

500

1000

1500

2000

2500

3000

3500

Purbanchal:2003

Tribhuvan:2000

Kathmandu:1994

Pokhara:2003

Total

No. o f grads by 2004 2004 intakeNote: Date indicates start year of courses. Katmandu includes masters and PhD. level enrollment


43

However, the majority of students, over 60%, are enrolled for 1‐3 month courses to build their basic computer skills, mainly in terms of the use of basic MS Office (or similar) tools, and graphic and web design applications. These are likely to be non‐IT professionals who are instead looking to upgrade their use of IT tools.

The result of this wide range of training options – from formal tertiary education to short courses from private training institutions – is that few IT firms complain about the quality of IT human resources available in Nepal. Many feel that the quality of the IT graduates from the country’s learning institutions is high, with this actually being a key source of competitive advantage (even pride) among many firms. However, many firms do complain about a lack of practical knowledge among recent graduates, highlighting insufficient work‐place exposure prior to graduation. They therefore advocate greater linkage between learning institutions and future employers.46

Policies and Institutions

The 2000 IT Policy is relatively non‐committal in its goals for ICT human resource development. It defines the long‐term goal as “computer education to all by 2010,” implementing this mainly through offering computer education in “some public secondary schools” to be subsequently “made a compulsory subject in phases.”

The predominant policy focus seems to be on school‐level ICT human resource development, aiming mainly to “prepare middle‐level manpower required for the information technology sector.” This does not mean that tertiary education is neglected. The policy also aims to support local universities in offering ICT‐related courses, but appears to lean more towards building a wider base of ICT‐literate people upon which to later build a cadre of IT professionals. However, it does not explicitly state this as policy.

Responsibility for implementing ICT human resource development is not explicit, nor does it come across clearly in information materials from the Ministry of Education and Sports (MoES) or MoEST. However, HLCIT does specify that the goal of computer education for all by 2010 needs revision due to “non‐implementation,” though its leadership admits to not having been active in this area despite it being within its mandate.

46 Industry interviews, October 2007.


44


A major problem with ICT human resource development in Nepal is that it does not have an institutional champion. Human resource development does not feature prominently in HLCIT’s list of priorities, while a Google search within the MoES web site on ICT brings up one hit.47

To date, one of the more celebrated stories of ICT use in education is that of Mahabir Pun, a school teacher who through his own initiative, hard work and support of well wishers, has managed to bring computers into his remote schools’ classrooms and the rest of the community. Mr. Pun’s case reflects on the ICT human resources sector at large: good progress has been made, but mostly through private initiative and the efforts of individuals, from teachers and university deans, to the entrepreneurial owners of private training institutions.

This is by no means a bad thing. However, this lack of institutional ownership means that Nepal does not have a clear policy or strategy in place to guide such efforts and direct public spending to support them. Should the GoN focus on building a larger base of secondary‐level e‐literate students, thereby allowing for a greater pool of potential future IT professionals? If so, how will it overcome issues of limited connectively and computers in its secondary schools? Or should it focus predominantly on tertiary‐level level education, focusing resources on a small pool of students, but thereby ensuring a limited but world‐class group of IT professionals? If so, should it develop the capacity of domestic tertiary education institutions or rely on neighboring country institutions that already offer high quality, cost‐effective tertiary ICT education?

Answering these types of questions from the outset is a prerequisite for Nepal to effectively build its ICT human resource base. Not doing this leaves the sector without sufficient information or guidance. The dean of Kathmandu University’s IT department complains that, “Sometimes we are lost. There is no information on demand. Product development is not so easy. We have to mange on our own.” That the sector has flourished despite such a lack of guidance gives an indication of where it could go with greater leadership and support.

In addition, though Nepal has seen considerable advances in the growth of its university and professional training institutions, the sub‐sector is exhibiting signs of strain. A report in 2004 noted that growth in the capacity of colleges that offer ICT‐

47 The MoES’s main focus is on primary and secondary education, while universities are largely independently governed.


45

related courses is “beginning to slow down because of less number of jobs available within the country.”48 This highlights the importance of demand in fueling the ICT human resources sector – Nepal requires a growing IT sector to absorb newly trained ICT talent, or risk losing this talent (and investment) to other countries.49

Finally, Nepal’s ICT human resources sector is also a victim of its own success, as many of the people that it has trained take up employment outside of Nepal. For example, over 70% of students from Informatics (a private training institution with partnerships with foreign universities) end up working abroad, while 50% of Kathmandu University’s graduates from the IT department work abroad, considerably higher than the university‐wide average of 30%.

Profile of Success: Kathmandu University

Kathmandu University (KU) was started in 1991. Three years later it launched its first degree program in computer engineering. The university now offers a range of ICT‐related degrees, at both the bachelor and masters levels. Its graduates are considered among the best in Nepal, with some IT firms expressing a clear bias in favor of KU graduates in their recruiting.50

KU’s reputation and success have been hard won. Initially its main problem was not having faculty with the necessary qualifications to teach bachelor‐level courses. It therefore relied on visiting Fulbright faculty from abroad to fill capacity gaps as it built its internal base. While KU has been successful in building its internal teaching capacity, here too it faced considerable challenges, finding that teachers that it sent abroad for training seldom returned to Nepal, instead choosing to stay where they had access to better learning and remuneration opportunities. Meanwhile, plans to conduct blended courses, with the first semester conducted on KU’s campus by visiting faculty with the second conducted by distance by faculty from the United States, have not worked due to insufficient bandwidth on KU’s campus.

Against these odds, KU continues to increase its intake, offer new courses, and increase its research capabilities. Importantly, it is trying new means by which to improve its linkages to private firms, and while the university does not aim to “deliver ready made food” (it cannot, says the IT department’s dean, as the private sector’s needs are too varied and changing) it does want to ensure that it puts “all

48 MoIC, 2004: “Sector Overview Report.” 49 The growth of the IT sector is generally important to absorb the over 300,000 young Nepalis that enter the labour market annually. In 2003, over 6,000 people joined ICT‐related companies, accounting for 2% of total. 50 Industry interviews, October 2007.


46

the right ingredients in place.” To this end, KU actively seeks industry input into its curricula, and encourages IT industry leaders to teach courses at the university. Recently, the IT department has incorporated a 3‐month practical immersion into its degree program, whereby the final 3 months of the 4‐year undergraduate degree program is spent in an internship with an IT firm.

To date, the dean admits that they “never really bothered whether our students would be consumed or not,” largely due to high demand for IT graduates in the Indian market, which can absorb any number of graduates that KU can produce. However, as KU refines its course offerings, and more actively develops its masters programs, it needs more information on demand for ICT human resources. This should come through a combination of formal research, but also through greater interaction with the business sector, says its IT department’s dean. In this regard, the IT Park at Kavre, which is located next to KU’s campus, presents an excellent opportunity for KU, one for which the dean is “desperately waiting.”51


1. ICT Human Resource Policy and Strategy

Nepal needs to develop a clearer understanding of what it aims to achieve in ICT human resource development and how it should go about doing so. This will require asking and answering some of the questions around whether to focus resources at the secondary or tertiary education, and to what degree to develop training expertise domestically or whether rely on foreign training institutions.

As a start, more needs to be known about the supply and demand dynamic in the ICT‐human resources markets. The training of ICT‐related professionals is relatively new in Nepal, with most tertiary training starting up from 2000 onwards. After some years of experience, it is now time to take stock of accomplishments achieved and assess gaps that remain.52 The assessment should also focus on potential future demand for ICT human resources, thereby enabling training institutions to align their services to meet needs that are likely to arise in the near‐ to medium‐term. In particular, this should focus on demand that will arise from upcoming e‐government activities, a key sector growth anchor in the near‐term.

51 Interview with dean of Computer Engineering Department, October 2007. 52 While some quantitative studies have been conducted (in terms of numbers of institutions, course offerings, numbers of graduates), no substantial qualitative analysis has been done (in terms of the quality of the education, the employability of ICT graduates).


47

Based on this understanding, a clear policy framework and strategy for change can be developed. The strategy should lay out limited areas of focus, time‐bound plans for how to make progress against each one, and identify the financial resources required to do so.

The strategy will have to take into consideration restraints in terms of current information infrastructure coverage and resource limitations available to educational institutions. At the same time, it should seek to capitalize on private initiatives, most obviously in the education sector but also, for example, in the information infrastructure sector. It should lay out means by which to develop public‐private partnerships with network service providers and ISPs to link their expansion plans with those of the education sector’s ICT‐related objectives.

2. Institutional Leadership Development

To date there is no clear champion for ICT human resource development in Nepal. No public institution exists to coordinate and support the activities of the variety of public and private institutions involved in ICT‐related human resource development. Such a champion is key to provide learning institutions with the market knowledge they require to shape their programs and, importantly, to link them with sources of demand so as to ensure that their training remains relevant.

Unlike the other institutional strengthening initiatives, which in general can begin with a rapid diagnostic of an existing institution and then develop a plan to fill capacity gaps, this will have to begin with identifying the right framework for such an institution – whether it should be a stand‐alone body or a sub‐group within an existing institution, such as MoEST, HLCIT, MoES or CAN. However, regardless of where it is located, it should embody the best of public‐private partnership, bringing together academia, private training institutions, IT firms (both domestic and international), business associations, standards organizations, and the government.

This institution will play a leadership role for the ICT human resources sector and subsequent initiatives that follow from the strategy process.

3. ICT Human Resources Sector Support Organization

Nepal has a dynamic ICT training market, evidenced by the comparatively higher (though unfortunate) brain drain of ICT graduates over other disciplines. However, training institutions are struggling to stay on top of the latest industry trends and to move beyond offering diploma and bachelor‐level qualifications.

The sector would therefore benefit from a public‐private organization focused on the needs of training institutions, both university ICT‐departments and the large number of independent private training institutions. Such an organization can


48

provide teacher training in industry‐leading technologies, as well as certification and consultancy services to the learning institutions themselves. The organization should also have access to seed financing to respond to and support independent initiatives that Nepal’s ICT training institutions plan to undertake, from financing visiting faculty to improving their basic connectivity.

The ICT human resources strategy can drive much of the initial focus of this organization’s efforts, and the public‐private leadership body advocated above (or a sub‐group within it) may usefully serve as its board of directors. Initially this organization will have to be publicly funded, but it should be able to transition to a mix of public funding, financial support from IT firms and IT foundations, and revenues generated from consultancy and other services.

Developing the initial concept and business plan for this organization should occur in tandem with the development of the larger ICT human resources policy and strategy.

4. TBD (Result of strategy finalization)

The choice of other ICT human resource interventions should come out of the policy and strategy development effort. This will entail taking on a key component of the human resources development program, and financing its development and successful roll‐out.

Linkages: Developing a Coherent ICT Transformation Program

Nepal has advanced its e‐agenda in a variety of areas. Initially, it was led by growth in information infrastructure, by NT and now more recently new private operators. This was then followed by the launch of a number of initiatives following the 2000 IT Policy, such as an increased government on‐line presence, the construction of the IT Park, and the establishment of a number of IT‐focused leadership institutions.

Nepal’s e‐agenda is now at the point where it has to consolidate foundations established over the past decade, filling gaps in reform efforts and the institutional capacity to lead them, while at the same time developing new initiatives based on carefully thought out strategies.

The initiatives that are recommended above cover a mix of continuity of past efforts and the launch of new ones. Continuity applies most to information infrastructure, where significant reform has been undertaken over the past decade and now needs to be completed. In the other focus areas, where limited interventions have occurred to date, more of the work will be new. Definition of what this work will entail is most advanced with regard to e‐government, largely as a result of efforts by KIPA, ADB, HLCIT and MoEST. A final stage in clarifying key approaches, particularly


49

with regard to infrastructure development and private participation, now needs to be embarked upon.

The same cannot be said for the IT sector and ICT human resource development. Both of these areas require further research to be conducted, mostly about the nature of demand (for IT products and services both domestically and internationally, and for ICT skills). Based on this, supply‐focused growth strategies can be developed, providing the necessary insight for new programs in these areas.

Each recommended intervention can be categorized according to the type of work that it will entail, both for those which are a continuation of previous efforts, as well as ones which are a start at something comparatively new. The above interventions fall into three main categories:

Analysis and Strategy Formulation. This focuses on developing a clear strategy that outlines what needs to be done and by when, based on initial research on supply and demand conditions. The strategies must force choices and trade‐offs based on resource availability and constraints.

These strategies can then be integrated to form a comprehensive national ICT strategy, updating the 2000 IT Policy. This means that while each individual strategy is being developed, it will need to take account of other strategies that are in place or in process, to ensure complementarily and minimize duplication between them.53

Institutional Capacity Building. This focuses on developing the capacity of sub‐sector anchor institutions, public, private or a hybrid of the two. It entails ensuring that they have the personnel profile and resources required to play a key leadership and coordination role, initially on many of the initiatives proposed in this report and then on future ones that will follow.

These institutions will ideally embody the best of public‐private cooperation and partnership. For many of the activities that occur in the ICT realm, initial guidance and steering may come from the public sector, but for the most part implementation will be the responsibility of the private sector. This applies across all of the four focus areas, from expanding network coverage to unserved areas, developing e‐government applications (and ideally delivering e‐government services), or training the next generation of ICT professionals. Leadership institutions that are able to effectively align public and private vision and ensure coordination will contribute

53 A national ICT strategy may also have to incorporate additional focus areas beyond information infrastructure, e‐government, IT sector development, and ICT Human resource development. It will likely include strategies on community usage, and potentially social applications such as e‐health.


50

greatly to the efficient use of talent and resources in developing the ICT sector in Nepal.

Finally, because so much of these institutions’ role will entail managing a number of projects and building agreement and consensus among a variety of actors, they will require staff with strong management and business experience. Despite being focused on the development of the ICT sector, they should not be comprised of only technical or ICT‐trained staff but also personnel with strong business or organizational management backgrounds.

Project Implementation (Operations). While a considerable amount of work required to advance the ICT agenda in Nepal focuses on learning more about demand and devising effective strategies to meet it, there are areas where specific projects can be developed and implemented. These are mostly where projects were started earlier but have not been concluded. In these cases, the initiatives will need to begin with understanding why performance has not met expectations so as to ensure that key bottlenecks can be addressed upfront.

Some newer areas for implementation have been broadly defined, such as support to the IT cluster or establishing an ICT human resources sector support organization. However, details of the scope and scale of the interventions required are not fully known, and will have to be clarified through the development of concrete strategies or business plans.

Yet other areas for project implementation cannot be defined at this juncture at all, as they depend on the creation of sector strategies or on decisions taken by sector leaders about where to focus future effort and resources.

The table below categorizes the proposed initiatives of each focus area according to the main type of work that each entails.


E‐Government IT Industry ICT Human Resources

Analysis & Strategy

• Rural Strategy and Roll‐out

• Taxation and Incentives

• Government Network Development

• Public‐Private Partnership Development / E‐Government Outsourcing

• Legal and Regulatory Framework


Management Support*


• ICT Human Resource Development Policy and Strategy



51

Capacity Building

• NTA Capacity Support

• Strategy‐Implementation Bridging Support

• CAN Institutional Capacity Support

• Institutional Leadership Development

Implementation • Telecommunica

tions Sector Governance

• Continued Liberalization

• e‐Procurement Platform Revival



Management Support*




* These initiatives begin with strategy or business planning work, after which (and based on which) implementation activities will follow.

Next Steps

Not all of the recommended initiatives need to be undertaken immediately; however, work on some needs to start soon. The government needs to think now about how best to develop its ICT infrastructure access and what role the private sector should play in this before committing substantial resources to this effort. Further inaction on the IT Park in Kavre will likely tarnish many efforts to advance the e‐agenda, therefore rapidly developing a plan to turn it around and unlock its benefits should be started soon.

The table below outlines key steps that need to be taken to advance each of the recommendations for change outlined above, including suggestions for sequencing of each of the steps. The sequencing attempts to strike a balance between what needs to be acted on soon with limitations in resources available to drive the different change efforts forward and coordinate across them.

Immediate Near‐term Medium‐term Information Infrastructure 1. Telecommunications Sector Governance Reconstitute NT board

2. Continued Liberalization Revive NT privatization plan Launch network operator license Publicize backbone investment opportunities

3. Rural Strategy and Roll‐out Develop rural roll‐out plan Coordinate with e‐government network roll‐out

4. NTA Capacity Support Conduct institutional audit


52

Undertake NTA mentoring/training 5. Taxation and Incentives Conduct analysis of taxation regime Undertake tax rationalization

E‐Government 1. Strategy‐Implementation Bridging Support Define support role and recruit advisory staff Re‐scope key programs as necessary

2. Government Network Development Scope government infrastructure needs Conduct gap assessment Undertake private consultations Develop joint PP investment plan

3. Public‐Private Partnership Development / E‐Government Outsourcing Undertake private consultations Scope areas for private participation/outsourcing Publicize opportunities

4. e‐Procurement Platform Revival Undertake PP consultations Secure financing Launch program

5. TBD (Result of strategy finalization) Undertake PP consultations Select initiative Finalize scope Develop functional requirements Issue RFP and contract

IT Industry 1. Legal and Regulatory Framework Conduct legislative and regulatory assessment Convene workgroup Undertake outreach campaign Enact legislative changes

2. CAN Institutional Capacity Support Define CANʹs leadership role Develop business plan

3. IT Cluster Support Export Support Develop export strategy Facilitate channel activation Address domestic business barriers

Domestic Market Support: Establish e‐government contract support hub Provide training on partnership formation Review government IT procurement guidelines Conduct domestic market analysis Conduct awareness raising of ICT applicability Develop voucher program

4. IT Park Launch and Management Support


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Develop turn‐around plan Secure additional investment (if necessary)

5. ICT Incubator Development Conduct PP consultation Develop business plan Secure financing

ICT Human Resources 1. ICT Human Resource Development Policy and Strategy Conduct supply‐demand assessment Conduct PP consultation Develop ICT‐HR policy Develop ICT‐HR strategy

2. Institutional Leadership Development Conduct institutional assessment Confirm lead institution Develop operating plan

3. ICT Human Resources Sector Support Organization Develop concept Develop business plan Develop grant facility Launch

4. TBD (Result of strategy finalization) Undertake PP consultations Define intervention


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References

ADB, 2006: “Inception Report: Preparing the Information and Communications Technology (ICT) Development Project.”

ADB, 2007: “Nepal: Empowering Rural Areas through Community E‐Centers.”

ADB, 2007: “Preparing the Information and Communications Technology Development Project: A Program of Modernization for Nepal.”

GoN, 2004: “E‐Transaction Act of Nepal.”

GoN, 2004: “Telecommunication Policy, 2060 (2004).”

HLCIT, 2004: “A fact book on Information and Communications Technology sector of Nepal.”

HLCIT, 2004: “Desk and Field Research on ICT Resources in the Kingdom of Nepal.”

ITPF, 2002: “Consultations, Documentation, and Advocacy Regarding Draft IT Bill of Nepal.”

ITPF: “The Framework of e‐Governance Roadmap.”

ITU, 2000: “Nepal Country Case Study.”

KIPA, 2006: e‐Government Master Plan Consulting Report

MoIC, 2004: “Sector Overview Report for Study on Increasing ICT Access in Rural and Peri‐urban Areas of Nepal.”

NTA, August 2007: “Management Information System.”

NTA, October 2006: “Management Information System.”

UNESCO Nepal: “ICT Use in Education.”

World Bank, 2007: “Country Assessments for Identifying Potential Public Private Partnerships in e‐Government.”

World Bank, 2007: “Development and Innovation of ICT in Nepal.”

World Bank, 2007: “Government of Nepal, Electronic Government Procurement: Roadmap.”


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World Bank, March 2007: “Aide Memoire: Nepal Telecommunications Sector Reform Project.”

World Bank, November 2007: “Project Appraisal Document Mexico Information Technology Industry Development Project.”

World Bank, October 2006: “Aide Memoire: Nepal Telecommunications Sector Reform Project.”

____, 2004: “E‐Transaction Act of Nepal: An Ordinance Made for Provisions Relating to Electronic Transactions.” (Draft translation).


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Annex I: List of Interviewees

Field research and consultations for this report were conducted in October‐November, 2007. Below is a list of people interviewed by the project team.

First Name Last Name Company Title Madan Pariyar HLCIT Member Secretary Manohar Bhattarai HLCIT Full time Member Saroj Devkota HLCIT Vice Chairman Prashant Shrestha Informatics Dep Centre Mgr Bunty Agarwal Javra ‐‐ Bhola Thapa Kathmandu University Associate Profeesor Biplav Man Singh Mandala System Pvt. Ltd / CAN MD Amod Rana Mercantile Comm. Pvt. Ltd Senior Ex. Engineer Kabindra Jonchhe Mercantile Office Systems Senior Manager Iswar Thapa MoEST Joint Secretary Laxman Mainali MoEST Joint Secretary Purushottam Ghimire MoEST Under Secretary Rameshwor Prasad Khanal MoF Secretary Shankar Prasad Koirala MoIC Secretary Subarna Shakya National Info Tech. Center Executive Director Sugat Kansakar Nepal Telecom CEO Dinesh Sharma Nepal Telecommunications Chairman Madhu Pradhan Spice Nepal Pvt. Ltd Dp. Chief Tech. Off. Sunil Jakibanja STM Telecom Sanchar Ltd. Country Manager Dipeve Timalsena Supreme Court MIS Director NP Mokhariwale United Telecom Ltd CEO


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Annex II: Key Laws and Regulations

Cyber Law, 2061 (2004)

Telecommunication Policy, 2060 (2004)

Long Term Policy of Information and Communication Sector, 2059 (2002)

Nepal Telecommunication Authorityʹs Regulation, 2059 (2002)

IT Policy, 2057 (2000)

Consumer Protection Regulation, 2056 (1999)

Telecommunication Regulation, 2054 (1997)

Consumer Protection Act, 2054 (1997)

Telecommunications Act, 2053 (1997)

National Broadcasting Regulation, 2052 (1995)

National Broadcasting Act, 2049 (1992)

Radio Communication (License) Regulation, 2049 (1992)

National Communication Policy, 2049 (1992)

Telecommunication Corporation Act, 2028 (1971)

Radio Act, 2014 (1957)


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Annex III: List of Assessments and Analyses


• Study to reconstitute NT board • Assessment and update of NT privatization plan • Rural roll‐out plan • NTA institutional audit • Analysis of taxation regime

E‐Government

• Assess government infrastructure needs and supply options • Assess areas for private participation/outsourcing • IT Industry • Legislative and regulatory assessment • CAN business plan

IT industry export strategy

• Domestic ICT market analysis • IT Park (Kavre) turn‐around plan • ICT incubator business plan

ICT Human Resources

• Supply‐demand assessment • ICT‐HR policy and strategy • Institutional leadership assessment

Annex IV: Sample ICT Initiatives in Nepal

Source: ADB, May 2007: “Nepal: Empowering Rural Areas through Community E‐Centers,” by Mahesh Prasad Adhikari.

Funding / Executing Agency

Project Period

Implementing Agency Project Objective

ADB 2006‐ HLCIT Implementation plan for e‐government project

ADB/ UNESCAP 2006‐2008 MOIC

Part of SASEC project with India, Bangladesh & Bhutan. Country specific objective includes reduction of poverty, empower communities, and improve the quality of life in rural areas through telecenters.

APT 2004 SECEN & others Preparatory study to establishing telecenters

COPPADES 2001‐ Schools Spreading of computer literacy

ENRD/NWP 2004‐ ENRD/NWP Introduce e‐education & e‐medicine in participating schools & communities

HLCIT 2004‐ HLCIT, others Reduce poverty and empower communities through telecenters

ICIMOD 1997‐2000

IDRC/ICIMOD 1997‐2000 NepalNet

Networking of researchers, development administrators, practitioners, policy‐makers etc.

IDRC/UNDP 2002‐‐

Various National agencies & local institutions

International networking through ENRAP; development of Nepali language content and applications

KIPA 2005‐ NITC Preparation of e‐Government Master Plan

KOICA/NITC 2007‐ FIT Nepal Reduce poverty and empower communities through telecenters

MLD Continuing DDCs/ Municipalities E‐governance

NITC 2004‐ NITC, others Reduce poverty and empower communities through telecenters

OWSA Various dates

OKN Nepal & others

Knowledge networking and development of local content

READ‐Nepal 2004‐ READ‐Nepal Introduce telecenters at community libraries

SAP‐Nepal 2003‐ SAP‐Nepal Introduce telecenters at resource centers

UNDP/ICT4D 2002‐2004 MOST Reduce poverty and empower communities through telecenters

UNDP/RUPP 2002‐ RUPP Establish rural urban linkages, reduce poverty and improve quality of life

UNESCO 2003‐2005

Community Multimedia Centers

Reduce poverty and empower communities through telecenters


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UNESCO 2006 CMC Increase pass percentage of school students

USAID/WINROCK N.A. Mercantile Plans on establishing communication facilities in rural areas

World Bank 2002‐ NTA Telecommunications sector reform and rural access

Nepal ICT Sector Note March08

Documents

Transcript of Nepal ICT Sector Note March08