1. Current State of Tourism Services Sector in Nepal and Ways Forward
Presentation by
Dr. Ramesh C. Chitrakar
Expert 1 At
Second National Stakeholder Workshop on Services
(27th – 28th October 2009)
Co-organized by UNCTAD-Ministry of Commerce and Supplies
Kathmandu, Nepal
October 27, 2009

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

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

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

5. Table: Number of Tourists by Purpose of Visit

6. Growth Rate of Tourist Arrivals by Major Regions

7. UNWTO: developed tourism satellite account in 2001
According to the World Travel & Tourism Council (WTTC), the TSA is based on a demand-side concept of economic activity
Tourism industry does not produce or supply a homogeneous product or service like many traditional industries
Diverse collection of products (durables and non-durables) and services (transportation, accommodation, food and beverage, entertainment, government services, etc) that are delivered to visitors
Policy makers to understand that this diversity has many complex links to different parts of the economy, which makes the economic impact of tourism so significant

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

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

10. Table: Foreign Exchange Earnings from Tourism

11. Table: Mountaineering Expedition Teams

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

13. Figure 1: Linkage between tourism and poverty

14. Contribution of tourism to achieving MDGs
Goal
Contribution of tourism
1. Eradicate extreme poverty and hunger
(a) Tourism stimulates economic growth both at the national and local levels and promotes the growth of the agricultural, industrial and service sectors;
(b) Tourism provides a wide range of employment opportunities easily accessible by the poor. Tourism businesses and tourists purchase goods and services directly from the poor or enterprises employing the poor. This creates opportunities for micro, small and medium-sized enterprises in which the poor can participate;
(c) International and domestic tourism spreads development to poor regions and remote rural areas of a country that may not have benefited from other types of economic development;
(d) The development of tourism infrastructure can benefit the livelihood of the poor through improvement in tourism-linked service sectors, including transport and communications, water supply, energy and health services.
2. Achieve universal primary education
(a) The construction of roads and tracks to remote areas for tourists also improves access for school-age children and for teachers;
(b) Tourism can help local resource mobilization, part of which can be spent on improvement of educational facilities.
3. Promote gender equality and empower women
a) The tourism industry employs a high proportion of women and creates micro enterprise opportunities for them. It promotes women’s mobility and provides opportunities for social networking.

15. 4. Reduce child mortality
(a) The construction of roads and tracks to remote areas for tourists also improves access to health services;
(b) Revenues accruing to national and local governments through taxes on the tourism industry can be used to improve health services and nutrition for young children and their mothers;
(c) Tourism raises awareness about HIV/AIDS issues and supports HIV/AIDS-prevention campaigns;
(d) Tourism aggravates the spread of HIV/AIDS (negative effect).
5. Improve maternal health
6. Combat HIV/AIDS, malaria and other diseases
7. Ensure environmental
Sustainability
(a) Tourism can generate financial resources for conservation of the natural environment;
(b) Tourism raises awareness about environmental conservation and promotes waste management, recycling and biodiversity conservation;
(c) Uncontrolled tourism may generate negative externalities as a result of pollution, congestion and depletion of natural resources (negative effect).
8. Develop a global partnership for development
(a) Tourism contributes to the socio-economic development of least developed countries, landlocked countries and island developing countries through foreign exchange earnings and the creation of job opportunities;
(b) Tourism stimulates the development of the transport infrastructure, which facilitates access to and from the least developed countries, landlocked countries and island developing countries;
(c) Tourism stimulates internal and external trade and strengthens supply chains;
(d) Tourism promotes the integration of isolated economies with regional and global flows of trade and investment;
(e) Tourism reduces the burden on government budgets through implementation of public-private initiatives;
(f) Tourism creates decent and productive work for youth;
(g) Tourism provides opportunities for bilateral, multilateral and sub-regional cooperation among countries;
(h) Information technologies play an important role in integrating tourism enterprises into global tourism markets.
Source: United Nations ESCAP, Transport and Tourism Division, Transport Policy and Tourism Section, adapted from UN (2007), Study on the Role of Tourism in Socio-Economic Development

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

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

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

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

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

21. 4 supply of services modes: (1) Cross border supply (2) Consumption Abroad (3) Commercial Presence (4) Presence of Natural Person, the commitments made in tourism under each mode are as follows:

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

23. Table: Trade in Travel Services

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

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

26. SWOT Diagram 1: Prepared by MOTCA, Nepal
Strengths
Unmatched natural products: Mt. Everest, Himalayan range and eight of the worlds fourteen 8,000m peaks, diverse landscape, sublime natural scenery, protected areas with diverse flora and fauna, fast flowing rivers, year-round pleasant weather.
Ultimate adventure destination: Number one destination for mountaineers and trekkers, white rafting, largest assortment of aerial, terrestrial and aquatic sports.
Rich Culture: Multi-cultural, multi-ethnic; multi lingual yet harmonious society; unique Newari architecture of Kathmandu valley, Limbini and other UNESCO world heritage sites; Kumari-the Living Goddess; more festival than days in a year; tourist friendly and hospitable people, diverse cultures in Terai region etc.
Others: A model of successful peace process, able private sector, awareness of community level, public-private-people partnership approach, gateway to the Himalaya region.
Weaknesses
Insufficient infrastructures
Inadequate investment in tourism sector
Limited air connectivity and weak national carrier
Poor coordination among different agencies
Weak public-private partnerships
Scarcity of resources for massive publicity and consumer promotion
Tourism patterns limited to only in a few geographic areas
Opportunities
Government has placed high priority on tourism
Growing tourism outbound of immediate neighbors
Competitive ground handling costs
Spill over effects from adjoining destinations of India and China
Growing demand for adventure travel
Sustainability of nature and cultural heritage through tourism economic development
Threats
Transitional phase of political environment
Global terrorism
Cross-border disease
Strong competing advisories
unfavorable travel advisories
Global economic downturn
Climate change
Source: GON/MOTCA (2009), Tourism Vision 2020: Tourism for Peace, People and prosperity.

27. SWOT Diagram 2: Prepared by UNCTAD-DITC
Nepal’s Tourism Sector
Strengths
Natural assets
Cultural diversity
Religious sites
4 World Heritage Sites
Acquired image as an adventure and cultural theme tourism destination
Good service, hospitable nature of the Nepalese people
Expanded air access to major markets
Government promotion of sustainable tourism
Wide array of ecotourism offerings
Weaknesses
Lagging capacity expansion relative to targeted volume of tourists
Infrastructure limitations in rural regions: utilities, telecom, water treatment.
Road network limitations / traffic congestion
Limited capacity of Kathmandu airport to accommodate growing traffic
Moderate levels of ‘leakage’
Foreign–based local businesses do not repatriate profits towards Nepal
Lower quality service provided by small restaurants, guesthouses, taxies
Limited access to new investments and financing
Inadequate safety regulations
Opportunities
Strengthen inter-sectoral linkages
Strengthen community-based tourism
Restored in-country stability, safety and security
Restored political stability
Improving tourism and transportation infrastructure and service
New tourism themes: healthcare and educational tourism, business and conference tourism
Threats
Environmental degradation in high-traffic areas
Increasing incidence of theft and violence targeting tourists
Global economic crisis
Over-development may damage the image of the destination
Competition for land between tourists and local needs
Required spill-ins from other sectors: requires improved supply of services from the transport, financial, ICT, recreation, healthcare, utilities and security services sectors
Anticipated spill-overs into other sectors: provides improved market for services from the transport, recreations and healthcare sectors; conservation and improved land management related environmental benefits; expanded offering of infrastructure in tourism zones; propagation of quality standards to other sectors.
Key stakeholders: relevant government ministries and parastatals; tourism sector firms – hotels, restaurants; transport firms – airlines, taxies, car-rental; local communities; labour unions; recreation and sports firms and interest groups; advertising agents and e-tourism suppliers.
Source: UNCTAD-DITC-TNCD, Strategies for advancing development of the services sector of Nepal, Draft Version, February 2009.

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

29. Points to be re-emphasized (Contd…)
Opportunities:
Adding new tourism products like health and wellness tourism, educational tourism, community tourism, sporting vacations, ethnic tourism etc.
Attracting middle income tourists during off season and from non-traditional markets
Decrease costs through e-tourism
High prospect of attracting surface travelers in future, both from India and China, with the opening and development of new tourism destinations on both sides of border
Prospect of opening new border points like Rasuwa for the Chinese tourists
Reducing negative environmental impacts for ensuring long term stability of biodiversity
WTO membership helped integrate Nepal’s tourism services into the global economy, stimulating development through employment creation, and foreign exchange earnings. The positive spill over effect of this aided rural development: reducing dependency on agriculture, distributing the benefits to the population, and boosting GDP growth to reduce poverty.
Threats:
Lack of political stability and the status quo bureaucratic structure
Political interference and mismanagement in Nepalese airlines
Threat of international terrorism and insurgency within the country in the past
Regular bandas, road blockades, highway obstruction and landslides

30. Policy Recommendations – Ways Forward
Socio-economic and political aspects
Tourism be made free from politics and conflict: Any renewed worsening in the political situation could again send tourist arrivals into decline
The linkages between tourism and poverty be identified and established as depicted in figure 1.
Focus tourism on the local or community level and aim at increasing tourism's contribution to poverty reduction - pay attention to the village tourism like TRPAP
Trekking and mountaineering tourism – provides royalty income
Emphasis on religious and cultural tourism
Make necessary provision of infrastructure facilities and services (roads, communications, and health and sanitation services) - designed to benefit local communities & contribute to the achievement of Millennium Goals 4, 5, 6 and 7
Specific programmes to increase inflows of tourists coming from North America and India
Travel industry to produce trade surplus - surplus provided up to tuned into deficit since 2005.
Introduce TSA developed by WTTC. Also make service sector classification compatible with SNA 1993 and WTO classification

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

32. Related to Liberalization: GATS etc.
Nepal’s commitments under GATS in twelve sectors, tourism being one. Need of a comprehensive service plan in the tourism sector to:
Access Nepal’s capabilities and resources to compete in the global tourism industry.
Find the optimum balance between local and foreign participation in this industry
Access the ability and resource to fight barriers to market access created by other counties through technical standards, subsidies, discriminatory access to information and distribution channels etc.
Identify supply constraints created by the lack of human resource, technology, and quality standards
Develop plans and policies to overcome supply constraints and barriers to market access
Tourism: industry to have the largest monetary turnover in the world by the year 2020 (Frontline Magazine.), so, trade liberalization constraints in tourism must be acknowledged and differences between the SAARC nations must be rectified in order to reap the highest benefit of this growing industry.
Re-examination of the trade policies for enhancing FDI in tourism sector. Consideration be given to increase the coverage of GATS commitments in tourism services by scheduling new commitments for food and beverage services, tourist management services, education and health accommodation services, and other non-conventional services.

33. Action Plan Matrix