Nefsearch July 2023 - Tourism and Hospitality

Nepal's Tourism and Hospitality Sector

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TitleOverview of Tourism and Hospitality Sector in Nepal: Challenges and Opportunities postCOVID-19

Author - Aarya Rijal and Sneha Shrestha

Aarya Rijal holds a BA in Quantitative Economics from Union College, NY, USA She previously worked as a fellow at Nepal Economic Forum, where her primary interests revolve around macroeconomics, international economics, and the financial services industry

Sneha Shrestha is a Chartered Certified Accountant (ACCA) with interests in deal advisory, strategy consulting, impact investing and development economics She previously worked as an Aspiring beed and beed fellow at beed Management Pvt Ltd where she was actively involved in financial advisory projects and development research

Designed by - Sudiksha Tuladhar, Aspiring beed at beed Management

Published by Nepal Economic Forum, July 2023

Abbreviations andAcronyms

CAGR Cumulative Average Growth Rate

DOI Department of Industry

FDI Foreign Direct Investment

FERA Foreign Exchange (Regulation) Act

FITTA Foreign Investment and Technology Transfer Act

GDP Gross Domestic Product

IBN Investment Board Nepal

IEA Industrial Enterprise Act

IFC International Finance Corporation

MICE Meetings, Incentives, Conferences and Exhibitions

NPR Nepalese Rupees

NRB Nepal Rastra Bank

NRN Non-Resident Nepalis

NTB Nepal Tourism Board

ROI Return on Investment

UK United Kingdom

UNESCO United Nations Educational, Scientific and Cultural Organisation

USA United States of America

USD United States Dollar

VAT Value Added Tax

WHO World Health Organisation

Overview of Tourism and Hospitality Sector in Nepal: Challenges and Opportunities post-COVID-19

by Aarya Rijal and Sneha Shrestha

Abstract

The report studies the current scenario of tourism and hospitality industry of Nepal, analyzing the tourist arrivals, revenue generated by the industry, and the regulatory provisions pertaining to the sector This report further explores the upcoming trends in the tourism and hospitality industry of Nepal. It also provides an inventory of existing upscale and midscale hotels in the country, along with upcoming hotels in Nepal Additionally, this report outlines the existing challenges and provides recommendations for the sector in the areas of infrastructure, human resource, regulation, marketing, and data

Key words

Tourism, Hospitality, Tourist Arrival, Tourism Revenue, Average Tourist Spending, Upscale Hotels, Midscale Hotels, Tourism Regulation, MICE Tourism, Adventure Tourism, Casino, Domestic Tourism, Religious Tourism, Cultural Tourism, Hospitality Schools

TourisminNepal

The world’s highest peaks, rich flora and fauna, and diverse culture and religion –are all housed in Nepal. The country continues to presents itself as a popular tourism destination. The tourism sector is an important contributor to Gross Domestic Product (GDP) and employment in Nepal as well as foreign exchange earnings. The sector also creates indirect impact through crosssectoral synergies and induced spending. The sector contributes 3% to the GDP , but the actual figure is expected to be much higher due to the presence of informal businesses. The tourism and hotel industry represented 6.7% of total employment in 2019, representing over one million direct and indirect jobs . The overall outlook for the sector is positive with growing inbound as well as domestic tourism, favorable investment climate, and growing private sector activity.

The autumn months from October to December are the peak tourist season in Nepal, with the late spring months being the second peak season for tourists in Nepal. The autumn months of October and November have a suitable climate for trekking and attract a significant number of adventure tourists. The autumn months are also plotted with holidays and festivities that further attracts an influx of tourists

A significant number of international tourists are from India (20 57%) and China (11.37%), due to the close geographical proximity and similar cultural ties. Tourists from the UK, USA, Sri Lanka, and Germany also make up a large proportion of international tourists.

The lockdown imposed to control the spread of the COVID-19 pandemic in March 2020 had a significant impact on economies all over the world. The tourism sector suffered as movement was restricted both within the country and beyond On 11th March 2020, the World Health Organization (WHO) officially declared the COVID-19 outbreak as a pandemic and instructed countries to take immediate actions. Nepal went into its first lockdown on March 24, 2020 Subsequently, tourist visa on arrival was suspended and flights were put to a halt As per Hotel Association Nepal (HAN), the hospitality industry suffered an estimated loss of 80-90% in 2020 and over 95% in 2021. Although the COVID-19 restrictions have eased since then, the tourism sector in Nepal is still struggling to recover from the huge losses it had suffered The country’s luxury hotels suffered their highest-ever losses in the last fiscal year that ended mid-July .

CurrentScenarioofthe TourismSector

Tourist Arrival and Purpose of Visit

Figure 1 presents the total number of tourists that arrived in Nepal from 2015 to 2021, categorized by the purpose of visit. The chart shows a sharp decline in the total tourist arrival in 2015, 2020, and 2021, which were because of the Nepal Earthquake 2015 and COVID-19 respectively The total number of tourist arrival reached an all-time high of 1 19 million in 2019, before dropping to 230,085 in 2020 and 150,962 in 2021

Nepal saw a healthy number of tourists in 2020, before the lockdown. A total of 230,085 tourists visited Nepal in the year 2020. A total of 150,962 tourists visited Nepal in 2021, which is a 34.4% decrease from 2020 .Tourism has shown signs of recovery in 2022, with tourist arrival reaching a total of 614,148, which represents 51.3% of tourist arrivals in 2019.

The Origin Country of Tourists

According to the Nepal Tourism Board (NTB), European tourists made up the largest share of tourists in Nepal in 2021 There were 25,305 European tourists in 2021, a decrease of 30% compared to 2020. There was a massive decline of 67 8% for Chinese tourists with Nepal welcoming only 6,196 tourists in 2021 compared to 19,257 tourists in 2020. A total of 22,853 tourists arrived from the USA, with another 64,673 tourists arriving from India and 5,044 tourists arriving from Bangladesh in 2021. Arrivals from these three countries saw an increase compared to the arrivals from 2020.

India will remain the largest market for Nepal due to close cultural and religious ties Nepal has not been able to attract many Bangladeshi tourists due to VISA issues at the Kakarvitta border of Nepal Despite Bangladeshis receiving an arrival visa at the border, they first need an Indian transit visa which is only granted if they already have a visa from Nepal. Solving this issue would allow Nepal, specifically the Eastern part, to tap into the large market of Bangladeshi tourists. The average tourist arrival as a % of total tourists from 2012-2021 based on country of origin is shown in Figure 2.

Seasonality

Figure 3 presents the total number of tourist arrivals to Nepal by month from 2017 to 2022. The figure shows that October and November witness the highest number of tourist arrivals to Nepal, making them the peak months, followed by March On the other hand, we can see that the months of May through July are the off seasons with the

least number of tourists visiting the country

Tourist Expenditure and Revenue from Tourism

Figure 4 presents the total revenue from tourism from 2015 to 2021. During this period, the total revenue from tourism increased from USD 497.84 million in 2015 to USD 724 34 million in 2019, with a

Cumulative Average Growth Rate (CAGR) of 7.8%, before falling to USD 112 51 million in 2021. The average amount a visitor spends over the length of their stay has seen a steady decline of CAGR of 3 2% rom 2015 to 2021. This could indicate that Nepal is attracting more budget travelers

and backpackers who tend to spend less to stay for a longer period. While a higher volume of tourists who spend less can contribute to increased tourism revenue in the industry, this could have a negative environmental and social impact on major tourist destinations across the country. Conversely, a declining average visitor spend could also be related to an appreciating USD, because of which tourists can get the same service for a lower USD value The only exception to the declining average visitor spend is during 2020 when the average visitor spend was the highest at USD 981.5.

This can be largely attributed to increased safety concerns where tourists paid extra for added comfort and safety

Further, the average length of stay has increased by a CAGR of 2.8% from 2015 to 2021. As seen in figure 5 and 6, the change in length of stay approximately aligns with the USD to NPR exchange rate When the USD appreciates, tourists can spend more in Nepal with the same amount of USD, making their stay in Nepal cheaper and encouraging tourists to stay longer in the country

TourismTrendsand Opportunities

Considering the post-earthquake and pre-pandemic period, ranging from 2016 – 2019, the tourist arrival in Nepal grew by a CAGR of 16.7%. As the tourist arrival in Nepal reached 614,148 in 2022, the tourism industry can be expected to bounce back in 2023, with tourist arrival reaching pre-pandemic levels at approximately 950,000 Beyond 2023, tourist arrival can be expected to grow at 16 7% per annum, the growth rate pertaining between 2016 and 2019. Meanwhile, the tourism and hospitality industry in Nepal is evolving and several new trends, some of which are explored below, have emerged.

Domestic Tourism on the Rise

The trend of Nepalis traveling for leisure within the country has been on an upward trajectory For the last 5 years, domestic tourists have been the biggest source of revenue for popular destinations such as Pokhara and Chitwan Spending by Nepal’s domestic tourists made up 56% of the industry’s total revenue of NPR 240.7 billion in 2018. The pandemic has further demonstrated the importance of domestic tourism. Kalinchowk, Manang, Chandragiri, Rara lake, Shey Phoksundo, Upper Mustang, Mardi Himal, Langtang, and Kanyam have become some of the popular destinations which weren’t truly

discovered and travelled before. Social media has had a massive influence on attracting tourists to these destinations. People get influenced by destinations trending on Tiktok and Instagram and are influenced to visit such places. There is also a growing trend of youths wanting to travel, and they tend to spend more on food and drinks Tour companies have utilized social media to a great extent offering great packages for these places while making it much easier to access with their vehicles or tour guides The international travel restrictions and other restrictions in different countries caused by the pandemic have also had a big part in encouraging people to travel domestically The government has relied heavily on foreign tourists, but it is very important to put more emphasis on domestic tourism.

Meetings, Incentives, Conferences and Exhibitions (MICE)

Considering Nepal’s geographical location between two of the biggest economies of the world, India and China, Nepal has a huge potential for MICE tourism, attracting Indian and Chinese corporates. When booking trends for big Indian corporates are observed, they tend to prefer Thailand or European destinations. Nepal can rebrand itself as a MICE destination The high-value

corporate clients can contribute significantly to Nepal’s tourism industry as MICE visits can be extended for leisure. MICE can provide adequate Return on Investment (ROI) for the capital-intensive hospitality industry in Nepal

Adventure Tourism

Adventure tourism is one of the most popular forms of tourism in Nepal. Being home to eight of the top ten highest mountains in the world and some of the most beautiful landscapes which are only reachable on foot, trekking in Nepal is a unique experience with 1,153,793 tourists visiting Nepal just for this purpose between 2015 and 2020. Nepal has a plethora of different adventure activities to offer such as mountain biking, bungee jumping, rock climbing, bird watching, mountain flights, ultralight aircraft flights, paragliding, zipline and rafting

Previously, adventure tourism was mostly comprised of international tourists. However, there has been a growing interest among domestic tourists in adventure tourism as well.

Casino Hospitality

Lately, investors have been drawn to casino tourism Numerous luxury hotels with casinos have opened in the cities near the Indian border Since casinos are banned in all but 3 states (Goa, Sikkim,

Daman) in India, Nepal is an accessible option for Indians who want to gamble in casinos Additionally, the ban on alcohol in the state of Bihar, which borders Nepal, has also increased the flow of Indian tourists. There are 5-star hotels with casinos emerging near the Indian border in places such as Bhairahawa, Nepalgunj, Lumbini, and Birtamode Hotel Mechi

Crown and Hotel Kingsbury, new 5-star hotels have also opened in Jhapa near the Kakarvitta border. Soaltee Westend has opened in Nepalgunj and Hotel Pawan Palace has opened in Lumbini. Hotel Centurion, another 5-star property with a casino is currently under construction in Biratnagar. All these hotels are strategically built near the Indian border which takes only a short drive to reach

Staycation

COVID-19 has contributed greatly to this trend of staycations, where people visit places for leisure within a day trip from their homes. After several periods of lockdown during 2020 and 2021, there has been a rising demand for domestic tourists to spend their weekends at nearby hotels for leisure COVID-19 has also encouraged people to focus more on experiences and thus are willing to pay a higher price for luxury hotels and the privacy it offers As the threat of COVID-19 reduces, the increasing trend of staycation might be reduced as domestic tourists seek to travel internationally

Rise in Online Bookings

Tour and trekking operators have a big hand in planning for tourists. A majority of the hotel’s customers come via tour and trekking operators. Booking agents’ contribution to hotel customers is not predominant in Nepal yet, but it is slowly increasing due to the internet There has been a rise in independent trekkers who are not from any trekking agents and book independently online. The proportion of online bookings has increased but hotels are still reliant on agents.

Booking websites bring more visibility, however, the rate shown on booking websites varies according to the contribution from hotels that they require Due to this, there is rate parity between different booking websites of the same hotel

Religious Tourism

Being the birthplace of Lord Buddha and with a majority Hindu population, Nepal has huge potential for religious tourism. Currently, religious tourism or pilgrimage only represents, on average, 12.3% of total tourist arrival in Nepal from 2015-2020

Nepal is home to important Hindu pilgrimage sites such as Pashupatinath Temple, Muktinath Temple, Changunarayan Temple, Patan Area, Budhanilkantha Temple, Pathivara Devi temple, Halesi Mahadev Temple, Devghat, Janakpurdham, Doleshwar Mahadev and Manakamana Temple Nepal also houses the Mayadevi temple and several other

sites in Lumbini, Boudhanath stupa, Swayambhunath Stupa, and several monasteries Festivals such as Shivaratri and Buddha Jayanti attract a significant number of Hindu and Buddhist tourists from around the world. There is a potential of turning these festivals into major religious tourism events if there is proper management of tourists and crowd control. The presence of international airports, such as the newly opened Gautam Buddha International Airport in Lumbini, can immensely help in attracting tourists to these destinations.

Cultural Tourism

Nepal is a culturally and linguistically diverse country with over 50 ethnic groups with their own unique culture and language. Nepal is home to four UNESCO World Heritage Sites and several sites in the tentative lists for World Heritage Site nominations, with the Kathmandu valley being home to seven of these World Heritage Sites Among them, the three Durbar Squares (palace squares), home to the ancient Malla Kings of the Kathmandu Valley; represent an important part of Nepal’s history and portrays Nepal’s unique wood architecture. The indigenous Newar community of the Kathmandu valley celebrates jatras, a religious street festival involving chariot processions, folk music and dances. These jatras are usually annual and can be turned into major events to attract tourists. However, the management of tourists and crowds during such jatras is a challenge.

July 2023

Kritipur and Patan are the upcoming areas that have been witnessing an influx of tourists, owing to its architectural grandeur and open spaces surrounding, businesses around these areas are driven largely by the locals.

With Nepal adopting federalism in 2015, the tourism industry has benefitted from the locally elected leaders and their knowledge of local cultures, which has in turn aided in the appropriate marketing of local regions for tourists.

RegulatoryProvisions

Policies Regarding Investments in Tourism Sector

RELEVANT ACTS

8

Investment in Tourism Sector Tourism

Foreign Direct Investment (FDI)

Industrial Enterprises Act 2020

An industry related to tourism established with an investment of more than NPR 2 billion is entitled to 100% income tax exemption for the first five years after the date of commencement of the transaction, and to 50% income tax exemption for the next three years (pg. 31)

Tourism Act 1998

Foreign Investment and Technology Transfer Act 2021 (FITTA)

Industrial Enterprise Act 2020 (IEA) Foreign Exchange (Regulation) Act 1962 (FERA)

The tourism sector has got the approval for refinancing of NPR 6 79 billion

Foreign investment is open almost in all sectors of the economy, except for in sectors that are listed in a negative list FITTA, where FDI is restricted

Provisions for the Hospitality Industry

-Hotels charge a 10% service charge for all bills including rooms, restaurants, and recreation centre charges. At the end of the month, employees get 72% of the total service charge, the management gets 23% of it, and unions and HAN get the remaining 5%.

-There is a VAT charge of 13% for all bills

-Previously, hotels got tax exemptions on their vehicles that had a tourist number plate There was a tax exemption of 50% for vehicles above 16 seaters. However, the government has stopped that Hence, currently, there is no tax exemption on hotel vehicles even with the tourist number plate. Further, there is no tax exemption for private cars for hotel use.

-Tax at the rate of only 1% will be applicable on taxable income for FY 2020/21 of hotels having annual turnover above NPR 10 million Also, a taxable loss incurred by hotels in FY 2019-20 and 2020-21, if any, shall be carried forward for 10 years (instead of 7 years of the normal carry-forward period)

-Due to COVID-19, the government has given more time for loan repayment for hotels.

-A provision will be made for extending the grace period to those industries or projects under construction that have not been able to complete/operate due to COVID-19. Under this scheme, the grace period can be extended by two years for tourist-standard hotels .

10

Provisions for Foreign Direct Investment (FDI)

The government promotes foreign investment in the travel and tourism sector The majority of tourism subsectors allow 100% Foreign Direct Investment (FDI), with the exception of rural tourism, local catering services, travel agencies, trekking agencies, river rafting, pony trekking, horseback riding, and tourist accommodation facilities. The facilitative strategy has allowed foreign firms from more than 30 countries to inject about USD 90 6 billion of FDI into the tourism sector, representing 21.6%

GOVERNING BODY

of the total FDI inflow in Nepal . Hotels and restaurants have been the primary focal sub-sectors for FDI in the tourism sector

The minimum investment required for obtaining FDI approval is NPR 20 million. Industries restricted from foreign investment (Negative List) related to tourism:

-Travel agency, guide involved in tourism, trekking and mountaineering guide, rural tourism including homestay

Foreign direct investment in Nepal has to go through two tiers of approval, the first from either Department of Industry (DOI), or Investment Board of Nepal (IBN) and the second from Nepal Rastra Bank (NRB). Despite the FITTA 2019 provisioning for self-declaration of foreign investment, it also stipulates that foreign investment must be brought through banking channels following procedures set by NRB

Generally, it takes around 3 to 6 months for the completion of this process . Despite the Foreign Investment and Technology Transfer Act 2021 (FITTA) allowing for the approval of foreign direct investment through the automatic route, this has not been implemented yet and thus the approval-based route is still followed. Further, the financial ordinance for the financial year 2022/23 also states that arrangements will be made to approve FDI worth NPR 100 million through the automated route . In this regard, Nepal can take lessons from India, where FDI is permitted without approval

in sectors such as manufacturing, telecom services and financial services fall, thus falling under the automatic route. While sectoral limits are still applicable on some of the sectors allowed in the automatic route, the system of automatic approval eases FDI inflow into the country. Nepal could therefore benefit immensely if it implements an automatic approval route for selected sectors or selected investment levels.

Non-Resident Nepalis (NRNs)

One key benefits for NRNs include lower tax rate in Nepal, with NRNs income being taxed at a flat rate of 25% whereas income of resident Nepalis is taxed at a progressive tax rate with the highest applicable rate of 36% Further, the tourism sector has high potential for capital growth, and a clear demandsupply gap in luxury hotels . Considering this, Nepal also has tried to create a conducive regulatory environment for NRN investment.

CurrentScenarioofthe HospitalityIndustry

100 + rooms

Minimum car parking space 25 cars

Minimum lobby occupancy of 60 people

Meeting and event halls

Outdoor swimming pool

State-of-the-art fitness centre

Luxurious spas

Gourmet restaurants

Butler services

Upgraded check-in services

Bar/Lounge

Club room (10% of total)

Mini Bar

Room Service

Beauty Salon

Shopping arcade

80 to 100 rooms

Minimum car parking

space 20 cars

Minimum lobby occupancy of 40 people

Restaurants and bars

Meeting and event halls

Fitness Center

Swimming pool Spa

Bar/Lounge

Mini Bar

Room Service

Beauty Salon

Shopping arcade

60 rooms

15% of the total rooms have king-size rooms integrated

Minimum car parking

space 15 cars

Minimum lobby occupancy of 20 people

Small gym Spas

Dining halls

Pick up and drop off service

Bar/Lounge

Mini Bar

40 rooms

Minimum car parking space 10 cars

Minimum lobby occupancy of 15 people

Pick up and drop off service

Room service

Activity area

Conference and party halls

20 rooms

Banquet hall

Minimum car parking space 10 cars

Minimum lobby occupancy of 10 people

Upscale and Midscale Hotels

Table 1 shows the number of different categories of hotels in various regions

of Nepal. A detailed list of hotels within Nepal can be found in Annex 1

Compiled by the authors

Table 1: Number of different categories of hotels in Nepal

Upcoming Hotels in Nepal

Many new up-and-coming luxury hotels are under construction with the aim to open soon and several have recently already started business Additional International hotel chains have started to arrive in Nepal - Marriott, Aloft, Ramada and Hyatt Place have opened in recent years, while several of the big hotel chains have hotels under construction

Sheraton, Doubletree by Hilton, Lemon tree hotel, Le Meridien, Dusit Thani resort and Holiday inn are some of the major brands of hotels currently under construction A comprehensive list of upcoming hotels in Nepal can be found in Annex 2

InvestmentsinNepal’s Hotels

International Finance Corporation (IFC)

with breathtaking views of the Himalayan range.

Dolma Ecotourism

17

Dusit International

18

The IFC invested USD 2 75 million in Nepal Hospitality and Hotel Private Limited to build the 3-star hotel Fairfield by Marriott in Kathmandu .This investment has boosted Nepal's midmarket hotel capacity, created jobs, and encouraged energy-efficient hotel design. In addition to its funds, the IFC has received USD 2 75 million from FMO, a Dutch development bank .

Dolma Ecotourism was established for the mutual benefit of both visitors and villagers. While the visitor learns the invaluable lessons of far-flung societies, so those societies should benefit in kind. Dolma Ecotourism shares any profits with the Dolma Foundation for reinvestment in the community to empower the locals to defend their culture in changing times.

Future of the hospitality sector

19

Dusit International, one of Thailand’s leading hotel and property developers, is building two hotels in Nepal They signed an agreement with Hotel Lhasa International Pvt Ltd to develop and operate Dusit Princess Kathmandu, Nepal The new hotel, which will be operated under Dusit's upper-midscale Dusit Princess brand, will include 108 well-appointed guest rooms and will be located in Lazimpat. The other hotel that Dusit International is constructing is a resort called Dusit Thani Himalayan Resort & Spa in Patlekhet, an hours’ drive from Kathmandu. They signed an agreement with Gemstone Asia Capital Nepal Pvt. Ltd. to operate the hotel. The resort will feature 44 well-appointed guest rooms and 20 private villas, each

The pandemic has prompted many investors to pull back from investing in the hotel industry. However, despite the challenging times, hoteliers see the huge potential of a bounce back for the Nepali hospitality industry The impressive rate of growth in tourist arrivals in recent years, especially in the business travel category, coupled with the high occupancy rates for 5-star hotels in Nepal signal opportunities for investment in this sector. The construction of many luxury hotels in different parts of the country has seen progress. Investors of new hotel projects are trying to take an

early lead in market competition as normalcy has resumed. Due to the pandemic, there have been major construction delays raising the cost of projects, but construction has resumed

Additionally, branded budget hotels, serviced apartments, food service businesses, and travel-related ecommerce may all present prospects for private equity investors. The Nepali tourist industry is expanding quickly, and during the coming years, it can be anticipated that it will move toward significant modernization and commercial-scale strategies This means

that in the near future, investors can also anticipate seeing exciting prospects in companies that operate in industries like food service chains, travel-related ecommerce, serviced apartments and branded budget hotels. While some have succeeded in neighboring countries like India and are destined to transfer to Nepal through organic and inorganic pathways, several of these segments— particularly food service chains have already begun to gain traction in Nepal

Challengesand Recommendations

Infrastructure

Infrastructure for tourism has a sizable demand-supply imbalance, especially in facilities for high-end visitors; this creates a chance for further private sector involvement The facilities needed to accommodate the increasing number of tourists are insufficient in terms of both quantity and quality, and thus there is a demand-supply imbalance in the country's tourism infrastructure. The "high value" tourist category, which looks for luxury accommodations, tours, and travel services, has a particularly huge demand-supply mismatch Given Nepal's general emphasis on "low budget tourism," this category is not given much attention, and the industry might benefit from giving high-value travelers more attention. There are only 19 5-star hotels and resorts in Nepal as of right now, and the majority of them are located in Kathmandu and Pokhara, with very little high-end infrastructure elsewhere.

The lack of proper road and air infrastructure poses a huge challenge to the tourism sector of Nepal Mass tourism and attracting high end tourists is difficult due to lack of adequate infrastructure. Trekkers are mostly prepared to face inconvenience during

their visit such as at the airport, however, it creates unnecessary hassle for them. The construction of domestic airports during peak tourist months creates a lot of inconvenience for travelers and trekkers, which can discourage them from visiting Nepal in the future

Infrastructures need to be improved to improve connectivity and make travelling comfortable The airports and the safety and maintenance of airplanes need to be improved. The increase in number of domestic flights will increase domestic mobility, and therefore tourist flow within the country The process of taking a flight must be easier for tourists from all over the world by creating direct flight routes where possible to reduce the time taken to reach Nepal Flight management at the Tribhuvan International Airport is also an issue, as international airlines are prioritized, delaying the movement of tourists within the country .

Human Resource

Retaining capable hospitality manpower in Nepal is a challenge Despite the presence of good quality educational institutes for hotel management in Nepal, it is difficult to retain graduates as the Middle East is an attractive destination for them and are more likely to move

July 2023 20

abroad. Nepal also does not have enough hotels to absorb the hospitality graduates.

Hotel management institutes need to include practical as well as theoretical knowledge in the curriculum. There is a need to educate young professionals on the skillsets required in the tourism industry such as good communication, finance, product development, and technical skills such as tourism marketing, tourism online retailing etc

The training for trekking guides in Nepal is too theoretical which results in a lack of skills in the guides To obtain a guide license in Nepal, you have to attend NATHM for a month, but the education they provide is not of great quality. Since trekking involves tourists from all countries, a knowledge of multiple languages is essential.

Regulatory Bodies

The regulatory environment is mostly favorable to the tourism industry Through rules that demand hotels and resorts meet international standards as well as subsidies and incentives for the private sector, Nepal's regulatory environment has a favorable impact on enterprise value and operations in the tourism sector. However, they might be improved by introducing more accommodating laws to encourage private sector engagement in the tourism industry, particularly around land acquisition through Private Public Partnerships (PPPs) and build-

operate-transfer models.

However, there is a lack of consistent long-term policy on tourism A sustainable long-term policy is required for the tourism sector so that the hospitality businesses can plan accordingly and ahead of time. The policies should also take into account the possible environmental damage caused by heavy influx of tourists There is a need for proper planning and training for new hotels in order to ensure good quality and prevent oversupply.

Based on the stakeholder consultations, Nepal can be more conducive to tourists if the Nepal Tourism Board (NTB) focuses on marketing more than on product development. However, NTB has been unable to market the places in Nepal properly due to lack of funds NTB can hire tourism experts at the decisionmaking level to increase the capacity of NTB to develop and brand Nepal as a tourism destination

Further, there is a need for proper and timely implementation of policies introduced to revive the sector from COVID-19. For instance, the financing option provided by the government at 5% to the hotels affected by COVID-19 for a period of 2 years had slow implementation, depriving several hotels from availing such facilities.

Additionally, there is a need to improve tourist visa policies of Nepal so that travel to Nepal can be more convenient. For this, the government should facilitate

the visa approval process by enabling payment of fees through credit card and online payment channels.

Marketing

There is a need to market Nepal in a better way as a tourist estination Nepal can be rebranded as not just a mountainous country, as Nepal is rich in culture and nature as well to attract tourists of all kinds. Nepal can sustainably market the country’s history, humility, and friendliness and redirect its focus to improve the experiences of tourists visiting Nepal. Currently, the country relies mostly on word of mouth for marketing. Moving forward, digital marketing can be leveraged to promote various experiences offered by Nepal with only a little investment Further, participating in international fairs, and hosting international events can lead to increased visibility of Nepal in the global space, which will eventually lead to more arrival of tourists.

Data

There has been no effort to change the tourism industry into a data-driven one. The data on tourist arrival is not accurate because any foreigner entering Nepal is considered a tourist There is no data on the movement of tourists within the country There is a need for data on the activities of the tourists so as to analyze behavioral patterns, exit poles and divert focus on the quality of experience they

gained. There is data available on the tourists in the Namche region but no analysis has been conducted. There is no analysis of the age group of tourists arriving in Nepal. Data analysis is needed for incoming tourists and their spending patterns so that the tourism industry can plan accordingly

Chain hotels have their data in their system which can be compared to the market averages. Hotel data is not comparable due to differences in room keys. The hotel industry must be required to fill an online database with rooming data such as bed nights. This can be done by collaborating with already existing data companies and the central bureau of information

Mismatch of Expectation

International tour operators selling holiday packages for Nepal tend to charge a high rate to their customers. Due to this, the tourists visiting Nepal expect high quality as per the rate paid. However, the Nepali tourism industry gets only a small share of this rate and thus can only provide services as per the proportion of revenue they receive. This leads to a mismatch of pricing with the quality of service offered, causing dissatisfaction among tourists

Conclusion

The tourism industry, a significant contributor of Nepal’s economy, had been steadily growing before the onset of the COVID-19 pandemic in March 2020. After a significant drop in tourist arrivals in the pandemic years of 2020 and 2021, the industry has shown signs of recovery in 2022 with tourist arrival in the year reaching 51.3% of pre pandemic year of 2019 The average expenditure per visitor in USD terms was declining steadily until 2019, indicating that the tourists arriving in Nepal were composed of budget travelers and backpackers. On the other hand, the average length of stay increased from 2015 to 2021 which could be attributed to a strengthening of the USD against the NPR.

While the tourism industry can be expected to bounce back within the next year, several new trends has emerged within the industry The rise in domestic tourism, fueled by the travel restrictions of the COVID-19 pandemic, is one of the most noteworthy trend in the sector. Similarly, with the popularity of staycation among domestic tourists and the potential for Meetings, Incentives,

Conferences and Exhibitions (MICE)

tourism, investments in the hospitality sector has increased with several international hotel chains entering the Nepali market.

For Nepal to realize its full potential in the tourism industry, the challenges bought on by weak infrastructure and lack of Human Resource needs to be addressed Further, a data driven approach to the industry would help understand the behavioral patterns of tourists and create and market products tailored to different interests. A united effort from the regulatory bodies and the private sector to create and follow a uniform tourism policy would provide a long term support to grow and sustain the tourism industry in Nepal.

WorksCited

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Annexures

Annex 1 Details of upscale and midscale hotels in Nepal

Pokhara

Lumbini

Annex: 2 Upcoming hotels in Nepal