Nepal’s economic potential has long been constrained by infrastructure constraints and bad governance. The country has learned to survive on remittances by exporting labor. This model has helped strengthen the external sector and delivered macroeconomic stability, but it could not help improve the internal sector, and also capped ambition. The question Nepal must now ask is not whether this model works, but whether it is right.
Across Asia and Africa, countries with fewer comparative and competitive advantages have rewritten their development trajectories. Let us look at our neighbours that were in the same state as Nepal a few decades ago. According to the Export Promotion Bureau of the Government of Bangladesh (EBP), Bangladesh’s total merchandise exports reached about USD 48.3 billion in fiscal year 2024-25. The World Trade Organization’s 2023 Statistical Review also confirms Bangladesh’s status as one of the world’s top apparel exporters. Bangladesh did not diversify early; it upgraded relentlessly and scaled fast. Nepal, which was at a similar status with Bangladesh till the late 90s, by contrast, never committed to a single export obsession, but rather exploited the opportunities with a focused approach. Today, Bangladesh is one of the fastest-growing economies in South Asia.
Ethiopia offers a different but equally instructive benchmark. Despite being a landlocked and low-income economy, Ethiopia built the largest and most profitable airline in all of Africa. Ethiopian Airlines is wholly state-owned, yet it operates with professional autonomy, reinvests its profits, and anchors the country’s logistics, tourism, and export ecosystem. According to the airline’s annual reports, corroborated by the International Air Transport Association 2022, Ethiopian Airlines consistently outperforms many privately owned counterparts. State-owned enterprises can subsequently succeed when insulated from patronage and governed by performance.
If we turn our gaze to our national flag carrier, Nepal Airlines stands as a symbol of institutional neglect. Strangled by red tape, trapped in an endless political tug-of-war, and weakened by chronic governance failures, the airline has been denied the autonomy it needs to survive, let alone compete. Once envisioned as a source of national pride, it has instead become one of the government’s most persistent loss-making enterprises.
Reimagining governance
In Europe, Ireland’s “Celtic Tiger” era reinforces a third lesson: transformation is a generational project. Popular narratives emphasize Ireland’s low corporate tax rate, but Organisation for Economic Co-operation and Development (OECD) and European Commission analyses from 2019 show that the real foundation was a 25-year investment in education, research capacity, and global integration. Ireland deliberately positioned itself as the gateway for US technology firms into Europe: an English-speaking, legally stable, and talent-rich platform.
Wedged in between two digital superpowers, Nepal could have also become a neutral gateway for data, cloud services, and regional tech collaboration if it invests in skills and institutional credibility. On the other hand, Nepal has neither been able to exploit its demographic dividends nor benefit from its geopolitical status, which could have brought Nepal to the digital frontier.
Nepal’s most underutilized asset is not labor or land but its energy. The country possesses vast hydropower potential, which it has started to export lately. Recent energy-economics research suggests a more strategic alternative. The 2022 studies cited by the International Energy Agency (IEA) show that data centers and high-performance computing facilities are increasingly co-located with renewable energy sources to reduce costs and emissions. Nepal’s high-altitude climate offers an additional advantage: natural cooling. Unfortunately, Nepal has also not been able to utilize clean energy to establish the data centers.
A strategy involving regional green data centers, including digital storage, cloud computing, and sovereign data services, could help Nepal exploit its surplus hydropower potential. Positioned between India and China, Nepal could market itself as a neutral data vault, a concept increasingly relevant amid rising concerns about data sovereignty and geopolitical risk. This is not speculative futurism; Nordic countries such as Iceland and Norway have already demonstrated this model by leveraging surplus renewable energy and cool climates to develop globally competitive, low-carbon data center industries serving international markets. The surplus energy could be monetized through controlled digital mining, which Bhutan is doing. While environmental and governance safeguards are essential, dismissing the idea outright ignores its potential as a transitional revenue stream, particularly for a hydropower-rich country still building domestic industrial demand. If done responsibly, it can temporarily convert unused energy into income while the country develops more sustainable, long-term industrial and digital sectors.
In the long run, Nepal may not ever compete with its northern and southern neighbors; thus, sensible planning of clean energy is in Nepal’s best interest. New economies are not only digital; they are also cultural. The United Nations Conference on Trade and Development (UNCTAD-2022) notes that creative industries are among the fastest-growing sectors globally, accounting for over 3 percent of world GDP and employing millions, particularly youth. Nepal possesses immense cultural capital: mythology, architecture, music, craftsmanship, and landscapes that already attract global attention. What it lacks are pipelines- studios, platforms, intellectual property protection, and export-oriented financing. Orange economy is not about nostalgia; it is about monetizing cultural IP through gaming, animation, streaming content, and immersive tourism.
Similarly, Nepal’s water economy must evolve. Rather than viewing hydropower as the sole water-based export, Nepal could adopt a “Water 2.0” strategy- high-value bottled water for premium Asian markets, glacier-based ecotourism, and hydrological research services. Asian Development Bank emphasizes that water-based economies increasingly derive value from services, branding, and sustainability credentials, not volume extraction. In an era of global water stress, Nepal’s clean water narrative is a strategic asset. To materialize this, the current governance model should be optimized for production. A dedicated Ministry of the New Economy, tasked with fast-tracking technology, biotech, logistics, and creative industries through regulatory sandboxes, is needed now more than ever.
The World Bank’s 2020 Global Financial Development Report 2020 documents how regulatory sandboxes reduce innovation risk while preserving oversight. Tax policy must also shift: penalizing entry discourages entrepreneurship, while taxing success- dividends, scale, and exports- rewards outcomes. Nepal stands at a strategic inflection point. The remittance-led model that once provided resilience has reached its limits, and the comparative experiences of Bangladesh, Ethiopia, Ireland, and the Nordic countries demonstrate that late development is not a sentence to stagnation, but a test of focus, governance, and long-term vision.
Nepal’s missed opportunities have not stemmed from a lack of assets, but from fragmented ambition and weak institutional execution, and bad governance. Energy, geography, culture, water, and demographics together offer a diversified foundation for a new growth model, one that prioritizes value creation over survival and productivity over dependency. The challenge ahead is therefore not conceptual but political and administrative. Transformative economies are built when states choose discipline over patronage, specialization over diffusion, and patience over populism. If Nepal can align governance with production, insulate strategic sectors from short-term politics, and invest consistently in skills, institutions, and credibility, it can still redefine its place in the regional and global economy. The question is no longer whether Nepal has potential, but whether it has the resolve to convert that potential into sustained, self-directed development.
[The author is a research assistant at the Asian Institute of Diplomacy and International Affairs (AIDIA). She recently graduated from The University of Tampa with a degree in Political Science, International Relations, and Sociology.]
