Nepali companies and IT engineers are heavily involved in cybersecurity and fintech sectors, requiring high levels of expertise.

The recognition of Nepal's IT sector export success came from politicians, policymakers, and the general public following the release of the IIDS report. However, it's vital to acknowledge that this achievement culminates two decades of dedicated effort and hard work. Building upon the groundwork laid by pioneers like Rudra Pandey, Tika Uprety, Ravi Karmacharya, and others two decades ago, we, the second generation of IT entrepreneurs, have continued their legacy. As a result, the Nepali IT sector stands as a testament to the persistent efforts that have propelled it to its current position.

However, it's important not to perceive this as the ultimate success but rather as a significant initial milestone. These achievements mark just the beginning steps. A new organization, NAS-IT, has been established to accelerate the progress made so far. Looking ahead, NAS-IT sets ambitious goals, aiming to elevate the Nepali IT industry to a 5 billion dollar industry within the next decade. In the early 2000s, companies like D2HawkEye delved into healthcare-related data analysis. Concurrently, Hitech Valley and Pumori ventured into retail data analytics, procuring data from American retail businesses. Among the prominent IT companies of the recent generation, Leapfrog operates across multiple domains, while Fuse Machine specializes in Artificial Intelligence. Companies such as EKbana, which emerged post-2014, handle backend operations for Japan's e-commerce giant from Nepal.

When discussing the advancement of the Nepali IT industry, it's crucial not to limit the conversation to the success of IT services export and the involved companies. We must recognize the substantial contributions made within Nepal by companies like F1Soft, Info Developers, and Rara Labs, among others. The innovation and achievements of F1Soft in fintech, Info Developers in software development, and Rara Labs in digitizing small and medium enterprises (SMEs) and cooperatives are equally vital aspects to consider. In Nepal, leading IT companies like Cedargate, Cloud Factory, Leapfrog, LogPoint, Cotiviti, F1Soft, and EKbana are dedicated to developing cutting-edge technology solutions. Nepali companies and IT engineers are heavily involved in cybersecurity and fintech sectors, requiring high levels of expertise.

Logpoint, for instance, specializes in security information and event management solutions. Notably, Logpoint's clientele includes Airbus in Europe, Boeing in America, and the Defense Department of Denmark, all benefiting from solutions developed by Nepali IT engineers. Approximately two hundred and fifty engineers in Nepal contribute to Logpoint's projects. Furthermore, SumoLedger Technology, a core banking solution developed in Nepal, is making its mark in domestic as well as international markets like the USA, Singapore, Australia, Croatia, and South Africa. Choice Group of South Africa, which has operations across 40 countries, relies on technology developed by Rara Labs for core banking and remittance operations. Additionally, a mobile wallet company in Croatia utilizes Rara Labs' ledgering technology.

These examples highlight the premium expertise being cultivated in Nepal. Developing cybersecurity solutions requires highly specialized resources, and Nepal's IT industry is at the forefront of such endeavors. Our IT pioneers began their journey by establishing development cost centers in Nepal and directing work through their US-based companies. As the next generation of IT entrepreneurs, myself included, we pursue various approaches. Some establish companies abroad and bring their success to Nepal, while others focus on building companies within Nepal and attracting overseas work.

The quality of Nepali IT engineers is really good, comparable to that of India. However, if large multinational IT companies were to set up operations in Nepal, the current production level of IT graduates wouldn't suffice.

For companies operating in Nepal as a subsidiary of a company abroad, managing payments is relatively straightforward as they handle transactions overseas. They also have the flexibility to allocate a portion of their revenue to marketing and business development. Conversely, while it's easier for companies like ours to bring revenue directly to Nepal, conducting marketing and business development activities abroad poses challenges. Current laws restrict Nepali companies from spending money overseas for such purposes.

Only a handful of Nepali IT companies have reached the level of bidding for foreign contracts. While the IT industry in Nepal may appear substantial in terms of size and business volume domestically, it remains relatively small on a global scale. Consequently, the largest contract sizes secured by Nepali companies from international clients are around 1.5 million dollars.

Unfortunately, no precise data is available regarding Nepal's IT services export. However, based on informal discussions among approximately 70 to 80 IT companies associated with NAS-IT, there was observed a growth of around 100 percent from 2021 to 2022. If we extrapolate this growth trend to 2023, it would amount to approximately 650 million dollars. It's worth noting that the income of IT freelancers is often categorized as remittances, and Nepal has a significant number of IT freelancers. If we were to include their earnings, the total could potentially reach one billion dollars.

We find ourselves in a similar position to where India was in 1990. Typically, the initial phase in any country's IT industry involves providing IT services by bringing work from abroad. This helps to establish an ecosystem. The earnings generated by the first generation through such endeavors are gradually reinvested into product development. Compared to India and Bangladesh, the Nepali IT sector is behind. Bangladesh, for instance, began its journey towards becoming a digital powerhouse about 12-13 years ago through the Digital Bangla initiative and now envisages IT and digital services export to reach 5 billion dollars within 2025.

The quality of Nepali IT engineers is really good, comparable to that of India. However, if large multinational IT companies were to set up operations in Nepal, the current production level of IT graduates wouldn't suffice. Presently, the combined annual output of IT engineers from all universities amounts to around 8 thousand. If major companies were to establish a presence in Nepal, this number would fall short of meeting the demand.

The current challenge facing Nepali IT companies involved in IT products and services export is the need to generate revenue in foreign currency by selling goods abroad, all while encountering restrictions on marketing and establishing branch offices overseas. This poses a significant barrier to the growth of local IT companies. In response to this challenge, there is a prevalent trend of establishing companies abroad and opening branch offices in Nepal. However, why not consider establishing a head office in Nepal and opening branch offices abroad instead? Government support to address this issue is crucial, as it would facilitate increased exposure for Nepali companies and expand their networks.

Furthermore, the government should prioritize creating local demand. Despite the government spending billions on IT procurement annually, strict experience criteria often prevent Nepali companies from participating. To tackle this, NAS-IT has proposed that government IT products and services procurement under Rs 250 million should be legally mandated to source from local companies. This initiative would stimulate local demand, bolster the workforce, and enhance our project execution capabilities. 

(Ghimire is co-founder and CEO of Rara Labs, a Kathmandu-based IT company)