To move beyond this, we first have to develop new ways of doing business. Traditional thoughts and styles may not deliver the desired outcomes at such a competitive age. The ground rules for development are fast-changing and our neighbors are in the race of meeting global pace for development. We cannot remain isolated from such global competition for business. The cost of isolation will be too much to bear and Nepal may ultimately be pushed into being a pariah state lacking modern infrastructure. Fortunately, we have potential resources to utilize and gigantic markets are available right across our borders. We just need to become rational and business savvy population who understand the modern business acumen. The market is always ready to purchase everything we produce in Nepal. Therefore, progressive leadership and commitment is something we urgently require at the present time.
Recent developments; particularly on hydro power and road developments are initial indicators to affirm that Nepal is getting back to business. The Investment Board Nepal (IBN) has already signed two major deals for the development of 900 MW Upper Karnali Hydro Power Project and and 900MW Arun-3 Hydro Power Project, and the Board has recently approved Foreign Direct Investment (FDI) of Rs. 160 billion for the development of 750MW West Seti Hydro Power Project. The Board has also moved forward the process of developing the longstanding Second International Airport (SIA) and upgrading the current Tribhuwan International Airport (TIA). The Board's 17th meeting has decided to form a high-level committee to move forward both the projects as early as possible.
The Board has a unique function of providing a one-stop service to potential investors. It has substantially reduced the long list of formal bureaucratic steps for doing business in Nepal. The revised procedure has had remarkable positive impacts on investors' confidence. Likewise, the Board has been encouraging domestic and international investors alike to investment in Nepal.
As part of securing national interests, the Board always recognizes it's Nine Principles as guiding values for negotiating with private investors. The Nine Principles adequately reflect international standards on the issues of community benefits, social and environmental impact by potential projects. The principles also guarantee that any development of infrastructure must be carried out to meet national interests. For example: the first principle states that the national demand for electricity must be met before large scale exportof electricity can take place. Likewise, another principle states that the project assets will be handed back to Nepal government in good operating condition after the concession period.
While there are some positive steps taken by the country towards prioritizing economic development, more must be done. We need continue to aim high to keep pace with our neighbors.
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Our northern neighbor, for example, has planned 10 new airports each year until 2020. India is investing US$20 billion to modernize its infrastructure over the next five years. Economic growth of these Asian superpowers is remarkable and is something Nepal can learn from. China's share was around 22 percent of the total money spent on infrastructure across the world in 2012.Similarly; China raised its GDP (on the basis of purchasing power parity) to US$17600 in 2014 culminating itself to the status of the world's largest economy, overtaking the US. The secret behind the exponential growth of both the countries (India and China) is massive investments in infrastructures.
Today, countries that have ambitious economic goals have also signaled their willingness to invest substantially in infrastructure. Despite this global realization, Nepal continues to struggle to attract investment on infrastructure. We have identified hydropower, road, railways, agriculture and tourism as major infrastructure projects for big investments. Progress in these sectors is still dismal.
Nevertheless, following the formation of a new government last year, economic indicators are on the rise. Nepal has fulfilled a majority of its targets to graduate to developing country by 2022.The World Bank estimates that Nepal needs an annual investment of around US$13 billion-US$18 billion between 2011-2020 for this. Given the 4 percent annual average growth recorded for the last one decade, Nepal needs to take a giant leap forward to achieve 8-9 percent growth. Massive utilization of our resources and private investment in infrastructure can. The government hopes invest Rs 9700 billion until 2022 to meet the developing country status target. Private sector contribution in infrastructure should be two-third the total investment to meet the target. Currently, the private sector investment is 0.66 percent.
Currently, some of our internal figures are not encouraging. A recent report: "Asian Development Outlook" released by the ADB, ranked Nepal at 132 out of 147 countries in terms of development of infrastructure. Similarly, we only saw a 1.1 percent growth last year in agriculture sector, which makes up one-third of our economy. Industrial sector, on the other hand, which used to contribute 15 percent to GDP a decade ago, has shrunk to 6 percent. Its growth was limited to 2.5 percent last year. In the absence of country's capacity to increase its supply, daily trade deficit has hovered at around Rs 1.8 billion and industries are running at almost a half their capacity. Low capital spending has further aggravated the situation.
Nevertheless, recent developments on hydropower and other infrastructure indicate bright future. Foreign investment has significantly increased. Some internationally renowned companies like Reliance of India and Dangote of Nigeria have already secured FDI to establish cement factories in Nepal while two Chinese companies including Honshi Group are also showing interest. The combined investment from these four foreign firms can go beyond Rs 150 billion. The Investment Board is also hoping to sign Project Development Agreement (PDA) for West Seti, Tamakoshi-3 and Upper Marshyangdi-2. The Board is set to move forward the Kathmandu Solid Waste Management Project soon. International bidders selected for the preparation of Detail Project Report (DPR) of the KathmanduValley Integrated Solid Waste Management (ISWM), have started their works.
Investors are closely observing the opening up of investment opportunities. They want a stable government, timely constitution and secure environment so that their investments are safe. Nepal has to compete with Myanmar, Africa and Indian states for foreign investment. Therefore, foreign investment is not something to be taken for granted. If we don't fix our politics and send a concerted positive message to international community, we may end up talking about our huge resource potential without being harnessed for centuries.
PDAs for Upper Karnali and Arun-3 Project and Power Trade Agreement (PTA) with India have set up the base to move forward. Process on Detailed Project Report (DPR) for Pancheshwor Multi-purpose project and agreement among SAARC member countries for a regional power cooperation are some big steps toward hydropower development in the country.
The government is working to amend more than three dozen laws to facilitate private investment. Recently introduced Resettlement and Rehabilitation Policy, for example, is a giant step forward to resolve land related disputes in mega projects across the country. The lack of clear policy on land acquisition has stalled or delayed many projects in Nepal.
A recent report (Doing Business 2015) published by the World Bank indicates gradual improvements in the business environment in Nepal. The report has put Nepal at the 108th position this year, which is a step up from the last year in terms of business climate. In terms of Economic Vulnerability and Human Resources Development Assets, Nepal is on the right track to achieve the target. We need to increase our public and private spending on infrastructure sector to accelerate the growth. According to ADB, we need to put our capital spending at 8.2 percent-11.8 percent of GDP until 2020 to sustain accelerated growth.
Time and tide wait for none. We have to tap on the emerging domestic and global opportunities. Political commitment and investment friendly environment, supportive bureaucracy and flexible laws are prerequisites for foreign investment. We need to sell our positive story to international communities to spur the foreign investment as early as possible.
(Pant is CEO of Investment Board Nepal Investment Board)
