Republica roundtable

Infrastructure development key to propel growth

Published On: February 6, 2017 12:20 AM NPT By: Kuvera Chalise  | @@kchalise

KATHMANDU, Feb 6: Various studies show that 1 percent increase in the stock of infrastructure is associated with a 1 percent increase in gross domestic production (GDP). One of the key avenues through which infrastructure contributes to economic growth is by improving competitiveness and facilitating international and domestic trade by reducing the cost, according to World Development Report.

However, lack of basic infrastructure has forced Nepal to witness an average of below 4 percent economic growth over the past decade. Thus, Nepal needs to invest heavily on infrastructure, if the country wants to come out of the vicious cycle of low economic growth, poverty and unemployment, according to president of Confederation of Nepalese Industries (CNI) Hari Bhakta Sharma.

A World Bank estimate of Nepal's 'infrastructure gap' pegs investment needs at between 8 percent and 12 percent of national income this decade. Nepal's medium-term ambition is to become a middle-income nation by 2030, while graduating out of the least developed country (LDC) status by 2022.

"This is only possible with high growth rates sustained by productive capital formation," Sharma said, adding that this demands rapid development of infrastructure driven largely by a private sector - local and foreign - that has the technical, managerial and financial clout to deliver efficient, high-quality and cost-effective results on the ground.

The government has to mobilize massive development budget, apart from the private investment, Sharma said, adding that the matching of the government investment with the private sector is the only cure to the low growth trajectory. "But the government has to create the investment-enabling environment," he added.

Once the domestic investors start pouring their money in infrastructure sector, foreign investors will also get confidence to invest. Nepal needs $10 billion a year in terms of foreign direct investment (FDI) in order to graduate from the current LDC status, according to the World Bank.

In order to elevate the status, Nepal needs to be competitive in attracting FDIs, Sharma added.

"Nepal is fast losing its competitiveness also due to lack of infrastructure that helps connect market and industry," according to infrastructure expert Surya Acharya. "Connectivity is key to not only linking the market and boosting the trade and economic activities but also an adhesive to make Nepalis stick to unity as a nation."

Another World Bank study has concluded that Nepal needs to spend $13 billion to $18 billion from 2011 to 2020 to bridge the investment gap in infrastructure. "Of the total, $3.7-$5.5 billion is needed in transport infrastructure alone," the report noted. 

Since the government has limited resources, it cannot invest alone to improve infrastructure, which calls for private sector's participation, Sharma added.

As Nepal has to do a lot in infrastructure development -- from increasing accessibility to facilitating service delivery and enhancing cost effectiveness, the government has no other option than to create conducive investment environment and invite private sector, both domestic and foreign, to invest in the infrastructure sector, said Sharma.

"The government should also move forward with the economic reforms as the laws that guide these sectors are the biggest bottlenecks in development," said CNI National Council member Birendra Pandey. 

As the BOOT Act that came a decade ago could not encourage private sector investment in infrastructure sector, the government is in the process of finalizing the PPP Act aiming at involving the private sector in infrastructure, according to former secretary Krishna Gyawali.

In the present circumstances, when the private sector is complaining of lack of conducive environment for investment, PPP model can be a good alternative so that the private sector can feel secure as the government too will have stake in such projects.

CNI Vice President Bishnu Agrawal also stresses the need for PPP model of development. "The PPP model is going to be very helpful in those areas where the private sector alone is a bit hesitant to enter," he said, being hopeful that the government will bring the PPP Act sooner to encourage private sector investment in infrastructure.

The Istanbul Programme of Action that aims to at least halve the number of LDCs by 2020, too, has laid great emphasis on PPP. "Partnerships with the private sector play an important role for promoting entrepreneurship, generating employment and investment, increasing the revenue potential, developing new technologies and enabling high, sustained, inclusive and equitable economic growth in least developed countries," it says. 

2nd Nepal Infrastructure Summit from Feb 19
The 2nd Nepal Infrastructure Summit is scheduled for February 19-20. 

The two-day summit is being organized jointly by Confederation of Nepalese Industries (CNI) and Youth Community for Nepalese Contractors (YCNC), in association with different government agencies as well as bilateral and multilateral development partners. 

Prime Minister Pushpa Kamal Dahal is scheduled to inaugurate the summit as the chief guest. Similarly, Railway Minister of India Suresh Prabhakar Prabhu will be the Guest of Honour and keynote speaker of the summit that will also showcase the project bank developed by Investment Board Nepal (IBN).

Private sector should be invited to plug investment gap
Hari Bhatka Sharma
Presdient, CNI

Our limitations in terms of infrastructure have been hitting our industrial growth. China realized the need for infrastructure development in the 1970s and 80s, and is reaping the benefits now. The government and the private sector should work hand in hand to remove obstacles in infrastructure development. We have equipment and tools but we do not have mechanism to set standards. Our private sector, industries and factories could not be developed in these years given the political baggage that we are saddled with. If industries and industrialists cannot work in a respectful environment, how can our economy recover? We have not debated or discussed about our economic issues. In recent times, there has been some discourse on infrastructure sector. However, the discussion is not going to translate into action unless the private sector and the government join hands. The government should create a conducive environment so that the private sector can make investment. It should simplify and ease the process, policy and rules to encourage private sector investment in infrastructure development. Stable government and politics, apt bureaucracy and favorable environment are the pre-requisite for investment. The infrastructure summit will focus on these issues. A study shows we cannot lift our country out of poverty until we make investment of US$ 3 billion annually. Since there is a huge investment gap, we should also invite private sector, both domestic and foreign, for infrastructure development.

PPP Act needed
Bishnu Kumar Agrawal
Vice President, CNI

Infrastructure is the backbone for economic development. Our neighboring countries -- India and China -- have been focusing on infrastructure development since long. Nepal has lot more to do in terms of infrastructure development. We need to focus on infrastructure development to achieve rapid economic growth. The country is slowly realizing the importance of infrastructure for economic development. Private sector is key to infrastructure development as the government alone can do nothing. The government can work with private sector to develop roadway, transport sector and build airports of the country. Nepal holds immense prospects for public-private partnership (PPP) in energy and agriculture projects. The private sector is capable enough of building the fast-track project. But it is almost impossible for the private sector to acquire such large swathes of land for the project. We cannot start work without acquiring at least 80 percent of land. We have already held several rounds of meetings to discuss this issue.

The government should make a separate act to govern issues related to Public-Private Partnership (PPP). Investment Board Nepal (IBN) can also play a vital role in resolving land acquisition problems.

We will select best infrastructure ideas
Malvika Subba
CEO, Idea Studio

CNI has started 'Infrastructure Idea Hunt' campaign, with the help of Idea Studio, to encourage Nepalis from all sectors of the communities to come up with creative and innovative infrastructure (transportation, irrigation, energy, housing and digital, among others) ideas to solve existing infrastructure deficit in the country. The campaign will also create awareness on the negative impact of infrastructure development on overall human development and importance of active participation from all sectors of the communities to identify problems and come up or make suggestion on possible innovative solutions. All Nepalis, including those living abroad, who have innovative solutions and ideas to solve our infrastructure problem in Nepal, can participate in the campaign. Top 10 ideas will be presented at the Infrastructure Summit and top three ideas will receive cash prize of Rs 100,000 each as well as an opportunity to participate in Idea Studio Nepal - a national level incubation program. This campaign will also provide an opportunity to the participants to showcase their ideas and talent. 

We never looked for ways to make fast-track project profitable
Surya Raj Acharya
Infrastructure Expert

First of all, we all have to be clear about public-private partnership. We all have to know whether investment of private sector is beneficial in infrastructure development. Private sector investment in hydropower sector increased massively after Nepal Electricity Authority (NEA) confirmed that it will buy energy generated by project developed by independent developers.

But public-private partnership (PPP) model in transportation sector has been successful in some countries and failed in some. Leaders from different countries have understood PPP model in a wrong way. They think that all the work will be done by private sector. Private sector has been encouraged for its effective ideas and fast management. The concept to construct fast-track road project in PPP model was criticized. It would be a social loss if vehicles are not operated after the expressway is built. The government was trying to solve this issue by paying money which was totally wrong. Different researches have showed that the project was not profitable. But we never looked for ways to make it profitable. Now the government has decided to construct the fast track on its own.

Nepal can attract investors from China, India
Rohit Gupta
Member of Youth Forum, CNI

The country lacks basic transportation infrastructures. It is one of the reasons behind low tourist footfalls in the country. Tourists are shifting to countries like Thailand and Malaysia which are doing well in transportation sector. Good transport infrastructure can open up new investment avenues in the country. Some sectors of the economy are doing very well. Steel industries, for example, are flourishing as their products are consumed in the domestic market. The pace of economic development has remained rather slow due to lack of proper infrastructures. Nepal can take advantage from the booming economies of India and China by inviting investors there to put their money into different projects in Nepal.

Involvement of private sector is a must
Birendra Pandey
National Council Member, CNI

The 2nd Second Nepal Infrastructure Summit 2017 has been scheduled for February 19-20, 2017. The summit is being organized jointly by Confederation of Nepalese Industries (CNI) and Youth Community for Nepalese Contractors (YCNC) in association with different government agencies as well as bilateral and multilateral development partners. Prime Minister Pushpa Kamal Dahal will be the chief guest of the summit, while Suresh Prabhakar Prabhu, Railway Minister of the Government of India will be the Guest of Honor and keynote speaker. The slogan of this year's summit is 'Private Sector as an Indispensible Partner'. The summit will showcase 50 viable infrastructure projects developed by the Investment Board of Nepal. Nepal suffers an infrastructure deficit of an epic scale, stifling vast human potentials on several fronts. A World Bank estimate of the country's 'infrastructure gap' pegs investment needs at between 8 percent and 12 percent of national income in this decade. Nepal's medium-term ambition is to become a middle-income nation by 2030, while graduating out of the status of a least developed country (LDC) by 2022. For this, the involvement of private sector for the development of infrastructure is a must. 

We shouldn't compromise on quality
Krishna Gyawali
Former Secretary    

Quality should also feature in discussions as our infrastructures won't be sustainable if we compromise on quality. Many consulting and contracting have been tainted because they compromised on quality while building infrastructures. There should be cost estimate before starting any project. If there is no proper estimation of the cost, it may come to a halt midway. This is the reason why the fast-track project could not progress further. We need to decentralize infrastructure development. I have been saying that there is no need to build metro rail service in Kathmandu. Not only the cost is huge, but also because the geographical structure of Kathmandu is also not appropriate to build railway infrastructure. The infrastructure summit should be clear about what message that it intends to give to the government, investors as well as consumers. It should apprise the policymakers of the bottlenecks in infrastructure development. The government should delegate full authority and power to the CEO of Investment Board Nepal. At least half a dozen memorandum of understanding (MoU) should be signed in the summit which will disseminate a message that the investment climate in the country has improved. Tourism, energy, transportation, agriculture and urban development are some of the major areas of focus for the infrastructure investment. 

Speeches alone do not bring investment 
Purushottam Ojha
Former Secretary

Nothing is going to happen from mere talks. For something to happen, there should first be a master plan on how to invest and develop infrastructures in the country. The private sector should also be clear where it needs infrastructure the most. Since Nepal is a landlocked country, our efforts should be toward making it a 'land-linked' country with India and China. Nepal needs to link itself with neighboring countries through better roads by signing bilateral agreements with them. At a time when the government has not been able to spend development budget, we can also build such road networks even by investing our own resources. While it's easy to talk about public-private partnership in any project, it's not such easy in practice. Investors are not coming into the country to pour their money just because our ministers and leaders give speech that Nepal is now open for investment. For the investment to come, there should be investment-friendly environment and policies in the country. Since Indian Rail Minister is scheduled to address the summit, we should take this opportunity to raise the issue of expanding its rail network to Nepal-India border as per its commitment. Domestic industries have been investing huge amount of money on import of raw materials as well as on transportation cost for import and export. So, we should raise the issue of expansion of rail network to border areas which can benefit our domestic industries. 

People cannot get fruit of development in the lack of infrastructure  
Kamal Pandey
Former Joint Secretary

There has been some development in infrastructure sector in recent times. But our pace is very slow compared to other South Asian countries. This is one major reason why we have not been seeing rapid economic growth like in other countries. Manufacturing sector cannot expand without the development of infrastructure sector. It is almost impossible for the economy to grow without expansion of industries and factories. We have been able to build only 95,000 km road in total. But, 50 percent of the roads are gravel roads while 60 to 65 percent roads are not motorable road. People cannot taste the fruit of development if there is not adequate infrastructure in the country. Investment in roads, airports and hydropower, among other sectors, is different from other investments. The government is telling private sector you have to build fast-track road if you want to take second international airport project. Around 80 percent of people coming to Kathmandu are using the city as a transit point to fly abroad. If the second international airport is built in Nijgadh, most of them won't come here.  In such scenario, there would not be more than 300 vehicles plying the fast-track road in a day. Would private sector interested to pursue such project? I think the government should take risk on some projects. Similarly, its policy about subsidy to private sector should also be clear and concise. 

Nepal lags far behind in development
Satish Kumar More
Vice President, CNI

Nepal lags far behind many countries in terms of infrastructure. Our difficult geography is one of the reasons behind slow progress in infrastructure development. We need to build quality roads, and focus on industrialization and development of infrastructure with joint investment of the government and the private sector. There are many obstacles in industrial and infrastructure development. As one has to run for pillar to post to get their projects approved, the government should bring one-door policy and speed up the project approval process. More investments in the country will create employment opportunities which will create exodus of youth to Gulf countries.

Nepal has immense tourism potentials. We can reap more benefits from tourism by investing more on infrastructure development. We have managed to build 95,000 kilometers of road so far. As 65 percent of the roads are feeder roads, it has not helped much in development and economic growth. This is why we have been left backward in the development. It's high time we took the issues seriously and accordingly.

Leave A Comment