Nepal's construction industry has made a remarkable recovery lately, with a 9.1 percent growth reported in the second quarter of the ongoing fiscal year. It follows a disturbing negative 0.3 percent in the first quarter of FY 2024/25. The National Statistics Office (NSO) linked this turnaround to higher imports and production of construction materials locally, from mid-October to mid-January. The gain reflects a welcome rebound for an industry that had been suffering due to economic slowdown, higher material costs, and sluggish real estate markets. The sector, experts say, suffered through the past years because of low government capital expenditures. In two consecutive fiscal years, namely 2022/23 and 2023/24, the sector had recorded growth rates of a paltry 1.10 percent and 2.07 percent, respectively, reflecting a general slowdown of the economy. This is due to insufficient government expenditures on infrastructure work and private investors' hesitation in investment because of high interest and uncertain market situations, which slowed the construction sector. The sudden rise in construction material prices created obstacles in affording the prices, bringing public and private construction works almost to a standstill for some period. Exorbitant interest rates and uncertain market conditions made private investors reluctant to make investments, which rendered the construction sector stagnant. All these drove the sector into a slump, making the current recovery more remarkable.
While recent growth is an encouraging sign, it undoubtedly requires a determined plan to keep this momentum going. The government would do well if it ensured timely completion of infrastructure projects by reducing all administrative and budgetary delays and by enhancing expenditures. A vibrant system of capital spending and timely payments to contractors will indeed encourage the construction sector as well as further boost economic growth. Meanwhile, it is imperative for policymakers to monitor and stabilize the prices of building materials through the help of tax and other adjustments. Enhancement of the supply chain in such a manner that price swings don't affect projects. Equally important is an investor-friendly climate for which the government needs to offer incentives such as tax relief and loan subsidies for the construction entrepreneurs to lure more entrepreneurs in the sector, while easy access to finances, particularly for small and medium sized builders, will raise entrepreneurs’ confidence and drive further growth.
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The nation’s construction industry has also suffered from labor shortages of skilled workforce or over-reliance on unskilled manpower, adversely affecting productivity and quality. As such, vocational training and technical education for workers and technicians will lead to a skillful workforce and make the industry more efficient and competitive. The utilization of modern construction techniques and green technology will also improve long-term resilience. Finally, public-private collaboration can also play a significant role in growth. Public-private partnerships (PPPs) can fund huge infrastructure projects while distributing risks and delivering effective implementation. More foreign direct investment (FDI) in the construction sector with the help of policy stability and open business methods will further fortify its base. The recent boom in the construction sector is a major relief to one and all, but its sustainable viability has to be addressed by effective implementation of measures required. A combination of considerable government spending, investor-supportive policies, price monitoring and control, workers’ skill enhancement, and an increase in public-private collaborations is essential to support the sector to move on an upward swing. With encouragement from concerned sectors, Nepal can translate the recent recovery into long-term economic gain.