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Published On: Mon, Feb 6th, 2017

Infrastructure development key to propel growth

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).

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