Infrastructure Development: We Can no Longer Sit Back and Wait

Nov 4th, 2014 | By | Category: Government Policies, Nepal

Nepal is primarily a mountainous country. To most people, this conjures up postcard-perfect pictures of trekking, tourism and natural beauty. But for the half of 28 million Nepalis who live in scattered settlements across the hills of Nepal, this means harsh terrain with no easy road and bridge access. It also means difficult geography, across which, it is challenging to provide drinking water, irrigation, sewer lines, power transmitters and solar farms, not to mention school buildings with trained teachers, and health posts and hospitals with sound management, medical supplies, and trained doctors and nurses.

The situation is no better in the plains, where the other half of the 28 million lives. An unpredictable investment climate, a lack of familiarity with instruments and know-how that can attract, retain and grow domestic and international financing, and weak or non-existent linkages with international markets and expertise that can offer help have hobbled Nepal’s ambition on building airports, agricultural canals and dams, agribusiness concerns, mass transit and wastewater systems, and public buildings.

To be sure, for many years, with less than three per cent of GDP annually set aside for infrastructure, there have been piecemeal infrastructure development works. In absence of an overarching national clarity that prioritises infrastructure for development, the probability of Nepal raising both the standard and quality of life of its people — who currently have an annual per capital income of $730 — remains low.

A paper (Bhattacharyay, 2010) from the Asian Development Bank Institute lends credence to this point of view. The paper argues that in order for Nepal to meet growing demands for services and facilitate further rapid growth in coming years, it needs to start investing eight per cent of its GDP or $1.3 billion to $2 billion on infrastructure annually. This means that Nepal needs to set aside up to $2 billion every year if it wants to push for infrastructure, driven both by the government and the private sector, as a major contributor to its development by 2020. Else, with the current capacity of 25 financing institutions contributing merely $226 million to infrastructure development, the pace of infrastructure development is slow, and the demand for services has long outstripped the supply.

Historically, in Nepal, with support from bilateral and multilateral agencies, the government has always been in charge of constructing, financing and maintaining large-scale infrastructure facilities such as highways, hydropower plants, and airports. Likewise, private sector investment commitment in infrastructure in Nepal stood at 0.66 per cent of GDP from 2007-12, ranking at the bottom in comparison to the neighbouring countries in South Asia, according to a World Bank report (Luis Andres et al) published in 2013.

But if we look at various regions of Asia today, we see by making use of regulatory and institutional reforms, other countries are utilising managerial, financial and technical capabilities of the private sector in infrastructure project execution. This has led to efficient completion of projects, which, in turn, has helped spur on rapid economic development — using the public-private partnership (PPP) approach. Fast growing countries have openly welcomed the concept of private sector’s engagement in infrastructure, with majority demonstrating political consensus around the need.

PPP is an arrangement between the government and the private sector, where each side plays up its comparative advantages to deliver public services and infrastructure quickly and in a cost-effective manner. Through this arrangement, private developers construct and operate infrastructure facilities to help provide and deliver public services on behalf of the government.

By transferring responsibility for service provision to private sector, PPPs are a means of improving allocation of risk and investment efficiency, while ensuring public sector accountability for essential services. Financing is provided by, and significant project risks borne by private developers. Government remains responsible for policy oversight and regulation; thus, consistency in policy framework is an important element of success.

Infrastructure development holds a key to complete economic transformation and inclusive growth. If developed to its potential, it has the ability to not only create economic prosperity in Nepal and its common citizens, but also convert its alarming and growing trade deficit into a trade surplus. We can no longer sit back and squander this enormous opportunity.



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