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Nepal’s competitiveness is marred by its infrastructure limitations

Interview with Hari Bhakta Sharma, the President of CNI, at Hattisar in Kathmandu, on Sunday, February 12, 2017. Photo: Balkrishna Thapa Chhetri/THT

The second edition of Nepal Infrastructure Summit is set to commence in the Capital from February 19. The Confederation of Nepalese Industries is hosting the two-day event with an objective to attract large-scale private investment in areas of Nepal’s core needs and strengths and promote participation of private sector in the development process of the country. In this interview, Hari Bhakta Sharma, President of CNI, talks about the summit, investment constraints for development of Nepal’s infrastructure sector and possible ways out. Excerpts:

How are the preparations for the Nepal Infrastructure Summit coming along?

We are ready, our participants (both internal and external) are ready and all the major issues and topics to be discussed during the event has been finalised. The event has gathered a lot of enthusiasm from domestic stakeholders and foreign investors. We have targeted quality participations — those who can make a difference, like foreign consultants, investors, project managers, bureaucrats, development partners among others — who are related to and are interested to invest and accelerate Nepal’s development process, especially in the infrastructure sector. CNI assumes that the event will at least bring awareness among stakeholders on need for investment-friendly policies and development of infrastructure in the country.

What is your overview on the current infrastructure scenario of Nepal?

Infrastructure development in Nepal is one of the poorest in South Asia and is incomparable to outer world. Till now, the infrastructure projects in Nepal are being handled by the government, but such projects are facing problems in execution. On the one hand such government-led projects are delayed for years and year, and on the other hand, the quality standards of such projects are unacceptable and very poor. Execution of any government-led project is adversely affected due to frequent changes in the government. Because of political instability, the government becomes weak, which further results in weak governance in the country. This directly affects the ongoing infrastructure projects in terms of execution and quality. Similarly, the number of infrastructures projects being developed is also inadequate.

How will the entry of private sector ensure enhanced infrastructure development in the country?

CNI has been lobbying since long for the government to partner with private sector in infrastructural development and other development processes of the country. Entry of private sector in the country’s development process will ensure quality enhancement, competitiveness and timely execution of infrastructure projects. Had the government initiated development activities properly, it would have been far better. However, our politics could never be development-oriented. This is why the private sector has to be included in the infrastructural development process and a new initiative for development has to be taken jointly by the government and private sector. The government and other stakeholders should realise that development of other sectors and the overall economy of the country is being held back due to lack of infrastructural development. The government should develop a regulatory framework whereby both private sector and the government can work together to take country’s infrastructure to a newer height. Without a proper and investment-friendly regulatory framework, we will not be able to execute very large projects. Government should develop an environment where investors are assured of returns. Though the government, after constant lobbying from the private sector, envisioned forming an Infrastructure Development Bank in the budget for last fiscal, it has not been executed yet.

Most importantly, Nepal is still practicing the development models that have already failed in other countries. For example, China and Russia diversified their development modalities in tune with the changing times. They realised the need for public-private partnership for development. However, the government in Nepal tries to maintain monopoly in development process and the economy. Privatisation might not be the most ideal development modality in today’s world, but there is no better model than this. But here, the government tries to fix even the prices of daily essentials like milk and medicines. Promoting such economy will certainly not promote Nepal’s industrial sector and further deteriorate investment climate. The government should first identify minimum prerequisites required for public-private partnership modality in development process of the country and develop policy frameworks accordingly. Thus, the private sector wants to work together with the government in developing infrastructures, invest together and share benefits together. The summit will present and explore different barriers in attracting private and public investment and ways to expedite public-private partnership (PPP) model in investment in Nepal.

CNI had hosted a similar summit in 2014. Have we been able to achieve the objectives and materialise the commitments of the first Infrastructure Summit?

Infrastructure development is not an overnight process. CNI is not bringing any new issue to the summit next week. We will concentrate on holding discussions on the same bottlenecks in infrastructure development in Nepal that were identified two years ago. This event is like a part of the series in which discussions and debates are held on types of infrastructure required for Nepal, potential areas to invest, financing, role of private sector in development process, nature of regulatory framework required to enhance Nepal’s infrastructural development and weaknesses of current regulatory framework of the government. The event will also focus on discussions on advantages and disadvantages of different development modalities. We want to disseminate the idea among stakeholders that better infrastructure is required to propel the entire economy. It is a bitter fact that Nepal has failed to compete in the world because of infrastructure limits. Thus, it has to be acknowledged that infrastructure development is the common responsibility of the state and private sector. We believe that summits like these will help identify ways to give momentum to sluggish infrastructure development of the country.

What sectors will be promoted during the summit for investment?

In the past, we had not studied the potential sectors for investment in Nepal. However, the CNI will showcase the project bank developed by Investment Board Nepal (IBN) to investors that comprises 50 viable infrastructure projects in the summit. We have identified transportation and connectivity, tourism (including hospitality sector and airports), irrigation and hydropower, agriculture, among others as potential areas for investment. Similarly, we also see urban infrastructure as a viable sector for investment. Though the country is undergoing rapid urbanisation, we have very bleak situation of urban infrastructure.

Also, it is crucial to develop a wider and long-term vision for development. For instance, China was able to construct 2,000-km railway with $3.5 billion, which means a one-kilometre railway can be constructed at around Rs 250 million. This shows that even Nepal can have ambitious targets of constructing some 800- to 1,200-km railways, and it is possible. The government and private sector should jointly seek financial resources for such mega projects. If Nepal is to progress in infrastructure sector, the sector needs a minimum annual investment of $3 billion.

Currently, the market is undergoing credit crunch. How challenging is such a situation for development process of the country?

The current credit crunch in the market is a temporary situation. This will be solved once responsible bodies effectively use different banking channel instruments and government accelerates spending to drive the economy. The current situation has given lesson to banks and financial institutions and the government that their negligence can impact banks, industries and small entrepreneurs. However, the current liquidity situation can leave a bigger impact on the economy if it is not addressed soon. The government and Nepal Rastra Bank, instead of overlooking the situation or taking it lightly, should deploy effective mechanisms to address it.

By Sujan Dhungana