Poised to scale new peaks

  • The country may be land-locked, but its location is an asset that can be leveraged to attract more investments.
- Hans Peter Lankes

May 17, 2019-

Flying into Kathmandu for the Nepal Investment Summit at the end of March, I glimpsed the majesty of the famed Himalayan peaks. The summit itself convinced me that Nepal’s economy is poised to scale new peaks of its own.

Nepal’s economy is growing as fast as that of its neighbours, India and China—no mean feat for a country emerging from a prolonged political transition. Now, all signs point to a country that has coalesced around a common vision of development and shared prosperity.

That vision is rooted in Nepal’s current reality—a pressing need to harness the private sector as an effective development partner. It’s a need that must also be complemented by action to revamp legislative and regulatory frameworks to address overly restrictive policies and practices, step up engagement with domestic and foreign investors, and tackle limited integration into global markets. It’s promising to note that the government has already taken steps in this direction by pushing through important reforms. But there is more to do, and the private sector needs to play its part.

Nepal’s private sector must be modern and efficient. And that means it must embrace competition and not protect its markets. It must welcome foreign capital and expertise, and adhere to high governance, social, and environmental standards.

Other developing countries have successfully followed this path. Singapore and Malaysia are excellent examples. Further away, there is Rwanda, in Africa. Small and land-locked—just like Nepal—Rwanda has strengthened its economy by embracing the role of the private sector over these past years. This year, Rwanda ranks 29th in the World Bank Group’s Ease of Doing Business report, 119 places up from a decade ago. Rwanda’s economic growth meanwhile has been strong—between 6 percent and 8 percent over the last five years.

In Nepal, foreign capital is also essential. The country has limited domestic capital formation to meet its goals. Without foreign investment, converting Nepal’s “Envisioning 2030 Strategy” into reality, achieving the Sustainable Development Goals, and realising middle-income status will be a challenge. The amount of investment needed—$6 billion to $10 billion a year—will stretch the resources of the government and the domestic private sector.

Together with our colleagues at the World Bank, IFC has prepared a thorough private sector diagnostic for Nepal. We found scope for the private sector to step up in a variety of areas, including hydropower, tourism, agribusiness, health, education, and IT services. In all these, there is a huge opportunity to transform the economy, reduce poverty, and create jobs.

IFC aims to invest $1 billion in Nepal over the next four years, as regulatory reforms are implemented. This is to be done by means of a strategy that “creates markets” by working first to create the conditions that enable investments to take place. IFC devised similar strategy in Cambodia, where it helped the country’s rice sector through advisory work on licensing and rationalising export procedures. Now the rice mills have added to Cambodia’s presence in global markets. Likewise, in Cameroon, the organisation just finalised Africa’s largest private Independent Power Project, Nachtigal, after the World Bank worked for years to create the right framework for the sector.

Here in Nepal, Upper Trishuli-1 is an example of this approach which leverages the complementarity between the public and the private sectors. IFC is taking equity and arranging the debt package for this 216-Megawatt greenfield hydropowerproject, which is poised to become the largest foreign investment in Nepal. The Multilateral Investment Guarantee Agency, meanwhile, will provide guarantees for the equity portion up to $135 million. This project will increase power generation capacity by a third and provide electricity to ninemillion people.

This crucial investment will draw on a new facility, the International Development Association’s global Private Sector Window, which consists of $2.5 billion in concessional funds to support high-impact private sector investments in low-income countries. By blending concessional funds with private investment, the facility helps to mitigate the uncertainties and risks deterring investors from entering frontier markets.

Projects like Upper Trishuli-1 give me optimism for Nepal’s future. During the two-day Investment Summit, we explored other opportunities that Nepal can offer investors. The country may be land-locked, but its location is an asset that can be leveraged to attract more sustainable investments.

Lankes, IFC’s Vice President for Economics and Private Sector Development, was in Kathmandu on March 29-30 to participate in the Nepal Investment Summit.

Published: 17-05-2019 07:47

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