Print Edition - 2015-06-25 | Oped
Rising from the rubble
- Development partners can help build Nepal’s confidence by expressing solidarity with the country and pledging resources
Jun 24, 2015-
By the end of the year, Nepal is very likely to meet the Millennium Development Goals related to the social sector However, it has not being able to improve its economic indicators, especially per capita income. This is largely because Nepal has not been able to attract investment. For almost four decades, Nepal was too caught up in the debate about whether or not the country should welcome foreign direct investment (FDI) in the energy sector.
However, the scenario seemed to change after Nepal signed a Power Trade Agreement with India last year, followed by two hydropower Project Development Agreements with Indian companies along with the Saarc Energy Framework. As a result, Nepalis were confident that the nation had embarked on the road to prosperity. Further, various sectors had begun to attract FDI—five star hotels and cement factories, among others. Simultaneously, encouraged by these trends, Nepal set a goal to graduate from a Least Developed Country (LDC) to a developing country by 2022 and a middle-income country by 2030. In view of all of these progresses, the National Planning Commission was busy drafting a strategy to achieve these goals. It was looking into public private partnership policies, integrated rural settlement plans, human resource development strategy, and was set to reform, revise and review more than 35 rules, regulations, laws and by-laws to create an investment-friendly environment to provide hope to the younger generation and innovative entrepreneurs.
Then, on April 25, Nepal was hit by a 7.9 magnitude quake, which decelerated all these efforts and partially dampened the hopes to achieve a higher rate of economic growth after a long political transition.
More than Rs 51 billion of gross output was lost just in 83 days of the current fiscal year 2014/15. In addition, more than Rs 517 billion equivalent of social, economic and physical infrastructure were damaged and the loss incurred by the services and production sector was about Rs 189 billion. Regardless, it is very difficult to assess the extent of all the losses and monetise everything. In particular, the psychological impact of the quake and the loss of rich historical monuments and cultural icons that united religious communities.
Due to the unexpected disaster, Nepal now needs to mobilise at least Rs 670 billion to rebuild the damaged physical, social and economic infrastructure. To build back better, it needs to attract more local and external resources, especially for large infrastructure. Only then can we meet the aspirations of the Nepali youth and truly build a ‘New Nepal’. To do so, we first need to do away with the critical binding constraints in the policy environment. Then, we need to build the capacity of human resources for infrastructure development while ensuring the effective use of public investment in a manner that crowds-in private investment in the most effective and comparatively attractive sectors.
Three keys to recovery
Nepal has three very specific sectors in which it has a comparative advantage over its giant neighbours: biodiversity and landscape-based tourism, renewable resources-based energy and versatile organic agriculture. These sectors require a huge amount of investment.
To compensate for the huge economic losses incurred by the quake, the total number of tourist arrivals in Nepal needs to be increased on an average by 14-15 percent from the present 0.80 million to more than 2.5 million by the end of 2022. The contribution of the tourism sector to the GDP can then increase from the present 1.8 percent to around 3 percent in 2022. These figures will increase direct employment opportunities from the present 160,000 to 450,000. As there is plenty of room to expand our landscape-based tourism, new tourist destinations with adequate tourism infrastructure need to be introduced. At the same time, there is a need to build the capacity of the sector and ensure policy reforms.
Second, Nepal should seek to make its agriculture and horticulture fully organic. As almost every type of crop and fruit can be produced in Nepal, our biodiversity holds tremendous possibilities. Agriculture still contributes more than one third to Nepal’s GDP. The commercialisation of agriculture and community as well as contract farming can greatly transform this sector. As a result of the quake, the agricultural sector suffered a loss of more than Rs 28 billion. Therefore, the development of rural infrastructure, mechanisation of agricultural processes through transfer of technology, better seeds and fertilisers and knowledge as well as skills are essential to its growth and to recreate employment opportunities in agriculture.
Third, Nepal can be also turn itself into a renewable energy-consuming country. It has a huge potential for generating hydropower and solar energy which urgently need investment. The trans-Himalayan region of Nepal has 20-30 percent more solar irradiances in comparison to the plains. This should be used to attract investment in the energy sector. As a result of generation of a large amount of cost- effective energy, the country can boost its manufacturing sector and other industries.
These three sectors can generate huge sums of money for the country and create jobs. Apart from that, they would also revive and enhance the pace of economic development inclusively as all these resources are rural-based, decentralised, environmentally friendly and need the engagement of the local people.
Money to rebuild
To transform Nepal within a generation as envisioned, Nepal needs an 8-10 percent sustained annual growth for at least a decade. According to the National Planning Commission’s tentative estimate, before the earthquake, Nepal needed about $100 billion of investment by 2022 to graduate to a developing country. In constant dollar terms, we need to double our GDP from about $20 billion in 2015 to over $40 billion by 2022. For every $ 1 billion of public investment, we need to crowd in $2 billion of private investment, and then have them grow cumulatively. As per constant 2010 dollar terms, we have to spend between $ 13-18 billion for infrastructure by 2022. Investment in infrastructure is necessary not just to attain high growth, but also to reduce the unit cost of production and services.
A possible hindrance to achieving these targets is Nepal’s lack of capacity to manage development activities and spend the allocated resources. In some ways, this will be addressed by the recently formed Reconstruction Authority. The Authority will help to enhance the capacity of the public as well as the private sector to use the resources allocated for economic and social development activities effectively and efficiently. The skills and knowledge of Nepali youth residing within the country and abroad will also be utilised in the reconstruction and rehabilitation process. For instance, Nepal needs more than 25,000 capable masons for reconstruction alone.
The devastation caused by the quake has provided Nepal with a chance to change. So by building robust infrastructure, enhancing the capacities of both the public as well as private sectors, providing the right vocational education to empower human resources and by creating an enabling policy environment, we can promote investment as well as growth and productivity in the country. The right incentive structure for the private sector (domestic and foreign),vast improvements in the utilisation of public resources, enhancing accountability and transparency through better governance and channeling the ingenuity of Nepalis can certainly help Nepal achieve economic prosperity.
Expression of solidarity
We have a few expectations from the International Conference on Nepal’s Reconstruction. It will be an expression of solidarity from our neighbouring and friendly countries, along with development partners. As they share their experiences to tackle disaster issues, it will build our confidence to move ahead. Their long-term commitment to support Nepal in different sectors and pledging of financial support will provide the resources and means to plan for future activities based on the principle of ‘building back better’. The ingenuity of the Nepali people as well as support from partners will help us build a better Nepal.
Pokharel is Vice-Chairperson of National Planning Commission
Published: 25-06-2015 08:34