Infrastructural deficit

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Our ‘development partners’ should also share the blame
The World Bank’s recent Nepal Enterprise Survey says that the country fares worse than the South Asian average in terms of two major physical infrastructures needed for industrial development and economic growth – Power and Transportation. Shortage of power and transport infrastructure swells costs, affects distribution, and increases supply-losses. It also works as a major obstacle not just for manufacturing sector but tourism sector as well. 

Let’s start with a blame game. Who is responsible for this severe bottleneck in power and roads in Nepal? The politicians (because they are always the easy targets), political instability and decade-long insurgency (of course, it did hinder growth in major infrastructure sectors both in terms of investment and project execution), and lack of funds (we never had surplus saving to finance our infrastructure expansion). But the buck shouldn’t stop here. It will be unfair if it does. Our ‘development’ partners – the bilateral and multilateral donors – should also shoulder the blame. Take, for instance, the role of the World Bank, the multilateral institution that was founded primarily to invest in reconstruction and development. 

Remember that the World Bank’s original name was International Bank for Reconstruction and Development (IBRD) but in how many road and power projects has the World Bank invested in Nepal in the last one decade or since mid-seventies? Where did the Bank invest the committed money after it withdrew from Arun III hydro-power project in the mid-nineties? How many power projects have been funded under the Power Development Fund (PDF) that was constituted by the Bank after the Arun-III debacle? 

There is virtually no investment in power generation by the Bank and its only ongoing road project is Nepal Road Sector Development Project, which targets five hilly districts that lack all-season road access. 

It’s not just the multilateral assistance but there is also a complete dearth of bilateral aid in the area of vital physical infrastructures. Do you remember any ongoing road or power projects financed by the US or the UK or Germany? There is none. It’s only Japan that is constructing Sindhuli-Bardibas road. 

The Western democracies have long stopped financing key physical infrastructure projects and have shifted their focus towards social developments in recent decades. Their core assistance area is ‘institutionalizing’ democracy and building social capital. There are some good results of this focus, especially in social sector. Nepal has made strides in child and maternal mortality rates, life expectancy has grown, access to health and education has improved and social awareness is much better now. 

This, however, didn’t lead to democratic stability nor did it lead to social stability. Here, once again, we can blame the politicians. But the problem is more complex than it meets the eye. Our social strife and democratic instability is, to a large extent, a result of huge imbalance between the national capacity for economic growth and people’s expectations, fuelled by growing awareness. 

In absence of basic infrastructures, our manufacturing sector has stagnated. The service sector is relatively robust but it alone cannot and has not been able to absorb the unemployment pressure. Result: Tens of thousands of youths who enter the job market remain unemployed. Thanks to foreign employment opportunities that has absorbed two million Nepalis. If that option wasn’t available to our youths, Nepali society would have been in complete disarray. 

What kind of democracy are we trying to ‘institutionalize’ and what kind of support are we getting from ‘mature’ democracies in this regard? 

One thing has become evident by now. Democracy cannot sustain if the society doesn’t improve its productive capacity and provide its people with jobs, income and hope. 

We cannot create jobs so long as there are severe infrastructural bottlenecks. It will only create distortions as we are witnessing now. Due to infrastructure deficit, coupled with political instability, no one is willing to invest in the manufacturing sector since it’s not competitive at all. Where are Nepalis investing then? No prize for guessing, it’s in real estate. From business houses to rich families to middle-income professionals to virtually anyone who can save has invested in land. 

We are, in our own ways, becoming like Americans. Until before the financial crisis, the US heavily borrowed money from China and the Americans used bank finances to buy and sell houses, artificially inflating the housing prices. So long as the housing bubble continued, the Americans were a happy lot since they lived under an illusory affluence that encouraged them to become profligate in their spending. 

With 520 million rupees of remittance money pouring in Nepal everyday, we are also under an illusion that our economy is doing fine. Like Americans, we are also borrowing from banks and investing in real estate, artificially raising the prices and feeling good about it, because rising land prices give us a false sense of affluence. 

This is not going to change unless we do something to address our infrastructural bottlenecks. Investing in power and roads are keys to give our economy the much-needed turnaround. Nepal, a poor country that spends about 70 percent of its revenue in regular expenditure, cannot do it alone. The multilateral development agencies like the World Bank and the Asian Development Bank and the bilateral donors must rethink their ‘development’ strategy and invest in physical infrastructure development in poor countries like Nepal. 

Luckily, China, our northern neighbor, is emerging as the major lender to the developing countries when it comes to infrastructure investment. Chinese loans come fast and with no strings attached, unlike many multilateral agencies’ loans. Since China has hinted its willingness to extend a loan of up to one billion US dollars for infrastructure projects in Nepal, we should seize this opportunity without any delay. We should also knock on the door of the southern neighbor for more investment in Nepal’s infrastructure building. That will be good for Nepal but it will also be good for both China and India

From Republica

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