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6th of December 2023

“Now it’s time for Industrial diplomacy”

Kathmandu. There are various reasons behind the underdevelopment of our country. One of them is the lack of good infrastructure. We currently have a very huge ‘gap’ in infrastructural development. The World Bank along with the Infrastructure Development Bank, and the Confederation of Nepal Industry (CNI) studied and researched the gaps that prevailed. The research found that such problems exist especially in the fields of energy, air service, aviation, industry, urban infrastructure, etc.

Analyzing only the documented projects shows an infrastructure financing gap of ten billion dollars a year until 2040. While converting in Nepali, this amount comes to 12 trillion rupees. The gap of 12 trillion rupees cannot be met at once, prioritization to meet the gap is a must.

This is because The Government of Nepal is contributing only two billion rupees. We should prioritize this gap. In order to achieve our sustainable development goal, about 12 trillion Nepali rupees should be spent every year. But the government has not spent more than two billion. We have to bring the remaining 10 billion from the private sector. It is not easy without attracting the private sector to bring in this investment.

The area where investment can be collected from the existing policy is energy, which is being collected as well. Apart from this, we are working to increase the attraction in other areas as well.

While working to increase the attraction in other areas, a new project is being created that is a mandate for the private sector to participate in infrastructure. One of its areas of it is industrial infrastructure. When we analyzed the industrial infrastructure in different countries, we found that there is great enthusiasm for the participation of the private sector.

The private sector is attracted to investment only when the government prioritizes it. Now the government has prioritized industrial infrastructure development from one angle or another. However, it was only documented in terms of policy but not implemented.

What are the prerequisites for its implementation? We are also researching the needs. Based on this, we give a clear blueprint to the government about what the private sector needs. We are working as a bridge between the private and government to create the project and to bring it to the real world.

We are encouraging the private sector to invest in industrial infrastructure. This is an area where dual benefits are possible at once. Economic development will be created through infrastructure development, and the other, industries will create economic development. It means that the infrastructure sector itself is developing, which eventually helps in further development. Hence, we are ready to invest in industrial infrastructure.

There are numerous problems that we have encountered in the development of industrial infrastructure which I am going to discuss. After the industrial infrastructure is ready, industries should also be established there. Two/three things are necessary to create an environment to set up industries.

First of all, the government or the policymakers should think about the development of industrial infrastructure broadly. After the establishment of any industry, attention should be paid not only to the income generated through rent and revenue but attention should be paid to the horizons of microeconomics after the industry is set up in that industrial infrastructure.

Likewise, attention should be given to the creation of employment opportunities, indirect taxes (for example, tomorrow’s salary earners also pay taxes to the state), etc.

The definition of world diplomacy is also changing. Diplomacy has made a leap from politics to economy and now to industrial or infrastructural development. Therefore, the chief officials of the state should take the initiative to establish giant industries in Nepal. For example, during the corona epidemic, the President of Indonesia managed to import almost 30/35 US industries from China on his initiative. The Prime Minister of Bangladesh is also trying to set up industries of their own.

If the main leadership of the country is engaged in bringing such a huge investment, it will help to generate further investments. For example, when Maruti was set up, 20 other industries were set up in the value chain and supply chain. This is another benefit that can come along with primary investment.

The state should work on creating the minimum policies required for the establishment of any industry. Even more, facilitation should be done in the investment part. The industrialist should be given the facility to take a loan from the leased land.

It is a bank that invests in the private sector. The government should help reduce the cost of production to make banks willing to invest.We identify and study many projects, scattering the money here and there. Our focus should now be on ‘piloting’ a special economic zone and developing an industrial park with the participation of the private sector.

Today, the Special Economic Zone (SEZ) has its opportunities. We also consulted with the Indian counterparts about this. SEZ is currently failing in neighboring India because the Indian market has become so big that its focus shifted toward domestic consumption rather than exports. We can take advantage of that. Our main objective through SEZ is to export.

An environment can be created where those Indian industries can come to Nepal and export. Therefore, India or any other country should be able to participate in SEZ. The two SEZ projects currently led by the government do not seem to have succeeded as expected. There is a possibility that the Infrastructure Development Bank will take the lead in taking the remaining 19 projects to the private-government partnership. We have been working on this for almost a year.

A private-government partnership is needed especially in SEZ and industrial parks. While studying the situation in different countries we found that there the government is not only there to play a regulatory role but also as an investor. This will make it easier to work. Because setting up SEZ is not enough. Along with that comes cross-cutting issues such as customs and electricity. The government’s participation is also important for its facilitation.

Therefore, when we and CNI jointly submitted a concept to the Ministry of Industry, it was said that both the government and the private sector should come as shareholders.

Along with this, we also proposed the Indian counterpart hire technical human resources from abroad for at least some of the infrastructure for the efficiency required in its operation. Since India is close to us and everything is compatible, we asked to bring it as an ‘equity’ or technical companion.

To implement all these things, the government should initiate solutions through policy. Mainly, the government should decide on piloting. In other words, it should be clear to go for a public-private partnership. CNI has also been emphasizing this for the last four to five years. It has been 6 months since the public-private partnership was ensured in the budget. So now the government should not delay in decision making.

On the other hand, we are also working to bring international partnerships to Nifra. To do so, the government should provide policy support. Government should look at ‘marginal benefit’ rather than a direct benefit. Attention should be paid to the ‘spillover benefit’ or ‘economic multiplier’ from the industry. In other words, the government should see that when one rupee is invested, it will benefit our revenue by five rupees.

In addition to that, another activity the government can do is to increase the lease period of industrial infrastructures. No industrial park can operate during the lease period of 40 years. Because the construction is done in stages. It will take almost 25 years to build it step by step and promote it. In the remaining 20 years, there may not be enough to recover the investment made. Therefore, the lease should be improved.

(Edited statement of views expressed by Ram Krishna Khatiwada, Chief Executive Officer of Infrastructure Development Bank, in Nepalwatch’s television presentation Policy Dialogue-2022. Policy Dialogue is broadcast every Wednesday night on Nepal Television.)
Here is the link to the full video.