Sunday, February 5, 2017

Infrastructure development key to propel growth

Various studies show that 1 per cent increase in the stock of infrastructure is associated with a 1 per cent increase in gross domestic production (GDP). One of the key avenues through which infrastructure contributes to economic growth is by improving competitiveness and facilitating international and domestic trade by reducing the cost, according to World Development Report.
However, lack of basic infrastructure has forced Nepal to witness an average of below 4 per cent economic growth over the past decade. Thus, Nepal needs to invest heavily on infrastructure, if the country wants to come out of the vicious cycle of low economic growth, poverty and unemployment, according to president of Confederation of Nepalese Industries (CNI) Hari Bhakta Sharma.
A World Bank estimate of Nepal's 'infrastructure gap' pegs investment needs at between 8 per cent and 12 per cent of national income this decade. Nepal's medium-term ambition is to become a middle-income nation by 2030, while graduating out of the least developed country (LDC) status by 2022.
"This is only possible with high growth rates sustained by productive capital formation," Sharma said, adding that this demands rapid development of infrastructure driven largely by a private sector – local and foreign – that has the technical, managerial and financial clout to deliver efficient, high-quality and cost-effective results on the ground.
The government has to mobilise massive development budget, apart from the private investment, Sharma said, adding that the matching of the government investment with the private sector is the only cure to the low growth trajectory. "But the government has to create the investment-enabling environment," he added.
Once the domestic investors start pouring their money in infrastructure sector, foreign investors will also get confidence to invest. Nepal needs $10 billion a year in terms of foreign direct investment (FDI) in order to graduate from the current LDC status, according to the World Bank.
In order to elevate the status, Nepal needs to be competitive in attracting FDIs, Sharma added.
"Nepal is fast losing its competitiveness also due to lack of infrastructure that helps connect market and industry," according to infrastructure expert Surya Acharya. "Connectivity is key to not only linking the market and boosting the trade and economic activities but also an adhesive to make Nepalis stick to unity as a nation."
Another World Bank study has concluded that Nepal needs to spend $13 billion to $18 billion from 2011 to 2020 to bridge the investment gap in infrastructure. "Of the total, $3.7-$5.5 billion is needed in transport infrastructure alone," the report noted. Since the government has limited resources, it cannot invest alone to improve infrastructure, which calls for private sector's participation, Sharma added.
As Nepal has to do a lot in infrastructure development – from increasing accessibility to facilitating service delivery and enhancing cost effectiveness – the government has no other option than to create conducive investment environment and invite private sector, both domestic and foreign, to invest in the infrastructure sector, said Sharma.
"The government should also move forward with the economic reforms as the laws that guide these sectors are the biggest bottlenecks in development," said CNI national council member Birendra Pandey.
As the BOOT Act that came a decade ago could not encourage private sector investment in infrastructure sector, the government is in the process of finalising the PPP Act – based on the PPP Policy it had brough recently – aiming at involving the private sector in infrastructure, according to former secretary Krishna Gyawali.
In the present circumstances, when the private sector is complaining of lack of conducive environment for investment, PPP model can be a good alternative so that the private sector can feel secure as the government too will have stake in such projects.
CNI vice president Bishnu Agrawal also stresses the need for PPP model of development. "The PPP model is going to be very helpful in those areas where the private sector alone is a bit hesitant to enter," he said, being hopeful that the government will bring the PPP Act sooner to encourage private sector investment in infrastructure.
The Istanbul Programme of Action that aims to at least halve the number of LDCs by 2020, too, has laid great emphasis on PPP. "Partnerships with the private sector play an important role for promoting entrepreneurship, generating employment and investment, increasing the revenue potential, developing new technologies and enabling high, sustained, inclusive and equitable economic growth in least developed countries," it says.

Second Nepal Infrastructure Summit on February 19-20
The second Nepal Infrastructure Summit is scheduled for February 19-20. The two-day summit is being organised jointly by Confederation of Nepalese Industries (CNI) and Youth Community for Nepalese Contractors (YCNC), in association with different government agencies as well as bilateral and multilateral development partners. Prime Minister Pushpa Kamal Dahal is scheduled to inaugurate the summit as the chief guest. Similarly, Indian railway minister Suresh Prabhakar Prabhu will be the Guest of Honour and keynote speaker of the summit that will also showcase the project bank developed by Investment Board Nepal (IBN).

Friday, February 3, 2017

CG, Nimbus pledge to help start-ups

Chaudhary Group (CG) and Nimbus Group will help the start-ups with capital and other support.
Talking at ‘Finance Your Dreams’ – an interaction with some 450 young entrepreneurs organised by Himalyan Climate Initiative (HCI) – in Kathmandu today, CG Corp managing director Nirvana Chaudhary and Nimbus managing director Anand Bagaria pledged their personal and corporate commitments to help incubate start-ups in Nepal.
They also announced their personal and corporate commitments to help incubate start-ups in the country to boost entrepreneurship.
Speaking at the event, Chaudhary said the Chaudhary Group is always committed to supporting young start-ups with an information technology bent. "We are making a huge chunk of money available for young entrepreneurs and companies,” he said, adding that young entrepreneurs often find it difficult to access finance. "As entrepreneurs ourselves, we feel committed to make entrepreneurs in the society,” he added.
Chaudhary also suggested youths to develop a package of passion, energy, innovation and execution plans before starting any new ventures.
Likewise, Bagaria said core business start-ups come from entrepreneurs and then get supported by investors. "However, sometimes ideas also came from investors and will be picked up by young entrepreneurial talents."
Stressing on the need to develop incubation hubs in the country, Bagaria informed that such hubs would help create an environment where entrepreneurial ideas are exchanged and brought to fruition. “Nimbus is always positive to support start-ups of Nepali youths and develop entrepreneurship in the country,” he added.
A founder of HCI Prashant Singh, on the occasion, said that 500,000 new jobs should be created in the country each year to stop talented youths travelling to foreign countries in the search of work. "One entrepreneur can create three to five jobs,” he said, adding that only entrepreneurship would help in the development of a country’s economy.
He also said the aim of the event was to collect entrepreneurial ideas. "The ideas generated at the event would be further shaped at HCI Incubation Hubs and those which were ready for investment would be presented to potential investors for consideration.
HCI is a not-for-profit organisation that runs 'Social Innovation and Business Incubation Hubs' in Kathmandu and Nepalgunj.

Thursday, February 2, 2017

ADB private sector financing exceeds $8.3 billion in 2016, up by 15 per cent year-on-year

The Asian Development Bank (ADB) approved $2.5 billion in new private sector financing in 2016. Together with cofinancing, ADB mobilised $8.3 billion for private sector projects in the region, a 15 per cent increase over last year and a new record for the multilateral, a press release issued by the multilateral development partner claimed.
"The private sector has a fundamental role to play to help developing Asia create good jobs, build high quality infrastructure, and alleviate poverty. ADB’s 2016 financing – including a record level of cofinancing – shows the importance of bridging the public and private sectors in the region,” said ADB vice-president for Private Sector and Cofinancing Operations Diwakar Gupta.
"We will continue to expand our activities in 2017, providing access to more financial solutions and trade facilitation tools while sharing knowledge and expertise to ensure Asia’s development is sustainable and inclusive," Gupta added.
Major milestones in 2016 included an agreement between ADB and the Japan International Cooperation Agency (JICA) to establish a new fund to support private infrastructure investments across Asia and the Pacific. The Leading Asia’s Private Infrastructure Fund (LEAP) is capitalised by $1.5 billion in equity from JICA and will help mobilise some $6 billion in investments. The fund became operational in August and over $200 million of LEAP funds were allocated through end-2016 in renewable energy projects in India and Indonesia.
ADB accelerated overall support for energy projects in 2016, which comprised 60 per cent of private sector financing for the year. Notable energy transactions included the $400 million financing for Tangguh LNG in Indonesia and a $1 billion joint ADB sovereign and nonsovereign financing of the Shah Deniz gas project in Azerbaijan.
As part of its commitment to increasingly go 'green,' eight out of ten private sector energy projects in 2016 were in clean energy, including the first utility scale solar power project in Cambodia by Sunseap and the Muara Laboh geothermal power project in Indonesia. Climate change financing in the private sector exceeded $1 billion in 2016.
ADB continued to expand in the agribusiness sector, financing three transactions, including innovative support for dairy farmers to improve animal waste management in the People’s Republic of China (PRC) and for the introduction of climate-controlled greenhouses for flowers and vegetable production in Viet Nam, Indonesia, and the PRC.
Lending to financial institutions, which primarily support micro, small, and medium-sized enterprises, continued to be a major part of ADB’s private sector portfolio. In 2016, ADB approved 10 transactions in the finance sector valued at over $590 million. In addition, despite a tough year for trade, ADB's Trade Finance Programme supported over $3 billion in trade in 2016, a 20 per cent increase over the previous year.
ADB’s role in spurring private sector financing led it to be named Global Multilateral of the Year by Thomson Reuters’ Project Finance International. The award recognises ADB’s critical role in making infrastructure projects more attractive and bankable to the private sector. ADB also received international awards in 2016 for Indonesia’s Tangguh LNG project as well as for ongoing support to the Tiwi MakBan geothermal project and Mactan Cebu International Airport in the Philippines, Ooredoo’s mobile telecoms network in Myanmar, and Gulpur hydropower in Pakistan.
ADB’s private sector operations are targeted to grow to $4 billion by 2020, with major expansions in funding for infrastructure, agribusiness, climate change and renewable energy, and inclusive business.
ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, ADB is celebrating 50 years of development partnership in the region. It is owned by 67 members, 48 from the region.

Wednesday, February 1, 2017

Investment Board prepares project bank for Nepal Investment Summit

Investment Board of Nepal (IBN) has prepared a project bank – including some 30 to 35 mega projects – to showcase at the Nepal Investment Summit to be held in Kathmandu on March 2-3.
With an ambitious target to attract over $1 billion of foreign direct investment (FDI) from the summit, the board – in association with the Industry Ministry – has included Chemical Fertilizer Plant, Kathmandu-Pokhara Railway, Kathmandu-Kulekhani-Hetauda Tunnel Highway, 650-MW Tamakoshi III Hydropower Project, second International Airport, East-West Electric Railway Project, East-West Electricity Railway Link to India Project, Kathmandu Valley Metro Project and Kathmandu-Pokhara Railway Project in the project bank.
"We are expecting at least 300 international visitors, including foreign diplomatic missions in Nepal, foreign investors, potential foreign and domestic Investors, national and foreign media, Non-Resident Nepalis (NRNs), development partners, experts, private sector organisation representatives and government representatives,” said Industry Minister Nabindra Raj Joshi.
Apart from over $1 billion FDI commitment, at least 20 large-scale investors are expected to apply for at least three Intents of Investment, Joshi said, adding that the ministry was also planning to sign Bilateral Investment Promotion and Protection Agreement (BIPPA) with at least one country. "The summit is also showcasing transport, infrastructure, manufacturing, energy, ICT and mining sectors as potential investment avenues in Nepal," he added.
The Chemical Fertilizer Plant, with capacity of at least 500,000 tons per year, is expected to attract investment of nearly $1.4 billion. The project, which is already in the feasibility study phase, is also expected to enhance agricultural productivity apart from import substitution of around 230,000 tonnes a year worth approximately Rs 11.61 billion.
Apart from Tamakoshi III (650 MW), there are few other hydropower projects including Upper Marsyangdi (600 MW) that could be of interest to the investors, according to the board.
The IBN has claimed that the main objective of the summit is to promote Nepal as the investment destination for the next decade. It will be used as a platform to showcase Nepal's investment opportunities especially to large scale investors looking to explore opportunities in new destination, it added.

Global FDI falls by 13 percent

Global flows of foreign direct investment (FDI) fell by 13 per cent in 2016 to an estimated $1.52 trillion as global economic growth remained weak and world trade volumes posted anemic gains, according to the latest UNCTAD Global Investment Trends Monitor.
"FDI recovery continues along a bumpy road," UNCTAD secretary-general Mukhisa Kituyi said. "Particularly of concern is the sharp drop-off in manufacturing investment projects, which play such an important role in generating badly needed productivity improvements in developing economies," he said, adding, "Looking ahead, economic fundamentals point to a potential increase in FDI flows by around 10 per cent in 2017."
"However, significant uncertainties about the shape of future economic policy developments could hamper FDI in the short-term," he added.
The decline of FDI in 2016 was not equally shared across regions, reflecting the heterogeneous impact of the current economic environment on countries worldwide. FDI flows to Europe fell by 29 per cent to an estimated $385 billion, with a number of countries experiencing strong volatility in their inflows. This decline was tempered by modest growth in flows to North America (6 per cent) and a sizeable increase in investment in other developed economies, principally Australia and Japan.
Slowing economic growth and falling commodities prices weighed on FDI flows to developing economies. Inflows to these economies fell by 20 per cent (to an estimated $600 billion) due to significant decreases in developing Asia and in Latin America. Nevertheless, developing economies continue to comprise half of the top 10 host economies. FDI flows to transition economies rose by 38 per cent to an estimated $52 billion.
The wave of cross-border mergers and acquisitions shows signs of ebbing. A 13 per cent increase in the value of net sales, which rose to $831 billion, pales when compared to the 67 per cent and 68 per cent increases registered in 2014 and 2015. Greenfield FDI project announcements value rose by 5 per cent but this was largely due to a handful of very large projects in a few countries. The vast majority of countries, in contrast, registered declines.

Tuesday, January 31, 2017

Review of budgetary process urged

Secretaries of different ministries have said that the budgetary process should be reviewed.
Speaking at the Mid-Term Review of expenses of in the current fiscal year organised by the Finance Ministry, they complained that the ad hocism in the budget making process was the reason behind low development spending.
Blaming the low expenditure to unnecessary projects in the budget under their respective ministries, some of the secretaries even complained that they projects were included in the budget without consulting with them.
Speaking at the meeting, finance secretary Shanta Raj Subedi said that the progress in national pride projects have been very unsatisfactory. "Even the crucial projects that are expected to give dividends to the national economy in the long run have seen either no capital spending or very low,” he said, asking the secretaries of the key ministries that handle the big ticket projects to either surrender the unspent budget or expedite spending. "The ministries that have failed to spend on national pride projects should surrender the budget to the projects that have reported better performance."
Most of the secretaries blamed the delayed approval and authorisation of the programmes for low spending, though the National Planning Commission (NPC) and Finance Ministry claimed that they have given the approval and authorisation on the very first day of the fiscal year.
NPC vice chairman Min Bahadur Shrestha said that the commission was trying to simplify the approval process. "In the next budget, we are planning to scrap the rule of approval and authorisation of programmes," he said, adding that once the programme is published in the Red Book, it is supposed to be approved and authorised. "However, the process of allocating the budget to projects will be more stringent," he added.
Saying that some Rs 300 billion will be unspent by the end f the current fiscal year, he also urged the secretaries of the ministries that handle huge capital budget to spend wisely, otherwise, the government will look like a fool. "On one hand the people are dying due to poverty and on the other the government will have around Rs 300 billion unspent money ."
"In a country like Nepal, where there is resource crunch, we cannot let huge resource of around Rs 300 billion lie unspent," Shrestha said, linking the current credit crunch from supply-side to the failure of the budget spending by various ministries. "Currently, there is some Rs 230 billion in the government treasury also."
For the current fiscal year, NPC is focusing more on increasing capital spending. Shrestha also said that the unspent budget will be transferred to other projects that are doing better.
Deputy Prime Minister and finance minister Krishna Bahadur Mahara, on the occasion, asked the secretaries to expedite budget implementation. "We have to find a breakthrough somewhere, and it is the right time," he said, accepting that there is a flaw in the budgetary system.

10 ministries spend less than 10 per cent capital budget

The government agencies are losing their institutional capacity to expedite capital spending.
"Ten ministries and central authorities have been able to spend less than 10 per cent of their total capital budget by January 27,” says Financial Comptroller General Rajendra Prasad Nepal.
Likewise, 12 ministries have been able to spend between 10 per cent to 20 per cent of the allocated development budget, while only seven ministries have been able to spend between 20 per cent and 25 per cent by January 27, he added.
Population and Environment Ministry has managed to spend a paltry 0.72 per cent of its development budget, followed by Supplies Ministry (3.03 per cent), Youth and Sports Ministry (4.08 per cent) and Foreign Affairs Ministry (5.16 per cent). While Industry Ministry has spent only 7.94 per cent of its capital budget; Culture, Tourism and Aviation Ministry has managed to spend 8.39 per cent by January 27. "The other central authorities that are the Office of President and Office of the Prime Minister have also spent less than 10 per cent of their capital budget," Nepal informed.
On one hand the ministries have been unable to spend, and on the other they have been asking for more budget from out of the budget programmes. "Though the ministries have failed to spend, they have asked for more capital budget," finance secretary Shanta Raj Subedi said.
Ministries have sought additional budget of Rs 215 billion, which is nearly 69 per cent of the total capital budget, he said, adding that the inefficiency of ministries was worrying.
Inefficient bureaucracy, procedural hurdles, lack of carrot and stick policy, and ad hoc budget preparation process are blamed for low capital spending that could have contributed to not only in employment generation but also in economic development in the long run.
Nearly half a dozen ministries, including Education Ministry, Health Ministry, Agriculture Development Ministry, Physical Infrastructure and Transport Ministry and Irrigation Ministry that have the largest chunk of budget have failed to spend. They hold some 44 per cent of the total budget, according to Subedi.
“Their performance has not been satisfactory,” Subedi said, directing the ministries to either surrender the unspent budget or spend them effectively.
According to the Financial Comptroller General's Office, the government has been able to spend only 14.73 per cent of the total capital budget by yesterday. The erstwhile government, led by KP Oli, had brought Rs 1048.92 billion budget. Most of the secretaries of the related ministries, however, claimed that they were not consulted in the budget preparation process. They said that the budgetary allocation is of ad hoc nature.
The government so far has been able to spend Rs 45.96 billion capital budget which is 14.73 per cent of the total capital budget. The government has, by yesterday, been able to spend a total of Rs 304.60 billion that is only 29.04 per cent of the total budget.

Rs 34 billion reimbursements still to be claimed
KATHMANDU: The government is yet to claim reimbursements worth Rs 34 billion from different development partners. According to Financial Comptroller General's Office, many projects, which have already been closed, also have claims for reimbursements. Some 16 ministries have failed to claim reimbursements even though projects under them have already been closed,” Financial Comptroller General Rajendra Prasad Nepal said, adding that it has added additional financial burden on the government. "The ministries have to show more urgency to get reimbursements in time."