Nepal requires huge investments in infrastructure
development to create the minimum conditions
for industrial investment. The situation
worsened with the recent earthquakes, which not
only damaged roads and hydropower and water
supply projects but also emphasised the need to
build earthquake resistant and resilient infrastructure.
Given that public resources are overstressed
in meeting social and economic sector
interventions, it is crucial that donor resources and foreign direct investments are channelled
towards infrastructure improvement areas to unlock
the infrastructure bottleneck for industrialization
and economic growth.
Industrial promotion is contingent on domestic
and external demands and price competitiveness.
While domestic demand is determined by
the rate of income growth, the external demand
depends more on the tariff and non-tariff trade
barriers. Without effective implementation of the
aid for trade window, duty free and quota free access,
reduced non-tariff barriers (mostly the sanitary,
phytosanitary and technical ones), LDCs
like Nepal will not be able to benefit from the
global market for its industrial products. Similarly,
access to science, technology and innovation,
which is being restricted on various pretexts, has
to be enhanced in order to expedite the industrialization
of LDCs like Nepal.
Infrastructure remains one of the main weaknesses of the country, although Nepal improved its performance especially in terms of access to electricity through hydro-electric generation. Given its landlocked nature and the orographic conditions of the territory, Nepal remains poorly connected to its neighbors and therefore cut out from access to the sea. This makes it extremely difficult for the country to join global value chains and build a manufacturing sector. Large parts of the country are still far from paved roads that allow connection throughout the year. The chart below compares the quality of transport infrastructure and seaport access in Nepal and other land-locked LDCs prior to the 2015 earthquakes. On both indicators, Nepal performed worse than Bhutan and of other peer countries. The two telluric events have further worsened the situation.
Future years will tell us whether Nepal will be able to react without diverting from the path of stability and development it had slowly embarked on since 2006. The earthquake hit an extremely fragile economy, it further deteriorated the quality of infrastructure in the country and risks to put under stress an otherwise stable macroeconomic environment.
Most of reconstruction financing needs must come from external assistance, but Nepal has to find ways to improve its resilience in the future. Working with the private sector and other stakeholders within the country will be key to achieving this goal. The World Economic Forum Global Agenda Council on Risk & Resilience has published a report assessing innovations that the private sector can bring in working towards three goals: building resilience into houses, ensuring safe schools, and enabling tourism. In the words of the report: “The extent and complexity of the natural risks Nepal faces mean that a multistakeholder approach to resilience is vital.”