Strengthening infrastructure governance in Nepal

The need for huge investment to reduce the infrastructure deficit in Nepal is well-known. ‘Infrastructure financing’ has become a dominant narrative in country’s development agenda as the country is takes a gamut of initiatives to mobilise scarce domestic and international resources. However, discussions around the potential savings that could arise from more efficient practices in infrastructure project building and delivery are almost non-existent. This article aims at kick-starting a debate by arguing that improving operational efficiencies in the project selection and management alone can save millions of dollars while improving the quality of infrastructure and shortening project timelines.

The World Bank (2014) estimates that Nepal needs to invest as much as 12 percent of GDP in infrastructure, just to maintain the current rate of GDP growth. This level of investment, which is highest in the South Asian region, shows the massive infrastructure gap. To its credit, the Government of Nepal is taking multifaceted approaches to fulfil the demand. The most prominent among these are formulating the Public Private Partnership (PPP) Policy in 2015 as well as drafting of PPP Act, reforming tax laws, and more recently co-organising theNepal Infrastructure summit, and Nepal Investment Summitsimultaneously in 2017. These measures are imperative to bring foreign and domestic infrastructure investment into the country.

However, much of the development narrative focuses on the financing aspect infrastructure building. The amount of investment has become the sole metric to evaluate the infrastructure development while public discussion on the quality of such development is very limited. In fact, the governance of infrastructure development is largely overlooked. Questions around infrastructure selection and prioritisation criterion, evidence-based project planning, and streamlining project building and operations etc. are not explored.  As a result, we are missing opportunities to make most out of our limited resources.

We need a holistic infrastructure governance framework. In this regards, the recently published report on ‘Infrastructure Finance Strategies for Sustainable Development in Nepal’ (available in the National Planning Commission website), an in-depth study of infrastructure financing strategies for sustainable development, authored by Ashutosh M Dixith as identified three potential sources of public expenditure efficiencies. They highlight robust ways to reduce the cost involved in infrastructure projects and improve overall infrastructure governance. The report draws insights from a study published by McKinsey and Company, which reveals globally successful practices of increasing infrastructure productivity.

The first stepping stone of sound infrastructure governance is to improve project prioritisation in order to optimise the infrastructure portfolio. Reports have shown that eliminating poor performing contracts and selection of improved alternatives could save up to 15-35 per cent of new capital spending. In Nepal’s case, even if the country saves 10 percent of capital expenditure, which amounts to NRS 8 billion, the amount would provide sufficient cushioning to finance large scale infrastructure projects.

Achieving these efficient outcomes demands three key components: 1) identify projects with clear purpose, 2) evaluate projects using improved cost-benefit analysis, and 3) prioritise projects at portfolio level.The government must select projects with clear purpose based on socio-economic priorities. Also, while evaluating the projects, metrics must consider long-term economic, social and environmental effects. It is better to select and prioritise the projects by conducting a cost-benefit analysis which includes social factors such as time saved by commuters, or reducing mortalities, injuries, and noise. The results should then be validated by cross referencing with similar past projects. The infrastructure prioritisation framework recently developed by the World Bank can help improve the infrastructure planning and decision-making process by incorporating financial, economic, social and political factors into project prioritisation. Finally, there should be a system to check project performance relative to predictions. The report also advises there should be a strong database to aid decision making, for which the study recommends maintenance of infrastructure balance sheet

In Nepal, important infrastructure projects have been suffering from implementation delays. For instance, 13 years after the government agreed to the construction, the Melamchi Drinking Project is still work in progress. Upon completion it will supposedly distribute 400 million litres of water daily – a figure which is often questioned. The project started with public private and donor partnership has suffered significant delays and escalating administrative and operational costs. The McKinsey and Company study highlights that to save government has to adopt sophisticated procurement, and streamline permit approvals and land acquisition to reduce bottlenecks.

The third is better utilisation of existing infrastructure assets. This is important given Nepal’s limited ability to mobilise domestic resources for infrastructure. Adding more roads, constructing hydropower dams and fitting pipelines will not resolve problems if the existing infrastructure is not properly maintained. Nepal should move away from the build, neglect, and rebuild mentality and implement adequate an infrastructure management system together with appropriate financing framework. We should take smart infrastructure utilisation management approach. Take the elimination of power cuts for example a recent success in this area. Nepal used to experience up to 11 hours of load shedding, but now the country enjoys almost 24 hours’ electricity supply which in the real sense is the result of better utilisation and demand management of existing infrastructure. On contrary, the valley road expansion project has proved poor value for money as traffic congestion has not reduced. Instead, the deployment of information technology in establishing intelligent transport system (ITS) for roads would enable the utilisation of the existing road capacity to double or even triple.

Moreover, the opportunity by making most of the infrastructure assets like power and water systems lies in reducing non-technical losses such as electricity leakage and distribution losses. In Nepal, electricity leakage was 25 percent in 2016, the 4thhighest leakage rate in the world. On the other side, in water supply system, non-revenue water, unmetered supplies, stands at 18 percent. This avenue is worth taking seriously as reducing the losses can cost significantly less than what it cost to build a utility infrastructure project.

The above discussion amply suggests an urgent need to have a national level infrastructure governance framework. Such framework would not only help in effective utilisation of the already constraint resources, but also create conducive environment for private investment in infrastructure both domestic and foreign. The efficiency would not only generate much needed saving, and ensure the timely completion of the project, but also send positive message to the investors.

( This article was co-written with Ashutosh Mani Dixit and first published in LSE South Asia Blog here. Image credit: Axel Drainville CC BY-NC 2.0) 

If India wants a meaningful place in the Asian Century it must act big and act now

The twenty-first century is widely referred to as ’the Asian Century’. Less obvious, however, is the place for India in the economically resurgent Asia. Can India be harness its demographic and democratic dividends to drive the growth and rise to the prominence? Or will it be mired in mercantilist protectionism, poor infrastructure and low human capital and thus, lurk in the ‘middle’?

The developments in India in the first fifteen years of the new millennia fail to offer a convincing answer.

India’s miraculous growth began in early 1990s after the sweeping economic reforms transformed the Soviet-style central planning economy into a market based liberal economy. The reform, led by economist-turned-politician, Dr. Manmohan Singh, then finance minister, entailed floating the currency, eliminating production and import controls and opening up the country to foreign investments among others. The result was immediate and phenomenal.

For the next two decades, the Indian economy grew at 7-8 percent on average and quadrupled per-capita income from US $262 in 1990 to more than US $1180 in 2010. Subsequently, India became a third largest economy in Asia and tenth largest in the world. However, the growth rate has slowed in recent years.

While some believe that the slow growth is due to the bleak global demand after global financial crisis and that India would regain the momentum, others (see here and here) flag policy gridlock as major barrier to the economic growth and doubt India can grow at pre-crisis pace. The skeptics are even pointing to the risk that the country may face ‘middle-income trap’.

India graduated to a lower middle-income country in 2010 and it may be too early to presume that the country would fall into the trap but there are some plausible issues to be concerned about.

As Arvind Panagariya, current chief economic advisor to the Indian government, notes, reform in the 1990s was an important milestone but was it was insufficient as a policy measure to turn Indian economy into a modern globalised economy.

Unlike in China, the reform didn’t focus on creating large manufacturing base and on formalising the country’s vast informal service sector. While a few more educated people were working in mushrooming IT firms and service industries, the majority were stuck in less productive agriculture fields and traditional factories.

Moreover, India kept many tariff and non-tariff barriers intact and prevented foreign investment in many key sectors like telecommunication, retail and aviation for long. The reform fell short of ameliorating the notorious labour and the land-acquisition laws. As a result, the country couldn’t fully obtain the benefits of integration into the global value chain.

Although the long stint of growth concealed the problem, rampant corruption, suboptimal infrastructure and bureaucratic red tape worsened over the years. On the top, complacent Indian policymakers not only failed to make any notable reform during those years, they aggravated the situation with contradictory and inimical policy measures. Its tax row with some multinational companies (here and here) is just one example.

Taking all together, structural bottlenecks explain half of the India’s growth misery.

To get back on track, India needs another wave of holistic reforms that would redress the structural cracks in the economy. Specifically, it should embrace deeper trade integration so that it can acquire much needed capital and catch-up with technology frontier. Moreover, the country should cleanup bureaucracy, strengthen inclusive institutions, and loosen the rule for input consumption.

With these policy reforms, coupled with young and low-cost labour force, India can even replace China as the world’s manufacturing centre and clear the path for continuing growth.

But the story doesn’t end here.

The growth generated through structural transformation would merely bring ‘episodic growth’ that would last for a short to medium term. It may take the country from lower-end of middle income to the higher-end. But for a sustained long-term growth, a prerequisite to become a high-income economy, the country needs to operate closer to the global technological frontier.

A common denominator among today’s developed countries is that they invariably facilitate innovation and offer knowledge-based produce. They have been able to determine the global technology frontier. Advanced countries design and deliver most of the new product and services that world today consumes from new gadgets to financial services to agricultural technology. For that, the countries invest heavily in human capital—on providing quality education to people and in keeping them healthy.

India, on the other hand, fails measurably in those respects. The country lags far behind average middle-income countries in creating human capital thanks to the poor education and healthcare provisions. The eminent economist and Nobel laureate, Amartya Sen, views India as ‘the only country trying to become a global economic power with an uneducated and unhealthy labour force’.

The basic tenet here is, the underdeveloped human capital will cripple Indian economy in form of low productivity and inability to innovate, both so vital for a country’s economic growth in modern times. Highly educated people with the ability to create high-value technology-driven products that match with the sophisticated consumer demand are the fundamental determinants of the economic growth.

The recent attempt by the new government to revamp the outmoded economic policies is welcoming news. If successfully implemented, these reforms will restart the high-growth momentum. However, India should be mindful of longer-term prospects for the economy, which again requires improving the country’s healthcare system and enhancing the quality of education at all level. Undoubtedly, it is an enormous challenge for the country of 1.3 billion populace and should be supported by other institutional reforms. However, if India wants to ensure a meaningful place in the Asian Century, it must act big, and act now.

( This article was first published on South Asia @ LSE Blog here. The feature picture credit Flickr/Michael Foley/CC BY-NC-ND 2.0)

Community participation should be at the heart of Nepal’s post-earthquake reconstruction

It has been one year since twin earthquakes measuring 7.8 and 7.3 in Richter scale hit Nepal and took nearly 9000 lives. In the aftermath, 21,000 people were injured and more than 200,000 houses were destroyed. Millions of others were forced to live under open sky amidst regular aftershocks for weeks. It was a worst natural disaster in Nepal in eighty years.

Despite the paucity of disaster preparedness, Nepal’s immediate rescue and relief effort was laudable. The government was quick to mobilise all public service personnel and security forces. Logistical support provided by neighbouring countries and international agencies expedited the process.

Another highlight of the rescue and relief operations was the voluntary participation of the community to help other affected members. With their help, thousands of temporary shelters sprang up, and medical assistance was able to reach large numbers of the injured. Dead bodies were recovered efficiently, allowing for families to cremate those they had lost in line with their religious beliefs. The efficiency of the initial clean up prevented the spread of disease despite the fact that large numbers of people in affected districts were homeless and had no access to proper sanitation.

However, when it came to post-earthquake reconstruction, the early success story crumbled. To date, there has been little effort towards rebuilding damaged properties, beyond clearing rubble and providing petty contracts to renovate a handful of heritage sites in Kathmandu. The government promised affected families cash to rebuild their houses but it took them nine months to actually hand over the $150 USD. Overall, the government has disbursed less than126 million which constitute mere two percent of estimated reconstruction budget of 6.7 billion.

Aside from political disruption that the country experienced after the earthquake as a result of the promulgation of the new constitution, a major reason for lacklustre performance has been the exclusion of the affected communities from the reconstruction and rebuilding process. The vision of the reconstruction (if any) has been a government-led top-down approach with no space for community participation at any stage in the process.

The Post-Disaster Need Assessment (PDNA) that the government carried out immediately after the earthquakes acknowledged the potential role of the community on the post-disaster reconstruction and recovery, the hastily prepared document did not elaborate the framework within which those affected could voice their concerns. It is surprising to see the absence of community involvement in a country where social engagement is so deeply rooted and have produced some exemplary results in e.g. environmental management.

But why is the participatory approach in post-disaster reconstruction so important, especially in developing countries?

First and foremost, the affected communities have a better understanding of their own needs and can provide valuable insight into the local conditions. Such knowledge is crucial in collecting data and setting priorities in rebuilding process. This is particularly important in dealing with the vulnerable groups like women, children, disabled etc. The inclusion of these groups in design and implementation process is necessary to ensure the plan meets the targeted needs as effectively as possible.

Second, communities are more likely to develop a sense of ownership over the outcome of the process if they are involved. They can bring indigenous ideas and solutions which are sensitive towards local traditions and customs as well as are more likely to suit the local context. Their participation, therefore, not only raises the probability of immediate success but also ensures sustainability.

Last but not the least, community participation opens another avenue for government-community partnership which strengthens the credibility towards the government’s current and future actions. Moreover, the community can keep an eye on the working of government authorities to make sure their actions match their promise. This significantly enhances accountability and reduces potential fraud and corruption.

Having said that, community participation in post-disaster reconstruction is not always straightforward despite its merits. The conflict among different community interest groups can potentially hamper a cohesive designing and planning process. Similarly, confusion about the roles and responsibilities among government bodies and community groups may complicate communication and coordination when it comes to implementing the plan. Such cases could lead to uncertainty and delay in decision-making and, at worse, derail the whole reconstruction process.

These problems are likely to be more severe in case of Nepal which doesn’t currently have elected representatives at local level. In the absence of accountable local government, any effort to decentralise the reconstruction would be vulnerable to hijacking by local elites who affiliate themselves with political parties or local businessmen. In such scenario, attempts at community inclusion can be counterproductive and actually make things worse by excluding the real victims from the process.

Fortunately, there are a number case studies from around the world – both good and bad – which offer a range participatory approaches to reconstruction that Nepal can take inspiration from. In Indonesia, after the December 2004 tsunami, “community-led approaches created better housing construction compare to contractor based approach in terms of quality, accountability and beneficiaries satisfaction”. In contrast, the lack of community consultation in Pakistan following the 2005 earthquake resulted in conflicts based on local land-traditions which has gridlocked the reconstruction of city of Balakot.

Hence, it should be clear to Nepal’s PDR planners that meaningful community participation (beyond using locals as mere construction labour) is essential for smooth and swift reconstruction of public and private properties regardless of the location. It would be incredibly disingenuous for Nepal Reconstruction Authority (NRA), a newly created government body to lead the reconstruction, not to acknowledge the vitality of inclusion of affected community into process.

The NRA can start with setting-up a two-way communication platform where affected people across different communities can share their needs and provide feedback on the plans and policies. It should also identify community leaders or groups which have wider support and can represent voice of all vulnerable groups in the absence of locally elected government. These leaders or groups can work as primary touchpoints for government for further consultation and communication. For earthquake-prone Nepal, such participatory model can work as a useful template to use in future disasters as well.

( This article forms part of LSE South Asia Blog’s Nepal Earthquake Anniversary series,  first published here.)