Infrastructure for Growth: The big picture in post Covid scenario

Infrastructure for Growth: The big picture in post Covid scenario

Global supply-chain disruptions due to pandemic and wars leading to volatile macro-economic circumstances demand reflection on the linkages of economies that either promote or stifle growth. Infrastructure can be singled out as the most critical linkage that determines an economy’s capacity to keep growing steadily – despite adversities. In the context of Nepal, while the economic growth has slowed down in recent years due to global events, the Government of Nepal has set an ambitious economic growth target of 8 percent for FY 2022/23. However, it is not far-stretched to argue Nepal’s economy would grow at higher rates if it has a robust infrastructure in place.

Future disruptions and the case for resilient infrastructure

In June 2020 National Planning Commission (NPC) released a report estimating an outlay of approximately NRs 20 billion per year in infrastructure projects with approximately 37 percent contribution by the private sector to meet the sustainable development goals (SDGs) by 2030. However, the recent global events have contributed to soaring inflation, currency devaluation, record current account deficit and depletion of foreign reserves in Nepal forcing the country to direct its resources elsewhere towards balancing external position. Furthermore, the escalating climate change and the disasters that come along with it are likely to increase the need of diverting resources towards protecting the environment and livelihood. Therefore, it is high time that Nepal uses the post pandemic window of opportunity to invest in resilient infrastructures that can internalize environmental externalities and pursue long-run multipliers. 

It is understood that investment in resilient infrastructure will lead to growth and enable the country not just to achieve the SDGs but also smoothly graduate from a Least Developed Country (LDC). Resilient infrastructure paves the way for increased economic activities, job creation, facilitate production and improvement in overall architecture to run competitive enterprises. While the basic framework of infrastructure as a propeller of growth has always been relevant, there could be further insights on the type of infrastructure, focus on sustainability, impact to environment, new opportunities that need to be captured in the infrastructure-growth nexus discourse. Moreover, Nepal being an import dependent country that frequently faces challenges of maintaining balance in external sector as it is facing now, major infrastructure initiatives therefore must necessarily consider the prospects of generating a trade surplus.

 The Changing Mega-trends and a case for Digital Infrastructure

One of the significant ways in which the world has changed in the post-Covid scenario is the deepening of digital infrastructure, adoption and integration of technology in everyday work. The pandemic served as a fulcrum for both the consumer and service providers to adopt digital means to conduct their business. The digital economy is giving scope to entrepreneurs, micro small and medium enterprises (MSMEs) and large companies ) to explore the emerging model of employment. Nepal also witnessed a rise in the digital economy with apps concerning the e-commerce sector, food delivery, ride sharing and payments. Nepal stands to benefit from this changing behavior and adoption of technology by investing in ICT, digital infrastructure and platforms. Considering Nepal’s topography and geographic location, it is not in Nepal’s comparative advantage to compete in the production and trade of goods. With services especially with on-demand services such as the gig economy and digital technologies Nepal has the potential to create jobs, raise incomes for informal workers and be more competitive and better integrated into the global value chain. 

Note: This article is from Nepal Infrastructure Summit 2022 Souvenir.