Nepal | November 20, 2018

OBOR initiative: Its implications for Nepal

Surya Bhakta Pokharel and Bishnu Prasad Bhandari

It may be a great opportunity for Nepal to play a bridging role between two big countries and to have global connectivity. Attracting FDI into the country with flexible policies and legislation could be the need in the initial period of economic transformation

Illustration: Ratna Sagar Shrestha/THT

One Belt One Road (OBOR), an ambitious initiative of China, is the plan to build a wide network of land and sea routes to global connectivity.

The initiative is inspired by Silk Road, the medieval trade routes between Europe and Asia, will be a vast network of sea and land routes across dozens of countries impacting 4.4 billion people. Boosting global trade along with building infrastructure in the countries that they cannot afford themselves is the main expectation of OBOR concept.

It is said that China is making investments of USD 1 trillion on this mega project which includes building of railways, roads, ports and other infrastructure.

The main reason for China on the OBOR initiative could be; (i) falling exports, (ii) sluggish economic growth both globally and locally, (iii) persistent need for China to structurally transform its economy from being driven by government investments and exports to a more consumer driven model.

Due to the nature of its economic growth model, China has created a problem of serious overcapacity in many of its industries. China’s enduring emphasis on heavy industries over the past two decades, as well as government being a decisive force in the country’s economy, are two of the key reasons for this overcapacity.

In terms of infrastructure and trade, the participating countries who have no or less capacity to build the infrastructures which they cannot make themselves, will definitely be benefited. Besides, such countries will have easy and fast access to those projects and their products are easily tradable in the international market.

On the other hand, the trade routes will give China  new markets. It can put its infrastructural footprints in dozens of countries in Asia and Africa. Its presence in many small countries in the long term way will give China an edge over its rivals in trading with these small countries.

It will be easier to China to impart its manufacturing process into those small developing countries at cheaper labor costs. Also, OBOR initiative could create a vast economic empire in Asia and Africa, if turned into reality.

Nepal has ample opportunities to be in between two big giants in terms of global trade. Anything  produced can easily be traded in the global markets. Nepal is touted as a transit bridge for the second biggest economy in the world to reach South Asia.

Nepal, though a poor underdeveloped nation, is  rich in terms of natural resources. Hydropower, tourism and agriculture are three prominent sectors for converting the country from poor to developing and then ultimately a developed nation.

To best utilize those natural resources it needs huge investments in mega infrastructural projects. Development of those sectors is only possible with wide network of seas and land routes across many countries.

For example, there is possibility and technical feasibility to generate 42,000 MW electricity from various rivers of Nepal. With access to dozens of countries through OBOR, the produced electricity can easily be saleable in the global market.

Similarly, even if a small fraction of people from the two big giant neighboring countries entered Nepal as tourists it would be a milestone achievement for Nepal to lift the economy.

There will be a positive environment for Foreign Direct Investment (FDI) wherein the confidence of international investors increases along with access to a wide network. Nepal can take benefit of FDI and can be a user of global products. Joining the OBOR will bring Nepal  investments and experience from across the world.

Every coin has two sides. OBOR is also not an exception. It is criticized that China will lend money for OBOR projects to host countries at high rates of interest which the countries may not be able to repay.

This can lead to China acquiring equity and then controlling stakes in these projects, getting a permanent footprint in several small countries which is nearly impossible for it to achieve otherwise.

Another criticism is that China’s plan to build ports, roads and railways in under-developed Eurasia and Africa is out of political motivation rather than real demand for infrastructure.

Nepal has entered into a Memorandum of Understanding (MoU) with China for participation in OBOR which aims at promoting cooperation on promoting connectivity of facilities, trade connectivity, financial integration and connectivity of people.

Irrespective of criticized factor of OBOR, Nepal is in need of investment to build the infrastructure which  may take years to build by itself. Also, it should plan, design and start building infrastructures directly linked to the OBOR projects.

Economic transformation is only possible once mega projects materialize. It may be an opportunity for Nepal to convert from a ‘land locked’ county to a ‘land linked’ country.

Though some SAARC countries like India and Bhutan are unwilling to participate in OBOR, it may a great opportunity for Nepal to play a bridging role between  two big giant countries, and to have global connectivity.

Attracting FDI into the country with flexible policies and legislation could be the need in the initial period of economic transformation which in turn will change the economic prospect of the country.

Pokharel and  Bhandari are chartered accountants

 


A version of this article appears in print on June 29, 2017 of The Himalayan Times.


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