Diaspora Investment: Opportunities and Challenges in Transport

Infrastructure in Nepal

March 17, 2012

Desh Raj SonyokDepartment of Civil Engineering

New Mexico State University

Email: drsonyok@nmsu.edu

Overview

2.1 million Nepalese migrant workers/students are abroad (total population 29 million)

US $3.5 billion in remittance (20% of GDP, 2010)

Lowest road density in south Asia (12km/100 km2)

Insufficient fund for transport infrastructure

Huge potential of diaspora investment to nation’s infrastructure development

Needs reliable investment options and awareness

Outline Motivation and Objectives

Definition

Transport Infrastructure Status

Transport Infrastructure Projects

Why Investment in Infrastructure?

How to Invest in Infrastructure?

Diaspora Investment Potential

Conclusions

Infrastructure

Investment

Diasporas

Motivation

Prithivi Highway: 224 km long; 7- 8 hours drive

Proposed Fast Track: 60 km long; 1- 2 hours drive

GDP: $440 (196th out of 215)

GDP growth rate: 3.5% (lowest in South Asia)

Remittance: 20% of total GDP (2010)

Diaspora investment for infrastructures

Data Source: World Bank (2011)

Only Int’l Airport

Objectives

Introduce present-state-of transport infrastructure in Nepal

Identify future transport infrastructure projects

Evaluate Nepali diasporas capital

Create awareness on investment opportunities and challenges among diasporas

This talk is intended for a general audience

Defining Transport Infrastructure

For the purpose of this study transport infrastructure means:

Road Tunnel Bridge Airport Railway Line Cable Car Line Trolley Bus Structure Tramway Waterway

Source: Private Financing in Build and Operation Act in Infrastructure, 2006

Transport Infrastructure Status

Road: major transportation infrastructure

Airport: 1 international airport and 42 domestic

Railway: 53-kilometer narrow-gauge rail line

Waterways: Koshi Canal Waterway

National Road Network: total 20264 km

Strategic Road Network (SRN): 40% of the National Road Network

15 National Highways and 51 Feeder roads totaling 10835 km (2009/10)

Local Road Network (LRN) : District roads, village or agricultural roads and

nonstrategic urban road

Road Networks

Road Networks

Road Networks in the Region

Road length (km) per 1,000 sq km land area

Road length (km) per 10,000 people

Transport Infrastructure Projects

Road Length km Analysis Period years

Constructin Cost, US $ mil

FIRR %

Kanti Rajpath 60 25 16.0 29Birgunj-Jitpur 19 25 3.8 26Kathmandu, Outer RR 72 25 80.1 25.8Janakpur-Jayanagar 25 25 4.7 20.3Sitapaila-Dharke 25 25 8.5 26.7

$1.00 = NRs70.00

Road/Railway Length km Analysis Period years

Constructin Cost, US $ mil

FIRR %

Kathmandu-Hetauda Fast Track 50 900 14.6

Tarai East-West Railway 1,317 9,344

Kathmandu – Pokhara Railway 160 331

Mid-Hill East West HighwayNijhgad Int’ Airport 600

Mega Projects:

Proposed Railroad

Tarai East-West Railway

Mid-Hill East-West Railway & Road

Kath-Birganj Railway

Kath- Hetauda Fast Track Road

Future Transport Infrastructure

Source: RITES Feasibility Study Report - 2010

Future Transport Infrastructure

Why Investment in Infrastructure?

Backbone of sustainable economic growth

Directly impacts on competitiveness, productivity and overall quality of life

Government budgets is insufficient

60% of development expenditure for roads comes from donors’ contributions

Long term assets, high operating margin and low volatility

Life of infrastructure assets before major maintenance

Source: Macquarie Research, May 2007

Tunnels

Electricity Gridlines

Bridges, Trestles & Overpass

Sewage Treatment & Dispoal

Highways, Road & Streets

Wate Disposal Facilities

Telecmmunication Cables

0 10 20 30 40 50 60 70

60

60

45

30

30

20

10

Number of Years

Transport Infrastructure for Development of Nepal

Poor condition of the road network 

 Lack of connectivity and high transport costs

Improvements in rural connectivity help raise non-agricultural employment and incomes

How to Invest in Infrastructure?

Public Private Partnership (PPP): Build Operate Transfer (BOT)

Service Contract (SC)

Management Contract (MC)

Annuity Contract (AC)

Special Project Vehicle (SPV) Contract

User Community or User Group or NGO based contract

Private, public, people and partnership (4P)

Example: Kathmandu – Hetauda Fast Track

Total Cost: US $900 Million

Private, public, people and partnership (4P)

Build-own-operate-transfer (BOOT) package

Who can invest: General people: $150 Businessmen: $1500

Nepali diaspora, local government bodies, and banks

Financial Rate of Return (FIRR): 12.9 - 14.6%

Web source http://www.nrn.org.np/pdf/nrna_intro.pdf

Diasporas Investments Potential

Nepalese Community Population (approx.) Gov. Census

Australia 10,000  Bhutan 110,000  Canada 6,000 3,505*China 21,000  Continental Europe 20,000  Hong Kong 35,000 12,564**India 4,100,000  Japan 100,000  Myanmar 400,000  Malaysia 300,000  Nepal 30,000,000 23,151,423***Qatar 100,000  Saudi Arabia 350,000  UAE 50,000  UK 50,000  

USA 110,616 11,715****

Total (approx.) 35,762,000

Web Source: http://nepalicount.com

Diasporas Investments Potential

Diasporas Investments Potential

1990 1995 2000 2005 2010 2015 -

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000 G

DP

(U

S$

mil

lio

n)

20% of total GDP

9th largest remittance receiving country in the world

Diasporas Investments Potential

$$$ Remittance$$$$3.5 Billion

Diaspora BondDirect Investment

Transport Infra.

Only 10% of the total remittance is sufficient to construct Kathmandu - Pokhara Railway

Nepali Diaspora in America:

Financial Strength: 75,000 x $2,000 = $ 150 mil.

Sufficient to finance 25% of the construction cost of Nijhgad International Airport

Diasporas Investments Potential

Diaspora as a Investors: How?

Deposit Accounts

Securitization of remittance flows

Transnational Loan

Diaspora Bonds

Diaspora Mutual Fund

* Direct Investment???

Source: USAID (2010)

Diasporas Investments Potential

Conclusions Government budgets infrastructure develpment is

insufficient

Nepal received remittance of 3.5 billion USD in 2010 which constitute 20% of its total GDP

Nepali diaspora have huge potential for contributing to the infrastructure development of Nepal through diaspora bond and direct investment

Investment in transport infrastructure will benefit all stakeholders—homeland, hostland and diaspora themselves

Thank You

Bibliography Deoja B.B., Adhikari R.P., and Pande B.R. (2005). Prospect and Approaches to

Public Partnership in Transport Infrastructure, Policy Paper 7, Economic Network Policy

Government of Nepal (2010). Kathamandu-Terai Fast-Track Road Project- Project Overview

Building a stable road ahead for investors by Renaissance Global Infrastructure Fund, accessed on 3rd March 2012..

Sitaula, T.P. (200?). Infrastructure Development in Nepal: Opportunities and Challenges for Engineers

Terrazas, A. (2010). Diaspora Investment In Develoing and Emerging Country Capital Markets. USAID and Migration Policy Institute,

World Bank (2011). Migration and Remittances Factbook 2011-Ebook

World Bank Database: http://databank.worldbank.org/data/home.aspx

Backup

Defining DiasporasA diaspora can be defined as people who have migrated and their descendents who maintain a connection to their homeland.

The U.S. State Department defines diasporas as those migrant groups who share the following features:

Dispersion, whether voluntary or involuntary, across sociocultural boundaries and at least one political bor

A collective memory and myth about the homeland

A commitment to keeping the homeland alive through symbolic and direct action

The presence of the issue of return, though not necessarily a commitment to do so

A diasporic consciousness and associated identity expressed in diaspora community media, creation of diaspora associations or organizations, and online participation (Department telegraph 86401, U.S. State Department)

Transport Infrastructure Status

Asian Highway

Proposed Alignment of Railways

Source: RITES Feasibility Study Report - 2010

Life of infrastructure assets before major maintenance

Source: Macquarie Research, May 2007

Bituminous Graveled Earthen Total Under Construction Planned

4952 2065 3817 10835 769 2509

46% 19% 35% 100%   

Table1: Length of Designated Strategic Road Network according to pavement type, 2010 (km)

Roads and Development

Priority Investment Plan (2007-2016) by DoR

Bring the entire hill population within a four hour walk to an all season road and the Terai population within two hours

60 percent of development expenditure for roads comes from donors’ contributions

Patriotism and emotional attachmentDo  something good to the motherlandRisk management: diaspora are more knowledgeable about  country

Why Investment in Infrastructure