Jun 012014
 

PROF. KAMAL RAJ DHUNGEL

Lower volume of investment limits the creation of additional job opportunities. It means people have limited availability of gainful work for their survival that is to say high rate of unemployment persists. It begets social unrest that can disturb social harmony

 Accelerated development is a prime indicator of the economic boom. Investors come forth to pour their money in the economy. Investment of any size is the basis for making the economy prosperous. It can create numerous job opportunities which in turn increase the level of income that leads to uplift the general living standards of the people. A significant portion of increased income of the people is consumed, and the remaining makes up the saving for further investment. This process continues so far as the investment is forthcoming for the development activities. This is technically referred to as the forward linkages of multiplier effect.

Let us assess the situation of the lack of sufficient power as Nepal has been experiencing it for the last couple of decades. Nepal is a fossil fuel resource poor country, therefore, it has to depend on the development of hydropower to fulfill its commercial energy needs. The development of this sector hinges on various factors that delay its pace of development. The lack of power or power outage retards socio-economic development. National plans, targets, programs and priorities have remained unworkable or rather unachievable largely because of the power crisis.

The private sector is becoming pessimistic as regards making investments in the economy because of the lack of adequate and reliable supply of electricity. Power outage puts the returns of their investment at known and unknown risks. Increased volume of investment in different sectors of the economy from the national and international investors can be expected only when the supply of electricity meets the demand for it. But Nepal’s ground reality is that it lacks adequate power. This lowers the attraction for investment in the economy. Lower volume of investment limits the creation of additional job opportunities. It means people have limited availability of gainful work for their survival that is to say high rate of unemployment persists. It begets social unrest that can disturb social harmony and finally push the country towards uncertainty.

Uncertainty discourages the investors. It not only kills the willingness to invest but also limits the ability to invest. A lower level of investment cannot help the mass production of goods or provide services. It means it lowers the size of production. Small scale production faces a number of problems of externalities. Produced goods and services using small scale production method cannot compete in both the domestic and international market. It is because of higher cost of production. The high cost of production makes goods and services expensive on the one hand and is likely to deteriorate the quality of the products on the other. This ultimately creates an uncompetitive situation for domestically produced goods and services in the market. The implication is that it lowers the income or revenue of the firm. Lower income means lower profit. Lower income/ profit reduces the ability to further invest in the economy.

Low investment is low output or income. It limits the creation of additional employment opportunities. A large number of people remain unemployed. It reduces the income of the people and hence lowers the savings which is the pillar of investment.

The average annual growth rate of the Nepali economy has remained low (3-4 per cent) since the last several years. Development activities have been halted not only because of the low investment capacity but also because of the shortage of power. The movement from lower end (3%) to higher end (4%) of the average growth rate depends primarily on the performance of the agriculture sector. For instance, CBS has estimated 5.15% growth rate for the current fiscal year which is the highest since 2008. The primary sector is responsible for this expected growth rate. The growth rate of this sector is expected to stand at 4.61 per cent. It is because of the favourable monsoon this fiscal year. The growth rate of secondary sector primarily is dependent on power is disappointing. A mere 2.67 per cent is being expected. The tertiary sector is expected to witness a moderate growth rate of 6.13 per cent. It indicates that the growth rate is primarily based on the primary sector which consumes negligible units of electricity. However, power shortage is the responsible factor for disappointing economic growth rate of the secondary sector.

The implication of power shortage is obvious. Foreign and private sector investment requires adequate and reliable supply of electricity. Without welcoming their investment, a country like Nepal with poor resources cannot attain economic prosperity.

The country must welcome foreign direct investment (FDI) for primarily the development of two sectors –hydropower and tourism. Policies, programs, priorities, and investment policies should be formulated with confidential commitment to implement them for their development. Positive attitude, consensus and forethought are necessary from all the stakeholders for the development of hydropower.

The tourism industry also relies heavily on adequate availability of electricity to prosper. Therefore, power is complementary to developing the tourism industry. It all starts from hydro power generation.

Source: The Himalayan Times