Nepal Infrastructure Market: Growth, Trends, Project Pipelines, and Key Statistics

Nepal needs to expand its existing ports and in some cases, even build new ones, as some have become landlocked in urban areas that were developed after the ports were built. The expansion of such ports is impossible, necessitating  the building of new ones. As Nepal welcomes more international passengers  ever and boasts an increasing number of domestic air travellers, it needs  more, larger, and better airports too. Nepal, therefore, has a substantial  project backlog over the short- to mid-term, which bodes well for the growth  of its infrastructure sector and the economy in general, given that good infrastructure is essential for successful business activities. Nepal  transports the majority of its road passengers and cargo on the national  highway network, which represents a minuscule share of all roads in the  country. There is therefore substantial demand for new roads, as well as for  re-surfacing existing roads.

The government has adopted measures to attract more FDI into the country in order to boost tourism, both in terms of domestic travellers and large-scale international MICE events. This has also created a higher demand for airports  and airport infrastructure. The needs of Nepal’s foreign trade have put a  strain on existing ports in the country, necessitating the construction of  new ones. That many infrastructure projects are PPPs means that smaller companies often work side by side with larger ones, which helps them increase  their level of specialisation. On the other hand, small-sized companies are  not equipped to handle large-scale projects, which means that the sheer size of Nepal typical infrastructure project (alongside other factors such as  access to financing) are conducive to sector consolidation.

The Nepal government’s focus on developing infrastructure as a backbone sector for economic growth means that administrative, sector-specific challenges are being addressed, which is expected to create a more efficient business  environment conducive to the growth of the infrastructure sector as well. Restraining forces for the infrastructure sector tend to be segment-specific. For example, Nepal’s power generation is dominated by coal, and supplies of domestic coal are frequently problematic. Natural gas power generation is dependent on natural gas imports, and port and airport expansions hinge on timely land clearances. Road building and construction in general frequently affect wildlife areas and involve the displacement of indigenous peoples, which increases the administrative approvals that projects need to obtain before they can begin. Unexplained delays in administrative approvals and  clearances often result in project delays, as do lengthy court dispute settlements  between companies.

In Nepal, government agencies tend to function independently and are not required to coordinate with project authorities to facilitate approval  procedures. Growing competition in all infrastructure segments and  competitive bidding for government projects is affecting the profit margins of companies. In construction, inputs account for nearly half of construction  costs, and the prices of construction raw materials are volatile. This exposes companies to substantial commodities and FX market risks too. The increasingly affluent and urban middle class are increasing in the Nepal. Over the past decade, this has put great strain on existing roads, railroads, ports and airports in the country, both in terms of passenger and  freight movement. To address this, the government has adopted numerous  programmes, policies and initiatives aimed at bridging Nepal infrastructure  gap, helping bring the infrastructure in less economically-advanced States up  to par with their better-off counterparts