Anil Sigdel, 02/28/2021, Washington DC
5 minutes read
PM Oli laid a foundation stone for the Park last Sunday
China eyes a major foothold in the South Asian market and beyond as it moves forward with Nepal to invest massively in an industrial park in a strategic location in eastern Nepal near Indian border. Xi Jinping’s China has been concerned about increasing ‘middle income trap’ — its exhausted labor-intensive workforce surplus and increasing international pressure on China on several front have prompted Chinese investors to move out its manufacturing in recent years. China’s Belt and Road Initiative’s (BRI) investment in infrastructure sectors have seen some decline now after behemoth investments all around — China now seems to be opening a new chapter in its investment in industrial parks in several regions. China’s foreign aid policy alignment, such as among its commerce, finance and external affairs ministries, and the creation of a new development finance body, is likely to yield some alteration in its overseas investment patterns. In sector-wise comparison, China has investment much less in industries compared to transportation and infrastructure under the BRI. Such policies have come to converge well with PM Oli’s Nepal that has sought to bring large investment from China to fuel economic growth and employment. Nepal has plans to develop large industrial parks in different provinces to foment growth under its policy of “one province one big industrial estate.” PM Oli laid a foundation stone for the Park last Sunday.
The project was in the pipeline some some time. Nepal has stepped up its effort to attract foreign direct investment (FDI) in infrastructure in recent years ( Incidentally Nepal does not allow portfolio investment). Several businesses and commerce entities from the two nations have been engaged in this regard. And during PM KP Oli’s visit to Beijing in 2018, Oli and Xi agreed to several projects. Accordingly, Nepal government’s Investment Board signed an MoU in 2019 and approved US $ 586 million investment with China’s local partner Damak Clean Industrial Park of Nepal. China’s Jing Ping Joint Creation Construction Project Development Co. Ltd and Lhasa Economic and Technological Development Zone Investment Co. Ltd will have a joint venture with Nepal’s Damak Clean Industrial Park. The Industrial Park will be built in the 484 hectares of land out of the planned development area of 1422.25 hectares in the first phase. To put the area into perspective, Chinese-invested Kilinto Industrial park in Ethiopia has 279 hectares and the planned Industrial park in Guadalajara, Mexico, around 500 hectares. Similar to Guadalajara project, which is near Mexico’s major container port Manzanilla and the industrial belt that is well-connected to the United States of America, the Damak park is in a India-Nepal major corridor and located near the Kolkata port in the Bay of Bengal (See the map below). The Park has 30 years of project life, meaning, Chinese investors will own and run the park until they will hand it over to Nepal in the next 30 years. And by the way, the Park is located at PM Oli’s constituency.
Nevertheless, Nepal expects to create thousands of jobs from this project, and also have some technology transfers as several Chinese industries from apparel to white goods, electric cars to mobiles will potentially be manufactured and will be exported to international market with the label of “Made in Nepal.” A label that reminds one about the context of Chinese manufacturing in Ethiopia: “Made in Ethiopia by China.” Similarly, India’s cooperation will be crucial as the raw materials and finished goods will have to travel back and forth through Indian corridor. How China will deal with international pressure as it will be seen as benefitting from Nepal’s preferential market access in the West is also equally critical. Industry related pollution due to China’s massive production has also been the matter of grave concern. Furthermore, how Nepal will handle such a large industrial park and several dynamics — social, human, economic — related to it will determine the success of it. Ethiopians’ salaries in those Chinese-invested parks are as low as US $26 a month, in fact by far the lowest in global supply chain, which has caused huge problems for workers especially women who moved from their original places. In Nepal’s case, the minimum salary is much higher – over $ 100 a month by some estimate – which will lead to the question of price competitiveness for Chinese goods.
Nepal clearly needs to go down to the nitty-gritty of the Park operation with China — unfortunately the process has not been that transparent so far. Locals have protested how the land acquisition was handled by the government and complained about how unscrupulous political party insiders have maneuvered to get high prices for their lands while the ignorant residents had no prior information. Such factors will be important for smooth operation because the Park is said to be “fundamentally different” from ‘free trade zones’ in that it is a “liberalized platform for diversified economic growth” that includes a wide array of activities from retail to tourism, residence etc. Rather than just promoting investment or being export drivers, the Park is expected to work on increasing overall competitiveness of the country’s economy.
If done well, this can definitely be a huge opportunity for Nepal — there are examples about how other multilateral investors such as the World Bank has come to work on different links in Chinese-invested parks. Actually the policies of overseas industrial parks financing of China and the Western development financers align. In terms of other investments, China’s new International Development Cooperation Agency and Nepal government have finalized to upgrade infrastructure in the Himalayan border areas. China’s infrastructure bank, the AIIB, has together with ADB and the World Bank’s IFC, co-financed in sustainable energy projects in Nepal. But the much-expected trans-Himalayan train project plans, a grand plan the cost of which was estimated in billions — under the Belt and Road initiative have seemingly stalled at this moment.