In the first of the series, it was reported that infrastructure development in neighbouring countries like Bhutan, Sri Lanka, Bangladesh, and Nepal is presenting an opportunity to Indian construction companies and equipment manufacturers to explore business opportunities in these countries – either as infra developers/contractors or as exporters of construction equipment.
In this 2nd Series, Saeeduddin Faridi looks at infra developments in the smallest of the countries in the South Asian region viz Bhutan and Maldives. Both the countries are vital to India’s geopolitical interests and conversely, India is a vital development partner for them.
Bhutan is a landlocked country in South Asia, nestled between India and China. It is often associated with the Gross National Happiness Index which is an important principle in the governance of the Kingdom. The country poses unique challenges in the infrastructure and construction domain because of its mountainous terrain and small population. The Kingdom is home to about 7.8 lakh people with a $2.4 billion economy. The construction sector is an important player in the economy; in 2016, the sector contributed over 16% to the GDP of the country.
In its early period, the Kingdom’s infrastructure needs focused primarily on road construction. This was needed to build a strong network of communication and open communities in remote regions to socio-economic changes. Since then, Bhutan has seen an evolution in the infrastructure and construction industries with the incorporation of new technologies, increasing presence of the private sector, and a focus on sustainable construction with environmental considerations.
India has been an important development partner for Bhutan. Among the first projects was the very significant Phuntsholing-Thimphu Highway, part of the Dantak Project, which connected the capital city Thimpu to the Indian border. India provided technical and financial assistance for the project. This relationship has continued. In June, India committed `4,500 crore worth of funds for development projects in Bhutan, which include construction of road and water infrastructure. India is also involved in Bhutan’s energy sector where it has constructed 4 hydropower projects.
The two most important elements of the construction industry in Bhutan are roads and hydroelectric power plants. Since the late 1990s, the largely state-driven exercise of road building engaged the private sector. Since then, they have become active players in constructing and resurfacing roads. However, the quality of work of the local contractors has come into question. Among private contractors, there is a lack of expertise and experience in project implementation and management. Similarly, public works face several complaints and charges of corruption and delays. This creates a need for professionalising the industry and introducing new technologies and standards such as prefabrication and mechanisation of the construction process.
Local contractors primarily use foreign workers and inputs. Bhutan relies primarily on India for shortfalls in its labour force and industry inputs. In 2015, the construction industry engaged over forty-four thousand foreign workers, while at the same time just over six thousand Bhutanese workforce was involved. This is also reflected monetarily in the form of remittances to Indian workers and payments for construction materials.
This deficit of skilled labour in Bhutan needs to be addressed. Current policy solutions like community contracting and preferential treatment in the bidding process to encourage the use of Bhutanese inputs and labour has not yielded the desired effect. This can provide India an avenue to share its experience and provide technical help in order to develop capacity among the Bhutanese for skilled work in the construction industry. India can welcome students from Bhutan to develop the necessary skills in Indian institutions. India’s Planning Commission, which established the Construction Industry Development Council aimed at professionalising the functioning of the construction industry, can play a constructive role in Bhutan.
Bhutan’s economic recovery from the pandemic is expected to be slow and reliant on government investment, and on the revival of tourism and recovery of supply chains. India can play a constructive role in this recovery.
The Maldives is an island nation in the Indian Ocean. The middle-income country is home to over 5.3 lakh people scattered across a thousand small islands. Despite the nature of its complex geography, the country has a good record of delivery of public services and infrastructure. The economy is largely dependent on tourism and infrastructure development. Between 2015-2019, the government significantly increased investment in infrastructure, amounting to nearly 35% of the GDP.
The pandemic was a major economic setback since tourism and its related services directly contribute about 40% to the economy. This was aggravated by the effect of the pandemic on the other major driver of growth: construction. The construction industry in Maldives is largely dependent on imports for raw materials and equipment and the disruption in the global supply network caused by the pandemic led to a significant contraction in the sector.
The signs of recovery are also visible with the increasing footfall of tourists and major infrastructure projects in the pipeline. India is a significant partner for Maldives in this process. In 2018, India announced financial aid for Maldives worth $1.4 billion. This includes a $500 million bridge that aims to connect Male with three neighbouring islands.
The Export Import Bank of India is funding several projects of varying scale in the country. This includes the $87 million Male-Thilafushi bridge and water and sewerage infrastructure across 34 islands. Other major projects, funded by various funds and organisations, include the expansion of the Valena Airport, Gulhifalhu port development, and land reclamation projects.
A 2019, IMF report on Maldives highlights some systematic issues with the management of projects and incorporation of the private sector. PPP projects initiated by the government lack set standards and institutional oversight. There is no specific legislation or regulation that governs PPPs in the country.
A significant issue for Maldives is climate change and the rising sea levels. Almost 70% of Maldives’ infrastructure is threatened by the rising sea levels and erosion of soil. Environmental considerations are a major feature of construction activity. The focus has now shifted to building resilient infrastructure within the framework of existing laws. Despite adoption of stronger provisions of Environmental Impact Assessments, there is scope for more public participation, transparency and setting of standardised guidelines for construction in the sensitive coastal areas.