Indian construction companies and equipment manufacturers should explore opportunities outside the country as India has the potential to become a global manufacturing hub. Reports Saeeduddin Faridi
The infrastructure sector presents India with a unique opportunity of becoming an exporter of infrastructure construction capacity. Manufacturers of construction equipment as well as construction companies can expand their markets beyond India’s borders with their technological expertise, innovativeness, and business acumen. The government’s Atmanirbhar Bharat mission to make India a Self-Reliant Nation - can be a catalyst for this process.
India has the potential to become a manufacturing hub for the world as the cost arbitrage advantage India possesses will attract multinationals to Indian shores. India needs to formulate policies keeping in mind whether multinationals or home-grown manufacturers should be able to compete beyond the borders.
The cultural links, as well as proximity to South Asian countries, gives Indian firms an advantage in offering their capabilities in the field of construction. The region, despite being the least integrated in the world, has served well for the construction sector. Indian companies have been active in countries like Nepal, Sri Lanka, Bangladesh, Afghanistan, and Bhutan. The companies should make use of the links formed with partner companies and the governments in other countries to source new opportunities to extend their services and expertise.
The GDP of these South Asian countries looks stable, and their governments’ plans are indicating that there are a lot of opportunities in the infrastructure construction sector for Indian construction companies and equipment manufacturers. Already, many Indian OEMs and contractors are engaged in these countries, but the enormous scope of work there remains untapped.
Companies that want to grow at a faster pace and reduce their dependency on the Indian market for growth, should plan to expand into markets outside the country by tying up with local partners, distributors, or set up offices there.
To help Indian companies identify business opportunities, the first of this Series explores countries that are considering infra development, and their investment plans and policies.
Nepal is a landlocked country which boasts of some of the tallest mountains in the world. This country of almost 29 million residents, has some peculiar infrastructure challenges in terms of the nature of projects and the difficult terrain. Like other countries in South Asia, Nepal is also witnessing rapid urbanisation and more challenges are arising with the growth of its cities. In 2015, Nepal witnessed a massive earthquake which affected over 8 million people; several major landmark structures collapsed. The country is still in the recovery and reconstruction phase, and currently has several major infrastructure projects under execution.
However, the status of Nepal’s infrastructure highlights neglect on the part of successive governments. Roadways in the country are not well maintained and the lack of sufficient air connectivity and supporting infrastructure have constrained economic growth. This is also true for urban infrastructure which has led to congestion in Kathmandu and poor delivery of services to residents.
These problems have arisen due to factors such as rapid urbanisation, inefficiency in spending, and the limited funding capacity of the government. Nepal is experiencing fast growth in the use of private cars. The need for means of faster movement/transport within cities and between cities is therefore vital. Furthermore, since Nepal is landlocked, links to Indian ports for trade and (since 2018) Chinese ports as well, have become essential. The government is now pushing to widen roads on 4 key trade routes, linking Nepal to India and China. Nepal is also unable to address the gap between the actual and required funds for infrastructure development.
Promotion of policies like PPP can help make infrastructure construction more efficient by encouraging competition as well as attract more investment. Flow of revenue streams can incentivise private players to invest in maintenance of infrastructure. Nepal also needs to simplify the framework for foreign investments. Like Pakistan, Nepal could introduce a one-stop window for approvals of foreign investments to facilitate foreign financing.
Nepal has been a recipient of funds from sources such as the ADB and AIIB. China and India, Nepal’s neighbours, have also been keen partners. A massive hydropower project, Budhi Gandaki, with a price tag of $2.5 billion, has been contracted to China’s Gezhouba Group. Meanwhile, India is involved with the Pancheshwar multipurpose project.
According to a World Bank report, Nepal needs infrastructure investments of around 10 to 15% of GDP annually, for the next 10 years. This will determine Nepal’s ability to grow without infrastructure related constraints.
Among South Asian countries, Sri Lanka is the least urbanised and the pace of urbanisation is slow. However, Colombo witnessed significant growth between 1995 and 2017, which led to poor urban design and planning, inefficient land and housing development, and significant challenges to the environment.
Urban transport has also emerged as an issue, particularly in the Western Regional Metro, which constitutes Colombo and its neighbouring areas. This has prompted the government to develop plans such as the Megapolis Transport Masterplan. However, the ADB’s assessment highlights the need ‘to strengthen long-term strategic investment planning and engineering capacity in urban departments to meet the increasing challenges of urbanization’.
While organisations such as the ADB and JICA have been involved in Sri Lanka’s development work, the most significant player of late is China. According to the Ceylon Institute of Builders, almost 40% of all construction work in Sri Lanka involves Chinese firms. Several of these projects, such as the Colombo Port City project, carry a very high price tag. The China Harbour Engineering Company is working on reclamation of land at the site of the $1.4 billion Colombo Port City project. This project follows the construction of the CICT port terminal in Colombo by China Merchant Port Holdings and the Hambantota Port project by the China Communications Construction Company. These projects are set to have a significant impact on Sri Lanka’s economy.
Besides China, India is also involved in Sri Lanka’s infrastructure development. In 2021, India expressed interest to further increase its cooperation with Sri Lanka in the infrastructure domain. Most recently, India’s Adani Ports has partnered with the Sri Lanka Port Authority to develop the West Container terminal in Colombo.
Sri Lanka is taking advantage of its strategic location and developing as a hub for shipping. Infrastructure in the country has been witnessing changing dynamics with respect to urbanisation, foreign funded projects, and transport. For the foreseeable future, the demand for urban housing and projects funded by Chinese companies will keep up the demand for construction equipment and expertise.
Inadequate infrastructure has been a major hinderance in Bangladesh’s growth. The country requires $25 billion of investment annually until 2030 for its infrastructure needs. Despite the inability of the country’s capital market’s inability to finance such infrastructure, the government has introduced various policies to spur investment and make financing available.
The country’s government has created a Bangladesh Infrastructure Development Fund to finance projects in the energy and port sectors. The $2 billion fund will be first used for dredging work at the Payra Port. The government has also pushed the PPP model since 2010 in order to fill the gap in funding. It has set up a Public Private Partnership Authority ‘to facilitate identification, development and tendering of PPP projects to international standards’. Bangladesh currently has 71 active PPP projects; the largest among them is the Reliance Meghnaghat Combined Cycle Power Plant at $1.1 billion. This under-construction project has a capacity of 718 MW.
India has been a longstanding partner for development work in Bangladesh. In 2018, Bangladesh and India partnered on rehabilitating rail links within Bangladesh. This year, the Maitri Setu bridge connecting Tripura with Bangladesh was inaugurated. The collaboration between the two countries extends to railways, roadways, shipping, and waterways.
Like in other South Asian countries, China is a major development partner for Bangladesh as well. China has been the biggest source of foreign investment which has focused particularly on the energy sector. The countries are poised to see further cooperation on projects such as the Payra Port, Sylhet Airport, and Telecom infrastructure.
Despite impressive growth, Bangladesh’s infrastructure has not caught up. The country ranked 114th of 141 countries in the infrastructure domain of the Global Competitiveness Index in 2021. This highlights the need to remove bottlenecks created by the lack of infrastructure to realise growth. Foreign investments and the PPP model will be instrumental for the country in its post pandemic recovery.