Great power aid all about economics

Nepal occupies a special place in the strategies of the reigning global power the US, an emerging power, China, and the aspiring power India because of its strategic location. The approach these powers have recently deployed in Nepal is not hard power in the conventional sense. Rather, it is more how the global powers are exploiting the unmet demand for critical infrastructures such as roads and airports and their financing as a new tool to expand their influence and win over the hearts and minds of ordinary Nepalis.

The scope and sophistication with which the battle for infrastructure financing is unraveling have tested the wits of even seasoned observers of international diplomacy.

Welcome to a great story in the making in Nepal, with many narratives and counter-narratives.

This story began in March. US Ambassador to Nepal Randy Berry tweeted in the last week of that month to highlight how US support was creating growth and employment for his host. The support he was referring to was the Millennium Challenge Corporation Nepal Account (MCC-NA) totaling US$500 million for five years to finance critical infrastructure. It is indeed the most substantial grant commitment that Nepal has received from any bilateral donor.

However, what made Ambassador Berry’s tweet special was his highlight of the debt-free nature of the MCC-NA support. Analysts in Kathmandu were quick to perceive this as a veiled reference to potential Chinese funding for Nepal under the Belt and Road Initiative (BRI), which the West claims to be a “debt trap.” The tweet was an attempt by the US to throw a millstone around China’s neck, which is not in a position to provide infrastructure financing in Nepal in a 100% grant. It was a postscript to the inclusion of Nepal in the Indo-Pacific Strategy by the US recently.

The MCC-NA is a laudable initiative but falls short of the total infrastructure financing that Nepal requires. It is natural that Nepal explores all available options, including bilateral, multilateral, and private-sector financing, to fill the infrastructure-financing gap.

In this context, Nepal has agreed with China to build the Trans-Himalayan Multi-Dimensional Connectivity Corridor under the BRI. However, potential infrastructure-financing deals with China have divided the Nepali citizenry. The clear preference is for a grant, while only a few assert assessing the merit of the projects first and deciding on the sources of financing later on.

Public perception of BRI financing

Nepali policymakers must take into account two critical factors influencing the public perceptions that could follow BRI financing.

First, publicly available information on what constitutes the Trans-Himalayan Multi-Dimensional Corridor agreement with China and what the potential sources of financing are is scant at best. Analysts and national media are left on their own to speculate about the corridor, the specific projects, costs, and timelines involved. Optimists consider the corridor as a broader “work-in-concept” and a “game-changer” for the Nepalese economy. On the other hand, the detractors rubbish it as an opaque vanity project that will generate little or no financial return.

It is little wonder that the proposed Kathmandu-Kerung cross-border railway line has grabbed the attention of Nepali citizens. Social media are full of discussions about the pros and cons of the project. As very little information about the project is publicly available, one could wonder if the issues contested in cyberspace are authentic or not.

Second, Western and Indian media’s portrayal of China as a predatory lender gets coverage in the Nepalese national press and by social-media users. The story of how Hambantota Port in Sri Lanka was handed over to China to repay the loan taken to build it has caught the wide attention of Nepali citizens as well. A negative portrayal of the BRI in the international press is a more significant challenge for the smooth implementation of projects with BRI financing in Nepal.

In recent weeks, the notion of Chinese “debt diplomacy” has been challenged by some US-based think-tanks. Dr Deborah Brautigam of Johns Hopkins University and the Radium Group are leading this change in global public opinion. The Radium Group has concluded that the debt-to-equity swap in the case of Hambantota Port and handing over the port’s operation to a Chinese–Sri Lankan joint venture for 99 years was not an “assets seizure” as portrayed by international media. However, these types of counter-narratives have received hardly any coverage in Nepal’s national press.

The Chinese side is aware of the criticism of the BRI as opaque by Western media and the potential roadblocks to its implementation. Chinese Ambassador Hou Yanqi in a meeting with Nepalese media in the third week of May refuted the notion that the BRI projects were a debt trap – a rebuttal to veiled US allegations. She also said the proposed cross-border railway line between Nepal and China was a long-term project requiring lots of background studies and research before construction begins.

Similarly, the Chinese government issued a framework for debt sustainability for BRI participating countries, which shows that China is responding to the Western allegation that its lending is strategically driven rather than driven by macroeconomic principles.

However, the onus is with the Chinese side to make the Global South aware of the safeguards that it has adopted recently to make lending transparent and guided by economic rationales.

Takeaways for Nepal

Nepal’s foreign-policy establishment must keep in mind that potential infrastructure mega-projects draw wanted and unwanted attention from both its neighbors and the US because of Nepal’s strategic location. Hence the rule of the game is to ensure timely dissemination of information about the proposed projects by the government to avoid the spreading of misinformation and potential project delays.

Second, the burden of informing Nepali citizens about the BRI projects – and any other foreign-funded projects, for that matter – lies with the host government, not the ambassador whose country finances the infrastructure.

Third, developing a shared understanding across partisan lines on strategic infrastructure projects, including the BRI, should be a national agenda. The role of parliamentary committees becomes essential to discuss how the BRI’s and other vital infrastructure projects are built and financed.

Fourth, Nepal must be smart enough on how, when, and where to engage its friends for infrastructure financing. Recently a ceremony to mark the breakthrough of a tunnel to divert water from a river with a surplus to one with a deficit of water in western Nepal was organized. Unlike several donor-funded infrastructure projects, Nepal is domestically funding this work-in-progress project. US and Chinese companies are providing tunnel-boring machines and project-management expertise, respectively, for the project.

Nepal’s message to the outside world

Prime Minister K P Sharma Oli, flanked by the Chinese and US ambassadors, was the proud host to celebrate the breakthrough of the tunnel of this inter-basin river-diversion project. However, what made this event special was Nepal’s message to the outside world as to how it intends to engage its friends when it comes to infrastructure financing.

The message Oli gave was about the non-discriminatory treatment that Nepal would accord to all its partners when it comes to giving them an equal chance to bid for lucrative contracts. It was also a message that Nepal is willing to engage with all partners in bilateral and multilateral formats when it comes to financing its unmet infrastructure needs.

The tweet from the US ambassador after his participation in the event was even more explicit, boasting of the division of labor between China and the US in the project and hence the lack of confrontation between them.

Make no mistake: The US, and for that matter China, India and other donors and creditors, seek a slice of the infrastructure-financing cake in Nepal irrespective of what the sources of funding are.

The great game is nothing more than who gets the biggest piece of the lucrative economic cake.