By Mahua Venkatesh
New Delhi, April 6: Regional integration, especially for South Asian economies, is the way forward as the world enters the post-Covid pandemic phase. One of the least integrated blocks, intraregional trade among South Asian nations is only 5-6 per cent of the total trade — less than a third of its potential.
Intraregional investments are even lower at barely 0.6 per cent of the total inward foreign direct investment from the world and 2.7 per cent of the total outward FDI to the world, says Cecile Fruman, World Bank’s Director, Regional Integration and Engagement for South Asia.
Fruman has been actively pitching for boosting connectivity among countries in this region. “An increase in regional trade and investments would unlock productivity gains, employment opportunities and growth prospects,” she says in an interview to India Narrative.
Q. Do you think that the Covid pandemic has brought the focus back on the importance of regional cooperation?
A. Covid-19 has had a profound impact on South Asian countries and economies. It is estimated that 48 million to 59 million have become or remained poor in the region in 2021.
Early in the crisis, we witnessed some positive initiatives towards regionalism. Prime Minister (Narendra) Modi convened the heads of state of SAARC in March 2020, for the first time in years, followed by technical Ministerial meetings, the establishment of the SAARC COVID-19 Emergency Fund, and vaccine diplomacy.
Steps were also taken to keep cross-border trade flowing. Countries adopted increased digitization and instituted practices and reforms. For instance, India introduced a ‘faceless assessment’ program to assess declarations of goods online and established a dedicated single window Covid-19 helpdesk. Customs authorities in Nepal formed a Quick Response Team to ensure essential goods are cleared within a two-hour timeframe; Bangladesh waived import duties on priority medical supplies; and India and Pakistan continued trading in pharmaceuticals and medical equipment.
These initiatives build on bilateral and sub-regional engagements that have been gaining traction these past years.
Q. How would greater integration in South Asia help in post Covid economic recovery in the region?
South Asia is among the least integrated regions in the world, in terms of trade and people-to-people contact. Regional cooperation can support a green, resilient, inclusive development and an integrated recovery.
Our new report Regional Investment Pioneers in South Asia makes a compelling case for regional investments for economic recovery and growth due to several factors, including rise in trade and connectivity costs; push to diversify global value chains and shift them closer home; importance of services in global recovery and the growing services sector in South Asia; and expanding regional consumer markets.
At present, intraregional trade is only 5-6 per cent of the total trade, and less than a third of its potential. Intraregional investments are even lower at barely 0.6 per cent of the total inward Foreign Direct Investment (FDI) from the world, and 2.7 per cent of the total outward FDI to the world. An increase in regional trade and investments would unlock productivity gains, employment opportunities and growth prospects.
Q. In this scheme of things how important is the BBIN thread?
In Bangladesh, Bhutan, India, and Nepal (BBIN), there has been positive momentum on transport connectivity and electricity trade. Bangladesh, India, and Nepal are now moving ahead with the implementation of the Motor Vehicles Agreement. India and Bangladesh announced their continued commitment to “connectivity for prosperity”, and India and Nepal ratified the new Rail Services Agreement for utilizing rail networks and increasing the role of private sector for cost-effective transport of goods. In energy, trade amongst BBIN countries has nearly doubled from 2015 to 2021, mostly through bilateral trade, and the countries are now moving towards a more integrated sub-regional market.
All these developments bode well for sub-regional and bilateral engagements. But there remains an immense untapped potential of regional collaboration on priority issues like pandemic surveillance and preparedness, climate resilience, and economic recovery.
Q. Can Covid 19 induced digitization boost regional cooperation?
A. The pandemic has accelerated the use of digital technologies and platforms. The potential of digital transformation relies on regional cooperation in three key areas — i) investing in cross-border connectivity and infrastructure; ii) creating an enabling environment for cross-border data flows, and iii) improving cross-border financial services like remittances, cross-border payments, and e-commerce.
Besides improving trade, transport, and digital connectivity, an inclusive recovery requires coordinated efforts to tackle shared challenges of climate change, natural disasters, and future pandemics. At the World Bank, our South Asia Regional Integration, Cooperation and Engagement (RICE Approach is comprehensive and focuses on three priority areas of economic connectivity, climate resilience, and human capital.
In this region, where over 750 million people have been impacted by one or more climate-related disaster in the last two decades, we are supporting cooperation in areas like shared early warning systems on weather and flooding, building climate-resilient infrastructure, and using innovative and green technologies for climate resilience. Cooperation in clean energy production and trade can further ensure energy reliance, reduce greenhouse emissions, and contribute to economic recovery.
We also see room for greater cooperation in areas of health and disease surveillance and preparedness, and integrated disaster and pandemic response, which will help in current recovery and prepare the region to respond to future shocks.
Q. What are the key challenges that South Asian countries need to keep in mind to boost connectivity?
A. In South Asia, transport and trade challenges mean that it is about 15-20 per cent less expensive for an Indian company to trade with a counterpart in Brazil or Germany than in Bangladesh. Improved connectivity can reduce trading costs, lead to greater economic growth, and reduce poverty in South Asia.
A key foundation for seamless connectivity is effective regional agreements, for instance, the Motor Vehicles Agreement signed between BBIN countries in 2015, which seeks to facilitate the unrestricted cross-border movement of cargo, passenger, and personal vehicles between the BBIN countries. A World Bank analysis estimates that implementing the MVA and full transport integration scenario— where trucks do not stop at the border between India and Bangladesh and can use any border posts and roads in both countries —can increase income levels by 16.6 per cent in Bangladesh and 7.6 per cent in India.
For seamless connectivity, the countries also need integrated multimodal transport systems, which include roads, rails, inland waterways, along with well-designed land, river, and seaports. It is also important that these multimodal corridors are connected to local and rural markets and logistics, so that the wider benefits trickle down to local communities and businesses.
Further, digitization and automation of customs and clearance procedures can support connectivity by reducing burdensome paperwork and clearance time. At present, around 22 documents and 55 signatures are required to trade between Bangladesh and India.
Other measures that could contribute to seamless transport connectivity include competitive transport services markets, modernized infrastructure at border points and advanced risk management systems, harmonized testing standards, and upgrading of cross-border and internal roads.
Additionally, digital connectivity and interconnected energy grids are offering new avenues to link South Asian countries for mutual gains.
Q. Even as talks on BBIN are on, it is taking time to thrash out the final contours. How can implementation of BBIN MVA be expedited?
A. We are witnessing renewed momentum on the implementation of the MVA and are very encouraged by this. Officials of BBIN states have recently met to agree on finalizing and implementing the Passenger and Cargo Protocols.
Our World Bank analysis provides strong evidence on the benefits of operationalizing the MVA and also presents some gaps that could hamper regional integrated road transport. These include lack of standardized infrastructure designs, absence of rules for drivers’ trainings, licenses, and lack of transit regimes. The MVA does not permit triangular traffic movement and provides for operations on specific routes and through designated border crossing points, which can restrict integrated transport and trade.
As the implementation of MVA moves ahead, complementary interventions and linkages should also be planned to ensure that the wider socioeconomic benefits trickle down to small businesses and local populations, especially women. With this, we will not just create transport pathways, but robust economic corridors, which will have greater acceptance and local support. For this, stronger engagement of a broader set of stakeholders from private and public sectors, as well as communities that are directly impacted, will be important.
Q. How can issues relating to security be addressed?
A. South Asian countries face growing challenges of climate change, which transcend national boundaries. Other challenges like pandemics, declining natural resources, management of transboundary resources, and growing number of poor in the region require collaborative approaches. Countries can work together on shared challenges and solutions.
Experience from around the world shows that socioeconomic gains of cooperation are a strong rallying point for regional engagements. These can be supported by cross-border people-to-people contact in areas like industry associations and private sector, exchange of students and academics, and coordinated research on critical issues including climate change and health emergencies.
Q. What lessons can South Asia derive from the EU and other such blocs including AfCFTA?
A. The European Union (EU) has achieved success in becoming a single market along with restriction-free travel among the member countries. At a global level, the EU countries negotiate as a single bloc on issues such as trade and climate change. There are multiple lessons for South Asia on the scale of strategic and socioeconomic benefits.
The African Continental Free Trade Area (AfCFTA) is a recent initiative supported by African Union, with free trade commencing in January 2021 among the 55 countries on board. World Bank studies estimate that by 2035, implementing the agreement would contribute to eradicating extreme poverty for an additional 30 million people and raise 68 million people from moderate poverty.
For South Asia, there are lessons on the role of effective regional institutions, and how successful sub-regional cooperation could pave way for broader regional cooperation. The seeds of sub-regional collaborations in areas like BBIN in eastern South Asia, Afghanistan-Pakistan-Central Asia on its western side, and India-Maldives-Sri Lanka in the Indian Ocean, could lead to wider regional cooperation.
Closer home, there are also lessons on deepening economic engagements to be drawn from Association of Southeast Asian Nations (ASEAN), where intraregional is 25 per cent of the total trade as compared to a low 5 per cent in South Asia.
(The content is being carried under an arrangement with indianarrative.com)
–indianarrative
