This blog is part of of the series South Asia Youth Voices on regional integration. The views expressed are those of the authors.
The 21st century world lives on optical fibers, and with an active base of 1.49 billion monthly users, Facebook would today be the most populous country in the world. The digital revolution presents an opportunity to transcend geographical borders toward greater regional integration in South Asia. And youth, empowered by internet and the smartphone, can override traditional boundaries and historical prejudices.
Lesson 1: Facilitate trade in goods and services
Despite falling tariffs, there is still a large gap between the price of the exported good and the price paid by the importer, largely arising from high costs of moving goods, especially in South and Central Asia. On a percentage basis, the potential gains to trade facilitation in South and Central Asia, at 8 percent of GDP, are almost twice as large as the global average. High trade costs have contributed to South Asia being the least integrated region in the world.
FIGURE 1: Intra-regional trade share (percent of total trade), 2012
In the ASEAN region, most countries have established either Trade Information Portals or Single Windows that have enhanced trade facilitation, reduced trade costs and enhanced intra-regional trade. A Trade Information Portal allows traders to electronically access all the documents they need to obtain approvals from the government. A Single Window (a system that enables international traders to submit regulatory documents at a single location and/or single entity) allows for the electronic submission of such documents. These single windows, using international open communication standards, facilitate trade both within the region and with other countries using similar standards.
In services, one barrier to trade involves the movement of skilled workers, accountants, engineers and consultants who may move from one country to another on a temporary basis. The Southern Common Market (Mercosur)’s Residence Agreement allows workers to reside and work for up to two years in a host country. This residence permit can be made permanent if the worker proves that they can support themselves and their family.
Home to Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka, South Asia is one of the fastest growing regions in the world and yet one of the least integrated. Intra-regional trade accounts for only 5% of South Asia’s GDP, compared to 25% of East Asia’s. Meanwhile, with a population of 1.6 billion, South Asia hosts one of the largest untapped talent pools.
To encourage young researchers in the region who aspire to use their research to inform policy making, the World Bank Group calls for research proposals on South Asia regional integration. Proposals will be carefully reviewed and the most suitable proposals (no more than five overall) will be awarded with a grant based on criteria listed below. An experienced researcher from the World Bank’s research department or an external academic will mentor and guide the young researcher in the implementation of the research.
I’m on my way to the 7th South Asia Economic Summit (SAES) in New Delhi, India. The summit* brings together leading analysts, academics, policymakers, the private sector and civil society from across the region and beyond, who meet to suggest solutions to South Asia’s economic issues and learn from each other’s experiences.
This year’s SAES takes place at a very opportune time. Regional cooperation momentum has been on an upswing. The theme of the summit, “Towards South Asian Economic Union” captures the renewed optimism of moving forward on the regional agenda and generating shared prosperity. Apart from that, the SAES is held between November 7 – 8, only two weeks before the 18th SAARC (South Asian Association for Regional Cooperation) Summit, where heads of state from Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri-Lanka will meet in Kathmandu, Nepal.
South Asia’s Commerce Ministers meet in Thimphu on July 24. Getting there would not have been easy for many of them, with no direct flights between Thimphu and four of the seven capitals. In June, when some of us convened for a regional meeting in Kathmandu, our Pakistani colleagues had to take a 20 hour flight from Karachi to Dubai in order to get to Kathmandu! This is symptomatic of the overall state of economic engagement within South Asia—in trade in goods and services, foreign direct investment and tourism.
South Asian countries’ trade policies remain inward-looking compared to other regions, and there are even bigger barriers to trade within the region. Today, South Asia today is less economically integrated than it was 50 years ago. Figure 1 below shows that intra-regional trade in South Asia accounts for less than 5 percent of total trade, lower than any other region.
Buy a leather case for your wife’s smartphone on Amazon, select shipping from China with an estimated delivery time of 4-6 weeks, and then be pleasantly surprised when it turns up on your Virginia doorstep in 11 days. The marvels of the modern age – of technology, globalization, and shrinking distances.
Where does South Asia stand on export delivery? Figure 1 illustrates that compared to other economic units around the globe, it is a lot more difficult to trade with(in) SAFTA (South Asia Free Trade Agreement). It also shows that bureaucratic hurdles and the time it takes to trade go hand-in-hand. While the region does relatively well on trade with Europe or East Asia, intra-South Asian trade has remained low and costly. It costs South Asian countries more to trade with their immediate neighbors, compared to their costs to trade with distant Brazil (see below)! In fact, it is cheaper for South Asian countries to export to anywhere else in the world than to export to each other (Figure 3). In other words, South Asia has converted its proximity into a handicap.
And that is precisely one of the main topics that we discussed at the International Transport Forum in Leipzig during a session on Integrating Transport Networks for Sustainable Growth and Development. The panel also included Morocco’s Vice-Minister of Transport; the Head of Transport from the Latin America Development Bank (CAF), and the CEO and Chairman of the Management Board of Deutsche Bahn AG.
The first unexpected development happened when the moderator showed up with a fifteen-minute delay, having been trapped… in a Deutsche Bahn train stopped on the tracks between Berlin and Leipzig following an unfortunate encounter between a bulldozer and a catenary cable. To be fair, the incident had little to do with the quality of the railway service and was quickly resolved. That is what resilient transport is about.
South Asia is the least integrated region in the world. Intra-regional trade in South Asia is less than 2% of GDP compared to over 20% in East Asia. Labor mobility and regional travel is minimal, with few exceptions. Even remote communication is low – only 7% of international telephone calls in South Asia are to countries within the region, compared to 71% for East Asia. The case for closer integration has remained strong for a while now, and it is refreshing to see that some movement, albeit watchful, in addressing some of the region's deep rooted political economy issues, particularly between India and Pakistan.
The discussions around closer integration have centered on energy, trade, connectivity and stability. All of these offer strong potential to enhance growth in the region. However, financial sector integration overall, and access to finance in particular, hardly ever make it to the agenda of regional integration forums and deliberations. This is unfortunate, because the region has a long way to go in providing adequate access to financial services and insurance products, especially to the vulnerable segments of the population. Given that South Asia is home to more than half a billion of the world’s poor, this becomes a poverty reduction goal as much as a financial inclusion goal.
"Semiconductor Co." is a global microprocessor and chipset manufacturer, with production facilities, suppliers, and customers around the world. However, all markets are not created equal. Some customers are easier to reach than others. When it comes to exporting to India, for instance, its products are frequently held at customs for weeks, and sometimes even pilfered from warehouses monitored by customs.
According to the World Bank’s Doing Business report, it takes 32 days on average to complete trade-related procedures in South Asia, among the highest in the world. Nearly 70% of the time is spent on assembling and processing an odious number of documents.