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.
The similarities are striking. Nepal and Lao PDR are both land-locked. Both are endowed with vast hydropower potential. Both aspire to middle income status by the first quarter of this century. To their advantage, both Nepal and Lao PDR border energy-starved neighbors and see regional energy trade as their ticket out of poverty. And both countries harbor ambitions to become the “battery” that powers growth and prosperity in their respective regions.
Yet Lao PDR is going places while Nepal is stuck in stasis.
To understand this conundrum, the World Bank Group facilitated a study visit to Lao PDR last week for senior political party leaders and journalists from Nepal. The visit included a tour of the groundbreaking 1,080 MW Nam Theun 2 Hydropower Project as well as meetings with hydropower champions in the Lao government, private sector developers and local communities.
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.