The visit by Indian Prime Minister Narendra Modi to Bangladesh in 2015 provided a roadmap that, if followed diligently, could witness the common power grids of BBIN (Bangladesh, Bhutan, India, Nepal) connected in the foreseeable future. The ultimate linking of all these presently separate bilateral power grids into a sub-regional mesh of interlinking grids of symbiotic interdependence in the energy sector, would support forming the architecture of long-term energy security for this sub-region. Cooperation on river basin management will also enable the region to address larger issues: restoring river navigability (most eco-friendly and economic mode of transportation that had been in use since ancient times until the mid-1960s); better flood forecasting, and irrigation and drought management; preventing massive land loss along river embankments; reconnecting peoples along the rivers and giving them a sense of ownership of their rivers and ultimately, harvesting clean renewable energy from these rivers. All these activities would create massive employment and revive lost upstream and downstream industries. The northeast of India has an untapped potential of around 80,000 MW of hydropower (at a very conservative estimates). Nepal has similar potential while Bhutan has a potential of well over 23,000 MW. So while several sets of good bilateral relations are catalysing sub-regional cooperation, the latter will serve to further strengthen bilateral relations, thus creating a virtuous cycle of mutual cooperation. TRADE: From the early 2000s, Bangladesh’s trade with South Asia has been on the increase and about 40 per cent of its total trade currently takes place within this region. South Asia is gradually becoming a major source of imports for Bangladesh (Table 1). Bangladesh economy is gradually opening (by trade) to South Asia. Imports from South Asian countries grew from 15.7 per cent of total imports in 2005 to 20.4 per cent in 2013. However, Bangladesh’s exports actually fell between 2005 and 2013 despite growing slightly in 2011 and 2012. Overall, Bangladesh’s trade with South Asia almost doubled during this period, from almost 10 per cent in 2005 to over 17 per cent in 2013 (see Table I). The scenario also indicates that Bangladesh, in recent times, is largely unable to avail the opportunities by the growing markets of her neighbours.
BANGLADESH’S TRADE WITH INDIA: India is the largest economy in South Asia and the seventh-largest economy in the world with a GDP amounting to $2.3 trillion. A member of BRICS and a developing economy with approximately 7 per cent average growth rate for the last two decades; it is potentially a huge market for Bangladesh. While bilateral trade between the two countries has been growing steadily since the early 1990s, exports from India far outweigh imports from Bangladesh, resulting in a vast trade gap. The operation of the South Asian Free Trade Area (SAFTA) since 2006 and duty-free market access for most products in the Indian markets since 2012 have created potential opportunities for higher trade with South Asia, particularly with India. Figure 1 gives a picture of Bangladesh’s trade with India from FY2010 to FY2014. Bangladesh’s exports to India increased from $304 million in FY2010 to $456 million in FY2014. A lack of product diversification, non-tariff barriers, and inadequate banking facility along the bordering areas of the two countries are the major impediments for increase in bilateral trade. Trade is heavily tilted in favour of India India is currently working with Bangladesh on several infrastructure projects. These include construction of a bridge over the Feni River to access Chittagong port, building of a 15-km railway link between Agartala and Akhaura and a 70 km-long road from Sabroom to Chittagong Port, and renovating Ashuganj Port in Bangladesh. The opening up of waterways for passenger traffic will enlarge the connectivity between Bangladesh and India. All the modes of transport air, rail, road and water will then be open. Sri Lanka, Bhutan and Nepal are regional neighbours of Bangladesh and relations are strong and long-standing. In recent years, these countries have committed themselves to a strategic development partnership, free trade and transport. Bangladesh imports goods worth around $25 million from Bhutan but its exports to that country is only around $2 million. Nepal’s exports stands at $35.6 million compared to Bangladesh’s $26.41 million in 2014. This record shows that the export figures of Bangladesh to its neighbouring countries are comparatively low and nowhere to a breakthrough. There has been also a dramatic change in economic ties between Sri Lanka and Bangladesh. The bilateral trade between the two countries exceeded $100 million for the first time in 2013. The investment flows have also increased during the last four years. Tourism services play an important part in increasing Bangladesh’s export earnings from these three countries. Nepal and Bhutan along with Bangladesh should explore the potential in tourism sector for mutual economic benefits. Bangladesh tourists’ flow to Sri Lanka increased significantly from a mere 1,864 in 2010 to 10,037 in 2013. Currently, Bangladesh, Bhutan and Nepal are connected by air only. So, with the start of bus services between Bangladesh and Bhutan and Bangladesh and Nepal, the movement of people between these three countries will be easier and cheaper.
LOOKING INWARD: The South Asian economies (encompassing India, Pakistan, Afghanistan, Bangladesh, Sri Lanka, Bhutan and Nepal) represent a market of more than 1.7 billion people. According to the Asian Development Bank, intra-regional trade accounts for a mere 5 per cent of total trade in South Asia. Previous attempts to a build a regional economic bloc and enhance commercial opportunities have been frustrated by bitter tensions between the largest states (such as India and Pakistan) and security concerns (particularly with regards to Pakistan and Afghanistan). Even where zero-tariff rates apply, intra-regional trade is crippled by all-pervasive non-tariff barriers. These include time- and resource-intensive standard border protocols and documentation, underdeveloped port and road infrastructure, and highly restrictive visa and investment regimes. Even if transport infrastructure were to improve along borders, this would have to be accompanied by a reduction in red tape. Intra-regional investment also remains meagre and SAFTA excludes investment and services, meaning that there is no impetus towards harmonising policies and opening up greater capital flows within the region. Foreign direct investment, therefore, comes from outside the region and the large diaspora. Vertical integration of industries (such as in South-East Asia) could provide a boon for regional trade. In South-East Asia, international companies were able to leverage country-specific strengths (such as lower energy or labour costs) and consequently expanded production networks that integrated the economies closer over time. However, in South Asia this will continue to be held back by policy fragmentation, inadequate regional transport networks (undermining the predictability of delivery and adding to inventory costs) as well as high tariff levels. As a leading economic power in the region, the onus would be on India to jump-start a process of liberalisation in South Asia, but the government may be too concerned about protecting the market share of domestic export-oriented companies.
POLITICAL AND CAPITAL OBSTACLES: The legacy of protectionist thinking still pervades many South Asian policy circles which mean that despite economic dynamism, intra-regional trade lags behind. We have to deal with these economic and non-economic issues. An important, and overlooked, barrier to greater economic integration in SA region is the poor quality and inadequate investment in infrastructure in the region. The newly-established Asian Infrastructure Investment Bank (AIIB) can play a pivotal role in fixing this problem. The situation for cross-border infrastructure is even less encouraging. A telephone call from Bangladesh to India is more expensive than call to the United States or Europe. Cargo trucks waiting 3-5 days at the border for clearance from customs is normal. The cost of trading across borders in South Asia is prohibitively high. It is estimated that South Asian countries need to invest around 7.6 per cent of GDP in infrastructure per year if they are to achieve economic growth of 7.5 per cent. This amounts to an annual capital investment of US$88 billion in new investment and in maintaining existing capital stock. Currently, actual average investment in infrastructure is around US$28 billion per annum – the lowest in the world, excepting sub-Saharan Africa. The SAARC made an attempt to narrow the investment gap recently. For a decade, it negotiated a free-trade agreement called the South Asian Free Trade Agreement (SAFTA). Coming into effect in 2006, the SAFTA aims to facilitate the ‘development of communication systems and transport infrastructure’ to facilitate intra-regional trade. Still, the pace of infrastructural reform envisioned by the agreement has been slow.
Infrastructure development: The advent of AIIB
Other similar initiatives include the establishment of the South Asian Development Fund (SADF) in 1996. Later reworked as the SAARC Development Fund (SDF), its aim is to act as an umbrella funding mechanism for all regional development projects, including infrastructure. But with capital of only US$300 million, the SDF has been unable to go beyond funding some social projects. The idea of setting-up a South Asian Development Bank (SDB), led by India, has also been proposed to provide low-cost funding to member countries for infrastructure projects. But this idea so far has not taken-off. With this backdrop, the creation of the AIIB has come at the right time. The bank was established with an explicit objective to provide financing for developmental infrastructure like roads, railways, sea and airports, and power generation plants to facilitate greater economic integration in the Asia Pacific.
