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Bangladesh’s South Asian Regional Quandary


Published: Thursday, Sep 01, 2016

Bangladesh’s South Asian Regional Quandary

September 1, 2016

Connectivity has improved in recent times among the four countries with the signing of Bangladesh, Bhutan, India, Nepal (BBIN) landmark Motor Vehicles Agreement (MVA) for the Regulation of Passenger, Personnel and Cargo Vehicular Traffic among the four South Asian neighbors. 

By Mehrin Karim 

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Bangladesh’s strategic geographical location within South Asia provides a unique prospect for the country to benefit from greater cross-border movement of goods and services, along with investment flows. From the early 2000s, Bangladesh’s trade with South Asia has been on the increase and about 40% of its total trade currently takes place within this region. South Asia is gradually becoming a major source of imports for Bangladesh (Table 1). Imports from South Asian countries grew from 15.7% of total imports in 2005 to 20.4% 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 report, from almost 10% in 2005 to over 17% in 2013. The scenario also indicates that Bangladesh, in recent times, is largely unable to avail herself to the opportunities by the growing markets of her neighbors. This article highlights Bangladesh’s recent developments in trade and investment situation with regard to India, Bhutan, Nepal and Sri Lanka.

Table 1: Bangladesh’s Trade with South Asia


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% 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 favor of India.
Bangladesh and India have long shared the common objective of nurturing closer economic integration within the South Asian region. India and Bangladesh intend to build up overall connectivity between them in the next few years. In order to improve cross-border connectivity, 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 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.

Bangladesh’s Trade, Tourism and Investment with Bhutan, Nepal and Sri Lanka
Sri Lanka, Bhutan and Nepal are regional neighbors of Bangladesh and relations are strong and long-standing. In recent years, these countries have committed 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 neighboring countries are quite low. There has been also dramatic change in economic ties between Sri Lanka and Bangladesh. The bilateral trade between the two 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 export earnings from these three nations. Nepal and Bhutan along with Bangladesh should explore the potentials in the tourism sector for mutual economic benefits. There are endless possibilities that need to be explored together since regional tourism is very important. Bringing tourists into a community gives it new life, and creates opportunities for entrepreneurs to establish new services and products, or facilities that would not be sustainable based on the local population of residents alone. It also means more tax dollars, which allows public projects to be launched or developed. This means the infrastructure improves, with new roads being built and parks being developed. Bangladesh tourists’ inflow 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.

Figure 1: Bangladesh’s Trade with India (in US$ million)

Source: Export Promotion Bureau.Source: Export Promotion Bureau.

Implication of Connectivity issues on South Asian Trade

Better regional connectivity is one of the most important fundamentals for growth of tourism and it has certainly opened up the possibility of improved movement of people in the region for tourism purposes. Connectivity remains one of the biggest impediments to improving trade in South Asia, especially in the tourism sector. However, in order to make tourism flourish, there is the need to remove some hurdles in the form of lengthy and needless/excessive travel formalities such as visa and other document hassles which are time consuming.

Connectivity has improved in recent times among the four countries with the signing of Bangladesh, Bhutan, India, Nepal (BBIN) landmark Motor Vehicles Agreement (MVA) for the Regulation of Passenger, Personnel and Cargo Vehicular Traffic among the four South Asian neighbors. Nevertheless, there will be coordination challenges both internally within countries and regionally across borders.

As facilitating transport and trade connectivity is a multi-sector, multi-agency effort, all the relevant ministries, departments and agencies within a country will need to coordinate effortlessly.

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Policy Implications

The SAARC region has enormous potential for trade and tourism which is still untapped. The region can cater to every aspect a holidaymaker is looking for. To put into perspective, a small ASEAN country like Malaysia is drawing twice as high a number of tourists than the seven member countries of SAARC put together. It is disappointing that this region receives only about one per cent of the total world tourists. A Technical Committee on Tourism was established in 1991 but so far nothing substantial in the form of joint marketing of the region has emerged. There must also be action to simplify travel formalities to encourage and expand travel with this sub-region. What is required is political will and sincere concerted efforts to work collectively to promote tourism as well as attract foreign tourists to SAARC region and relaxed travel formalities to encourage travel within the sub-region. Otherwise, improved and wider connectivity will have no impact on, one of the main objectives-establish people to people contact tourism.
Private sector stakeholders will also need to be engaged. Similarly, at the regional level, the BBIN countries will need to coordinate both at the political level as well as at the technical level as mentioned by experts. The recent agreements and protocols to improve regional connectivity will require changes in national policies and legal frameworks.
Also, new initiatives are needed to harmonize trade policies and quality standards and attract foreign investment including from within the sub-region. While governments can put in place policies, regulations, institutions and infrastructure that promote greater integration, there is also an important role to play for the private sector, consumers, civil society and others. They all can benefit from more energy, freer trade and shared natural resources, and need to be engaged in this process. We hope Bhutan will ratify the BBIN deal soon as everybody is expecting the practical implementation of the deal by December.

The writer has been working as a Senior Research Associate at Policy Research Institute (PRI), a renowned think tank in Bangladesh. She can be reached at mehrin.karim07@gmail.com.