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Greater cooperation holds the key

Published: Tuesday, Jan 26, 2010

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Poverty reduction in South Asia's NE sub-region
Greater cooperation holds the key

2010-01-26
Sadiq Ahmed


SOUTH Asia has attracted global attention because it has experienced rapid gross domestic product (GDP) growth over the past 29 years, averaging nearly 6.0 per cent per annum. Yet, it faces many challenges. There are two faces of South Asia. The first South Asia is dynamic, growing rapidly, highly urbanised, and is benefiting from global integration. The second South Asia is largely agricultural, land locked, full of poverty, conflict, and lagging. The divergence between the two South Asia's is on the rise. Many policy and institutional constraints contribute to this dichotomy.

One important constraint is regional conflict that has made South Asia one of the least integrated regions of the world. While progress has been made in reducing trade barriers with the rest of the world, intra-regional trade is a mere 5.0 per cent of total official trade as compared with 45 per cent in East Asia. Capital flows through legal channels are negligible, transit arrangements are cumbersome and expensive, and the physical connectivity is limited and restrictive. Additionally, lack of effective cooperation has constrained progress on a range of public goods involving climate change, water management, HIV/AIDS and disaster management.

Indeed, in an environment of regional peace and better economic cooperation, the biggest gainers will likely be the poor. A careful look at South Asia's geography shows that the border areas tend to be generally underdeveloped due to poor connectivity, lack of investment and political neglect. Much of the focus typically is on military activities to secure the borders. In most cases, economic activities in border areas are constrained by poor connectivity with the regional growth centers and by lack of access to international trade outlets such as a sea port. In many cases, these barriers are artificial in the sense that these facilities are available in nearby bordering towns of other countries but access is prevented by border restrictions.

Importantly, South Asian countries often share a scarce common resource which encompasses several countries. The most well-known example is the water flow from the Himalayan mountain range that feeds the three mighty rivers -- the Indus, the Ganges and the Brahmaputra. These rivers are the life-line for an estimated 500 million people, mostly poor, in Bangladesh, India and Pakistan. Despite some progress on cross-border cooperation, notably the Indus Water Treaty between India and Pakistan in 1960 and the Ganges Treaty between Bangladesh and India in 1996, regional cooperation on water management is generally inadequate. There are major water management issues in South Asia concerning flood control, better sharing of water for irrigation and hydro-power, and the management of the Himalayan glacier melt to prevent water loss for the rivers that will greatly benefit from better regional cooperation.

Cooperation in South Asia's North-East sub-region: The north-east sub-region of South Asia encompasses the four countries of India, Bhutan, Nepal and Bangladesh. Both Bhutan and Nepal are landlocked. Presently, their main access to sea port is through Kolkata. India's North-East states (Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura) have borders along 98 per cent of their boundary surrounded by Bangladesh, Bhutan, China, Nepal and Myanmar. These states are linked to mainland India by only a narrow 27 kilometer Siliguri corridor. These states also use Kolkata as their nearest port. Three other Indian eastern states that belong to this sub-region are West Bengal, Bihar and the Uttar Pradesh (UP). West Bengal has a large border with Bangladesh and also shares a border with Bhutan, while Bihar and UP share borders with Nepal.

This entire region can be classified as low income area with large incidence of poverty and low social indicators, although parts of Bangladesh (notably Dhaka) and West Bengal (Kolkata) are richer than the other neighbourhoods of this sub-region. There are a number of constraints to development in this sub-region, many of which concern internal policies and governance of the respective countries and or states (of India). These constraints must be addressed, but alongside these national reforms more and better regional cooperation can make a substantial positive contribution.

The economic rationale for why cooperation is necessary to reduce poverty in this sub-region has been researched extensively. An analytical framework linking lagging regions, growth, poverty, inequality and regional cooperation has been developed in a recent research [Sadiq Ahmed and Ejaz Ghani "Making Cooperation Work for South Asia's Poor" in Sadiq Ahmed et. al. edited "Regional Cooperation for Poverty Reduction in South Asia - Beyond SAFTA", Sage: New Delhi 2010 (Forthcoming)].

The simple argument goes as follows: In addition to inequality at the personal income level, South Asia's development experience shows that there is a large gap between leading regions (high per capita income) and lagging regions (low per capita income). By and large poverty is high in the lagging regions as compared with leading regions. The spatial distribution of leading and lagging regions shows two characteristics: first, this income gap exists both within countries and between countries; and second most of the lagging regions are located around the border areas. A key reason why border regions tend to be lagging and poor is the lack of connectivity to regional growth centers due to poor physical and social infrastructure or policy restrictions. Therefore, a policy strategy to develop the lagging regions will require a focus on the border areas with a view to raising income and employment opportunities and reducing poverty.

A reduction the gap between lagging and leading regions (technically known in the economic literature as the "convergence problem") will also likely help reduce personal income inequality. In addition to domestic policy reforms, public investment and institutions, the lagging regions development strategy must allow much better connectivity to growth centers at the regional level by reducing policy and other constraints to goods and factor mobility.

A related rationale for better cooperation emerges from the need to manage vulnerabilities resulting from natural disasters and climate change. The frequency of flooding and the devastation it causes is an important reminder of the vulnerability of the poor people in this sub-region. It is no accident that much of the suffering happens in the downstream border areas due to the river crossings from upstream countries. So, a sustainable solution to flood control in Bihar, West Bengal, Assam, and the border districts of Bangladesh can only be found in managing water upstream in Nepal, China and parts of India from where the rivers originate. Similarly, it is no accident that Bangladesh is particularly vulnerable to the adverse effects of climate change due to its geography. Managing these adverse effects will require a cooperative solution with neighbours.

Priority areas for cooperation: The range of possible areas of regional cooperation in the North-East sub-region is large, but the immediate priority areas are: (a) trade and investment facilitation to promote more trade and investment between Bangladesh, India, Nepal and Bhutan; (b) opening of land-river routes for regional transport connectivity; (c) energy trade between Bhutan, Nepal, Bangladesh and India involving hydro-power, gas and inter-grid connectivity; (d) water use and flood management project involving Bangladesh, Nepal and India.

Trade and investment facilitation: Trade logistics is a key determinant of export competitiveness of an economy. A recent World Bank (WB) study has calculated Logistics Performance Index (LPI) for some 150 countries. Bangladesh, Bhutan and Nepal score quite poorly on this. India performs much better, but still lags behind most East Asian economies. Clearly there is a major policy agenda here for all countries. Importantly, trade logistics is worse and even more constraining when it comes to trade within the North-East sub-region due to a large number of additional regulatory and physical barriers to trade.

There is a clear win-win reform agenda here. The policy issues here include eliminating all remaining non-tariff barriers to trade, harmonising customs procedures, upgrading of border outposts with modern physical facilities and equipment, and eliminating all extraneous restrictions on cross border flow of goods, services and investment while ensuring consistency with national prudential regulations and overall economic policy management of respective countries.

Transport and sub-regional connectivity: Mobility within the North-East sub-region is a huge barrier to trade and investment. With appropriate regulatory reforms and enabling environment, a huge amount of investment and economic activity can be tapped. The range of cross-border transport projects is large. The highest priority is the conversion of Chittagong, Mongla and Kolkata into modern international sea ports to serve the needs for the entire sub-region. The port traffic needs to be better connected through appropriate road-rail-inland water networks. Secondly, given the peculiarity of geography, the north-east states of India can benefit tremendously through road-rail-inland waterway connections that link these states to the rest of India running through Bangladesh. All parties will win, especially Bangladesh, as the benefits to Bangladesh from the upgrading of its transport network, fees from port charges and inland transport, and better connectivity for its own trade to India can be enormous.

Energy: Regarding energy, Bhutan, and to some extent Nepal, are already actively engaged in exporting hydro-power to India. The hydro-power potential in Nepal far exceeds the present level of activity and some believe that Nepal could almost double its per capita income in a few years with appropriate investments in hydro-power along with trading arrangements with its neighbours, especially India.

Bangladesh can also profitably engage in energy trade with India, Nepal and Bhutan. The most promising long-term option is importing power from the north-eastern states of India, Bhutan and Nepal based on the tremendous hydro-power potential of these countries. A yet another possibility is power trade based on varying patterns of demand and capacities. This requires grid interconnections between Bhutan, Bangladesh, India and Nepal along the border areas. Preliminary technical analysis suggests considerable potential here and a win-win for all.

Water management: Perhaps the biggest gains are in cooperative water management, particularly for the poor. This is also the area where the vulnerability is most serious, especially for Bangladesh that lies furthest downstream before the two mighty rivers -- the Ganges and the Brahmaputra, meet the sea. The range of issues include cooperative arrangements to address long-term vulnerability emerging from climate change (e.g. availability of water, coastal belt flooding from rising sea level) to immediate solutions to reduce flooding, making more water available for irrigation, and producing hydro-power for regional use.

In the past water agreements have been difficult to come by because of the tendency for each country to think of this resource as a zero-sum-game: more for my neighbour means less for me. This need not always be the case. A comprehensive approach that looks at hydro-energy, irrigation and flood-control together based on an equitable sharing of financial costs and output benefits will likely show that a cooperative solution is indeed a win-win. The poor in Nepal, Bangladesh and India can all benefit tremendously from reaching sound and equitable water management agreements and these ought to be amongst the highest priority for the North-East sub-region cooperation.

Managing political constraints and downside risks: Until the recent past adverse domestic politics, low-level conflicts and the fear of India's dominant economy prevented meaningful cooperation from happening. Apart from the adverse political environment, the lack of sound analysis of the potential gains from cooperation and its equitable distribution among member countries also played an important role. Vested political interests were able to play on the ignorance of the public at large to feed misconceived notions in the smaller countries about the adverse consequences of cooperation with India. On its part India did not take the extra effort needed to play the elder brother role and allay the fear of the smaller countries.

The rapid growth of India's economy and the need to ensure a better spatial distribution of the benefits of higher growth in order to manage internal social and political conflicts, particularly in the far-off north-eastern states and other lagging border areas, has contributed to more focused and concentrated efforts in India to engage with neighbours on the cooperation agenda. Among the indicators of this new strategy include the implementation of duty-free access to India for a substantial number of goods from the least developed countries in South Asia (which includes Bangladesh and Nepal), goodwill visits from high level Indian government dignitaries, and more accommodating diplomatic gestures.

Global experience of successful cooperation agreements suggests that political constraints and historical conflicts need not be permanent barriers to economic cooperation. Neither is the presence of a dominant member country a threat to cooperation and shared gains. For example, historically the members of the European Union (EU) have fought numerous wars, many of them far more intense, long drawn and expensive in terms of loss of human lives and material resources than South Asia. Similarly, member countries diverge considerably in economic strength. Yet they have found it mutually advantageous to come together and formulate a formidable economic union. In East Asia, the economic dominance of China has not prevented very effective regional cooperation with the much smaller ASEAN countries.

It is not realistic or necessary to expect that all political and social conflicts will have to be resolved first before meaningful cooperation can happen. Indeed, economic cooperation is also a powerful means for resolving political and social conflicts. Trust and goodwill at the citizens' level can be a credible way for resolving conflicts. Economic cooperation by raising citizen's welfare can be instrumental in building this trust.

As a first and critically important step, undertaking good economic and social analysis of the benefits of cooperation and their distribution, and making them publicly available through a strong dissemination effort will be necessary. This should be followed through with the implementation of specific and concrete bankable projects that yield tangible benefits for citizens. (The writer is vice-chairman of Policy Research Institute of Bangladesh)

Last Updated on Thursday, 02 December 2010 07:46

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