Policy Research Institute - PRI Bangladesh

The Policy Research Institute of Bangladesh (PRI) is a private, nonprofit, nonpartisan research organization dedicated to promoting a greater understanding of the Bangladesh economy, its key policy challenges, domestically, and in a rapidly integrating global marketplace.

Opportunities for taking better and greater benefits from regional cooperation

Published: Monday, Aug 31, 2015

Posted : 31 Aug, 2015 00:00:00


Economic Analysis

Reaping the benefits of more and better regional cooperation

Sadiq Ahmed

South Asia is well known as a region of conflicts, poverty and poor governance. While the rest of the world has found ways to cooperate, South Asian countries remain suspicious of each other and keep old wounds alive. There are disputes relating to land territories, border crossings, water sharing, air space and ocean space.  Owing to lack of cooperation, water shortages, energy shortages, natural disasters and high transport and trading costs lower the development potential of this high-prospect region. Needless spending on military and security apparatus encroaches on the already constrained public resources, which prevents adequate spending on human development and social protection.

These issues affect all South Asian countries and Bangladesh is no exception.  Yet, of late, some signs of political maturity to move towards a more cooperative solution to development have emerged in the North Eastern corridor of South Asia involving Bangladesh, India, Nepal and Bhutan. In this regard, Bangladesh deserves credit for pushing this initiative. The ice was broken in January 2009 when Prime Minister Sheikh Hasina visited Delhi and reached a far-reaching agreement with the then Indian Prime Minister Manmohan Singh on economic cooperation. Further efforts since then have sought to widen this cooperation by bringing in Nepal and Bhutan into the umbrella.

This effort to reach a cooperative solution on a range of economic challenges including trade, transit, energy and water sharing is a very welcome development. Common citizens often wonder whether there are concrete benefits of regional cooperation for Bangladesh or these initiatives are only rhetoric and concessions to India.  

The potential benefits are best appreciated by looking at geography. Bangladesh has two natural locational advantages: open access to the sea in the South; and providing a bridge between East Asia and the rest of South Asia leading on to Central Asia and Europe. By opening up existing ports and further investment in new ports, Bangladesh can tap a dynamic source of revenue and economic growth. The true potential of this is illustrated by the development performance of internationally renowned sea ports of Rotterdam, Singapore and Hong Kong. Similarly, through better land, air, rail and sea connectivity Bangladesh can become an Asian commercial hub.  

The other aspect of geography that has not been well appreciated in policy discussions in Bangladesh is the locational aspects of poverty.  Of the 30 border districts, some 29 districts are a part of the lagging regions in Bangladesh. The lagging districts share a number of common characteristics: these are mostly border districts; the labour force is mainly engaged in low productivity agriculture; connectivity with growth centres is limited; human indicators are weak; and high income jobs are scarce.

Growth and investment in the lagging regions will benefit tremendously from reducing cross-border restrictions on trade, transport and investment. Removal of these restrictions will also facilitate agglomeration economies and production sharing arrangements as in East Asia under Association of South East Asian Nations (ASEAN) plus 3.

A third dimension of geography is the prospect of easing the energy constraint in Bangladesh through trade. Nepal, Bhutan and some of the North-eastern Indian states bordering Bangladesh have tremendous untapped hydro-power potential. Through proper grid connectivity and transmission lines, the scope for power trade to relieve the Bangladesh energy constraint is huge.

A fourth dimension of regional cooperation concerns water security and climate change.  On the negative side of geography, the location of Bangladesh makes it especially vulnerable to climate change and natural disasters as it lies at the bottom end of the flow of the three mighty rivers Ganges-Brahmaputra-Meghna.  Importantly, all three rivers, especially the Ganges and the Brahmaputra, flow through upstream India.  Other countries that are also upstream and have an impact on water flows are China and Bhutan (Brahmaputra) and Nepal (Ganges).  Yet, this vulnerability can only be addressed through regional cooperation.  It is obvious from geography that the only viable long-term solution to Bangladesh's water problems and vulnerability to climate change is through a cooperative solution with upstream neighbours (India, Nepal, Bhutan and China).




Posted : 31 Aug, 2015 00:00:00


Opportunities for taking better and greater benefits from regional cooperation

Sadiq Ahmed

Opportunities for taking better and greater benefits from regional cooperationThe potential benefits of more and better economic cooperation in the North Eastern corridor of South Asia involving Bangladesh, India, Nepal and Bhutan are substantial. Previously, the realisation of this potential was prevented by political constraints.  With the removal of these constraints there should have been a fairly rapid emergence of policies and actions to implement the regional cooperation initiatives in, at least, the agreed areas.  The record unfortunately is less encouraging than possible.

Progress is most advanced in the area of energy trade. Bangladesh has imported some 500 MW of power from India.  Over the longer-term, this should move up to over 1000 MW. Importantly, grid connectivity with India opens up possibility for power trade with Nepal and Bhutan.  Additionally, opening up of power trade is facilitating new investments from India’s private sector into Bangladesh for power as well as primary fuel.  The full range of energy trade options must be explored quickly to support the progress of Bangladesh to upper middle income.

Some progress has been made on the trade front. While India is the second largest source of imports for Bangladesh after China, exports from Bangladesh to India are rather small.  This is partly the outcome of lack of diversification of Bangladeshi exports that are concentrated in ready made garment (RMG) and the market for Bangladeshi RMG is mostly outside India.

But there are some nagging concerns.  India has allowed Bangladesh duty-free access to its market (barring a few products on the negative list), but a range of non-tariff barriers relating to rules of origin, quality and health standards that are based on overly restrictive implementation arrangements, adversely affect the flow of exports to India.  A speedy resolution of these barriers is essential to preserve the true spirit of cooperation.  Another non-tariff barrier is the land port customs clearance facilities.  There are serious capacity, efficiency and governance issues related to land ports that need urgent attention and resolution.

In the area of transit and transport, India’s demand for transit access though Bangladesh inland transport network to its Eastern States and also for Bangladesh sea-port services is huge.  The response from Bangladesh has been constrained by serious capacity constraints of the inland transport network as well as the absence of agreed protocol on transit including transit fees.  There is an active dialogue but progress is slow.

More recently, during the June 2015 visit of the Indian Prime Minister Modi to Bangladesh, the two countries renewed the Protocol on Inland Water Transit and Trade and agreement was reached to allow India access to the Chittagong and Mongla sea-ports of Bangladesh.  A hugely positive development is the Motor Vehicles agreement (MVA) reached in Thimpu in July 2015 for seamless movement of people and goods through roadways by Bangladesh, Bhutan, Nepal and India. With proper implementation, this could provide a major break-through for regional connectivity.

Yet, protocols alone will not be adequate.  Major investments are needed to upgrade and expand the road and bridges network. The financing requirements are large while implementation capacity constraints in Bangladesh, Nepal and Bhutan are considerable.  India as the senior partner and the larger beneficiary of connectivity should play a leadership role in giving both concessional financing and technical assistance in upgrading the road transport network.  It should also adopt a positive approach to paying the appropriate transit fees as per international norms.  

The area where progress has been most slow is on water cooperation.  Even though difficult, with careful design and investment water cooperation can be a win-win for all.  The Indus River Treaty and the Nile River Basin Agreement are good examples of how with sustained efforts even warring nations can be brought together to share water equitably.  Strategically, cooperation in other three areas (trade and investment; transport; and energy) can set the basis for more considerate and equitable resolution of water disputes. All riparian can benefit through enhanced productivity (irrigation, fisheries, and navigation/access) and reduced costs (floods, droughts, cyclones).  Benefits are maximized if the best technical options can be adopted regardless of national boundaries; financial costs and output benefits are shared equitably; and cooperation focuses on bundling opportunities linked to water management (institutions, infrastructure etc.).

Both the Ganges and the Brahmaputra have tremendous technical potential for upstream multipurpose infrastructure to cap flood peaks, raise dry season flows for irrigation, reduce saline intrusion in vulnerable ecosystems (e.g. the Sundarbans); increase hydropower availability and clean energy source; and enhance navigability/access.  Data exchange can enhance disaster preparedness.

One specific policy action to help build regional water cooperation in the short term is to initiate joint water resources management initiatives/ investment projects.  There are two possible projects.  First is linking Northeastern India and Bangladesh (including the Brahmaputra basin institution building).  The second is linking the Indian state of West Bengal and Bangladesh (restoration of the Ganges Dependent Areas to support endangered livelihoods/ fragile Sundarbans ecosystems).  

Over the medium to long-term, broad regional investments on the Ganges and/or the Brahmaputra could be explored.  This will entail joint equity, ownership and management – including the bundling of institutional development, legal framework, and infrastructure investments.

(The writer is Vice Chairman of the Policy Research Institute of Bangladesh.   sadiqahmed1952@gmail.com)