Sorry story of SaarcSouth Asian ministers and entrepreneurs have made renewed calls for regional integration, as they gathered in Kathmandu from Friday to Sunday to take part in the business conclave organised by the Saarc Chamber of Commerce and Industry.
South Asian ministers and entrepreneurs have made renewed calls for regional integration, as they gathered in Kathmandu from Friday to Sunday to take part in the business conclave organised by the Saarc Chamber of Commerce and Industry.
South Asia is one of the least integrated regions in the world, as political hostility between member countries has been taking a toll on efforts to deepen cooperation to foster economic growth and deliver prosperity to people. In this context, governments of member countries of the South Asian Association for Regional Cooperation (Saarc) must reconcile their visions and chart a course to expedite the process of regional integration.
The overarching goal of deeper regional integration is to create a common marketplace where people can live in peace and become prosperous. This will ultimately help countries in the region to lift millions of people out of the poverty trap. Yet narrow nationalism, political differences and mutual distrust have held the regional integration process hostage.
South Asian countries made the first concrete move towards integration by signing the South Asian Free Trade Area (Safta) agreement in 2004. Yet the volume of intra-regional trade—a barometer to gauge the progress of integration—currently stands at around 7 percent of the total trade in South Asia, up from 5.6 percent in 2006 when Safta was implemented.
One of the reasons for low intra-regional trade is rivalry between India and Pakistan, as a big chunk of trade between the two largest economies in South Asia takes place via third countries, such as Dubai and Singapore. But there are other factors as well, such as high transportation costs, lack of proper physical infrastructure, cumbersome regulatory requirements, poor communication linkages and presence of non-tariff barriers. Because of these reasons, it is cheaper for Sri Lanka to trade with Brazil today than with its regional partner, Nepal.
Two key components that could expedite regional integration are robust transport and energy networks. South Asian countries have already signed a framework agreement on energy cooperation, while Bangladesh, Bhutan, India and Nepal have signed a motor vehicle agreement to ensure seamless flow of passenger and cargo traffic—albeit Bhutan has pulled out of this deal. It is time these agreements are properly implemented so that countries in the region could generate ample electricity to power manufacturing units and households, and proper road and other transport network could be built to promote regional trade. This will provide intra-regional investment opportunities and encourage foreigners to pour capital in the region. This will ultimately create a virtuous cycle. The problem is that Saarc has a trend of failing to enforce such agreements. This practice must end if the economies of the region are to be integrated.