On 7th September 2022, the World Bank in collaboration with Institute of Integrated Development Studies (IIDS) conducted a roundtable policy discussion on “Regional Cooperation and Connectivity”. The session was moderated by Dr. Swarnim Wagle, the chair of IIDS.
The discussion commenced with an introductory remark from Dr. Biswash Gauchan, Executive Director of IIDS, started the session by acknowledging experts from a wide variety of sectors interested in the private sphere, trade, think tanks, and policy issues working in the field of regional connectivity. In the long run, his analysis of regional associations such as SAARC (South Asian Association for Regional Cooperation) shows a limited future prospect. However, his take on sub regional associations such as BBIN (Bangladesh, Bhutan, India, and Nepal) had a positive outlook on the geopolitical direction that this region could head into, provided that India plays its part. Unlike SAARC, the framework of BBIN could rise the possibility of better integration among South Asian sub-regions.
It was followed by a keynote speech by Ms. Cecile Fruman, the director of regional integration and engagement program in South Asia of The World Bank. The discussion premised on ideas to fortify monetary and social gain for inclusive sustainable measures in South Asia. The important pillars outlined for the base of discussion were trade facilitation, Nepal’s potential for cross-border hydro/electricity transmission, the need for local/international and regional actions in combating climate conditions, scope of digital economy and creating risk response for an independent surveillance system and better collaboration.
Geo-political Trajectories
Ms. Cecile commenced the session by stating that regional integration and connectivity have been viewed as an effective catalyst for accelerating growth and capacity in the region. However, the current pre-eminent regional association, SAARC, has not been able to bind the associated nations together in full capacity. Inter-regionally, trade in South Asia is less than 5% compared to ASEAN’s 25% (all of east Asia that makes up to 60%). Friction between Pakistan and India, which is regarded as the local hegemon or “core state,” has engendered the moribund condition of SAARC. This disintegration has resulted in deficits, particularly for landlocked countries as trade becomes more expensive within regions. For instance, an Indian firm exporting goods to Germany or Brazil is cheaper when compared to bilateral trade with countries within the region, which is 15-20% more costly.
Regardless, most of the participants were in tandem about the positive direction in which the South Asian geopolitics is spearheading into. The discussion echoed Bangladesh’s potential to become a major player in the region by deepening trade, investment, and connectivity links within the sub-region and beyond due to its unique geographical placement. Another crucial point raised by a speaker was the interlinkages of the countries’ stability with its governance and bureaucratic system. The duality of policy implications tends to arise in systematic coherence when one or more actors/ministries get involved. Such implementation of policies that involve various ministries may give rise to conflict of interests. This is also where the roles of non-state actors like government/independent think tanks are crucial for holding policy dialogues, negotiating peace talks, and developing strategic ideas for evidence-based policy reform, maintain inter-ministerial coordination and address the paradoxes in policy formulation, implementation, and documentation.
Capacitate Energy Sector and Regional Trade
The opportunistic area for trading in Nepal is electricity through hydropower. Energy trading alone can generate returns of up to $3 trillion from India and $½ trillion from Bangladesh. Focus on this sector also has made it possible for Nepal to attract foreign direct investment (FDI) of $8 billion in a year and half, that can efficiently increase with hard work and perseverance, bringing it up to $10b-$12b in the coming future. “As the next frontier in terms of trade and electricity the estimates showed that with focus on other modes of physical connectivity, transboundary electricity trade could also benefit Nepal the most when expanding hydropower and clean energy capacity threefold by 2040 from 64 GW in 2015 to 117 GW in 2024” (The World Bank). As FDI does not only provide financial investments but also increases shared market growth, for regional trade to achieve its untapped potential. Prospective frameworks and plans of regional integration should also acknowledge the status of landlocked developing countries and recognize their limitations when crafting regional plans. Mostly in resolving the higher imposition transit fees in accordance with UN maritime law to promote inter regional trade.
Amidst the hurdle, financing infrastructural projects through banks in energy sector still remains a big challenge. This is where Nepal Infrastructural Bank Limited (NIFRA)’s initiative on expansion through increasing trade, promoting investments, collaborating on bilateral/multilateral trade and regulation of Nepali products to Bangladesh or Southeast countries also looks into foreign policy objectives for economic diplomacy. The shift of emerging countries from public-led development to private-led like the industrial parks and special economic zones (SEZ) foster a catch-up strategy in less developed countries. In addition, The World Bank is also supporting the South Asia Hydro Met Forum, which brings together agencies of in-need countries and disaster-risk agencies to build capacity for enhanced early warning systems. The forum will be a new concept not only for climate resilience but also for establishing an independent WHO disease surveillance network for pandemic-induced counter-back which will greatly benefit this region.
If countries in South Asian were to fully implement the WTO Trade Facilitation Agreement (TFA), which aims to simplify paperwork and harmonize customs procedures for lower middle-income economies such as the BBIN nations, the region would surely thrive from the new era of regional associations. Furthermore, trade sensitization coupled with political and security issues and being empathetic to neighbors’ requirements are also crucial for building a common interest that goes beyond national interests the broader objective of regional connectivity.
Borderless Connectivity
According to The World Bank findings, the data of digital accessibility during pandemic shows that only 33% of school-aged children have regular access to the internet, while just about 1% of rural households have a reach to mobile-based education system. Nepal pays more per unit of internet capacity than most countries as it does not have access to global network and this gap must be addressed sooner. For smaller countries like Nepal, in order to deploy innovative scientific activities and data for successive progress, it requires a large investment from the country’s inventory. The advances of digitization can become an enabling factor for countries to harmonize their data, facilitate data exchanges, and allow traders and government officials to take a coherent evidence-based decisions. Infrastructure has never been an issue, but policy constraints have. An unavoidable fact in the growth of tech sector is to tap on borderless economic opportunities.
The gig economy is generating large amounts (Unaccounted for) after remittance but has no stored data sources so the contribution of Nepal’s GDP through tech strongly needs data analysis. Regardless of being domestic or international, 24% online workers in India and 16% online workers in Bangladesh have their differences in payments. Those people that are being transferred in Bangladesh gets paid around half a billion dollar a year vs. India where additional 43% is added of their Forex which is solely contributed by tech. A possible collaboration could strengthen regional borderless connectivity and emerge as a modem to ease such differences. As digital economy is embedded into payments; it is unknown to many that Nepal is 15 years ahead of US in terms to real-time payments but at the same time those payments get crossed and deported from Mechi to Mahakali where opportunities are lost, missed out and limited within borders. At the age of digital currency, when crypto revolution is accelerating at 1000m/hour, opting into Nepal’s CBCD (central bank issued digital currencies) strategy is to go borderless. This leaves the Central Bank with no choice but to incentivize the flow of millions of dollars from an informal channel to a legal one.
Apart from borderless trading, creation of a single electronic gateway that simplifies cross-border transit facilities and customs operations is a necessity for digital integration. An electronic carpool traffic system developed by India that works on the motion tracking count of vehicles and containers is one good example, but a national single window system would break through the current reality that isn’t bringing regional connectivity to any advantage. There have also been several comments on the ineffectiveness of sanitary and phytosanitary (SPS) certificates and their non-recognition at the border check points between India and Nepal. This issue can be tackled with the adoption of a “one” regional digital system for legal transaction. Furthermore, an integrated digital system will overcome congestion at cross-border point between countries.
In the closing remarks of the roundtable discussion, Dr. Wagle concluded by reflecting on prior discussions that addressed on issues to strengthen regional collaboration within South Asia. Ms. Fruman also reflected how geo-politics is heading in right direction at least for BBIN (Bangladesh, Bhutan, India and Nepal) and the importance of implementation of policies via governmental agencies to media for exchanging information. Dr Wagle highlighted on the critical importance in digitalizing this region and financial flows. He also acknowledged the consequential discussion by experts of their fields from governmental and private spheres reflecting on the trust in bilateral relationship, inter-relation of the aspirants among nations and genuine role of private sector investments to bring hard dollars and transfer technologies. The suggestions on budgetary and policy improvements to ease trade implication when initiating any developmental projects was seen as a concerned need. He identified Nepal to have potential on energy trade as well as storage that can enhance its economic landscape and play crucial role for regional upliftment and collaboration among South Asia.
This event summary was prepared by Shristi Rai, Research Intern, IIDS.