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Wednesday Dec 11, 2024
Thursday, 28 July 2016 00:00 - - {{hitsCtrl.values.hits}}
By Devin Jayasundera
Despite being the fastest growing region, South Asia is one of the least integrated regions in the world with its intra-regional trade amounting to 4% of total trade, which is significantly low compared to East Asia’s 35% and Europe’s 60%.
Institute of Policy Studies (IPS) Chairman Dr. Razeen Sally believes that South Asia has huge economic potential if trade barriers are brought down. The World Bank estimates that deeper integration would lead to a 250% increases in intra-regional trade.
In referring to the Ease of Doing Business Index which ranks the quality of business climate in countries, Sally noted that most ASEAN countries were placed right at the top whilst the South Asian countries often lag in the bottom. This positive business environment has helped ASEAN countries to attract foreign direct investments of $ 130 billion whilst South Asia only managed to get $ 40 billion.
“South Asia is less open to the world but East Asian countries are open in an extreme sense, especially in the manufacturing front particularly with Singapore and Malaysia,” compares Sally.
The problem in attracting FDI to South Asia is because it is perceived as a consumer market more than a manufacturing hub, according to Sally.
“Multinationals don’t come to Asia to establish supply chains and export platforms. They come to serve the local market, particularly the Indian market.” He added that this also reduces the economic gains from possible spill over effects of employment generation and productivity improvements.
The South Asian Free Trade Agreement (SAFTA) also has the highest trade cost compared to ASEAN and NAFTA. The World Bank estimates that India-Pak trade is 115% more expensive than China-US trade. Sally notes that the current barriers for intra-regional trade are not accidental.
“Cross border infrastructure in South Asia is among the worst in the world which is comparable with Sub Saharan Africa. There are also big artificial barriers; tariff and non-tariff barriers among all the countries in question.” India, which represents almost 80% of the population, also has a powerful economic clout in the region. South Asia attracted $ 40 billion of FDI in 2014 and nearly all of that is India, says Sally. Its overwhelming regional domination has created a deficit in trust and political consensus with its neighbours, particularly Pakistan.
This remains to be the major hurdle in strengthening the economic cooperation in the region, Sally noted. “This is a political obstacle,” he affirmed. “This is never been a top priority and always paid lip service by politicians in South Asia.”
He added that India has the final say in moving forward for a regionally-integrated South Asia. “It is not going to succeed unless there’s a serious Indian lead.”
– Pix by Lasantha Kumara
