The SAARC factor in SL’s growth agenda

Last week whilst watching the President taking oaths for the second term, I compared the performance of the country to a typical private sector company review where techniques such as a ‘dashboard’ are commonly used.

SAARC Leaders at the 16th Summit in Bhutan 2010. From left: Afghanistan President Hamid Karzai, Bangladesh Prime Minister Sheikh Hasina Wajed, Prime Minister of Bhutan Lyonchhen Jigmi Y. Thinley, Prime Minister of India Manmohan Singh, President of Maldives Mohamed Nasheed, Prime Minister of Nepal Madhav Kumar, Prime Minister of Pakistan Syed Yousuf Raza Gilani and President of Sri Lanka Mahinda Rajapaksa

What I saw was that the country had recovered from one of the deadliest natural disasters that rocked Asia –the tsunami – to rebuilding the people’s lives in the coastal areas. Then the country demonstrated resiliency on the most ruthless economic disasters the world has seen in recent times – the financial crisis – to keep the economy growing whilst most countries were at negative growth.

Lastly, the battle with the lethal terror outfit – the LTTE, which was beaten on its own turf – whilst keeping the economy ticking spelled the remarkable leadership that the private and public sector demonstrated in the past five years.

It indicates the potential the country has for the next five years. I guess the 268% increase in profits of the private sector listed companies in 2009/10 and the performance of the stock exchange gives us a glimpse of what Sri Lanka can become in the near future.

The challenge is how we bring in the necessary reforms into the system so that we really unleash the potential of the country. Yesterday’s Budget was a strong statement but now it needs to be implemented on ground so that we can garner the support of the other South Asian economies to meet the challenges that the new economy presents.

To be honest, I was quite surprised that only the Maldivian President and the SAARC Chair were present on 19 November. After all, here was a country that had defeated terrorism with the support of the regional counterparts like India, Maldives and Pakistan and there was no better day than this time to showcase to the world the solidarity and strength of the South Asian region.

SL in catch 22

Whilst being very enthusiastic on the development agenda of the country personally and the strong budget presented with the propositions of making Sri Lanka a maritime, knowledge, commercial, aviation, energy and knowledge hub, I would further add that Sri Lanka can become a financial hub, shopping hub and may be a creative hub one day. But we must reach up to get the support of the SAARC countries and address the pressing issues that Sri Lanka typically gets exposed to.

Let me explain. For instance the trade deficit currently is at $3.6 billion with imports outpacing export growth and it is estimated to hit $6 billion by end 2010, which means that the whole of the inward remittances from those working abroad will have to be used to wipe out this deficit.

The overall budget deficit is at nine per cent. The interest re-payment has become awfully worrying. For instance, in 2000, it was Rs. 71 billion or 8% of the current expenditure and in 2009 this has ballooned to Rs.309 billion or 35% of the current expenditure, which indicates the challenge at hand and the severe constraint it hinges to the future development agenda of the country.

Why SAARC?

South Asia is the home to around two billion out of the six billion people in the planet and now has taken centre stage in the eyes of global leaders. World Bank and ADB estimates the regional GDP to be worth almost US$ 1,000 billion while the GDP growth for the last 20 years has been around 5%, which is double the global average.

Given that the US and EU are still recovering from recessionary market conditions, it’s important that we focus on the South Asian economy and bridge the numbers from the current projection of 7.5 per cent. But for this to happen, institutions like SAARC must play the role of catalyst.

The problem – Only 5.3%

The key challenge that SAARC is up against is that the total external trade of the region is at low ebb of 0.8% of world’s exports and 1.3% of world imports. The intra regional trade represents only a meagre 5.3% (exports) and 4.8% (imports) of the total, which explains the low integration that exits in South Asia.

In contrast, if we take the EU, 55% of the total trade comes from within the EU. In the case of ASEAN a 35% of the total trade comes from within which explains the strong integration that exists between countries, in comparison to South Asia.

If we take NAFTA, the integration is so strong that 60% of the trade comes from within the region. Given that Sri Lanka is well poised be the hub of Asia due to the loggerheads between India and Pakistan, we are well poised to take the leadership role in driving regional integration and institutions like SAARC emerges as an important platform.

Where is SAARC?

Whilst being an optimist, in my view SAARC is an institution that confines itself to paper. In fact, other than for the once-a-year photo opportunity that the country leaders get, so far we have not seen any concrete progress on the ground.

For that matter, a question that went through my mind was ‘Where were all the SAARC leaders at the oath-taking ceremony of the historic second term of the Sri Lankan President?’ After all, for the next six years at many forums the leadership of SAARC will be meeting the Sri Lankan President and it would have been healthy to demonstrate the solidarity of the South Asian bloc economies to the world at this event, but SAARC lost the opportunity.

However, the silver lining is that Sri Lanka has the potential of becoming the political hub for South Asia given the agitation between India and Pakistan, industrial issues in Bangladesh and political turmoil in Maldives.

Once again, being an optimist, I believe that SAARC provides a forum for discussion and we must grab the opportunity and make the best of it when it presents itself. As a prelude to that, let me track back to some key propositions made at previous SAARC conferences and how these actions need to be fast-tracked so that Sri Lanka can benefit from the challenging growth agenda that it is up against.

1) SAARC – Free trade secretariat

SAARC trade as a percentage of South Asia’s world trade has steadily recorded an upward trend from 2.42 per cent in 1990 to 5.31 per cent in 2005, which is commendable even though progress has been very slow. From the many conferences that I have attended on South Asian trade, the consensus for this poor performance on integration of trade in South Asia was attributed to the poor leadership that the whole of South Asian countries have had over time.

The reason could be a due to the political economy in play or it can be due to the changing policies of successive governments which tend to be in power for short bursts that is not seen in East Asian countries. Whatever the reason may be, the fact that South Asia lags behind the world in integration needs to carefully analysed and the key strategy should be operationalised.

May be a key area to focus at the next SAARC summit can be on the area of dispute settlement. Disputes of SAARC countries are expected to be resolved within 330 days, whilst in the case of our counterparts it’s different and more efficient; ASEAN countries resolve disputes within 290 days and NAFTA in 310 days. The first step to be taken up at the disputes settlement will be on NTBs.

I also recommend that the next SARRC Summit captures the lessons learned is the last 10 years of trade in South Asia and makes this a top priority on the agenda. The learnings should not be a numbers exercise, but an in-depth analysis behind the numbers like the social ramifications of trade; namely the Vanaspathy debacle in Sri Lanka and the jobs lost.

We also need to discuss decisions taken on the ceiling introduced on pepper exports to India and the growers in Sri Lanka being up in arms. It’s time that we understand the social ramifications of the decisions taken at SAARC as most governments in power in South Asia are coalition governments, which are very vulnerable to such sensitive aspects.

2) SAARC – Development Fund

The idea of establishing a South Asian Development Fund was mooted as way back as 1991 and thereafter the SAARC Finance Ministers endorsed a roadmap for the creation of the SDF but is yet to be operationalised. This clearly does not augur well for SAARC. One option to drive this project is to bring in a condition that a project does not have to be regional. It can be a project specific to a country based on one’s need. These are some of the key hard line decisions that are required to be taken up by SAARC.

3) SAARC – Disaster Management Centre

I remember post the devastating Indian Ocean tsunami in 2004, a special session was held among SAARC Environmental Ministers in Maldives in 2005. This gave birth to the Malé declaration, which includes areas like an early warning system and disaster management and disaster prevention systems that would come under the wing of the SAARC Disaster Management Centre.

But the challenge is whether this centre has brought out the results required so that lives lost due to disasters can be averted. This is especially important given that our part of the world is continuously prone to natural calamities like foods, cyclones and earthquakes. Maybe the SAARC can firstly review the benefits this centre has generated and maybe quantify them in value. This can be actually a success story that can be marketed as the result of SAARC getting together and working in regional cooperation.

4) SAARC – Poverty Fund

Poverty eradication has been a big ticket item in many previous conferences. In fact it was in the SAARC agenda way back as 1991. However, the only concrete step that has happened is the setting up of the Three Tier Committee that has been followed up with many recommendations that have not actually materialised on the ground. What is lacking is implementation.

Maybe SAARC should focus on one or two ‘key’ poverty alleviation projects for the region and drive it with passion and focus so that it can be a success story for the next SAARC summit. Even if it’s not possible to be implemented across the region, maybe the best is to drive a project at sub-regional level even though Sri Lanka is way ahead as against regional counterparts.

5) SAARC – Food Bank

The SAARC food security reserve was established as far back as 1988 to meet the emergencies of member countries. However, it has taken a full 14 years to make this operational, like identifying institutions which will manage this and requirements for withdrawal from the reserve, which explains how slow the decision-making has been.

If I go into detail, even today after a 20-year time horizon there is non-implementation of the SAARC food reserve initiative and it has been revamped as the SAARC Food Bank since 2007. This too, remains notional today. To be honest, no one knows its location as I write this. It has never been even utilised despite pressing demand of member countries like the wheat crisis in Pakistan, cyclone in Orissa, floods in Bangladesh, tsunami in Sri Lanka or the Maoist violence in some parts of Nepal.

I guess it’s important that the SAARC addresses this key issue, given that the food crisis is hitting us not only regionally but globally. The hard-line decisions that are required are to agree on the location, storage facilities, quality control methods, formula on pricing when wanting stocks and the periodic reviews which are required.

The board that sits on the Food Bank must also review the agricultural practices of member countries that can drive up production of key agricultural products like rice and wheat. May be the donor partners need to be involved like the World Bank and the Asian Development Bank, which once again is a hard-line decision that the SAARC must make.

6) SAARC – Energy market

With over 72% of the South Asian region’s people living in rural areas without adequate access to electricity, it is time that South Asia develops an integrated strategy given the spiralling crude prices making diesel-powered electricity generation financially non-viable. This will call for reforms that will not only include power infrastructure, but also power grids and gas pipelines.

Given that the region is endowed with coal, gas and water resources, maybe we can develop a coherent strategy to reduce dependency on petroleum-based products. However, the challenge is for SAARC to have the teeth to make the hard-line decisions that will include major structural reforms in each country. If it can be done, may be South Asia can insulate itself from an energy crunch in the years to come.

7) SAARC – Anti Narcotics and Drugs Task Force

Given the menace of drugs and narcotics, which has resulted in an abuse of public health, a convention was signed at the fifth SAARC Summit in 1991. However, this convention has met with the same fate of the Convention on Suppression of Terrorism.

It is fair to say that one can even go to the extent of justifying the existence of the SAARC process on this matter; even the exchange of primary information and documentation which were core elements in the convention has not happened. Maybe at least at the next SAARC summit if the Standing Committee can pass a resolution to exchange these basic documents among member nation, it can become a big achievement.

8) SAARC – Anti-Terrorism Unit

The respected General B.P. Mallik, the former Chief of the Army Staff and Chairman Chief of Staff Committee India, made a very strong statement at the Anti-Terrorism Conference that was staged in Sri Lanka. He said that even with all the protocols and conventions signed by SAARC member countries, the deteriorating situation with regard to terrorism in South Asia was due to the lack of political consensus, a non-comprehensive strategy and the absence of a will to implement and provide capacity building to counter terrorism in the region.

Hence, a key decision that SAARC must take is to develop a clear roadmap with specific implantation plans that a SAARC ant-terrorism unit can independently champion for a safer South Asian region. A key point that needs to be emphasised is that SAARC nations must raise the level of trust and confidence and take voluntary actions against terrorist activities on their home soil, rather than waiting to respond to complaints from its neighbours.

Whilst acknowledging the support extended by India in the final battle with the LTTE, if we need to be more proactive on this plague that has crept into the total of South Asia – be it in Kashmir or the militants in Pakistan, SAARC must work together now. The recently-announced naval link between Sri Lanka and India is action in the correct direction but now we must get SAARC binding.

Next steps: Political will

It is often said that one can choose one’s friends but not one’s neighbours. Whilst it might be not a palatable statement, the challenge is how we make our neighbours our friends so that Sri Lanka drive towards a 20 billion dollar export base and trade diversion on imports so that when compounded the trade deficit can be substantially reduced.

Separately, we drive in FDIs by targeting Indian SMEs so that we can reduce the pressure of debt repayment. With the support of SAARC, Sri Lanka can get cover on natural disasters and other social issues like food security. This will undoubtedly make Sri Lanka the ‘Wonder of Asia’. The key challenge is if there is the political will.

 (The thoughts expressed are the authors own, and do not reflect the offices he holds in the Government, private or international public sector.)