Promoting regional economic cooperation and integration

Monday, 2 September 2013 00:00 - - {{hitsCtrl.values.hits}}

The SAARC Finance Ministers meeting and SAARC Finance Secretaries Meeting was set up in 2006 as per the directive of the 13th Summit of the SAARC Head of States held in Dhaka in 2005 with a view to advancing the economic integration in the SAARC region, towards South Asian Economic Union (SAEU). For this purpose the meeting takes into consideration the prevailing macro-economic developments, outlook of South Asia, achievement of Millennium Development Goals and to assess the investment climate, foreign capital inflows, financial sector reforms and other areas of cooperation. The Ministers agreed to draw a roadmap for achieving the SAEU in a phased and planned manner.

So far six meetings have been held in Pakistan, India, Maldives, Bhutan, Bangladesh and the sixth meeting was held in Colombo. It is noted that a larger part of the agenda of the sixth meeting was revolving around promoting regional economic cooperation and integration as shown below. The meetings were jointly organised by the Ministry of Finance and Planning, the SAARC Division of the Ministry of External Affairs and the Sri Lanka Convention Bureau. The following issues were discussed at the meeting:

Promotion and protection of investment
Grater flow of financial capital and intra regional long term investment
Economic integration of SAARC Region towards South Asian Economic Union
SAARC Agreement on Avoidance of Double Taxation
SAARC Customs Cooperation

The Sri Lankan delegation submitted a paper on the way forward for further integration of SAARC region as follows: The future Agenda of the SAARC Finance Ministers and Secretaries Meeting may need to be based on clearly defined and feasible set of strategies. In formulating such strategies, the following areas may be given more emphasis.

Promoting investment
Promoting trade
Promoting tourism
Eradicating extreme poverty from South Asia
Food security
Environment (climate change, natural disasters, etc.)
The need for SAARC to raise a common voice in international fora

These areas are briefly elaborated below. (a) Promoting investment The South Asian region remains as a lower recipient of FDL in the World, recording 2.7% of global FDI inflows and 0.7% FDI outflows for 2012. In fact, for 2012, FDI inflows to South Asia decreased by 24% to US$ 34 billion in 2012, while FDI outflows also declined by 29% to US$ 9 billion (World Investment Report, 2013). The major sources of FDI flows the regions are not within the region, but from developed and developing countries outside the region. Although the countries in the south Asian region have provided various kinds of incentives to attract FDI under their respective national FDI policies, the region under performs in attracting sufficient amount of FDI flows and encouraging intra-regional FDIs. Developing strategic partnerships between domestic and foreign companies and establishing joint ventures could be viewed as a way forward for promoting investment. The countries in the region need to focus on proactive cross-border M&As to achieve important strategic objectives, such as the acquisition of technologies and brands. We need to focus on high-tech industries such as automotive industry, information technology (IT)-enabled services, telecommunications, etc. As is well known, the manufacturing sector plays the leading role in development process, as it is essential, for attaining high productivity service sector and technological innovation, which will also help to modernise the agriculture sector. A number of countries in the region are emerging as important players in the manufacturing and export of ready-made garments (RMG), yet the value addition in this industry is low. (b) Promoting trade A major policy focus in attracting investments in to the south Asian region may be through promotion of trade-led intra regional investments. Examples include SAPTA and SAFTA. We need to recognise that effective trade integration requires more simply reducing tariffs and quotas. Hence our efforts should go beyond removing tariff in trade in goods, and to cover non-tariff barriers, while extending liberalisation to investment and other policies. The other types of barriers that exist may have the effect of segmenting markets and impeding the free flow of goods, services, and investment. The experience of regional economic integration in similar blocs, particular, EU, NAPTA and ASEAN, have shown that initiatives towards greater integration have started with higher levels of intra-regional trade. Regional comparison, as of 2007, shows intra-regional trade for South Asia (5%) is far below the levels in EU (65%) and ASEAN (24%). The process of regional cooperation in South Asia has been intensified with the implementation of the Agreement on South Asian Free Trade Area (SAFTA) in 2004.However, the acceleration and deepening of regional economic integration in SAARC remain very low although some initiatives were taken to reduce the number of tariff lines in the sensitive lists, removal of non-tariff, para-tariff barriers, harmonisation of standards, etc. (c) Promoting tourism SAARC members need to work more closely and collectively to promote the region as a common tourist destination. In doing so, focus areas need to include encouraging private sector in promoting regional cooperation in tourism, developing capacity in human resource to cater growing needs in the industry, recognising the usefulness of the Asia’s identity, and cultural and eco-tourism as important facets in the tourism development strategy in the region. Further, continued efforts need to be made all levels to promote people-to-people contact by facilitating travel among SAARC countries. More need to be done in promoting of intra-SAARC tourism by way of promoting of youth exchanges in culture and sports, and establishing linkages among professional bodies. The enhancement of intra-SAARC tourism hinges greatly upon the degree of facilitation of the movement of people through improved travel infrastructure and air, sea and land connectivity among the SAARC countries. Hence, the more individual and collective efforts need to direct at the tourism related infrastructure improvements. (d) Eradicating extreme poverty from South Asia The South Asian region has done a great deal to eradicate extreme poverty from the region. As per the Millennium Development Goals (MDG), the proportion of people living in extreme poverty (on less than $ 1.25 a day) has to be halved between 1990 and 2015. According to UN estimates, extreme poverty ration in South Asia in 1990 was 51%, which has come down to 30% by 2010, implying that poverty rates fell by an average of one percentage point annually. Hence, to achieve the target of halving the poverty ratio by 2015 implies that the region needs to continue the efforts through credible measures. The World Bank projects that, by 2015, about 970 million people will still be living on less than $ 1.25 a day in countries classified as low-or middle-income in 1990; and the South Asia will be home to about 40% of the developing world population living in extreme poverty. Another related matter to extreme poverty may be linked to gender gap in employment, with about 50 percentage point difference between men and women in the employment- to-population ratio in 2012 in South Asia. Consequences of extreme poverty reflect in other social indicators too. To name a few, health conditions remain sub-standard levels. For instance, as under-five child mortality rates fall in richer developing regions, the majority of child deaths are occurring in South Asia, in addition to Sub-Saharan Africa and. In 2011, these two regions accounted for 5.7 million of the 6.9 million deaths in children under five worldwide. This represents 83% of the global total in 2011, up from 69% in 1990. According to US estimates, in South Asia, one in 16 children die before age five. Also, in South Asia, one third of student enrolled in the first grade will leave school before reaching the last grade. (e) Food security According UN-estimates, about 870 million people (or one in eight worldwide), did not consume enough food on a regular basis to cover their minimum dietary energy requirements over the period 2010 to 2012. The vast majority of the chronically undernourished (852 million) reside in developing countries, where disparities remain large in the rate of reduction in undernourishment. Although some significant progress has been made, the pace of change in the South Asia appears to be too slow to meet the MDG target (i.e., the proportion of people who are undernourished during 1990-1992 was 27% , which has fallen to 18% during 2010-2012). According to US estimates, the underweight prevalence in 2011 was highest in South Asia (31%), this translates into 57 million underweight children in South Asia. The member countries in the region exhibit vastly different levels of vulnerability and markedly different capacities to deal with economic shocks, such as food price increases and economic recessions. (f) Environment (climate change, natural disasters, etc.) South Asian member countries need be prepared well for the threats emanating from environmental issues, because they could lead to severe socioeconomic implications in the region. For instance, the impact of climate change will take the forms of higher temperatures, more variable precipitation, more extreme weather events, and sea level rises, which are already being felt in South Asia. As the signs are such that these developments will continue to intensify, these changes are already having major impact on the economic performance of South Asian countries and on the lives and livelihoods of millions of poor people. The impacts result not only from gradual changes in temperature and sea level but also, on particular, from increased climate variability and extremes, including more intense floods, droughts, and storms. Some of the future impacts include:

Glacier melting in the Himalayas is projected to increase flooding and will affect water resources within the next two to three decades.
Climate change will compound the pressure on natural resources and the environment due to rapid urbanisation, industrialisation, and economic development.
Crop yield could decrease up to 30% in South Asia by the mid-21st century.
Mortality due to diarrhoea primarily associated with floods and droughts will rise in South Asia.
Sea-level rise will exacerbate inundation, storm surge, erosion and other coastal hazards.
decreased water availability and water quality in many arid and semiarid regions, and increased risk of floods and droughts in many regions
reduction in water regulation in mountain habitats
decreases in reliability of hydropower and biomass production
increased incidence of waterborne diseases such as malaria, dengue, and cholera
increased damages and deaths caused by extreme weather events
decreased agricultural productivity
adverse impacts on fisheries
adverse effects on many ecological systems

The consequences of such environmental changes include: (g) The need for SAARC to raise a common voice in international fora SAARC members have been able to cooperate individually as members in various international fora. But it is unfortunate that, together, the people of South Asia did not have the voice they should and could have in the global polity. SAARC should endeavour to strengthen the mechanisms to speak with one voice on issue of common concern for the region in international fora such as the United nations, World Bank, IMF, G-20, etc. One of the objectives of SAARC as defined in the Charter is to strengthen cooperation among themselves in international fora on matters of common interest. The cooperation of SAARC countries should take place in a bilateral and multilateral context also with intra-regional cooperation. SAARC should maintain a united position on all major issues and have an effective common voice in international fora. The SAARC need not hesitate to build new structures and mechanisms to enable it to reach its full potential. SAARC must take measures to improve the existing mechanisms, through review, rationalisation and reinvigoration. We need to make SAARC better known and better understood by International Institutions and Governments around the world. We need to take initiatives to make the voice of SAARC heard in all parts of the world. South Asia cannot afford to be left behind in the global development process, in its vital collective self-interest, SAARC must speak with one voice, the voice of the 1.2 billion people of South Asia. The SAARC, which represents about 20% population of the world, has great potential of future enhance and promote relations among the members state, and close cooperation among the SAARC members would further make the voice of the region stronger at the international forum.