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BRIEF

Regional Integration in South Asia

March 24, 2014

With shared history and culture, the South Asia region has a huge potential for economic integration but issues on national identity and internal consolidation have caused political tensions and mistrust between countries, and as a result, intra-regional integration is limited.

What's New? 

Video: Cross-Border Learning Empowers Poor Women in South Asia

Blog: Tackling the Most Critical Regional Economic Challenges

Video: The Importance of Regional Integration in South Asia

News: IBA To undertake research on Pakistan, India textile sector

News: India leads South Asia in 'doing business' easier: World Bank

Feature Story: Regional Collaboration for Combating Illegal Wildlife Trade in Bangladesh

Events: 

South Asia Economic Summit: Nov 7-8

South Asia Economic Students Meet: December 28-January 2, 2015 

STORY HIGHLIGHTS
  • South Asia’s intra-regional trade accounts for just 5% of total trade, compared to 25% in ASEAN.
  • The South Asia Regional Integration program manages a portfolio of $280 million in energy, trade and transport, and wildlife conservation.
  • Greater regional integration will enhance prospects for growth and shared prosperity in South Asia, home to 44 percent of the world’s poor.

Context

South Asia is one of the most dynamic regions in the world, but it is also one of the least economically integrated. Intra-regional trade accounts for just 5% of total trade, compared with 25% in the Association of Southeast Nations (ASEAN). With shared history and culture, the South Asia region has a huge potential for economic integration but issues on national identity and internal consolidation have caused political tensions and mistrust between countries, and as a result, intra-regional integration is limited. By building common interests across borders, regional integration could enhance stability in this volatile region -- which is home to 570 million or 44% of the world’s poor -- and pave the way for countries to cooperate on urgent and shared climate change-related challenges which aggravate the risks to sustainable growth.

Cross-border trade is especially important for smaller countries and for landlocked provinces/countries, including Afghanistan, Bangladesh, Bhutan, Nepal, Northeast India and Northwest Pakistan. Expanded intra-regional trade, increased investment and supply-chain integration, will need policy reforms, and improvements in regulations, border management, and infrastructure. Measures will need to pay due regard to the security concerns which dominate each country’s view of borders. Small and medium enterprises are likely to play a large role in expanded commerce (relative to power sector cooperation), creating a wider canvas of opportunities for cooperation, reduced mistrust and poverty reduction.

South Asian countries will benefit substantially from greater integration through energy trade, commerce and river basin management. The most obvious gains are in the power sector, with connectivity enhancing system reliability, lowering costs and carbon emissions, and relieving debilitating shortages in all countries by enabling the sustainable development of the enormous hydro and gas-based power generation potential of the Himalayas – the “water tower” of Asia – and of Central Asia. Afghanistan and Nepal have water resources that could potentially generate around 24,000 and 83,000 megawatts of electricity respectively. Transmission infrastructure, clean energy generation, and fair pricing agreements across borders hold the key to realizing this potential.

Momentum for economic cooperation has been building in recent years and months. India and Pakistan have revitalized ministerial-level negotiations on expanded trade including through granting Non-Discriminatory Access – a similar status to Most Favored Nation (MFN) – to India, reciprocating India’s granting of MFN status to Pakistan a decade ago. India has modernized its Attari border post with Pakistan and has offered to export 500 megawatts of power. India and Bangladesh have enhanced their bilateral ties, including in power trade, and India has extended tariff-free access to its market to all Least Developed Countries in the region. Afghanistan and Pakistan have started implementing a transit and trade treaty which they signed in 2011. Indian investment in Sri Lanka has risen significantly, as has cross-country trade, following a 2001 Free Trade Agreements. 

World Bank Group Strategy

The overall aim of the WBG regional integration strategy for the next three to five years is to step up support for three main objectives which are listed below:

  • Help put in place the building blocks for an integrated regional electricity market in South Asia (with links to Central Asia) to relieve energy shortages, which are a binding constraint to each country’s prospects for sustainable and equitable growth.
  • Move SAR towards East Asian levels of trade and investment in goods and services to enhance competitiveness and create more and better jobs for the over 10 million young people who will enter the work force each year for the foreseeable future.
  • Improve the in-country and cross-border authorizing environment (attitudes and policy) for regional integration by systematically building awareness and “championship” around the need for, and benefits from, increased regional cooperation. Building on analytical work on the costs of the status quo and high impact opportunities for cooperation, and by leveraging lessons from the South Asia Region and global experience, the strategy will seek to both facilitate sustained action in priority areas where there is already sufficient demand across countries as well as to build support for new high priority areas.

http://www.saesm.com/

Projects & Results

Portfolio

1)      Central Asia-South Asia (CASA) 1000 Electricity Transmission Project ($526.5m; Regional SAR IDA: $280m):

CASA-1000 will facilitate electricity trade of 1,300 megawatts (MW) of existing summertime hydropower surplus between Kyrgyz Republic and Tajikistan in Central Asia and Afghanistan and Pakistan in South Asia. The project will generate valuable foreign exchange revenues to the Kyrgyz Republic and Tajikistan, and alleviate electricity shortages in Afghanistan and Pakistan during the peak summer season. It will also help establish Afghanistan’s role as a viable transit country.

2)      India Mizoram Roads II Regional Connectivity Project (US$107m; Regional IDA $71.3m):

The project is designed to increase transport connectivity along regional trade corridors in Mizoram. With road transport being the only mode of transport within the state of Mizoram, improvements to the network will reduce freight and passenger transport costs, and provide quicker and safer access to all parts of the state and to neighboring states and countries (Bangladesh and Myanmar).  

3)      Nepal-India Regional Trade and Transport Project (US$99m; Regional IDA $59.3 m):

The Project will facilitate efficient goods trade between Nepal and India by removing current policy, procedural, systems, and capacity and infrastructure constraints along the Kathmandu-Kolkata Corridor. The expected outcome as a result of project interventions is a reduction of transport time and logistics costs for Nepal’s international trade.

4)      The Nepal-India Electricity Transmission and Trade Project (US$99m approved in FY11 with AF for US$39m in FY13; Regional IDA $66m).  

The Project will support construction of a high voltage electricity transmission line between Nepal and India, capable of transmitting up to 1,000 MW of power and paving the way to relieving Nepal’s crippling power shortages and facilitating the development of Nepal’s hydropower potential. To be completed in 2015, this Nepal-India interconnection will complement a 500 MW interconnection between India and Bangladesh and, together with existing and planned connectivity between Bhutan and India, will create the physical infrastructure for sub-regional power trade.

5)      Strengthening Regional Cooperation in Wildlife Protection APL Program (APL1: US$39m & APL2: US$2.25m; Regional IDA: $24.5m). 

The Project will assist participating governments in building shared capacity, institutions, knowledge and incentives to protect regional wildlife. Participating countries include Bangladesh and Nepal (APL1), and Bhutan (APL2). Collaboration with India, Sri Lanka and neighbors in East Asia in this partnership is being explored. 

Pipeline

1)      Pakistan-India Electricity Transmission and Trade Project:

The Proposed Project will finance transmission interconnection infrastructure to facilitate the wheeling of 500 MW of electricity from India to Pakistan. This low cost extension of the transmission grid by about 20-30 km on each side would allow India to export about 200 MW of electricity within a 12-18 month period while a more costly sub-station on the Pakistan side – estimated to be constructed in 36 months – would allow export of the full 500+ MW.  The Bank financed the pre-feasibility study.

2)      Bangladesh-Bhutan-India Regional Trade and Transport Facilitation Project:

The Proposed Project will finance investments in Bangladesh for inland waterways (e.g. dredging, provision of vessels, navigational aids, and improvement of selected river ports) along the Bangladesh-India Bilateral Protocol Route; road/IWT connectivity to Mizoram, border posts improvement on the border with Mizoram (Thegamukh-Tlabung); and improvements to Chittagong Port.  Proposed investment in Bhutan include construction of Samrang – Jomotshangkha road section along the Southern East-West Highway; development of an Inland Container Depot at Pasakha;  and  ICT connectivity through the establishment of international redundancy via Cox’s Bazaar Inland and provision of underground fiber optic cable (concurrently with road construction).  These interventions are expected to improve key multi-modal transport corridors and networks, facilitate trade with third countries, and regional trade with neighboring countries.  

3)      South Asia Regional Climate Services Project:

The Proposed Project will strengthen institutions, facilitate knowledge exchange and enhance cooperation with respect to hydro-meteorological risks between South Asia countries. Activities will strengthen the capacity of participating countries and institutions to respond to water related hazards and climate risks at the national and regional levels, by supporting improvements in monitoring, weather and flood forecasting, community based early warning systems and delivery of climate services.

4)      Pakistan Regional Trade Facilitation Project - Wagah Border:

The Proposed Project will improve border management systems and infrastructure at the Wagah border post, the key land border post between Pakistan and India. The Bank’s role may center on supporting key policy and procedural reforms.

5)      Nepal Hydropower Development Project

IDA and IFC would like to support at least one project with a total capacity of 500-1000 MW in the next few years. The World Bank Group is currently working with Nepal to help finalize the contractual arrangements for developing 4-5 medium and large hydropower projects (about 5 GW) to meet domestic and regional demand.  

Useful Resources: 

Reports
Doing Business 2014
South Asia: Growth & Regional Integration
South Asia: Trade and Transport Facilitation
Promoting Economic Cooperation in South Asia – Beyond SAFTA

Events
Promoting Development of Lagging Regions in South Asia (North West Region)
Enhancing Trade in South Asia’s North East Region
Competitive Funds for Higher Globally and Experiences for South Asia

Quick Links: 

Think Tanks & Research Institutes
Center of Policy Dialogue
ICRIER
Indian Institute of Foreign Trade
Institute of Policy Studies of Sri Lanka
Lahore University of Management Sciences 
Marga Institute
National Council for Applied Economics Research
Pakistan Institute of Development Economics
Pakistan Institute of Legislative Development and Transparency
Regional Center of Strategic Studies
Research and Information Systems for Developing Countries
Sustainable Development Policy Institute 
Trade and Development Authority of Pakistan (TDAP)

Chambers of Commerce
SAARC Chamber of Commerce and Industry
Afghanistan Chamber of Commerce & Industries
Bhutan Chamber of Commerce & Industry
Federation of Indian Chambers of Commerce and Industry
Maldives National Chamber of Commerce and Industry
Federation of Nepalese Chambers of Commerce and Industry
Nepal Chamber of Commerce
The Federation of Chambers of Commerce and Industry (Pakistan)
Federation of Chambers of Commerce and Industry of Sri Lanka

Ministries of Commerce & Industry
Ministry of Commerce and Industries (Afghanistan)
Ministry of Commerce (Bangladesh)
Ministry of Economic Affairs (Bhutan)
Ministry of Commerce and Industry (India)
Ministry of Commerce (Pakistan)
Ministry of Economic Development (Maldives)
Department of Commerce (Sri Lanka)

Investment Bodies
Afghanistan Investment Support Agency
Board of Investment, Bangladesh
Foreign Investment Promotion Board (India)
Invest Maldives
Invest Nepal
Board of Investment, Pakistan
Board of Investment, Sri Lanka

Other Useful Links
Central Board of Excise and Customs, India
National Tariff Commission, Pakistan
Pakistan Business Council
Pakistan-India Business Council