Strengthening Economic Ties Across Asia

As the world deals with the “brand new normal” of a slowing China, regional financial and economic plug-in is more important than ever, as well as South Asia is tactically poised to play an influential component.

There are several reasons why it is time to take a fresh look at the potential bridging role of South Oriental economies in Asian plug-in.

First, the South Asian financial systems — which comprise India, Pakistan, Bangladesh, Sri Lanka, Nepal, the Maldives, Afghanistan and Bhutan — have a largely untapped market of about 1.7 billion people, and they belong to the South Asian Free Trade Area.

Second, South Asia is one of the few bright spots for growth in a global economy that is adjusting by itself to China’s slowdown. South Asia as a whole grew at an annual rate of 6.3% from 2012 to 2014, coordinating the average growth rate for developing Asia in the same time period.

The Asian Development Bank tasks South Asia’s growth in order to accelerate to 6.9% in 2015 and seven.3% in 2016, which exceeds forecasts for developing Asia. Both South Asia and developing Asia grew faster compared to industrialized economies of the Ough.S., Japan and European countries between 2012 and 2014.

Third, the improved political environment in some Southern Asian countries is an attraction. For example, the pro-business government of Indian native Prime Minister Narendra Modi is implementing a new economic reform program plus an Act East Policy aimed at forging closer economic ties with important East Asian economies. Sri Lanka also has a new reform-minded government below President Maithripala Sirisena.

Fourth, amid growing issues about aging populations in East Asian economies and the effects of a declining operating population, South Asia is blessed with a large as well as dynamic labor force.

About 52% of Southern Asia’s population is of working age, defined as those age groups 15 and above. That figure is higher in several South Asian countries, including Bangladesh and Nepal.

A cheap and increasingly well written workforce can help with the industrialization of South Asia as worldwide demand increases for supply chains and services, including in information technology, professional providers, tourism and construction.

Furthermore, connecting emerging South Asia with the more developed countries of the Association of Southeast Asian Nations makes economic sense. It can create a huge regional marketplace of 2.3 billion people who can transform regional economies.

On Nov. 22, at the ASEAN summit in Kuala Lumpur, leaders announced the actual launch of the ASEAN Community as well as ASEAN’s Vision beyond 2015.

The end of 2015 saw the inauguration from the ASEAN Economic Community one of the three elements of the ASEAN Community, developing an integrated market and manufacturing base among the 10-member nations. This will create an ASEAN grouping along with 620 million people and a combined gross domestic product of $2.4 trillion. In addition, the opening up of Myanmar, which could serve as a gateway between Southern Asia and Southeast Asia, increases the potential for infrastructure-led integration.

Unleashing investment

A current study by the ADB and its affiliated ADB Institute titled “Connecting Southern Asia and Southeast Asia” highlights the potential for investments in facilities and associated soft facilities in furthering economic scarves between South Asia as well as Southeast Asia.

The study found that the welfare gains from infrastructure-led integration are potentially big, amounting to at least $568 billion. Much more populous South Asia might gain $375 billion, while Southeast Asia could gain $193 million. Most participating countries display large gains, especially smaller South Asian countries.

The best-case scenario with regard to deep integration will include removing all tariffs and a 50% reduction in nontariff barriers associated with South Asian and Southeast Asian trade, with a 15% reduction in trade costs reflecting improved trade facilitation and infrastructure investments.

The study also found that only $73 billion is required to meet the total cost of infrastructure investments to link Southern Asia and Southeast Asia. This figure includes $34 million for railway projects, $18 billion for road projects, $11 billion for port projects as well as $10 billion for energy buying and selling projects.

These estimates were based on an analysis of crucial infrastructure bottlenecks and the formulation associated with projects to alleviate them. These things cover projects directly related to creating new infrastructure between Southern Asia and Southeast Asian countries or upgrading existing cross-border hyperlinks. They do not include the cost of facilities projects within either South Asia or Southeast Asia.

Infrastructure holes lie mainly in Myanmar, but gaps also exist in Bangladesh, Cambodia, Laos, Thailand and Vietnam. These relate primarily to missing road as well as railway links that need to be built, transport links, such as roads connecting major highways, that should be upgraded, incompatibilities in railway gauges that have to be overcome as well as railways that need to be modernized.

Major ports, such as Kolkata, Chittagong and Yangon, suffer from constraints within capacity, efficiency and connectivity to road and rail networks. Various obstacles impede energy trading, including technical barriers related to grid synchronization, spaces in natural gas pipelines, as well as distorted energy pricing as well as subsidy regimes.

The study also shows that public-private partnerships can help finance regional infrastructure projects, particularly in the region’utes more developed economies. Such projects are difficult to finance through private financial markets alone because of the high risks and lengthy gestation periods.

The creation of a few demonstration PPP projects backed by capacity building and advisory providers is useful to increase demand for this kind of partnerships. Improving political danger guarantees, transparency, regulatory frameworks, coordination support and governance associated with PPP projects can stimulate the availability of such funds.

Finally, the study suggests that coordinating the planning and execution of regional infrastructure projects is challenging. This is because of various overlapping regional institutions with different mandates and capacity to manage and finance infrastructure projects. Multilateral and regional development banks can play a useful role as honest brokers and provide knowledge to facilitate regional online connectivity.

Looking Ahead

Over time, the economic links in between South Asia and South Asia could be expanded to larger East Asian financial systems such as Japan and China through the Local Comprehensive Economic Partnership, a planned mega-regional trade group. Negotiations for that RCEP began in early 2013 among 16 economies, including the 10 ASEAN members, Japan, China, South Korea, India, Australia and New Zealand.

An eventual RCEP deal would cover trade in goods and services and establish investment rules, among other issues. The RCEP would be able to help stimulate the spread of sophisticated production networks and offer chains to South Asia. It would also create a large trade bloc representing 49% of the world’s population and 30% of its Gross domestic product.

India is the only South Asian economy participating in the RCEP discussions. However, once an agreement is reached, probably in late 2016 or even early 2017, other South Asian economies may wish to join the process to avoid the economic and political pitfalls of being left out. A few commentators suggest that India might play a key role in advocating the case for such as its South Asian neighbours in the RCEP.

There is a historic chance of South Asia to act as a bridge for Asian integration. Improved infrastructure between South Asia and Southeast Asian countries can lay the foundations with regard to deepening trade and investment relations with Japan, China along with other East Asian nations. Big mutual benefits can be expected for South Asian and Eastern Asian economies because of nearer regional integration and co-operation. In addition, the financial cost is likely to be manageable. With serious national and regional policy action, the integration of Southern Asia and East Asia can become a reality.

South Asia could be linchpin for regional integration is republished with permission from Asian countries Pathways