The issues that impede trade in South Asia
Wednesday, 3 November 2010
Shahiduzzaman Khan
DUE to lack of inter-regional trade facility 55 per cent of South Asia's trade potentials are yet to be tapped despite having huge potentials for regional trade. More than US$ 1.8 billion worth of bilateral trade potentials between India and Pakistan remains unutilised. On the other hand, Indo-Bangladesh trade potentials remain unutilized to the tune of US$ 1.6 billion.
These are the findings of a study on trade and human development conducted recently by Pakistan-based Mahbubul Haq Human Development Centre (MHHDC). The study report released in the city last week suggested improvement in bilateral relations among the South Asian countries as the region is lagging behind other regions of the world in terms of trade and human development.
The study said South Asia as a region has witnessed its HDI (human development index) increase from 0.498 in 1995 to 0.617 in 2006, but this is lower than that of South East Asia (0.687). Trade and development index (TDI) rankings between 2005 and 2006 shows India and Pakistan were able to improve their TDI rankings during the period, while Bangladesh and Sri Lanka saw their TDI rankings decline, implying that their linkages between trade and development have weakened.
Major South Asian regional trading arrangements still fall short of addressing some core issues with regard to facilitating trade for development purposes. Extra-regional trade dominates South Asia's overall trade structure with 93.7 per cent of its total exports and 96.1 per cent of its total imports. Inter-regional trade grew but extra-regional trade grew at a faster rate.
Poor trade and investment linkages at the regional level severely limited the scope and opportunity of the development of integrated production networks within the region. Trade within a regional group has become more important to overcome the obstacles faced by developing countries in international trade. But inter-regional trade remains very low in South Asia.
Adverse terms of trade are considered unfavourable relative to some benchmarks or to past experiences. Developing countries specialised in primary products are sometimes said to suffer from adverse or declining terms of trade. Such a liberalisation has also worsened the overall food security status of South Asia by increasing the number of hungry people by 2.3 million in every 10 years. Because of liberalisation, the net food exports remained negative between 1996 and 2006 in all countries in South Asia, except India.
South Asia, home to the poorest with 43.5 per cent of the world's poor surviving on less than a dollar a day, is the most illiterate with some 400 million illiterate adults, the most malnourished with over 80 million malnourished children and, above all, the least gender sensitive region. Preventable diseases kill 3.2 million children each year. Girls and women form the vast majority of these deprived millions. South Asia has also emerged as the most poorly governed region in the world.
Though the estimates of the incidence of poverty vary widely in the region, the basic fact that all the seven countries in South Asia are deeply entrenched in mass poverty remains unchallenged. South Asia's rate of urbanisation over the last quarter of a century has been faster than all the regions of the world except East Asia and the Pacific. At the rate it is multiplying, nearly half of South Asia's population will be living in urban areas by the year 2025. The regional growth patterns in most of the critical sectors, including agriculture, industry, manufacture and services have not recorded any perceptible increase.
With the regional average savings rate of 13.28 per cent and investment rate of 18.65 per cent, South Asia has been in the vortex of resource crunch. The situation has been further affected by the ever-increasing balance of payment deficits. With no immediate shift in the production and export structure of the region, this deficit dynamics will further deepen thereby aggravating the dependence on external finance. Presently the region's external debt exceeds 150 billion dollars.
Despite the poor economic and social sector development, the spending levels on defence are very high, particularly in India and Pakistan, who together spend over US$ 12 billion a year on defence. The international aid for social sectors development i.e. education, health and people's empowerment, which is approximately 9.0 per cent of total amount of the aid, not an adequate level to ensure human poverty alleviation in the area. Despite such a daunting situation, there is an apparent absence of political will for tackling the growing human poverty in the region. If the previous very slow annual rate of progress is maintained, the region will take over a century to move to high development category.
The nature of poverty in South Asia is characterised by common symptoms of socio-economic deprivation, rampant corruption, poor governance, political instability, religious fundamentalism, regional volatility, politico-cultural alienation, inaccessibility to state resources and technology.
It is important to note that the identification of these symptoms in the region has always been a complicated and administratively problematic exercise. Over the years, the very profile of poverty has become multi-dimensional requiring comprehensive and well-devised measures to combat it.
According to the World Bank, South Asia remains the least-integrated region in the world, with the intra-regional trade hovering below 5.0 per cent. Indeed, regional cooperation is no longer a matter of choice for South Asia. At a time when countries throughout the world are regrouping on the basis of economic blocs, South Asia can ill-afford to remain immobilised in political discord. In fact, the potential for co-operation between the SAARC nations is enormous. The region has a potential market of 1.2 billion consumers, the largest middle class in the world, hard working low-wage labour and tremendous potential to unleash the creative energies of chained economies.
The regional growth patterns in most of the critical sectors, including agriculture, industry, manufacture and services, have not recorded any perceptible increase. With the regional average savings rate of 13.28 per cent and investment rate of 18.65 per cent, South Asia has been in the vortex of resource crunch. The ever-increasing balance of payment deficits has further affected the situation. With no immediate shift in the production and export structure of the region, this deficit dynamics will further deepen thereby aggravating the dependence on external finance.
The growing income and human poverty challenges faced by the region need to be addressed through integrated policies at the national, regional and international levels. Just as the incidence of poverty is multidimensional, the states will need to adopt multidimensional approaches to address root causes for the present situation.
In this process it is important for each national government to recognise the potential of the people of the region. Further, in order to formulate a realistic financial strategy, the main focus should be on the reallocation of existing budgets. The current military spending levels, which are quite high particularly in India and Pakistan, will have to be cut substantially and allocated for the alleviation of human poverty. This expenditure can be considerably reduced if regional and international efforts are strengthened for negotiations and mediation for a peaceful settlement of all outstanding disputes.
szkhan@dhaka.net
DUE to lack of inter-regional trade facility 55 per cent of South Asia's trade potentials are yet to be tapped despite having huge potentials for regional trade. More than US$ 1.8 billion worth of bilateral trade potentials between India and Pakistan remains unutilised. On the other hand, Indo-Bangladesh trade potentials remain unutilized to the tune of US$ 1.6 billion.
These are the findings of a study on trade and human development conducted recently by Pakistan-based Mahbubul Haq Human Development Centre (MHHDC). The study report released in the city last week suggested improvement in bilateral relations among the South Asian countries as the region is lagging behind other regions of the world in terms of trade and human development.
The study said South Asia as a region has witnessed its HDI (human development index) increase from 0.498 in 1995 to 0.617 in 2006, but this is lower than that of South East Asia (0.687). Trade and development index (TDI) rankings between 2005 and 2006 shows India and Pakistan were able to improve their TDI rankings during the period, while Bangladesh and Sri Lanka saw their TDI rankings decline, implying that their linkages between trade and development have weakened.
Major South Asian regional trading arrangements still fall short of addressing some core issues with regard to facilitating trade for development purposes. Extra-regional trade dominates South Asia's overall trade structure with 93.7 per cent of its total exports and 96.1 per cent of its total imports. Inter-regional trade grew but extra-regional trade grew at a faster rate.
Poor trade and investment linkages at the regional level severely limited the scope and opportunity of the development of integrated production networks within the region. Trade within a regional group has become more important to overcome the obstacles faced by developing countries in international trade. But inter-regional trade remains very low in South Asia.
Adverse terms of trade are considered unfavourable relative to some benchmarks or to past experiences. Developing countries specialised in primary products are sometimes said to suffer from adverse or declining terms of trade. Such a liberalisation has also worsened the overall food security status of South Asia by increasing the number of hungry people by 2.3 million in every 10 years. Because of liberalisation, the net food exports remained negative between 1996 and 2006 in all countries in South Asia, except India.
South Asia, home to the poorest with 43.5 per cent of the world's poor surviving on less than a dollar a day, is the most illiterate with some 400 million illiterate adults, the most malnourished with over 80 million malnourished children and, above all, the least gender sensitive region. Preventable diseases kill 3.2 million children each year. Girls and women form the vast majority of these deprived millions. South Asia has also emerged as the most poorly governed region in the world.
Though the estimates of the incidence of poverty vary widely in the region, the basic fact that all the seven countries in South Asia are deeply entrenched in mass poverty remains unchallenged. South Asia's rate of urbanisation over the last quarter of a century has been faster than all the regions of the world except East Asia and the Pacific. At the rate it is multiplying, nearly half of South Asia's population will be living in urban areas by the year 2025. The regional growth patterns in most of the critical sectors, including agriculture, industry, manufacture and services have not recorded any perceptible increase.
With the regional average savings rate of 13.28 per cent and investment rate of 18.65 per cent, South Asia has been in the vortex of resource crunch. The situation has been further affected by the ever-increasing balance of payment deficits. With no immediate shift in the production and export structure of the region, this deficit dynamics will further deepen thereby aggravating the dependence on external finance. Presently the region's external debt exceeds 150 billion dollars.
Despite the poor economic and social sector development, the spending levels on defence are very high, particularly in India and Pakistan, who together spend over US$ 12 billion a year on defence. The international aid for social sectors development i.e. education, health and people's empowerment, which is approximately 9.0 per cent of total amount of the aid, not an adequate level to ensure human poverty alleviation in the area. Despite such a daunting situation, there is an apparent absence of political will for tackling the growing human poverty in the region. If the previous very slow annual rate of progress is maintained, the region will take over a century to move to high development category.
The nature of poverty in South Asia is characterised by common symptoms of socio-economic deprivation, rampant corruption, poor governance, political instability, religious fundamentalism, regional volatility, politico-cultural alienation, inaccessibility to state resources and technology.
It is important to note that the identification of these symptoms in the region has always been a complicated and administratively problematic exercise. Over the years, the very profile of poverty has become multi-dimensional requiring comprehensive and well-devised measures to combat it.
According to the World Bank, South Asia remains the least-integrated region in the world, with the intra-regional trade hovering below 5.0 per cent. Indeed, regional cooperation is no longer a matter of choice for South Asia. At a time when countries throughout the world are regrouping on the basis of economic blocs, South Asia can ill-afford to remain immobilised in political discord. In fact, the potential for co-operation between the SAARC nations is enormous. The region has a potential market of 1.2 billion consumers, the largest middle class in the world, hard working low-wage labour and tremendous potential to unleash the creative energies of chained economies.
The regional growth patterns in most of the critical sectors, including agriculture, industry, manufacture and services, have not recorded any perceptible increase. With the regional average savings rate of 13.28 per cent and investment rate of 18.65 per cent, South Asia has been in the vortex of resource crunch. The ever-increasing balance of payment deficits has further affected the situation. With no immediate shift in the production and export structure of the region, this deficit dynamics will further deepen thereby aggravating the dependence on external finance.
The growing income and human poverty challenges faced by the region need to be addressed through integrated policies at the national, regional and international levels. Just as the incidence of poverty is multidimensional, the states will need to adopt multidimensional approaches to address root causes for the present situation.
In this process it is important for each national government to recognise the potential of the people of the region. Further, in order to formulate a realistic financial strategy, the main focus should be on the reallocation of existing budgets. The current military spending levels, which are quite high particularly in India and Pakistan, will have to be cut substantially and allocated for the alleviation of human poverty. This expenditure can be considerably reduced if regional and international efforts are strengthened for negotiations and mediation for a peaceful settlement of all outstanding disputes.
szkhan@dhaka.net