China ‘ghost in the room’ at first-ever South Asia Economic Conclave
The first-ever South Asia Economic Conclave was held this week in New Delhi, India, with a few hundred delegates attending, representing the entire region. Organised by the Chamber of Indian Industries, this conference took on the de-facto role of a forum for the private sector to network and air its grievances with regard to South Asian cooperation and integration.
However, it was one speaker, Arvind Subramanian, Chief Economic Advisor of the Ministry of Finance of India, who put it in perspective best when, making an analogy to Shakespeare’s Hamlet, he observed that, whatever discussions were taking place, the “ghost in the room is China”. Making his comment at a panel on 1993′s North American Free Trade Agreement and the lessons that South Asia could learn from it, he also pointed out that, while the potential South Asian Free Trade Agreement (SAFTA) could be influenced a lot by NAFTA’s case study, there were few, direct similarities between the two agreements. One major difference, noted Mr. Subramanian, was that NAFTA negotiations went forward because the USA was the only viable option for trade for Mexico, while South Asian countries could go to China instead of India.
To the oft-repeated question, what should come first, trade or politics, he opined that the South Asian region had no choice but to move forward on all fronts, at the same time. Most interestingly, Mr. Subramanian was also of the view that South Asia was not a big market for India, and it would not take on a major consumer role for many, many years, even if development was fast tracked immediately. This was a contrary viewpoint to almost all the speakers of the conference, where great pains were taken to highlight South Asia’s potential and large young population. However, he did concede that efforts had to be taken urgently to start creating this future market, by working political stability, connectivity, etc all of which would be needed to prop up a future consumer class.
South Asia Intergration
Held in New Delhi, from September 28 onwards, this 3-day conference could have been best described as an attempt to jump-start the often-stalled South Asia integration quest. In fact, it was noteworthy that the event was being held in the backdrop of fuel rationing in Nepal, a result of a restriction on border trade this week because of a perceived spat between that country and India, related to Nepal’s new constitution.
In an attempt to set an early tone for the conference, journalists from the entire South Asia region were invited for a question and answer session with World Bank representatives in a pre-conclave event. The main speaker at the session was Annette Dixon, a Vice President for South Asia, who started off by saying that this region was missing out on “huge” investment opportunities because it had not integrated, with the example of the bloody history of pre-Europe Union cited.
She commented, “Take the power deficits in the region as an example, there is potential for Nepal and Bhutan to export hydropower. Similarly, in the west of the region, we are working to bring surplus electricity from Central Asia, from Tajikistan and Kyrgyzstan, to Afghanistan and Pakistan. And, if you just take that energy deficit, and the extent to which South Asia is underserved when it comes to electricity as one example, which is actually holding back investment in the region. Investment opportunities that are going to South East Asia should be coming to South Asia. If you think about it, South Asia has about 25 per cent of the world’s young people and needs to develop more jobs for these young people and so there is an absolute imperative to actually breakthrough and it’s not that it can’t happen… If you think about the origin of the Europe Union, countries that have had two world wars starting amongst themselves and they have managed to go to look through that history and reconcile and become a peaceful economic powerhouse for the rest of the world. So, that’s an example, but this is also happening in ASEAN and Africa”.
Adding to this, Ms. Dixon said, “If it was much easier for young people to travel to each other’s countries, study in each other’s countries. Much, much more contact, how much more that would create, I think opportunities for cooperation as well. But I think, from the World Bank point of view, the big areas where economic cooperation can and needs to happen is in energy, in transport links, not just road, but rail, road and inland waterways, in trade, opening up the region to more trade, there’s more trade happening going on between South Asia and the rest of the world than there is within the region, it’s a missed opportunity. If you think of the size of the market that South Asian countries actually provides for itself. 1.7 billion people just in the market of these eight countries. Shared management of natural resources, water is a strategically important issue for the region and, with climate change, becomes even more important, and other management of regional public goods, things like communicable disease risks, hydro-met and weather forecasting and all of the stuff that goes with cooperating around shared opportunities and risks. And yet, I think there is very little hasppening (because of) a lot of psychological and real barriers in place”.
This clarion call for South Asian integration continued throughout almost at all sessions at the South Asia Economic Conclave. From the very first session, where Sri Lanka’s own Indrajit Coomaraswamy, a former Director of Economic Affairs of the Commonwealth Secretariat, highlighted the barriers to trade that currently existed, that integration could positively impact.
Indicated Mr. Coomaraswamy, South Asia has 1.7 billion people, or 21 per cent of the world’s population. But even with this extensive, potential customer base, it was the least economically integrated region in the world, with less than five per cent of intra-regional trade and four per cent of FDI flows. There are numerous barriers to trade. For example, it sometimes takes 28 days to move goods by sea, when the destination is just a few hours drive away by land. And even then, when it comes to certain jurisdictions, like one case between Nepal and Bangladesh, it could require as many as 33 documents to be filed, for authorisation for the trading to occur.
Further, he opined that South Asia seemed to be “caught in a time warp”, mainly a result of too much bureaucracy, while also noting that if it were up to ordinary citizens, there would be no need for visas, trade barriers, etc. Also, he reiterated the frequently repeated fact that there was a lot of distrust between governments within the region. In South Asia, all economics is also politics, said Mr. Coomaraswamy, and the region does not realise the clout it could wield if it came together.
Dr. Coomaraswamy also signalled that it was “naive not to recognise problems with cooperation, problems related to asymmetry between India and Sri Lanka, for example”. And suggested a fact-based narrative had to be developed and used to address problems, rather than the language of distrust and demonisation used by politicians in all countries so often. He also was of the view that the only viable option for a small country like Sri Lanka was an export driven model, which would bring additional FDI flows along with it.
In the same session, commenting on post-partition distrust between India, Pakistan and Bangladesh, Ishrat Hussain, Dean of the Institute of Business Administration in Pakistan, indicated his optimism that the younger generation did not carry the negative sentiments of the past since they saw their countries borders as an inconvenience, and not as protection. His sentiment was mirrored by Tariq Karim, former Bangladesh High Commissioner to India, and Advisor, Regional Integration, South Asia Region, World Bank, who commented that, while partition syndrome had taken root in everyone’s minds, this would not work in relation to the waterways, as they could not be carved up, so these had to be managed holistically before water was became the next big issue region-wide.
The same, inaugural session of the conclave also saw notable speakers such as R.V. Shahi, a former Power Secretary of India, who noted that power was a 20 times multiplier of economic growth, so energy is the one big idea that had the potential to transform the South Asia region. Syed Yawar Ali, the co-chair of Pakistan India Joint Business Forum, and Chairman of Nestle Pakistan, who noted that business people could not wait for a grand design to come into effect but would have to, instead, look around and find any opportunity to push through, also joined Mr. Shahi in the same session.
Meanwhile, speaking even more in depth on the example of NAFTA, a former Vice Minister of Mexico involved with the negotiation, Beatriz Leycegui Gardoqui, noted that Free Trade Agreements were not a panacea or cure-all for every economic woe faced by a nation but only a part of trade policy, which was one of several policies that Mexico had to put in place as part of its wider economic plan, which eventually allowed it to become the economic success it was today. She also commented that FTAs had only limited objectives, namely increasing trade and investment flows, to be added to the overall equation.
At the same session in which she was speaking, Harsha Vardhana Singh, a former Deputy Director General of the World Trade Organisation, commented that South Asian nations, similar to Mexico before NAFTA, were more than ready for regional economic reform, while adding further that trade and investment were two sides of the same coin. He also indicated that, importantly, as in the case of NAFTA, there had to be a dispute settlement mechanism, which was also required for South Asia.
He also indicated that FTAs were not only about connecting South Asian countries to each other, they were also a way to better prepare for the global market.
Adding to this, Jayant Menon, Lead Economist (Trade and Regional Cooperation) of the Asian Development Bank, highlighted the ASEAN model, saying that their experience suggested that it was important to make peace before looking at trade. He said, “ASEAN is institution-light, there is no Brussels, no institutions to surrender authority to. Although ASEAN was government-led, it was market driven with huge private sector participation.
There is no fortress ASEAN like there is a fortress Europe, it was never created to become an independent body”.
He also revealed that its gradual pace had pushed economic integration with manageable goals, as bulldozing their way through was not the way to go. If a mechanism could provide the natural impetus for reform, then that mechanism had ultimately worked, even if it takes awhile to do so.
Closing out the session that analysed the example of NAFTA and ASEAN, Sri Lanka’s IPS Executive Director Saman Kelegama talked about the Indo Ceylon FTA in 1998, which was one of first in the region. He also noted that it was additionally interesting as it dealt with asymmetry in trade. Commenting on how it was pitched to the Sri Lankan people, he said that the doctrine of non-reciprocity was favoured strongly by the Indian Prime Minister at the time. And the Ceylon Chamber of Commerce came out publicly in favour of it as well, while many others were very vocal, coming out against it. However, he noted that protestors fell in line after it was signed. The agreement worked because of the special and differential treatment offered by India under it. For example, when it came to automobiles, and especially motorcycles, these were put on a negative list even though India was and continues to be a big exporter, because people were afraid that the smaller, Sri Lankan market could get overwhelmed. And despite being on the negative list, Indian-made cars and motorbikes do very well in Sri Lanka.
Dr. Kelegama also commented that ASEAN handled integration by Less Developed Countries (LDCs) by first focusing on soft infrastructure, essentially building capacity, before moving to projects like roads. In South Asia, LDCs have not been given the opportunity to integrate as well.
Other sessions at the South Asia Economic Conclave also showcased the role of media, culture, people and power generation when it comes to integration, basically giving examples of projects that were ongoing and talking about what else could be done. There was also a session entitled “The Power of 1.6 billion: A Blueprint for Prosperity”, which featured speeches by senior ministers from five out of the eight South Asian region countries. Countries not represented at the podium included Pakistan, Afghanistan and Sri Lanka.
Some of the highlights of the inaugural, 2015 event were as follows: Chimi Zangmo, the Founder and CEO of Dorji Element Hotel in Bhutan, noted that, while big trade house (corporates) would somehow break through trade barriers, the SMEs did not have that option. She asked, rather than middlemen, how do we help the people actually making the goods, who have no collective bargaining, adding that for them it was never really about trade or profit but it was their and their families’ livelihoods stretching back generations.
At the same time, Abdul Qadir Bahman, the Deputy CEO (Technical and Policy Affairs) of the Afghanistan Chamber of Commerce and Industries, recommended a singular region-wide focus on implementing a few projects that encompassed the entire South Asia.
Meanwhile, Padma Jyoti, a former President of the Federation of Nepalese Chambers of Commerce and Industries, and Chairman of Jyoti Group in Nepal, gave his opinion that, if we could all get together and put our minds to it, businesses could become a powerful pressure group. And businesses that worked together across the region could also come together and push South Asia regional initiatives.
The head of the conference’s organising team, Sunil Kant Munjal, also a Past President of the Confederation of Indian Industry, and Chairman of Hero Corporate Services in India, suggested that, in India, there was large-scale transformation because the government had been willing to step back and become solely a facilitator of business. Enterprise had no choice but to take the lead and push economic growth.
Additionally, it also emerged, from Abdul Wassay Haqiqi, a Senior Advisor to the Afghanistan Chamber of Commerce and Industries, that e-commerce was not the only need of the hour, but also eGov, because of its proven role in cutting down corruption.
A session on connecting people proposed a South Asia-wide commerce visa as well as more study abroad opportunities for university students, and even kids. Also, a South Asian youth dialogue and region-wide grants for small businesses. And a South Asian certification for higher education so students can attend universities across the region while knowing what they are getting into in terms of quality, etc.
One of the very last sessions, on power, helped to wind down the conference on a sobering note, with a panellist indicating that the entirety of cross border power transmission projects in the pipeline so far, meaning those currently pending between India and Sri Lanka, Bangladesh and Pakistan, respectively, would only account for less than one per cent of the present needs of South Asia, a region where most countries faced power deficits, while also yet to hit its economic peak.