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S Asia shapes its economic roadmap

The News - International, Pakistan

S Asia shapes its economic roadmap

28 September 2008

By Arif Zaman

The decision announced by President Asif Zardari and Prime Minister Manmohan Singh at the UN this week to start cross-border trade in October between Pakistan and India could be seen in future years as the key that unlocks South Asia’s growth, as it may begin to accelerate a full normalisation of relations through trade. In the process, an improved bilateral relationship could have tangible spill-over effects on the region.

In this context, it is worth noting the first South Asia Economic Summit was held in Colombo on August 28-30, 2008 as a follow-up to the 15th SAARC Heads of State Summit. Organised by the Institute of Policy Studies, Sri Lanka, and the Federation of Chambers of Commerce and Industry of Sri Lanka in partnership with a range of stakeholders, including the RIS, World Bank, Commonwealth Secretariat, UNDP and ADB, it brought together academics, private sector, civil society and policy-makers from across SAARC.

Despite a pick-up in regional economic growth, poverty remains a challenge in South Asia, particularly in rural and border areas. Regional market integration is the key to achieving a higher growth that would lead to poverty alleviation. Increased market integration and inclusive, sustainable growth are critical to accelerating economic development, creating jobs, reducing poverty and promoting peace and stability in the region.

A concluding resolution emphasised high priority goals. They include improvement in the food crisis, trade in goods & services, connectivity, transport & trade facilitation, regional energy cooperation & trade, regional ICT network, regional remittance flows & management, regional cooperation in disaster management & climate change, and cross-border flow of investments. This article focuses on three areas-enhancing intra-regional trade and ICT, and promotion of cross-border investments.

Enhancing intra-regional trade in goods and services is essential as intra-regional trade in South Asia is unacceptably low. Though the South Asia Free Trade Agreement (SAFTA) has taken the first steps towards improving the situation, several steps are needed to enhance the efficacy of the agreement in boosting intra-regional trade. The main steps that should be implemented are: binding commitments on pruning the negative lists and removal of non-tariff barriers within the timeframe, and enhanced trade facilitation measures, including cooperation in standards harmonisation, customs and transit simplification.

There is also a need to finalise the SAARC Agreement on Trade in Services (SAFAS) without delay. Extending the SAFTA to include services would considerably broaden its scope and impact as well as boost competitiveness in key emerging sectors such as banking, communications and aviation.

Regulatory capacity is also weak in the region, especially in terms of ensuring standards of service supply and adherence to rules. It is important to address this issue through greater cooperation between the regulatory bodies within the region and also learning from regulatory bodies in other countries that have entered into agreements on trade in services.

Information communications technology is one area where South Asia has tremendous potential in developing a regional network of knowledge, research and innovation. There are untapped positive synergies at the regional level in terms of information sharing and competition in ideas between universities, non-university research and teaching entities, libraries, hospitals and other knowledge institutions. A regional high-bandwidth, high-speed internet-based network could help spur such benefits, facilitating greater interaction between knowledge workers in areas such as high-energy physics, nano technology and medical research.

It also could help in the building & sharing of regional databases, and in addressing regional and rural problems, including multi-country initiatives such as flood control, disaster management, climate change and infectious disease control. Importantly, such efforts could help spark higher and more sustainable regional growth.

Greater integration through ICT also needs to be explored. Reliable electricity and basic communication infrastructure are pre-requisites to ICT development.

Whilst South Asia is known as a hub of human resource expertise in the IT sector, many countries and sub-regions lag in this respect. Greater regional cooperation in developing human resources and ICT infrastructure go a long way in unleashing their potential.

Improving regional cooperation would require greater cross-border investments. The current low levels of cross-border investments are attributable to: (i) a combination of regulatory barriers to investment, (ii) contradictory and unhelpful industrial and investment policies, (iii) capital market weaknesses, (iv) poor market information and (v) general concerns on predictability & security.

Establishing a joint consultative mechanism to share experiences, learning from international best practices and encouraging reform is an important starting point in reaching the objective of greater cross-border investment.

Governments should continue economic reforms aimed at sustainable growth, job and wealth creation and adopt policies to promote inclusiveness, and wider access to low-cost products and services for the poor. In order to enable the private sector to play a full role in economic growth, the investment climate in South Asian countries should be strengthened to reduce the cost of doing business, and create a competitive market environment supported by transparent and effective regulation and zero tolerance of corruption.

As countries move to second-generation reforms and focus on a long-term growth agenda, they increasingly reach to their Diasporas as an entry point to articulate and implement such agendas. The South Asian Diaspora can encourage governments in the region to pursue flexible, liberal and trade-friendly policies. They have a growing stake in the development of effective regional trading relationships and have a role to play in an emerging regional identity.

There needs to be effective forums for dialogue and the government should engage in dialogue with the private sector on a wide range of investment climate reform matters such as trade policy, trade agreements between countries of the region, and at WTO level, regulatory frameworks (including tax & competition policy), and strengthening public administration. Legal and regulatory systems need to cater to the areas of essential interest to business and reduce the associated costs to business: company law, contract enforcement, time taken to open and close down a business, and competition policy.

There needs to be a concerted, coherent and coordinated move to support investment promotion and reputation building for trade and investment in South Asia. This becomes more necessary given the growth of the service sector in the region, the emergence of regional corporate brands and the importance of regional and international media in changing perceptions. At the same time a knowledge base on trade and investment in South Asia should be developed by linking industry associations and trade promotion bodies and others, including business schools, and be freely available through the internet.

Useful levers to use include the development of a web resource for regional investment promotion in South Asia, with the private sector, civil society and government playing key roles; building international awareness and promotion of developments in South Asia via media, think-tanks/academia and the private sector; and engaging and using professional Diaspora networks in the US, Europe, Asia and parts of Africa.

The writer is an adviser of Commonwealth Business Council and SAARC Chamber