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Connecting to Thrive: Transport Can Create Economic Gains for Bangladesh and India

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Seamless transport connectivity between India and Bangladesh has the potential to increase national income by as much as 17 percent in Bangladesh and 8 percent in India, says a new World Bank report.

Titled Connecting to Thrive: Challenges and Opportunities of Transport Integration in Eastern South Asia, the report analyzes the Bangladesh-Bhutan-India-Nepal (BBIN) Motor Vehicles Agreement (MVA); com­pares it with international best practices; and identifies its strengths as well as gaps for seamless regional connectivity. The report also discusses regional policy actions the countries can take to strengthen the MVA and proposes priorities for infrastructure investments that will help the countries maximize its benefits.

Today, bilateral trade accounts for only about 10 percent of Bangladesh’s trade and a mere 1 percent of India’s trade. Whereas, in East Asian and Sub-Saharan African economies, intraregional trade accounts for 50 percent and 22 percent of total trade, respectively. In fact, it is about 15–20 percent less expensive for a company in India to trade with a company in Brazil or Germany than with a company in Bangladesh, the report points out. High tariffs, para-tariffs, and nontariff barriers also serve as major trade barriers. Simple average tariffs in Bangladesh and India are more than twice the world average.

Previous analysis indicates that Bangladesh’s exports to India could increase by 182 percent and India’s exports to Bangladesh by 126 percent if the countries signed a free trade agreement. This analysis found that improving transport connectivity between the two countries could increase exports even further, yielding a 297 percent increase in Bangladesh’s exports to India and a 172 percent increase in India’s exports to Bangladesh.

“Geographically, Bangladesh’s location makes it a strategic gateway to India, Nepal, Bhutan, and other East Asian countries. Bangladesh can also become an economic powerhouse by improving regional trade, transit and logistics networks,” said Mercy Tembon, World Bank Country Director for Bangladesh and Bhutan. “While trade between India and Bangladesh has increased substantially over the last decade, it is estimated to be $10 billion below its current potential. The World Bank is supporting the Government of Bangladesh to strengthen regional and trade transit through various investments in regional road and waterways corridors, priority land ports, and digital and automated systems for trade.”

Weak transport integration makes the border between Bangladesh and India thick. Crossing the India–Bangladesh border at Petrapole–Benapole, the most important border post between the two countries, takes several days. In contrast, the time to cross borders handling similar volumes of traffic in other regions of the world, including East Africa, is less than six hours, the report highlights.

“The eastern sub-region is poised to become an economic growth pole for South Asia. An important component of this development potential is for countries to invest in connectivity – rail, inland waterways, and roads,” said Junaid Ahmad, World Bank Country Director in India. “This is especially true as the region begins its economic recovery from the COVID-19 pandemic. Ultimately, connectivity offers the promise of long term sustainable and inclusive growth.”

At present, Indian trucks are not allowed to transit through Bangladesh. As a result, the northeast of India is particularly isolated with the rest of the country and connected only through the 27-km-wide Siliguri corridor, also called the “chicken’s neck”. This leads to long and costly routes. Goods from Agartala, for example, travel 1,600 kilometers through the Siliguri corridor to reach Kolkata Port instead of 450 kilometers through Bangladesh. If the border were open to Indian trucks, goods from Agartala would have to travel just 200 kilometers to the Chattogram Port in Bangladesh, and the transport costs to the port would be 80 percent lower, the report estimates.

According to the report, all districts in Bangladesh would benefit from integration, with the eastern districts enjoying larger gains in real income. States bordering Bangladesh such as Assam, Meghalaya, Mizoram, and Tripura in the northeast, and West Bengal on the west, and states further away from Bangladesh such as Uttar Pradesh and Maharashtra would also gain huge economic benefits from seamless connectivity.  

However, unleashing the full potential of integration in the region requires strengthening the agreement signed in 2015. Countries need to address a number of challenges such as infrastructure deficits, particularly in designated border posts, harmonization of regulations and customs procedures, the report says.

“The transport integration agreements in eastern South Asia represent a significant step toward the creation of a cross-border integrated transport market in the subregion, with the Motor Vehicles Agreement (MVA) being the cornerstone of that integration. The agreement can achieve full potential by adopting good practices; addressing gaps and inconsistencies in infrastructure and market failures in transport services; and adopting complementary policies that remove binding constraints caused by market imperfections,” said Matias Herrera Dappe, Senior Economist and Charles Kunaka, Lead Private Sector Specialist and authors of the report.

The report recommends key policy actions countries should take to strengthen the MVA. These include:

  • Harmonizing driver’s licensing and visa regimes
  • Establishing an efficient regional transit regime
  • Rationalizing and digitizing trade and transport documents
  • Liberalizing the selection of trade routes

The report also makes the following policy recommendations to improve regional connectivity:

  • Standardize infrastructure design
  • Expand the effective capacity of core transport and logistics infrastructure along regional corridors
  • Ensure competition in transport service markets
  • Deploy modern information technology infrastructure at land ports and seaports
  • Develop off-border custom clearance facilities in Bangladesh and India

The following complementary interventions would help spreading the benefits of regional transport integration to local communities, the report adds:

  • Connecting local markets to regional corridors
  • Removing logistics bottlenecks in export-oriented value chains
  • Improving women’s participation in export-oriented agricultural value chains at the macro, community, and household levels

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Development

Climate Finance: Climate Actions at Center of Development and Recovery

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The Asian Development Bank (ADB) called access to climate finance a key priority for Asia and the Pacific as governments design and implement a green and resilient recovery from the coronavirus disease (COVID-19) pandemic.

Speaking at the United Kingdom Climate and Development Ministerial—one of the premier events leading up to the United Nations Climate Change Conference (COP 26) in November—ADB President Masatsugu Asakawa said expanding access to finance is critical if developing economies in Asia and the Pacific are to meet their Paris Agreement goals to reduce greenhouse gas emissions and help adapt to the adverse impacts of climate change.

“We can no longer take a business-as-usual approach to climate change. We need to put ambitious climate actions at the center of development,” Mr. Asakawa said. “ADB is committed to supporting its developing member countries through finance, knowledge, and collaboration with other development partners, as they scale up climate actions and push for an ambitious outcome at COP 26 and beyond.”

ADB is using a three-pronged strategy to expand access to finance for its developing members as they step up their response to the impacts of climate change.

First, ADB has an ambitious corporate target to ensure 75% of the total number of its committed operations support climate change mitigation and adaptation by the end of the decade, with climate finance from ADB’s own resources to reach $80 billion cumulatively between 2019 and 2030. ADB has also adopted explicit climate targets under its Asian Development Fund (ADF), which provides grant financing to its poorest members. ADF 13, which covers the period of 2021–2024, will support climate mitigation and adaption in 35% of its operations by volume and 65% of its total number of projects by 2024.

Second, ADB is enhancing support for adaptation and resilience that goes beyond climate proofing physical infrastructure to promote strong integration of ecological, social, institutional, and financial aspects of resilience into ADB’s investments.

Third, ADB is increasing its focus on supporting the poorest and most vulnerable communities in its developing member countries by working with the United Kingdom, the Nordic Development Fund, and the Green Climate Fund on a community resilience program to scale up the quantity and quality of climate adaptation finance in support of local climate adaptation actions.

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Improving Transport Connectivity in Central Asia Requires a Coherent Approach

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The combination of infrastructure and logistics improvements, reduction in border delays and tariffs, and harmonized standards across countries could have a significant positive impact on Central Asian economies, said experts during an online regional briefing “Connectivity in Central Asia: Challenges and Opportunities” hosted by the World Bank.

Studies show that improved transport corridors generate economic development around them. Better road accessibility also allows more people to have access to jobs, education, healthcare, and opportunities, leading to poverty reduction.

“Connectivity is a complex issue and has wide-ranging impacts, affecting businesses, consumers, trade, logistics, economic growth and a country’s overall development,” said Jean-François Marteau, World Bank Country Manager for Kazakhstan. “In Kazakhstan, our analysis shows a clear link between investments in infrastructure and the level of the gross regional product of the oblasts.”

Countries in Central Asia are some of the least connected economies in the world, with the region’s connectivity indicator averaging below 60 percent in terms of the ratio of access to the global GDP – the lowest on the spectrum. The cost to import and export from or to Central Asia remains high, undermining the competitiveness of Central Asian products abroad and resulting in expensive imported goods. For example, the cost of shipping a container from any of the Central Asian countries to Shanghai is five times more expensive than from Poland or Turkey.

“Countries in Central Asia are yet to realize the enormous potential of internal and external trade, and the key here is improving transport connectivity in a holistic way,” said Antonio Nunez, Program Leader for Infrastructure at the World Bank Central Asia. “We see significant returns on investments when they are combined with other improvements in reducing delays and trade tariffs. These measures together could boost the regional GDP by about 15 percent.”

Connectivity within countries in Central Asia is also limited with most areas in the countries suffering from insufficient infrastructure and expensive services, limiting access to services, activities, and jobs, and hindering the tourism potential.

In the past two decades, Central Asian countries invested heavily in improving infrastructure; however, the region still lags behind middle-income countries in terms of both investing and maintaining the infrastructure. Central Asia ranks low on key trade indicators, such as the number of days to clear imports and exports and the Logistics Performance Index.

Despite some recent progress, the latter has either remained at the same level or declined compared with 2010 for all Central Asian countries. According to CAREC data, investing in corridors has paid off in saved travel time due to higher speeds. However, these time savings are often lost at the borders due to inefficient procedures and capacity constraints.

Key challenges in improving connectivity in Central Asia include tackling the low productivity of the state-owned enterprises that dominate the transport sectors in the region, harmonizing the different standards, improving infrastructure quality at local, national, and regional levels, as well as improving governance and efficiency.

“Over the years, the region has launched or become part of numerous connectivity initiatives that vary across types of infrastructure and geographical scope. What is needed now is for the countries to prioritize the connectivity initiatives that work best for their economies,” said Lilia Burunciuc, World Bank Regional Director for Central Asia. “We at the World Bank will continue supporting Central Asia in understanding and improving connectivity through our advice as well as investments, which in the last 10 years have reached over $5 billion in this sector.”

Speakers underlined the importance of greener, more sustainable and smarter transport solutions that are integrated with urban planning to reduce greenhouse gas emissions, improve air quality management systems and reduce air pollution. Globally, transport accounts for a quarter of energy-related GHG emissions. In the Central Asian capitals and larger cities, transport generates particulate emissions that exceed the WHO maximum levels, leading to various diseases and premature deaths.

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Political and Security Uncertainty Slow Down Afghanistan’s Economic Recovery

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 Afghanistan faces a sluggish economic recovery from COVID-19 amid continued political uncertainties and possible decline in international aid, says the World Bank in its latest country update. 

Released today, Setting Course to Recovery shows that robust agricultural growth has partially buoyed Afghanistan’s economy, which shrunk by around two percent in 2020—a smaller contraction than previous estimates. However, lockdowns, weak investment, and trade disruptions have hit hard services and industries, increasing hardship and unemployment in cities.

Growth is expected to reach one percent in 2021 and top around three percent in 2022 as the COVID-19 crisis fades. Per capita incomes are unlikely to recover to pre-COVID levels until 2025 due to fast population growth.

“The current political and security uncertainties have created serious hurdles to Afghanistan’s economic recovery from the COVID-19 crisis. A slower pace of recovery means higher unemployment, lower government revenues, and – ultimately – more difficult living conditions for Afghans,” said Henry Kerali, World Bank Country Director for Afghanistan.

A full recovery will be challenging as many firms have closed and jobs were lost. Private sector confidence has weakened amid difficult security conditions, uncertainty about the outcome of the ongoing peace talks, the possible withdrawal of international troops, and potential sharp declines in future international aid support. Droughts are expected in 2021 and will likely reduce agricultural activity, further weakening growth prospects.

The report emphasizes that a strong and sustainable partnership between the Afghan government and its international partners is key to driving recovery and restoring private sector confidence. In that effort, the government needs to accelerate reforms to improve governance, fight corruption, mobilize revenue, and boost business. Simultaneously, donors can support private sector confidence through clearer multi-year aid commitments and by defining measurable priority reforms that condition continued grant support. 

The Afghanistan Development Update is a companion piece to the South Asia Economic Focus, a twice-a-year World Bank report that examines economic developments and prospects in the South Asia region and analyzes policy challenges faced by countries. The Spring 2021 edition titled “South Asia Vaccinates,” launched on March 31, 2021, shows that economic activity in South Asia is bouncing back, but growth is uneven, recovery remains fragile, and the economic outlook is precarious. The report also focuses on the different dimensions of vaccine deployment and provides a cost-benefit analysis of vaccination in the region.

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