Bangladesh in the Region: Connectivity and Beyond Mohammad Yunus Senior Research Fellow, BIDS Presented at the ‘BIDS Critical Conversations, 2016’ Dhaka, April, 2016

Introduction Bangladesh is placed to be the regional hub of connecting 40% of the world population residing in South Asia, South-East Asia and East Asia. Bangladesh is placed to be the regional hub of connecting 40% of the world population residing in South Asia, South-East Asia and East Asia. Bangladesh Bhutan, China, India, Myanmar and Nepal remain involved in several multi-sectoral forums and processes: SAARC, BIMSTEC, BCIM, BBIN-MVA. Bangladesh Bhutan, China, India, Myanmar and Nepal remain involved in several multi-sectoral forums and processes: SAARC, BIMSTEC, BCIM, BBIN-MVA. Of a different kind, Bangladesh and India are also engaged in SASEC. Of a different kind, Bangladesh and India are also engaged in SASEC.

Regionalism in Asia: Guiding Principles Regionalism in Asia: Guiding Principles Seamless Asia and Open regionalism Seamless Asia and Open regionalism Seamless Asia Seamless Asia ◦ Asia's trade competitiveness—particularly in its increasingly sophisticated production networks—depends to a large extent on efficient, fast, reliable, and seamless infrastructure connections Open regionalism Open regionalism ◦ low external barriers to trade ◦ nonrestrictive rules of origin ◦ liberalized service markets, and ◦ a strong focus on reducing transaction costs at the borders Connectivity and beyond should follow this philosophy Connectivity and beyond should follow this philosophy

Existing Constraints to greater economic integration Physical transport infrastructure Physical transport infrastructure Energy infrastructure and trading Energy infrastructure and trading Trade facilitation Trade facilitation Financing infrastructure Financing infrastructure Trade investment policy reforms Trade investment policy reforms Institutions Institutions

Areas and Priorities Connectivity Connectivity Energy Energy Investment and financing Investment and financing Trade in goods and services, and trade facilitation Trade in goods and services, and trade facilitation Social and human development and poverty alleviation Social and human development and poverty alleviation Sustainable development Sustainable development People-to people contact People-to people contact

Characterizing Economic Corridors Economic corridors Economic corridors ◦ connect economic agents along a defined geography ◦ provide connection between economic nodes or hubs, usually centered on urban landscapes, in which large amount of economic resources and actors are concentrated ◦ link the supply and demand sides of markets ◦ are not mere transport connections along which people and goods move ◦ are integral to the economic fabric and the economic actors surrounding it ◦ do not generate significant economic benefits in isolation, but rather they have to be analyzed as part of integrated economic networks, such as GVCs etc.

Multi-modal Connectivity Road: Fast and relatively reliable mode, ability to provide door-to-door service, a mixed bag. Road: Fast and relatively reliable mode, ability to provide door-to-door service, a mixed bag. Rail: Cost-effective but underutilized in most South and southeast Asian countries. Myanmar's serious drawback, India also has vast network, China shows the way Rail: Cost-effective but underutilized in most South and southeast Asian countries. Myanmar's serious drawback, India also has vast network, China shows the way Maritime: Most dominant transport mode for international trade, better economies of scale, for large volume of goods and long distance trade. Need to upgrade existing port facilities, including developing deep-sea port Maritime: Most dominant transport mode for international trade, better economies of scale, for large volume of goods and long distance trade. Need to upgrade existing port facilities, including developing deep-sea port Inland water: Cheap, but slower. An important mode in Bangladesh and Myanmar. Inland water: Cheap, but slower. An important mode in Bangladesh and Myanmar. Air transport: Fast and reliable service, critical for tourism sector, the rise of low-cost budget carriers. Most regional cities are connected by air and within 1 to 5 hours flight range Air transport: Fast and reliable service, critical for tourism sector, the rise of low-cost budget carriers. Most regional cities are connected by air and within 1 to 5 hours flight range

Constraints to Seamless Connectivity Critical gap in Myanmar which is the only land bridge between China/SEA and South Asia Critical gap in Myanmar which is the only land bridge between China/SEA and South Asia Additional gap in Bangladesh and India Additional gap in Bangladesh and India The four major ports - Kolkata, Chittagong, Mongla and Yangon - connecting China and other regional countries suffers from numerous limits to capacity, including shallow channels, operational inefficiencies and severe restrictions on road and rail access The four major ports - Kolkata, Chittagong, Mongla and Yangon - connecting China and other regional countries suffers from numerous limits to capacity, including shallow channels, operational inefficiencies and severe restrictions on road and rail access

Costs to Bangladesh Major Costs include Major Costs include ◦ damage to infrastructures, ◦ congestions, ◦ accident externalities, ◦ environmental pollution costs. ◦ Trade facilitation costs Some of the costs include: Some of the costs include: ◦ Border Processes ◦ Subsidy in Fuel

Benefits: Tolls and Charges GATT Article V GATT Article V Transports charges earned by road and water transport operators, and BR. Transports charges earned by road and water transport operators, and BR. Port charges. Port charges. Charges for transit facilitation measures at the land ports/land customs stations. Charges for transit facilitation measures at the land ports/land customs stations. Toll charges for major bridges, and ferry crossings. Toll charges for major bridges, and ferry crossings. Transit charges. Transit charges. Indirect benefits: Trade Efficiencies, Network Externalities, Leveraging Private Investment Indirect benefits: Trade Efficiencies, Network Externalities, Leveraging Private Investment

Energy infrastructure and energy trade Member countries have diversified energy stocks: Member countries have diversified energy stocks: ◦ Myanmar- oil and gas ◦ Northeast India: hydro power ◦ Bangladesh: Gas Current cross-border energy trade Current cross-border energy trade ◦ Myanmar-Yunnan ◦ Bangladesh-India Energy infrastructure development in the Bay of Bengal/Indian ocean and geo-political tensions Energy infrastructure development in the Bay of Bengal/Indian ocean and geo-political tensions

Trade Facilitation: Major Issues Covers a wide range of issues, activities and stakeholders along the entire supply line and production network; Covers a wide range of issues, activities and stakeholders along the entire supply line and production network; Considers factors affecting the time and monetary cost of moving goods across international borders, including customs procedures, transit procedures, application of ICT to facilitate transport related transactions; Considers factors affecting the time and monetary cost of moving goods across international borders, including customs procedures, transit procedures, application of ICT to facilitate transport related transactions; Needs customs modernization; Needs customs modernization; Streamlined and transparent regulations; Streamlined and transparent regulations; Improved services and information for traders and investors; Improved services and information for traders and investors; Modern border infrastructure, including border crossing points, and traffic planning Modern border infrastructure, including border crossing points, and traffic planning

Barriers to Deepening Investment Cooperation High Trade Costs High Trade Costs Poor Transport Infrastructure in Corridors Poor Transport Infrastructure in Corridors Poor Logistic Facility to Facilitate Trade Poor Logistic Facility to Facilitate Trade Tariff Barriers Tariff Barriers Non-tariff Barriers Non-tariff Barriers Lack of Competitiveness of SMEs to be associated with Regional Value Chain Lack of Competitiveness of SMEs to be associated with Regional Value Chain Prospects of Establishing Special Economic Zones along the Corridors Prospects of Establishing Special Economic Zones along the Corridors

Financing for investment I. Public investments: Non-commercial infrastructure financed by loans or grants; I. Public investments: Non-commercial infrastructure financed by loans or grants; II. Off-budget: Use existing public sector corporations in respective countries as platforms for investment in national infrastructure projects specific for connectivity; II. Off-budget: Use existing public sector corporations in respective countries as platforms for investment in national infrastructure projects specific for connectivity; III. Public–private partnerships: identify, develop, and procure PPP projects wherever commercially feasible and bankable; III. Public–private partnerships: identify, develop, and procure PPP projects wherever commercially feasible and bankable; IV. Financial intermediary lending: Enable long-term infrastructure financing by extending the tenure of loans through lines of credit to national financial institutions (and banks) and IV. Financial intermediary lending: Enable long-term infrastructure financing by extending the tenure of loans through lines of credit to national financial institutions (and banks) and V. Bond markets: Focus on developing local and regional bond markets and enhancing the integration of Asian capital markets, to mobilize resources for infrastructure projects, including the use of credit enhancement structures and guarantees V. Bond markets: Focus on developing local and regional bond markets and enhancing the integration of Asian capital markets, to mobilize resources for infrastructure projects, including the use of credit enhancement structures and guarantees.

People-to-People Connectivity Barriers to people-to-people connectivity Barriers to people-to-people connectivity ◦ Mindset Facilitation of travel, Lack of infrastructure, Security, Media propaganda, Limited Connectivity, and Political Stability Prospects of deepening people-to-people connectivity Prospects of deepening people-to-people connectivity ◦ Tourism of different kinds, Cultural and Art Exchanges, Sport Exchanges, Academic Exchanges, Resource sharing, Media Exchange Physical connectivity is extended to a type of horizontal connectivity that includes tourism, exchanges and institutional capacity building Physical connectivity is extended to a type of horizontal connectivity that includes tourism, exchanges and institutional capacity building

Imperatives and Emerging Complementarities ◦ Historical linkages and contemporary convergences ◦ Global Economy’s shifting center of gravity ◦ Bangladesh and India’s ‘Look East’, China’s ‘Look South’ policy, Myanmar’s opening up ◦ Lessons from recent financial crisis: rely more on domestic and regional demand to secure sustainable growth ◦ Increased connectivity could increase efficiency and productivity via more efficient industries based on comparative advantage, enlarging the effective market size and increasing access to it ◦ Joining regional and global production network ◦ South-South cooperation ◦ Structural changes and emerging complementarities ◦ Growing trade linkages

Principles, Modalities and Way Forward ◦ Take a ‘balanced approach’ – not just mere connectivity to enhance peace stability, stability, prosperity and amity ◦ Define clear rules of engagement ◦ Greater stakeholder involvement across the partner countries and regions and beyond. ◦ Cost sharing for lagging partner countries ◦ Implement quick impact projects ◦ Undertake ‘early harvesting’ or piloting of some parts of agreed framework (low hanging fruits) ◦ Is Bangladesh Ready?

Thank You for your patience. Thank You for your patience.