South Asia least integrated region in world: ICCB

South Asia is one of the least integrated regions in the world in terms of trade and people-to-people contact, observed ICC Bangladesh in its quarterly news bulletin (April-June 2023 issue).

At present, regional trade in South Asia accounts for only 5% of estimated $23 billion in trade flow; well below the potential trade of $67 billion. While the ratio of trade in other regions are East Asia: 50%, ASEAN: 26%, EU: 67%, NAFTA: 62%, LAC and COMESA 22%, according to the report released on Thursday (20 July).

Referring to the World Bank estimates, ICC Bangladesh reports Intra-regional trade now stands at just one-fifth of trade potential among South Asian countries. 

It stated an electricity market of the BBIN countries -- Bangladesh, Bhutan, India, and Nepal -- would save an estimated $17 billion in capital costs and improvements in transport and logistics can reduce 50% higher cost for container shipments in South Asia compared to OECD nations.

The Bangladesh-Bhutan-India-Nepal (BBIN) agreement was signed in June 2015.

Pointing out the increasing number of connectivity agreements among BBIN countries as a sign of deepening relationships among BBIN countries, ICC Bangladesh observed the opportunities for growth through regional trade remain largely untapped.

It said despite the existing agreements such as SAPTA, SAFTA, FTAs and BBIN, intra-regional trade in South Asia remains much below the actual potential of trade cooperation. 

In a region with a population exceeding 2 billion and a robust $4.1 trillion economy, India has firmly established itself among the booming economies of the 21st century, with 1.4 billion people and a $3.4 trillion economy. By 2035, India will be the third-largest economy.

Bangladesh is well placed to play a key role in regional trade and logistics networks and act as a transit country in South Asia.

Despite huge potential, bilateral trade between India and Bangladesh was only $11 billion in FY22, out of which export from Bangladesh to India was only $1.27 billion. 

Minimizing various trade barriers, Bangladesh's export to India can grow by 300% if it can just fetch only one percent of total Indian imports. 

Estimates by the WB suggest that Bangladesh's exports to India could increase by 182% from the current levels if the countries implement a free trade agreement. Improving transport connectivity between the two countries could increase exports even further, yielding a 297% increase in Bangladesh's exports to India.

Bangladesh and other countries in the region trade on better terms with distant economies than with their neighbours. For example, the WB's Connecting to Thrive Report found that it is less expensive for a company in Bangladesh to trade with a company in Germany than with a company next door in India.

A well-established transport network is pivotal to trade connectivity. It can promote regional cooperation and integration by enhancing trade and investment. Besides, well-placed transport connectivity can also positively impact social and cultural development by promoting people-to-people cooperation through tourism and cultural exchanges.

For a more prosperous South Asia, SAARC leaders agreed to the vision of a phased and planned process eventually leading to a South Asian Economic Union (SAEU). But, to achieve this vision, it would be necessary for the region to have appropriate infrastructure, establish good connectivity and remove all trade barriers; including mind-set.

India's G20 presidency brings immense opportunities for South Asia to address economic challenges, foster regional cooperation in climate and energy, and lead innovation based on favourable demographics. However, to better capture the economic opportunities that this occurrence propels, it is in the interest of India and countries in South Asia to accelerate cooperation and move toward regional integrity.