Apr 13, 2010

Benefits of trade links

South Asian countries, mainly Pakistan and India, should reap the benefits of cooperation in the economic field
By Alauddin Masood

Since ancient times, there had existed strong cultural, historical and commercial bonds between the South Asia and Central Asia. However, those historic linkages got disrupted in the 19th century when the Czarist Russia occupied Central Asia and the Britain colonized the South Asia. In the Middle Ages, camel caravans carried merchandise, traveling on the Silk Route, which connected China, Pakistan, Afghanistan, Central Asian Republics and Europe. Following Soviet Union’s implosion in 1991 and emergence of CARs, Central Asia witnessed an upsurge in international prominence in marked contrast to its neglect under the Soviet rule as a faraway, godforsaken place of no serious interest to anyone.

Mainly because of turbulence in Afghanistan, despite vast potential, there is negligible trade, at present, between the countries located in Central Asia and South Asia. Some other major reasons for the low trade are: trust deficit, unresolved political disputes, trade policies, intra-region competition and poor state of infrastructure in some states.

The IPI (Iran-Pakistan-India) gas pipeline project is a classical example which illustrates how trust deficit overshadows development. Initially, it was India that was interested in IPI pipeline. At that time, Pakistan opposed it because of its long-standing unresolved problems with India. Later, Pakistan realised IPI’s importance and its potential to add to the prosperity of the South Asian nations. Iranians were excited to know that Pakistan, for the first time, de-linked IPI project from its other issues with India and considered it purely from the economic point of view.

However, it was difficult to convince the Indian government because New Delhi said it was Iran’s responsibility to bring Iranian gas to Indian borders and that they would only negotiate with Iran. Later, Indian government accepted the project, but the questions pertaining to gas price, pipeline security and royalty to Pakistan, being the transit country, remained Delhi’s causes for concern.

Central Asia is a resource-rich region, in hydro-carbon and hydro-power energy in particular for which the growing economies of South Asia (SAARC) have a great appetite, while the latter possess a great potential to provide a range of products to meet the needs of CARs. The CARs also require an access to sea for their growing trade, commerce and industry and the nearest ports to them are the Pakistani ports of Karachi and Gawadar, which are barely a thousand mile away.

This time-saving, convenient, and economical access to the world can make the goods of South Asian states more competitive in the global markets. However, so far the regional countries have not been able to fully exploit their potential for trade because of strife in states that can serve as bridge for this trade. Some quarters have a feeling that the strife in Afghanistan and the unrest in some pockets of Northern Pakistan and Balochistan province is the handiwork of forces that conceive the rising China and CARs as threats to their economies.

Pakistan’s Foreign Minister, Shah Mahmood Qureshi aptly highlighted the potential for mutually beneficial cooperation between these the Central and South Asian regions when, while inaugurating a seminar, in Islamabad, on October 20, 2008. He said, the potential for cooperation between CARs and South Asia is very high and “so are the prospects for a better future.” Linkages between South Asia and Central Asia could go a long way in promoting political, economic and cultural collaboration between both the regions, he added.

Presently, rising energy demand and increasingly insufficient energy supplies are adversely impacting the economic growth of SAARC states. Unless corrective steps are initiated and implemented, it may be difficult to sustain the achieved and aspired growth rates of SAARC states.

In addition to unresolved disputes, energy shortage has emerged as another major impediment to the growth/development of SAARC countries. The need for energy security of SAARC states is accentuated due to extreme poverty that persists throughout South Asia. Out of its combined population of 1.5 billion, only 59 percent is connected to electricity; while its rural population still relies on biomass to meet their energy needs.

Fostering of cross-border energy investments and promotion of regional energy trade in order to take full advantage of the energy resources available within the region and its neighbourhood are important elements of the solution to this problem. A good example of such cooperation at the global level being that of the South African Power Pool created in 1995, encompassing South Africa, Lesotho, Mozambique, Namibia, Malawi, Zambia and Zimbabwe with a view to provide reliable/economical power supply. This pool works very satisfactorily with immense gain to all participating countries.

Likewise, the power system networks of Bangladesh, Bhutan, India, Nepal and Pakistan could be inter-connected to achieve greater efficiency/economy in the overall system. Studies to extend the CARs’ electricity grid to South Asia, via Afghanistan-Pakistan, also needs to be made.

At present, South Asia’s cross-border energy trade is limited to Bhutan, India and Nepal at a miniscule scale compared with the need/potential for energy cooperation. Now, for some time past, there have been talks for energy trade in the region through Iran-Pakistan-India (IPI), Turkmenistan-Afghanistan-Pakistan-India (TAPI) and Myanmar- Bangladesh-India (MBI) gas pipeline projects. These proposed energy trade projects, if implemented, may contribute to integrating the regional economies.

Currently, coal and petroleum are predominant sources of energy in South Asia. However, there are variations among the countries. For example, Bangladesh is dominated by natural gas (86 percent in 2005), India by coal (55 percent in 2006). Pakistan is diversified with petroleum (33 percent), natural gas (30 percent) and hydroelectric power (33 percent), whereas Bhutan and Nepal rely heavily on hydroelectric power (99 percent and 92 percent respectively in 2004).

This variation in the energy mix in the individual South Asian states provides a unique opportunity to enhance energy security in the region through mutual cooperation. At 204 billion tons, India has a good amount of known reserves of coal, but it is short of indigenous gas, and the country meets its needs by importing expensive liquefied natural gas.

Pakistan has a gas reserve of 27 Tcf and coal reserve of 185 billion tonnes. However, Pakistan is facing power shortage, ranging around 5000MW. Power shortage is hampering Pakistan’s economic growth by affecting the business, industry and the investments. Bangladesh has a gas reserve of 10.6 Tcf and an ‘undiscovered reserve’ of 32.1 Tcf and a coal reserve of 2.7 billion tonnes. Both Nepal and Bhutan have large untapped hydropower potential of 43,000 MW and 30,000 MW respectively.

IPI, TAPI and MBIN gas pipeline projects, if implemented, will deliver gas in due course of time. Meanwhile, Bangladesh can import electricity from Nepal through India if the transmission lines are constructed. Nepal can also sell its abundant electricity to other South Asian countries and, in turn, buy coal, natural gas and oil from states rich in these resources.

In short, revival of trade links between South Asia and Central Asia and the setting-up of regional electricity grids and gas pipelines can tremendously boost economic cooperation between these two regions and also meet the growing energy needs of almost 30 percent of the global population living there. But, much would depend upon the role and behaviour of South Asia hegemon. Taking a leaf from its Latin American counterpart, however, India needs to be magnanimous like Brazil, ensuring the Indus Water Treaty’s implementation both in letter and spirit.

Brazil and Paraguay, according to John Briscoe (The News: April 3), “have a binding agreement on their rights and responsibilities on the massive Itaipu Binacional Hydropower Project. The proceeds, which are of enormous importance to small Paraguay, played a politicised, polemical anti-Brazilian part in the recent presidential election in Paraguay. Similarly, Brazil’s and Bolivia’s binding agreement on gas also became part of an anti-Brazil presidential campaign theme.

“The public and press in Brazil bayed for blood and insisted that Bolivia and Paraguay be made to pay. So what did President Luis Inacio Lula da Silva do? “Look,” he said to his irate countrymen, “these are poor countries, and these are huge issues for them. They are our brothers. Yes, we are in our legal rights to be harsh with them, but we are going to show understanding and generosity, and so I am unilaterally doubling (in the case of Paraguay) and tripling (in the case of Bolivia) the payments we make to them. Brazil is a big country and a relatively rich one, so that will do a lot for them and don’t harm us much. India could, and should, in my view, similarly make the effort to see it from its neighbour’s point of view, and should show the generosity of spirit which is integral part of being a truly great power and good neighbour.”

Furthermore, “discussions on the Indus waters should be de-lined from both historic grievances and from the other Kashmir-related issues. Again, it is a sign of statesmanship, not weakness, to acknowledge the past and then move beyond it,” adds John Briscoe.

Home of some of the ancient civilisations, the South Asia region has not been able to develop, during the current era, commensurate to its resources. The inter-state conflict continues to mar this region’s capacity to grow and reap the bonanza of international trade and the global tourism.

If the traditional and cost effective silk route could be revived it would connect the landlocked Central Asian countries and Caucasus with the world economy, accelerating the process of regional economic, social and political development to the greater benefit of all states in the South Asia and Central Asia regions.

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