Cecile Fruman is the Director for Regional Integration and Engagement in South Asia at the World Bank. In this exclusive interview with Adam Pitman for Dhaka Tribune, Fruman explained the World Bank’s work in South Asia, and how regional connectivity and trade benefits Bangladesh.is.
DT: You recently toured India as part of the World Bank’s #OneSouthAsia initiative. How was the initiative received there?
India is a key player in South Asia and the broader Indo-Pacific region.
During my trip here, it was apparent that there is a strong interest and demand for regional connectivity and collaboration with the neighborhood. Bangladesh is India’s largest development and trade partner in the region, and greater cooperation between the two countries is a win-win for both.
We are seeing momentum for greater connectivity and trade in the eastern sub-region covering Bangladesh, Bhutan, India, and Nepal (BBIN).
There is progress on implementing the Motor Vehicles Agreement (MVA), which will improve connectivity and boost economic development in the sub-region. This will particularly ease [the] movement of goods between Bangladesh and Northeast India and connect the Northeast better to mainland India.
There is also scope and interest in multi-modal connectivity, including revival of inland waterways. The World Bank is supporting the Eastern Waterways Grid, a network of 3,500 kms of inland waterways and coastal routes between India and Bangladesh.
In the power sector, the region is moving steadily towards a more integrated sub-regional energy market. Since 2015, the World Bank has supported a three-fold increase in transmission capacity between the BBIN countries, which has doubled energy trade in the sub-region.
Another emerging area of interest is digital cooperation, including cross-border payments, infrastructure development, and cross-border data flows with adequate protections.
DT: How did the response in India compare to the response you received last year in Bangladesh?
The response in Bangladesh during my visit last year was equally encouraging.
Both India and Bangladesh have reiterated their commitment to “connectivity for prosperity” and they stand to gain immensely from cooperation. For instance, our analysis estimates that implementation of the MVA and full transport integration between Bangladesh and India could potentially increase national income in Bangladesh by nearly 17%, and for India by 8%.
To improve connectivity in eEastern South Asia, the World Bank recently approved over $753 million financing for Bangladesh. This will support four-lane roads that are safer and [more] resilient to adverse climates, automated border crossing points to enable trucks to move faster, and digitized trade processes to reduce trading cost and time.
This project demonstrates Bangladesh’s commitment to regional connectivity and trade. For Bangladesh alone, the unexploited potential of regional trade is estimated at 93%.
Greater regional cooperation and connectivity is central to [Bangladesh’s]its growth trajectory and aspirations to become an upper middle-income economy. Bangladesh has a favourable geostrategic location, as a link to the Bay of Bengal for Northeast India, Bhutan, and Nepal, and a bridge to East Asia; [and] it has positive relations with all neighbours, as well as other countries across East Asia -- all these factors make it a central player in South Asia’s regional cooperation agenda.
DT: Anecdotally, there appears to be more students, columnists, and policymakers interested in regional economic integration than businesspeople. At what point do you think that changes?
Despite challenges to regional economic integration, we do see interest among the private sector and businesses as they stand to gain from improved conditions for trade and investments.
There have been many successful examples of cross-border investments and businesses in South Asia. Like Bangladesh’s PRAN Group [investment] invested in food and beverage plants in India, and, and Sri Lanka’s Brandix Lanka Limited set up an apparel park in Andhra Pradesh. Some of these cross-border investments date back to 1951, when Pakistan set up a branch of Habib Bank in Sri Lanka.
There is a history of successful intraregional investments, but [there is] much more potential that needs to be tapped by removing transport and trade challenges.
Our analysis shows that at present it is about 15–20% less expensive for a company in India to trade with a company in Germany than with a counterpart in Bangladesh. These high costs result in low intraregional trade, which at present is 5% of the total trade in South Asia, as compared to 60% of total trade in Europe, and 50% of total trade in East Asia.
Our recent report – Regional Investment Pioneers in South Asia: The Payoff of Knowing Your Neighbors – makes a strong case for greater intraregional economic engagements.
With disruptions in global value chains, and rising costs, there has been a pressure to relocate value chains at home or nearer [to] home. South Asia is also seeing a growth of [the] services sector, a rising middle class, and expansion and diversification of firms, which have made regional trade and investments even more compelling.
This report emphasizes that knowledge connectivity – — that is how well the firms know the investment landscape in the other country –y— and their social ethnic links play a significant role in investment decisions.
Investment firms can benefit immensely from greater information exchange, investment forums, and business networks, which will reduce information barriers, cut down entry costs, and strengthen bilateral trust.
DT: Governments rarely publicize their progress on trade and investment negotiations. When do you think the C-suite needs to start preparing for liberalized trade and investment across South Asia?
In South Asia, tariffs have come down since 1990s, though they are still the highest among developing regions. South Asian economies have a long way to go in terms of liberalization ofliberalizing tariff, non-tariff, and services’ barriers.
Despite the restrictions, the private sector recognizes the gains from regional investments. [For example] tThe entry costs into regional economies tend to be lower than for global engagements. Our analysis shows that regional investments often serve as springboard for firms to enter global markets.
Therey are other motivations for regional investments, for instance: larger markets, lower costs, better connectivity, and value chain management. The private sector needs to make a stronger push for trade liberalization and investments in the region, given the huge benefits.
DT: Many businesspeople worry they don’t have the capital they need to innovate, expand, and compete. What do you say to executives who tell you trade liberalization will kill them?
Cross-border trade and investments have high capital gains — intraregional annual trade in South Asia can potentially increase by $44 billion if there is trade liberalization.
There are also gains from broadening economic cooperation with Southeast Asian countries, which is emphasized in our new report Deepening Linkages between South Asia-Southeast Asia.
Post pandemic, rapid digitalization has been an enabler for further expanding markets at lower costs, and for tapping opportunities in the growing services sector in South Asia.
It has facilitated greater information exchange between border agencies and traders within countries, and reduced person-to- person interactions. With rapid shift to technology, there is an immense potential for greater economic cooperation at low costs, with supporting policies and regulations.