WHEN South Asia’s commerce ministers met in Bhutan in 2014 they learnt first-hand just how poor the transport links within the region were. There were no direct flights between the capital Thimphu and four of the seven capitals from where the ministers had come from. In 2015, when a major regional meeting was held in Nepal to help the country after its devastating earthquake, Pakistani attendees had to take a 20-hour flight from Karachi via Dubai to get to Kathmandu. A direct flight would have taken less than three hours.

Poor transport links are just one of the many examples in South Asia that illustrate a bigger problem: it is one of the least economically integrated regions in the world. This lack of integration reflects historical political tensions and mistrust with cross-border conflicts and security concerns. Why does this matter? It matters because it keeps South Asia from fulfilling its potential.

Home to Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka, South Asia is one of the most dynamic regions in the world, with a population of 1.67 billion people and economic growth of 7.1 per cent over the last decade. But South Asia also faces formidable development challenges: creating a better future for the more than 400 million people that still live in poverty; providing gainful employment to the more than 12 million people that start looking for their first job each year, and addressing the growing risks from natural disasters and climate change.

Greater cooperation and regional economic integration can arguably bring about gains in these areas and enhance the prospects for poverty reduction and shared growth in a region that is home to more than 40 per cent of the world’s poor. It can, among other things, help alleviate energy shortages, unlock new growth and job opportunities, enhance climate resilience, and reduce the price of critical products in the region’s landlocked areas.

There are formidable challenges in the way. But the odds of overcoming them are not hopeless – far from it. South Asia has already made great strides on the road to closer economic links among its countries and is about to take even bigger strides in the coming years.

The following are a few areas where the biggest gains can be made in the next five years. The biggest potential is in energy. South Asia could double its electricity transmission connectivity and trade. At the moment, nearly 400 million people in South Asia lack reliable access to electricity. Businesses cite energy shortages as one of the most binding constraints to their operations, expansion and job creation. These energy shortages could be plugged if countries shared their energy with their neighbours. One country can have an energy surplus at one time of the year just when another has a shortage. But energy sharing within the region is limited, despite significant potential and unmet demand.

The region is also not exploiting enough of its energy potential. Less than 20 per cent of the region’s hydro-power potential is realized (less than one per cent for Afghanistan and Nepal), and the region is highly dependent on coal and imported oil to meet energy needs.

 

The World Bank Group is supporting putting in place the building blocks for an integrated South Asia electricity market linked to Central Asia, and potentially Myanmar, with the goal of reducing energy costs and power cuts, and help shift the region to a mix of cleaner power sources. The World Bank has already started work with our partners. The Central Asia-South Asia Electricity Transmission and Trade Project (CASA-1000) is underway to enable electricity trade of 1,300 megawatts (mw) of existing summer time hydropower surplus between Kyrgyz Republic and Tajikistan in Central Asia and Afghanistan and Pakistan in South Asia. CASA-1000 will alleviate energy shortages, provide revenue to the two Central Asia nations, and help establish Afghanistan as a viable transit country. The bank is also supporting construction of a high voltage electricity line between India and Nepal capable of transmitting up to 1000 mw of power. There is also potential in an India-Bangladesh Electricity Transmission corridor and the bank will continue working with Pakistan on options to connect with India and the emerging South Asian grid. The bank will also seek to support developing Nepal’s hydropower.

 

A second area of great potential is trade. Over the next five years this could bring improved transport connectivity, streamlined border crossings and expanded regional trade along priority economic corridors. At the moment, the situation still looks bleak. It takes 35 days to send a container from Delhi to Dhaka through Colombo. It should only take five days directly by road. South Asia’s intra-regional trade is the lowest in the world, making up less than 5 per cent of total trade within the region, compared to 25 per cent in ASEAN. Due to limited transport connectivity, onerous logistics and regulatory impediments, it costs more to trade within South Asia than between South Asia and the world’s other regions.

The returns on changing this for the better could be huge. If barriers to trading with neighbours were removed, intra-regional trade in South Asia could increase from the current $28 billion to over $100 billion.

Who would benefit from more open trade? Plugging the connectivity gaps will help increase trade within the region, provide cheaper access to goods and services, create more jobs including along trading corridors, and ultimately help reduce poverty at a faster pace. Consumers will likely enjoy greater choice, better quality and lower prices with goods from neighbouring countries. This could lower the cost of living for many: think of cheaper consumer goods from Bangladesh flowing to poor families in India’s less accessible North East, reducing their monthly expenditures. In fact, a recent study shows that intra-regional tariff reduction would lead to an approximate gain of $2 billion a year for South Asian consumers.

It is not only consumers in big countries such as India who would benefit. Consumers in smaller countries would always gain from mutual trade liberalization because they would not only have access to cheaper goods and products of high quality, but also to greater variety. Exporters in the smaller countries would also benefit from trade liberalization as they gain access to larger markets and more competitive inputs.

The World Bank Group is supporting the strengthening of infrastructure and policy and regulatory frameworks that facilitate trade, and bolster connectivity within South Asia and with Central and East Asia to enhance competitiveness and local opportunities. The aim is to move South Asia towards ASEAN levels of intra-regional trade and investment. The World Bank Group is financing roads connecting Mizoram state in India and the surrounding region. In 2013 it initiated a project aimed to reduce transport time and logistics costs for bilateral trade between Nepal and India and transit trade along the Kathmandu-Kolkata corridor.

 

A third area where South Asia can come together in the next five years is in how it cooperates over natural disasters. More cooperation could save lives. In the past two decades, over 50 per cent of South Asians (more than 800 million people) have been affected by at least one natural disaster. By building common interests across borders, regional integration can pave the way for South Asian countries to cooperate on disasters that stem from shared climate change-related challenges.

A fourth area is natural resources. The region is traversed by some of the world’s biggest rivers. But there has been little progress to date on joint management of these resources. With its partners, the World Bank is working to bring governments together to address common issues for the Brahmaputra, Ganges, Indus as well as for the Sunderbans delta. The World Bank Group is supporting efforts to improve the base of knowledge and institutional capacity for better management of shared rivers, including wildlife protection.

In promoting regional integration, one should be aware that there will be losers as well as winners from greater transit and trade integration. Small entrepreneurs facing new competitors may have to fight for survival. Some will adapt; others will fail. Opening borders for foreign trucks will mean bigger infrastructure costs and the risk that transiting goods may be sold tax free and hurt domestic producers.

These are real risks that countries need to address before opening their borders. The World Bank can help with analysis on what the risks are and what measures should be taken to address them.

Enormous gains are to be had from more integration in South Asia. While governments can put in place policies, regulations, institutions and infrastructure that facilitate trade, there is also an important role to play for the private sector, consumers, civil society and others. They all can benefit from more energy, freer trade, and greater collaboration over disaster risks and natural resources.

Making regional integration a reality is everyone’s business. For the countries of South Asia, the challenges are big but the rewards high from a future with more integration.