ADB’s RCI Strategy and Experience

Ganeshan Wignaraja

Asian Development Bank

Technical Workshop on Cross-Cutting Aid for Trade Issues

Geneva. 19 November 2007

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ContentsContents

•The Regional Cooperation and Integration (RCI) Strategy and Role of ADB

•Examples of ADB RCI projects •Lessons and Experience

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ADB’s Mandate for Regional Cooperation

• ADB’s Charter mandates it to play an active role in “regional cooperation”

• ADB’s Regional Cooperation Policy (RCP) in 1994 and various other documents of ADB have placed emphasis on regional cooperation and integration

• Most recently, the Report of the Eminent Persons Group to ADB’s President has identified regional integration as one of six core activities for ADB in the future

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Emerging Trends • Economic openness, IT revolution, improved physical connectivity,

the spread of vertically integrated production networks, and the rapid growth of the People’s Republic of China (PRC) and India, have brought Asian economies ever closer together.

• Intra-regional trade in East Asia has increased from about 30% in 1990s to about 56% in 2005.

• Free trade agreements (FTAs) are proliferating, and this trend looks to continue.

• The Asian financial crisis highlighted the high degree of financial interdependence and provided the stimulus for greater monetary and financial cooperation.

• These emerging trends suggest that RCI is likely to intensify in a number of regions, subregions and in a number of areas. Given the diversity of Asia and the Pacific, RCI will likely follow a multi-track, multi-speed approach.

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Regional cooperation and integration and poverty

reduction• Improved cross-border physical connectivity

provides greater access for developing countries to each other’s and external markets.

• FDI inflows can have a positive impact on poverty reduction by fuelling economic growth.

• Maintaining regional macroeconomic and financial stability is crucial to sustain robust growth for poverty reduction. The 1997–1998 Asian financial crisis was testimony to this.

• By working together, developing countries can deal with the adverse impact of cross-border issues e.g., outbreak of communicable diseases, environmental problems, and other transnational issues.

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FOUR PILLARS OF REGIONAL

COOPERATION AND INTEGRATION

ADB’s Mission and the Role of Regional Cooperation and Integration in Poverty

Reduction

Pro-Poor Sustainable Economic

Growth

InclusiveSocial

Development

Good Governance

POVERTY REDUCTION

Trade and Investment Cooperation and

Integration

Monetary and Financial Cooperation and

Integration

Regional Public Goods

Individual Country Programs

Regional and Subregional Economic

Cooperation

OVERACHING MISSION/ OBJECTIVE

CORE AREASOF

INTERVENTION

Regional Cooperation and Integration

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RCI Strategy and Role of ADB

ADB adopted the RCI strategy on 25 July 2006.

The RCI strategy has four pillars:Pillar 1

Regional and Subregional

EconomicCooperation

Pillar 2

Trade and Investment

Cooperation and Integration

Pillar 3

Monetary and Financial

Cooperation andIntegration

Pillar 4

Cooperation in Regional

Public Goods

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RCI Strategy a key tool for AfT

−Cross-border infrastructure and related services—trade facilitation, and customs modernization (Pillar 1)

−Natural link with trade and investment (Pillar 2)

−Money and finance—mobilizing savings for trade-related infrastructure investment and possible trade finance (Pillar 3)

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The RCIFPF was established in February 2007. It has two main components:

• Regional Cooperation and Integration Fund (RCIF): For technical assistance (TA), including advisory, project preparatory, and regional TA

• RCI Trust Funds – For grant components of investment projects, TA, and any other activities that may be agreed upon between donors and ADB

All DMCs are eligible

Around $80 million

Regional Cooperation and Integration Financing Partnership

Facility (RCIFPF)

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RCI website (www.aric.adb.org)

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Economic Corridor Project• GMS regional cooperation project since 2000• 1,500 km road link connecting the South China

Sea and Indian Ocean (East-West Corridor) • ADB support to around $60 million• will improve connectivity and market

integration among Thailand, Lao PDR, Myanmar and Vietnam

• complements government programs to enhance supply capacity in agriculture and industry

• big gains exemplified by Savannakhet Province, Lao PDR upon completion of project components, i.e., Road 9 and Second Mekong International Bridge

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Regional Power Project• Nam Theun II Hydropower Project ($1.45

billion)– world’s largest private sector, cross border,

power project financing– good example of interregional cooperation and

development of private sector investment – located in Lao PDR, will export up to 5,345 GWh

of electricity annually (95% of power generated) to Thailand

• expected to generate $1.9 billion in revenues for Lao PDR over 25 years

• ADB support includes $20 million public sector loan; $50 million private sector loan; and $50 million political risk guarantee

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Regional Trade Facilitation Project

• $22.75 million customs reform and modernization for Kyrgyz Republic and Tajikistan (Phase II)

• development of a unified automated information system (UAIS) for customs services and customs border post infrastructure

• ADB support $18.2 million• positive regional impact by improving transit

conditions of the two countries, and contributing to improvement of overall trade and investment environment among CAREC member countries

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Pacific Aviation Safety Office• established in Port Vila, Vanuatu, a single

regional organization replacing fragmented national aviation authorities

• example of regional cooperation as an effective approach to safety regulation and oversight in air transport

• to benefit governments, air transport operators and users of 7 member countries i.e., Fiji, Kiribati, Papua New Guinea, Samoa, Solomon Islands, Tonga and Vanuatu

• ADB support of $1.9 million loan and grant• will eventually become self-sustaining

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Trade Finance Facilitation Program

• $150 million portfolio to help local banks of DMCs provide trade finance products to private sector importers and exporters through: – Revolving guarantee facility – Revolving credit facility

• Encourages trade between and among countries in the region

• Focus on South Asia, future expansion to Central Asia and the Pacific

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Lessons from RCI projects1. Well-designed cross-border infrastructure

projects can bring large gains to all countries (Theun-Hinboun Hydropower Project in Lao PDR)

2. Best practice cross-border projects have several elements: transport infrastructure development, trade facilitation and regulatory reforms (East West Corridor Project)

3. A good model in RCI is public-private partnership and innovative financing terms (Nam Theun II Hydroelectric Project)

4. Involvement of an honest broker such as ADB will overcome investor’s risk perceptions in cross-border energy projects (Nam Theun II Hydroelectric Project)

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Lessons from RCI projects5. Informal institutional arrangements and

flexible, pragmatic and results-oriented approach to cooperation generate tangible results (GMS Program)

6. Promoting country ownership brings sustained commitment and leadership which aids effective implementation of sub-regional initiatives (GMS Program)

7. Participatory approach and stakeholders involvement in all project phases is key

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Lessons from RCI projects8. Effective donor coordination critical in

extending concerted support and ensuring sustainability (CAREC Trade Facilitation Program)

9. Capacity-building i.e., institutional strengthening and training activities are essential

10.Specific cultural and institutional factors are major influences on outcome

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What needs to be done in Asia and the Pacific

• Scale up regional projects • Expand geographical coverage• Tailor-made to LDCs and small states• Build institutional and human capacities• Closer coordination with development

partners• Enhance public-private sector

partnership