Background paper (for South Asia Forum)

South Asia Forum

BACKGROUND PAPER

Background Paper

Integration in South Asia : Moving

Towards a South Asian Economic

Union

September 7-9, 2011New Delhi

This paper has been prepared by the Federation of Indian Chambers of Commerce and Industry (FICCI).

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Prepared by: Ms Anjali Taneja Assistant Director, South Asia Desk, International Division, FICCI

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Background Paper

SAARC in Retrospect

The South Asian Association of Region Cooperation (SAARC) was founded in 1985 by seven South Asian countries - Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. It emerged from the pressing need for intraregional engagement to promote the welfare of the people of South Asian countries. The avowed aim was to strive towards common socio-economic goals drawing upon a shared history and culture. An equally important goal was to reverse the sense of alienation and conflict which had been engendered in the post independence era. The progressive move was initiated by Bangladesh, conceptualised in a joint ‘Working Paper’, which was then shared by all the other South Asian Heads of the State. This initiative was taken forward by leaders in all SAARC countries. Since then, the Member States, later joined by Afghanistan1, have continued numerous dialogues through various seminars, ministerial meetings and annual SAARC Summits to move ahead with regional engagement and to work for the economic integration of South Asia.

Cooperation in SAARC is based on respect for the five principles of sovereign equality, territorial integrity, political independence, non-interference in internal affairs of the member states and mutual benefit. The Member States have often renewed their resolve for collective regional efforts to accelerate economic growth, reinforce social and cultural connectivity and emphasized key areas such as telecommunication, energy, environment and climate change, transport, poverty alleviation, science and technology, trade, education, food security and tourism.

SAARC in recent years has made landmark achievements including the launch of South Asian Free Trade Agreement (SAFTA) in 2006, SAARC Development Fund (2008), SAARC Food Bank (2009), South Asian University (2010), and SAARC Agreement on Trade in Services (SATIS), which have served to reinforce the engagement among the Member States for common good. At the same time it is also vital to highlight the enormous potential in the region, which largely remains untapped.

In order to strengthen further the true spirit of SAARC, the Thimphu Declaration which emerged from the 16th SAARC Summit held in 2010 emphasized the need for a ‘Vision Statement’. The Heads of the State/Government of Member States agreed to establish a South Asia Forum to be hosted by India, to facilitate discussions on areas of mutual interest and regional cooperation in South Asia and its future evolution.

The South Asia Forum will facilitate the sharing of experiences and best practices. It will forge a vision for South Asia spanning the next 25 years. It will strive to promote SAARC and generate beneficial partnerships and will focus on how SAARC can coherently pool resources towards realizing its core objectives, how the Association can grow more confident, result oriented and equipped to meet the challenges before the region.

Below are the key objectives:a. Serve as an open platform for

generation of debate, discussion and exchange of ideas on South Asia and its future development;

b. Provide inputs for charting out the future course of SAARC in the medium and long run;

1 The SAARC membership was expanded to eight SAARC Member States with the participation of Afghanistan in the year 2005 as an active Member State

South Asia Forum: The Concept

“In this Silver Jubilee Year of SAARC, the Leaders emphasized the need to develop a ‘Vision Statement’. They agreed to form a ‘South Asia Forum’ for the generation of debate, discussion and the exchange of ideas on South Asia and its future development. The Forum will consist of eminent personalities of diverse background including from all SAARC Member States. The Forum would provide inputs, based on a comprehensive understanding, for charting out the future course of SAARC in the medium and long run and recommend, if required, the necessary improvements required in the existing mechanisms. Such a forum could function on public-private partnership lines, and allow for multiple inputs beyond governments into the consideration of the future of SAARC”.

Thimphu Silver Jubilee Declaration: ‘Towards a Green and Happy South Asia’ Sixteenth SAARC Summit (28-29 April 2010)

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and private sector of all eight SAARC Member States. The coming together of both government representatives and diverse stakeholders from business and industry, academia, think tanks and media will help in translating the ideas into tangible action plans. The outcome of the Forum will be fed into formal SAARC processes at the Seventeenth Summit in Maldives.

In line with the theme of the first meeting the Member States can strive to:• Define priorities on doable issues of

SAARC agenda• Setachievabletargetsforpriorityitems• Identify compelling issues that may

arise in the coming years; particularly in regard to youth, culture, demographics, connectivity, climate change and disaster management.

• Articulatethe‘VisionStatement’forthenext 25 years encompassing the essential strands for the achievement of South Asian Economic Union.

Thematic SessionsBusiness & Economy

South Asia’s historical past is characterised by a prolonged period of import substitution, protectionism and inward looking policies. However, the regional countries, eventually, chan-ged their outlook in favour of a liberalised, globally interdependent and a more outward looking approach.

Today, these countries have opened up their economies and encouraged trade and investment, bringing about accelerated growth rates and greater trade volumes. South Asia’s 7.3 percent average annual growth for the period 2000-2009 was the second highest in the world. The region has remained largely insulated from global shocks. According to World Bank’s 2010 Economy Update, ‘South Asia is poised to grow by about 7 percent in 2010 and nearly 8 percent in 2011, thanks to the strong recovery in India, good performance in Bangladesh, post-conflict bounce in

strong macro economic fundamentals enjoyed by the region2. The growing stock of gross capital formation and domestic savings reflects the sheer size and nature of resource potential existing in South Asia driving the consumption and investment needs of people in SAARC3.

In a competitive globalised environment, the need for intraregional economic integration in SAARC is greater than ever before.

1. Intraregional Trade: Intra-regional trade data on South Asia shows that there is a lot of untapped economic opportunity within the region and a high dependence on extra-regional trade and investment. The intra-regional trade in the region (extending from Kabul to Chittagong) was as high as 19 percent in 1948 which declined to a mere 2 percent by 1967. Over the years, trade within the region has increased from 2.4 percent in 1990 to 4.5

Figure 1: Annual Percentage GDP GrowthNote: SAR refers to South Asia; EAP to East Asia and Pacific; LAC to Latin America and Caribbean; MENA to Middle East and North Africa; and SSA to Sub-Saharan Africa region.

Source: World Bank South Asia Economy Update 2010

2 For details refer to the World Bank Economic Update 2010

3 GCF as a percentage of GDP has increased from 25 percent in 1995 to 33 percent in 2009 and gross savings have from 25percent of GDP in 1995 to 34percent in 2009.The average annual percentage growth of GCF between 2000-09 has been the highest along with EAP registered at 12.4percent (Source – WDI 2010)

c. Recommend, if required, necessary improvements in existing SAARC mechanisms, including strengthening of the SAARC Secretariat, for effective monitoring, evaluation and implementation;

d. Promote peace, progress and prosperity in South Asia;

e. Promote consolidation and strengthening of economic cooperation and integration; and

f. Promote a vision of South Asian Community and South Asian Economic Union.

First Meeting of South Asia Forum

The first meeting of South Asia Forum (SAF) is being hosted by India on September 8-9, 2011, in New Delhi. Under the overarching theme - ‘Integration in South Asia: Moving Towards a South Asian Economic Union’ the Forum will comprise of key policy makers and thought leaders from public

percent in 2000 to a little over 5 percent in 2009. By comparison, East Asia’s regional trade constituted 32 percent of its total trade in 2006. It is worthy of note that although the average annual percentage growth of intraregional trade (for instance percentage of merchandise exports as reflected in the table below) has not been very high, the volume of trade in aggregate of total trade flows has increased remarkably. Since the introduction of South Asian Free

Sri Lanka, recovery in Pakistan, and turnarounds in other countries, including Afghanistan, Bhutan, and Maldives’. In fact the region registered the smallest decline in growth among all other regions, from global financial crisis and recovering.

Robust financial systems, increased remittance inflows, resilience in key exports, and buoyant foreign direct investment inflows as compared to the rest of the world, during such turbulent years, indicate

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Note: Data from Bhutan & Maldives is not available, hence not included in calculation of South Asian figuresSource: World Development Indicators 2010

Table 1: Direction of Trade of Developing Economies

Source: ‘Estimating Demand for Infrastructure in Energy, Transport, Telecommunications, Water and Sanitation in Asia and the Pacific: 2010-2020’ by Biswa Nath Bhattacharyay (ADB Working Paper 248)

4 As pointed out by Mr Farooq Saek, Chairman, Senate of Pakistan during the launch of the report (June 2010),’Trade and Human Development in South Asia -2009’prepared by the Mahbubul Haq Human Development Centre (MHHDC)

5 See for instance ‘Study on Intraregional Trade and Investment in South Asia (2009) by ADB and AusAID; ‘SAARC Changing Realities, Opportunities and Challenges’, by Rajiv Kumar (2009); ‘India’s Role in South Asia Trade and Investment Integration’, by Rajiv Kumar and Manjeeta Singh (2009)

6 A study undertaken by the National Council of Applied Economic Research (NCAER) –‘Trade in Services and Investment Flows in South Asia’ by Chadha and Nataraj (2008) indicates South Asia’s revealed comparative advantage in commercial services and IT & IT enabled services.

Trade Area in 2006, intra-regional trade has grown to US$ 1.2 billion. However, it remains well below the optimum levels. More than 55 percent of South Asia’s regional trade potential remains largely untapped4.

2. Composition of Intraregional Trade: The composition of intraregional trade is concentrated in few commodities such as textile fibres, minerals and agricultural products. The narrow concentration is largely because of multiple reasons such as the growing sensitive lists in SAFTA, restrictive rules of origin & preferences, protectionist policies and a host of tariff and non tariff barriers. Various studies on intraregional trade and investments in South Asia have emphasized the need to remove tradable goods from the sensitive lists and build in product diversification within the trade basket to fully exploit the region’s comparative and competitive advantage5. In turn this will generate employment opportunities in the region. Instances of informal trade can also be mitigated by the:• gradualremovalofNTBs,• broadeningthescopeofSAFTA,and• implementation of pro-active trade

policies.

3. Trade in Services: With services sector now accounting for more than half the GDP in South Asia (55 percent of GDP in 2009), intraregional trade in services, which was absent under SAFTA, is now

being considered. Contrary to longstanding development theory, new evidence, including that pertaining directly to South Asia, suggests that services, rather than manufacturing, are particularly effective in leading to sustainable growth (Ghani 2010). Different studies6 have analysed the nature of intra-regional and inter-regional services trade that carries immense potential in South Asia. Research and Information System on Developing Countries in its 2010 study on ‘Potential for Trade in Services under SAFTA Agreement’ has discussed the relevance of liberalisation of trade in services in terms of benefits and costs of liberalisation. It lists some of the high priority trade sectors including tourism, transport, IT, ITES & telecom, energy, education, health and financial services and also proposes for following a positive lists approach to enable progressive, sequential liberalization, including some special and differential treatment for LDCs as recognized in SAFTA.

Multilateral donor agencies including the World Bank (WB) have observed that widespread cross border gas and electricity trade could significantly contribute to meeting regional demand, which is expected to grow annually in the range of 6.6-11.5 percent during the next 15-20 years. In this regard, the signing of SAARC Agreement on Trade in Services (SATIS) during the 16th SAARC Summit is a noteworthy development. The Heads of Member State believe that this will open

new vistas of trade cooperation and deepen the integration of the regional economies.

4. Foreign Direct Investments (FDI) Flows: FDI plays multidimensional role in the development of host economies. South Asia was the first to bounce back from the recent downturn with respect of global FDI inflows (UNCTAD World Investment Report 2010). However, the amount of inflows attracted by the region remains relatively insignificant compared to East Asia and South East Asia. In 1998, it was US$ 3.43 billion, a mere 0.5 percent of global flows. In contrast, China received more than 10 percent of global inflows. By 2002 although total FDI flows to South Asia had increased to US$ 4.58 billion, this was still well below 1 percent of global FDI inflows. By the year 2010, FDI inflows in South Asia increased to US$ 32 billion, compared to East Asia’s US$ 188.3 billion.7 Moreover intraregional FDI in South Asia remains small compared to the levels in other Asian regions.

According to a recent ADB Working Paper the region’s investment potential in infrastructure is high. The biggest investment needs are in East & South East Asia at US$ 5.47 trillion or 67% of the total followed by South Asia at US$ 2.37 trillion or 29% of the total.8

Within Region Outside Region To High Income Economies

% of Total Merchandise

Exports


Imports


Exports


Imports


Exports


Imports

1999 2009 1999 2009 1999 2009 1999 2009 1999 2009 1999 2009East Asia & Pacific 8.1 11.9 11.0 15.9 7.2 15.5 8.9 18.0 83.9 73.7 80.5 64.1

Europe & Central Asia 22.5 19.9 27.9 26.1 11.3 14.2 12.9 14.7 64.0 55.7 61.1 54.6

Latin America & Caribbean 14.4 18.8 14.3 19.2 4.0 13.9 3.5 12.8 77.6 66.0 78.0 62.1

Middle East & North Africa 3.2 8.0 3.5 7.4 13.0 25.8 12.3 22.1 78.2 61.1 72.7 59.9

South Asia 4.3 5.4 3.8 3.6 14.7 25.1 10.7 15.5 78.8 67.4 66.8 58.1Sub Saharan Africa 13.3 13.7 12.0 11.8 13.8 12.7 22.7 66.4 66.4 57.9 70.3 52.3

Sector / Subsector East and Southeast Asia South Asia Central Asia The Pacific Total

Electricity 3,182.46 653.67 167.16 - 4,003.29

Transportation 1,593.87 1,196.12 104.48 4.41 2,898.87

Airports 57.73 5.07 1.41 0.10 64.31

Ports 215.20 36.08 5.38 - 256.65

Rails 16.14 12.78 6.03 0.00 34.95

Roads 1,304.80 1,142.20 91.65 4.31 2,542.97

Telecommunication 524.75 435.62 78.62 1.11 1,040.10

Telephones 142.91 6.46 4.45 0.05 153.87

Mobiles 339.05 415.87 71.97 0.95 827.84

Broadband 42.78 13.29 2.21 0.11 58.39

Water and Sanitation 171.25 85.09 23.40 0.51 280.24

Water 58.37 46.12 8.60 0.14 113.22

Sanitation 112.88 38.97 14.80 0.36 167.02

Total 5,472.33 2,370.50 373.66 6.02 8,222.50

7 ‘Intra Regional Foreign Direct Investment Prospect in SAARC Region’, by Mahmud Zubayer, Assistant Professor Dept of Business Administration, East West University (Bangladesh) and M Sayeed Alam (corresponding author), Assistant Professor. Published in International Journal of Economics and Finance, Vol 2, No. 3, August 2010.

8 ‘Estimating Demand for Infrastructure in Energy, Transport, Telecommunications, Water and Sanitation in Asia and the Pacific: 2010-2020’ by Biswa Nath Bhattacharyay (ADB Working Paper 248). The analysis is considering select countries for each region due to data unavailability. For instance, in the case of South Asia, countries of Bangladesh, Bhutan, India, Nepal and Sri Lanka are considered.

The study also examines the investment needs for ‘Identified and Pipeline infrastructure Projects in South Asia (2010-2020)’ under the SASEC program. According to it, many of the projects in the region, aside from energy, are related to logistics and trade facilitation. This could emphasize the role of transport and communication infrastructure in the trade openness of countries in this sub-region. On the other hand, in the energy sector, around 80% of the investment needs are for renewable energy projects, including hydroelectric power projects.

Various Studies have cited different reasons for poor FDI inflows:• relativelysmallsizeofindividualcountry

markets, • labourmarketinefficiencies• relative failure of regional integration

efforts in unifying these markets by removing border & behind the border impediments and weaknesses,

• politicalinterference&corruption,• FDIregimesnotmatchinginternational

best practices, • high transaction costs, procedural

delays stemming from institutional requirements and presence of non transparent procedures.

Table 2: National Infrastructure Investment Needs in Asia, 2010-2020: Per Sub-Region & Per Sector (2008 USD billions)

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Regional integration, mutual understanding and better cooperation amongst the Member States can improve the chances of optimizing the comparative advantage of South Asia.

Source: World Development Indicators 2010

Table 5: Trade Facilitation Measures

Asia’s trading basket. Coordinated support and collaborated efforts to address the various political, technical and economic challenges that hinder its progress and implementation are needed.

6. Intraregional Connectivity:Intraregional connectivity will facilitate trade, cross border movement of people & goods as well as investment flows. Apart from the infrastructural constraints, the non physical infrastructure problems such as cumbersome custom procedures, excessive procedural bottlenecks and non-adherence to quality standards, hold back the much needed economic integration.

Logistics Performance

Index

Burden of Custom

ProceduresLead Time Days to Documents

Number toQuality of Port Infrastructure

1-5(Worst to Best)

2009

1-7(Worst to Best)

2009-10

Export Import2009

Export ImportJune 2010

1-7(Worst to Best)

2009-10East Asia & Pacific 2.73 3.8 3.6 4.9 7 7 3.8Europe & Central Asia 2.68 3.7 2.9 3.1 7 8 3.3Latin America & Caribbean

2.74 3.8 3.9 5.5 7 7 3.9

Middle East & North Africa

2.60 3.8 2.7 7.2 7 8 4.0

South Asia 2.49 3.7 1.9 3.3 9 9 3.8Sub Saharan Africa 2.42 3.9 8.1 7.0 8 9 3.85. Energy: Concomitant with economic

growth and industrialization, the South Asian region is currently experiencing a rapid growth in energy demand. According to World Energy Outlook 2010 South Asia currently accounts (2009) for 42% of the total number of people in the world without access to electricity even though the percentage of the population with significant access increased by around 8% over the last three years in the region. Adequate energy

Ease of Doing Business in RegionsSouth Asia ranks among the lowest among regions across the world in terms of doing business

Which regions have the most businessfriendly environment in Doing Business?

30

728796

117

137

#1economy

OECD high income

Eastern Europe & Central Asia

East Asia & Paci�cLatin America & CaribbeanMiddle East & North Africa

South Asia

Sub-Saharan Africa

183Average ranking on

the ease of doing business (1-183)

Source: Doing Business Database, Doing Business Report 2011 (World Bank)

supply is, therefore, a major challenge facing the economies in the region today.

In order to tap the growing potential in South Asia, some of the SAARC activities in this field include:• ATechnicalCommitteeonEnergyand

a Working Group which meet to discuss the modalities of regional cooperation in the sector, Concept of an Energy Ring and a SAARC Energy Centre (2006) are some of the initiatives which have been unanimously endorsed and undertaken by the Heads of the Member States.

• Bilateral energy exchanges, some ofwhich are already in place in the form of bilateral cooperation arrangements such as the Indo- Bhutan Hydel Cooperation, Indo-Sri Lanka Petroleum and Indo- Nepal Hydel Cooperation, etc.

• ConceptofanEnergyRing,asafollowup to the Twelfth SAARC Summit, was introduced, to facilitate dialogue in the region on the lines regional trade in energy.

• SAARC Energy Centre (2006), inIslamabad, to develop renewable and alternative energy resources, ensure energy conservation and promote regional trade in energy.

Turkmenistan- Afghanistan- Pakistan-India (TAPI) pipeline project and the Iran-Pakistan-India (IPI) pipeline are the major projects in the pipeline. The concept of a regional electricity grid is also being explored.

Energy in the region is recognized as an important sector where regional trade and cormmon understanding of energy needs, can contribute in improving the supply of energy. In fact, regional electricity trade is one of the most lucrative items of South

Traditional, 164 MTOE

Commercial,507 MTOE

TOTAL: 671 MTOE

The energy demand will probably double over the next 30 years in South Asia compared to an increase of only 55% for the world as a whole

Figure 2: Energy Consumption in South Asia

Source: Taken from ‘Energy Cooperation for Energy Security: Exploring the South Asian Potential’ by Mr Sanjay Gupta

9‘Estimating Demand for Infrastructure in Energy, Transport, Telecommunications, Water and Sanitation in Asia and the Pacific: 2010-2020’ by Biswa Nath Bhattacharyay (ADB Working Paper 248)

10Of the estimated USD 8.22 trillion of total national infrastructure investment needs of the 32 developing economies under the study, South Asia accounts for USD 2.37 trillion (2nd highest) against East & South East Asia USD 5.47 trillion.

11The fourth Working Group Meeting was held on 12th January 2011 in Kathmandu followed by 3rd Meeting of Tourism Ministers of SAARC on the 13th.

7. Regional Tourism: The Heads of the State have underscored the need to promote tourism in the region to enhance people-to-people connectivity and have called for the creation of a tourism friendly environment. The Joint Working Group on Tourism and the Joint Meeting of Tourism Ministers (4 Joint Working Group Meetings and 3 Meetings of Tourism Ministers of SAARC Member States have been held so far)11 delineated various measures to facilitate intra-regional tourism in SAARC. These include expeditious development of road, rail and direct air links among Member States, simplification of visa procedures for SAARC citizens to ensure easier movement

At the Sixteenth SAARC Summit, the Heads of State endorsed coordinated action to facilitate intraregional connectivity in the region including the development of well connected communication system, transport infrastructure and transit facilities, non physical infrastructure (such as simplifying excessive and cumbersome border procedures). 2010-2020 is being observed as the ‘Decade of Intraregional Connectivity in SAARC’. Estimates show that the developing countries in Asia require financing of US$ 776 billion per year to meet national and regional infrastructure needs in the next decade. According to the ADB Working Paper (2010), South Asia’s (national) total investment needs in infrastructure are estimated at US$ 215.5 billion per year9 . The total investment needs per capita is estimated at US$ 1756 - second highest after East & South East Asia10. One estimate also shows that if South Asia’s infrastructure capacity is increased even halfway to East Asia’s level, intraregional trade can increase by 60percent (Wilson/Ostuki 2005)

of persons within the region, development of separate SAARC facilitation counters at international airports, normalizing for SAARC nationals the entry fee for tourist spots / archeological sites in Member States for SAARC nationals, facilitating focused human resource development in SAARC (offering scholarships, quiz competitions, tour exchange programmes), specialized promotion of SAARC as a common tourist destination through public-private partnerships, country specific events/seminars/forums, print and online media & joint promotional campaigns. The menu for action following the ‘Cox Bazar Plan’ should be taken up to give greater impetus to the ongoing efforts.

8. Concurrently, a pro-active policy framework and reforms in governance supplements the need to ensure wider trade facilitation, ease of doing business, macro economic stability and investor protection in SAARC.

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Millennium Development Goals: Protecting our Common Environment


II People centric Issues: Demographics and Environment

Demographically, South Asia is a diverse region of 1.64 billion people (almost 24 percent of the world’s population). Latest piece of evidence and new thinking have emphasized the powerful contribution that demographic change can make to the overall economic growth of the region. The circumstances prevailing in South Asia today reflect the changes that have occurred as a part of South Asia’s demographic transformation. The region saw a rapid fall in the Infant Mortality Rates (IMR) from about 160 per 1000 live births in the 1950s to about 60 in 2010. Since 1950 life expectancy at birth has increased from less than 40 in the early 1950s to almost 65 last year12.

The working –age share of the population is a crucial indicator of a region’s potential for reaping a demographic dividend. For South Asia, the general rising pattern of economic growth in the region since the

Improve maternal health

Combat HIV/AIDS and other diseases

Ensure environmental sustainability

Develop a global

partnership for development

Maternal mortality ratio Modeled estimate per 100,000live births 2008

Contraceptive prevalence rate % of married women ages 15-49

1990 2004-09b

HIV prevalence % of population ages 15-49

2009

Incidence of tuberculosis per 100,000 people

2009

Carbon dioxide emission per capita metric tons

1990 2007

Proportion of species threatened with extinction %

2008

Access to improved sanitation facilities % of population

1990 2008

Internet users per 100 peoplea

2009

East Asia & Pacific 89 75 77 0.2 136 1.9 4.0 42 59 24.1Europe & Central Asia 32 .. 69 0.6 89 10.7 7.2 87 89 36.4Latin America & Carib. 86 .. 75 0.5 45 2.3 2.7 69 79 31.5Middle East & N. Africa 88 42 62 0.1 39 2.5 3.7 73 84 21.5South Asia 290 40 51 0.3 180 0.7 1.2 22 36 5.5Sub-Saharan Africa 650 15 21 5.4 342 0.9 0.8 27 31 8.8

East Asia & Pacific .. .. 18.0 8.8 101 99 89 102 55 26Europe & Central Asia .. 19 .. .. 92 96 98 97 52 21Latin America & Carib. .. 30 .. 3.8 84 101 99 102 52 23Middle East & N. Africa .. 37 .. 6.8 .. 95 80 96 76 33South Asia .. .. 57.2 42.5 62 79 69 91 125 71Sub-Saharan Africa .. .. .. 24.7 51 64 82 88 181 130

1. Millennium Development Goals: South Asia has been striving hard to achieve its Millennium Development Goals (MDGs) and SAARC Development Goals (SDGs) .

Eradicate extreme poverty and hungerAchieve universal

primary education

Promote gender equality

Reduce child mortality

Share of poorest quintile in national consumption or income %

1995 - 2009a,b

Vulnerable employment Unpaid family workers and own-account workers % of total employment1990 2008

Prevalence of malnutrition Underweight % of Children under age 5

1990 2004-09a

Primary completion rate %

1991 2009C

Ratio of girls to boys enrollments in primary and secondary education %

1991 2009C

Under-five mortality rate per 1,000

1990 2009

Table 6: Millennium Development Goals: Eradicating Poverty and Saving Lives

1960s corresponds, albeit roughly, to the increasing ratio of working-age to non-working-age people. In other words, higher the ratio and faster the pace of its increase, greater the demographic impetus for a more rapid economic growth. If a direct correspondence between growing demographic opportunity and the economic realization of that opportunity is created and sustained, South Asia is positioned to have a bright economic future.

Nevertheless, this calls for coordinated action by all the Member States to overcome the social challenges and environmental concerns hovering over the region. The pace of urbanisation has made the towns and cities grow exponentially, quite often at the expense of rural population. Moreover, the resulting migration of people has for the most part made the migrants live in worse conditions of sanitation, public health and ecology. The villages left behind by the migrants have textured on the brink in every measure of social progress.

12All demographic data are from United Nations (2009)

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2. Population: South Asia’s total population has more than tripled since 1950 when it stood at 481 million - a big market to be explored. Its rate of growth remains

South Asia is also home to one of the largest stock of human capital. A higher labour force participation rate does not necessarily imply more productive labour force. The human development index has been lagging on the lower side and needs further improvement in the form of skill development and overall knowledge base. The percentage of females in the total labour force stands at a meager 2913 percent (2009). This calls for a coordinated approach towards women empowerment and upliftment of their standard of living. This will have a positive spillover effect on the economy, thereby contributing to the macro economic development of the region.

3. Demographic Transition: South Asian countries are likely to experience a significantly faster increase in their

been estimated that for South Asia as a whole, the 60+ population is projected to reach 431 million in 2050 (19 per cent of total population); the corresponding figures for the 80+ population are 56 million and 2 per cent respectively. This reinforces the need to direct efforts towards increasing the investment proportions in quality health and education systems to meet the growing demands of the region.

4. Employment Trends: International Labour Organisation’s latest estimate (World Employment Trends 2010) reveals that the regional unemployment rate has increased to estimated 5.1 per cent in 2009, up from 4.8 per cent in 2008. The instances of unemployment are more amongst women in comparison to males. Only around 35 per cent of working-age women are economically active, versus more than 81 per cent of men. This characterizes the third highest gender gap among all regions, surpassed only by the Middle East and North African regions. It also reflects gender-based labour market inequalities and occupational and industrial segregation. For instance, women have comparatively limited access to certain jobs in the region.

alarming in the years to come. Gender wise, it is skewed in favour of males as compared to females. This reinforces the existence of a gender bias in the region.

Table 7: Population Dynamics


Population(millions)

Average Annual Population Growth (%)

Population Age Composition (%) Ages

Female Population (% of total)

1990 2009 2015 1990-2009 2009-2015 0-142009

15-642009

64+2009

2009

East Asia & Pacific 1559.6 1943.8 2035.8 1.0 .8 23 70 7 48.8

Europe & Central Asia

392.4 404.2 409 .2 .2 19 70 11 52.2

Latin America & Caribbean

435.6 572.5 606.9 1.4 1 28 65 7 50.6

Middle East & North Africa

227.4 330.9 366.1 2 1.7 31 64 4 49.6

South Asia 1128.7 1567.7 1706.5 1.7 1.4 32 63 5 48.5

Sub Saharan Africa 514.9 839.6 969.5 2.6 2.4 43 54 3 50.2

Source: World Bank

working-age share between 2005 and 2050 than they did between 1960 and 2005. As per UN estimates, South Asia’s working age to non working age ratio, which stood at 1.74 in 2010, is estimated to increase to 2.08 by 2050. To capitalize on the high share of working-age people in the population, the region will have to ensure that this group is healthy, well educated, and well trained to meet the demands of labour market.

In this regard opportunities for investments in education and health programs, greater enrollments in skill development and youth training programs, and increased R&D activities can be useful.

The size of South Asia’s elderly population also reflects an interesting trend. As per United Nation’s 2009 projections, it has

13 World Development Indicators 2010

Figure4: Incidence of Formal Training in Regions (%)

Source: taken from Study on ‘Effectiveness of HRD for Developing SMEs in South Asia’ by Ahmed, Vaqar; Wahab, Mohammad Abdul and Mahmood,Hamid Planning Commission of Pakistan (2011)

South Asia11%

Africa16%

Latin America andCaribbean

25%

East Asia and Pacific24 %

Middle east and North Africa

11%

Europe andcentral Asia

13%

Figure 3: South Asia Population Projection

Education Health Research &

Development (in Science & Technology)

2009* 2008 Different YearsEast Asia & Pacific 3.5 4.2 1.49 (2007)Europe & Central Asia 4.2 5.4 .88 (2007)Latin America & Caribbean 4 7.2 .66 (2005)Middle East & North Africa 4.6 5 .48 (2007)South Asia 2.9 4 .79 (2007)Sub Saharan Africa 3.8 6.1 -

Table8: Expenditure as a % of GDP

* Provisional dataSource: World Development Indicators 2010 and Study on ‘Effectiveness of HRD for Developing SMEs in South Asia’ by Ahmed, Vaqar; Wahab, Mohammad Abdul and Mahmood,Hamid Planning Commission of Pakistan (2011)

Youth unemployment rate has also risen to an estimated 10.7 per cent in 2009, up from 9.9 per cent in both 2008 and 2007.

5. Poverty and Living Standards: Statistics reveal that even as economic growth has reduced the poverty rate in South Asia, the total number of poor people in the region has increased. The number of people living on less than USD1.25 a day increased from 549 million in 1981 to 595 million in 2005. More than 250 million children are undernourished and more than 30 million children miss out on schooling in South Asia. More than one-third of adult women are anemic. The region also carries the highest number of unregistered births. Too many people, especially poor are never counted. These numbers clearly indicate that a large part of the population has been deprived of sharing the fruits of growth. The decade 2006-2015 has been designated as the ‘SAARC Decade of Poverty Alleviation’. Constructive steps are being designed to reduce and eventually eradicate this socio-economic problem from the region.

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Background Paper Background Paper

6. Agriculture and Food Security: Agriculture in the region is sometimes caught in a low equilibrium trap with low productivity of staples, supply shortfalls, fluctuating prices, low returns to farmers and area diversification. All these factors can be a threat to the region’s food security. The signing of the Intergovernmental Agreement establishing SAARC Food Bank during the Fifteenth SAARC Summit (in 2008 at Colombo) is noteworthy. The Food Bank is designed to supplement national efforts to provide food security to the people of the region in crisis situations. Efforts can now be directed towards increasing the size of theBankwithsufficientrecoursemadetoitduring times of need. Efforts under SAARC are underway to create a seed bank in South Asia, investment in agricultural research

and development, agricultural extension activities and transfer of technology.

7. Culture: South Asia is a rich mosaic of different cultures, traditions, life styles, ethnic groups, languages and faith systems. SAARC offers a platform for the people of South Asia to usher in an era of friendship and goodwill. It promotes the well-being of the people by improving their quality of life through economic growth, cultural development and by ensuring social justice.

Regional cooperation in the field of culture started with the First Meeting of the Technical Committee on Sports, Arts and Culture held in New Delhi in January 1989. Since then it has been an important area of cooperation among SAARC countries. The

Figure 5: Share of Population living on less than $1.25 a day, by region (%)


Figure 6: Number of unregistered births, 2007, (millions)


Latin America and Caribbean 1.3 CEE/CIS 0.4Middle East and North Africa 2.4

East Asia and Pacific,excluding China 3.5

Eastern and Southern Africa

9.7South Asia

24.3

West and Central Africa

9.8

SAARC Agenda for Culture was approved by the Thirty-third Session of the Standing Committee (New Delhi, 31 March – 1 April 2007). The salient features of the Agenda for Culture are: • PromotionofSAARCCultureonline,• Launching of a SAARC Website on

Culture, • production of cultural sourcematerials

on South Asia, • CooperationwithotherOrganizations,• Establishing linkage between Culture

and other sectors in attaining social and economic development,

• cooperation in the field of productdevelopment and promotion of cultural products, and

• SAARC Exchange Programme onCulture.

Based on the decision by the Heads of State, a SAARC Cultural Centre (SCC) was conceptualised as a regional centre to promote cultural cooperation in order to bring the people of South Asia closer and to project the distinct identity of South Asia. The Centre has started functioning in the year 2010

8. Environment and Climate Change: Socio economic development of the region cannot be achieved without ensuring environmental sustainability. Development in South Asia has incurred a larger liability on climate change: the carbon dioxide emissions, accounting for the largest share of green house gases, have been growing at an alarming rate (given the very large population in the region, average annual percent growth of carbon dioxide emissions between1990-2007 is 4.8percent - highest in the world)14. According to the global database on disasters, over the past forty years, South Asia has faced as many as 1,333 disasters that killed 9,80,000 people, affected 2.4 billion lives and damaged assets worth $105 billion. These totals are, by far, the highest among the recorded disasters in various geographic regions. World Bank has expressed South Asia’s vulnerability to climate change and natural disasters in the background of reasons such as pressures of high population and rapid urbanisation, spillover effects of retreating global ice covers on mountains and melting glaciers due to global warming15 and diminishing mangroves.

Heads of State in the region have expressed deep concerns at the continuing degradation of environment and have reaffirmed the

importance of concerted action in its protection and preservation. They have reiterated the importance of managing the environment through adoption of eco-friendly approaches and technologies. This, they believe will help the region to become a world leader in low-carbon technology and renewable energies. In this regard, a SAARC Convention on Cooperation on Environment during the Sixteenth SAARC Summit (at Thimphu last year) has been already signed. In order to avoid water disputes among the Member States and help contain water and air pollution, the Leaders have called for focused intervention in water management and its conservation and development of cooperative projects at regional level such as the exchange of best practices and knowledge, capacity building and transfer of eco-friendly technology.

Conclusion

SAARC provides a vital regional framework and common platform for South Asian Member States to collaborate on issues of mutual interest. Declarations through the past Sixteen Summits have laid consistent emphasis on this aspect. However, this must be reinforced with effective and practical implementation and monitoring mechanisms. The region’s contiguity holds immense potential not only in increasing intraregional trade, but also in improving the regular movement of people across borders and boundaries, and accessing the region’s densely-populated markets. However, the region will not be a free trade area as long as free movement of people, labour, currency and other forms of capital is hampered. The South Asian countries have broad similarities and these can be utilised in setting the foundation for regional collaboration.

According to UNDP, the time has come for South Asia to achieve its full potential. The region has a huge ‘demographic dividend’, democracy is taking root, and leadership is kept on its toes by an increasingly vocal population that demands accountability and transparency. Stronger institutions and greater decentralization are transforming the governance architecture giving power to those on the bottom rung. In other words, ‘South Asia, the second fastest-growing region in the world is uniquely placed to accelerate growth and catch up with the world leader, East Asia, to create its own ‘growth miracles’ and eliminate poverty and wipe out hunger by 2030’.

14Source: World Development Indicators 2010

15As stated by World Bank. The reasons also include key statements made by Mr Richard Damania, World Bank Lead Environmental Economist for the South Asian region, speaking ahead of the United Nations Conference on Climate Change (Copenhagen Denmark in December 2009)

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Background Paper

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Background Paper

Taking Stock of SAARC: Achievements and Challenges: By Ambassador Nihal Rodrigo(Individual Perspective in a Nutshell)

In their Silver Jubilee Declaration (Thimphu 2010), SAARC leaders have frankly stated that over the last quarter century, the Association’s “scope and substance of cooperation have expanded to diverse fields” but that many had not “translated into… tangible benefits for the people”.Areas of regional cooperation have indeed proliferated engaging political, economic, social, cultural and other objectives including promoting SAARC’s outreach beyond South Asia.

Economic goals had been set for establishment of a South Asian Economic Union by 2020. The South Asian Free Trade Agreement is expected to be operative for LDCs by 2016 and for non- LDCs by 2013, but “sensitive” lists, non-tariff barriers, and other road blocks persist to hamper regional trade flows. Non-economic factors such as border disputes, political reservations and lack of confidence have also been restraints. State interaction with the SAARC Chambers of Commerce and Industry (SCCI) and the corporate sector are gradually improving. Discussions and decisions at the corporate sector’s South Asian Economic Summits and other economic research institutes could provide productive grist for practical interface with the state sectors.

There are many professional, cultural, and practical research-oriented civil society organizations, some of them SAARC recognised. Their discussions, conclusions and recommendations require assessment by the SAARC Secretariat and reporting, when productive, to the state sectors.

Australia, China, Iran, Japan, Republic of Korea, Mauritius, Myanmmar, the United States of America and European Union are now Observers in SAARC. While their cooperation and contributions to the SAARC Development Fund are welcome, issues relating to disbursements of funds for projects need delicate handling. Given both benefits and complex negative aspects of globalization (e.g. human-smuggling, gun-running, drug-trafficking and corporateterrorism), exchanges with Observers on related issues would be productive, providing it in no way compromises core South Asian interests.

The SAARC Social Charter adopted in 2004, an achievement, considering the complex South Asian socio-cultural matrix, also necessitated individual country-specific National Charters for action. Civil society involvement to ensure peoples’ engagement is essential.

Regional Centres in SAARC have proliferated. The impact in their respective spheres of function varies, requiring periodic assessment in terms of their relevance, performance and viability. Given the complexities and prospects of SAARC’s extensive mandate and specialized programmes, the Secretariat could benefit from technical/specialist introspection and skills in addition to its busy country-specific 8 Directors. Proposals to recruit sector-specific experts in the more complex areas of SAARC’s specialized range of activities should be worked out without burdening its budget. Individual member-states should consider volunteering essential expertise, at their own cost as was once undertaken by Sri Lanka.

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