Have South Asian economists, trade analysts, and thinkers even examined the factors why South Asia is the least integrated region of the world? Home to nearly 25% of the world’s population, this region accounts for only 5% of global trade and contributes less than 6% to the global GDP.
Growth in Pakistan, Bangladesh, and India has not remained stagnant because these countries did not have the inherent resources or potential to progress but because each created roadblocks and irritants for others to succeed.
This ongoing regional rivalry and internal conflicts make South Asia a region with immense business potential, yet one that presents significant challenges.
Political expedience, and not economic growth, has inspired policy-making which has affected all and sundry, including the architects of this political segregation in the region.
The Indian intelligentsia defies this notion of stagnancy by claiming exceptionalism. India’s comparison with neighboring China with a similar resource base makes it evident that defying David Ricardo’s assertion that ‘respecting each other’s comparative advantage and indulging in trade makes everyone better off’, has not worked to India’s benefit either.
The stalemate was broken recently, as ice seemed to melt between arch-rivals Pakistan and Bangladesh. It took the two countries nearly 53 years to bury the hatchet and move in a direction that is beneficial for their two economies and the region as it would create necessary incentives for more regional alliances.
February 23 marks a significant moment in the history of Bangladesh and Pakistan as a shipment carrying 50,000 tons of rice left the Port Qasim Authority for Bangladesh. Dominated by paper, yarn, and tobacco, Pakistan and Bangladesh did have indirect trade relations, however, this is the first instance of direct trade between the two countries since Bangladesh’s painful departure from the Pakistani dominion in 1971.
Inflationary pressures in Bangladesh’s local cereal market may have led the authorities to start exploring new markets to elevate supply levels and calm prices down. However, the chart below tells a different tale.
It is reported that at $474.25 per ton, Vietnam is selling rice at a comparatively lower price than Pakistan which booked its maiden shipment to Bangladesh at a price of $499 per ton.
Courtesy: ipad.fas.usda.gov
If Vietnam has the capacity to sell and Bangladesh to buy, why did the Bangladeshi authorities decide to import at a relatively higher price from Pakistan?
One plausible explanation could be the reduction of lead times. With Dr. Yunus, an eminent economist, at the helm, it seems that economic considerations have overtaken political ambitions in Dhaka, and the new regime is setting its eyes on a long-term, sustainable vision for the economy.
Both Pakistan and Bangladesh need to take a meritocratic approach in setting the political or economic agenda prioritizing low-hanging fruits and addressing issues that merit immediate attention.
It appears that the order of play was that Bangladesh urgently needed a supply of rice, Pakistan had excess production which it was in a position to export, and Dr Yunus was able to provide effective leadership to the idea of crossing the bridge of several years of resentment and severance of economic ties.
It won’t be a surprise if both countries can add a combined $5 billion to $10 billion to regional trade, even if neither of the parties compromises its respective comparative advantage in textiles.
Looking at Pakistan’s rice yield and production as given in the chart below, cereals could be a good starting point for a mutually rewarding and long-term strategic trade relationship. Pakistan’s government supported by the SIFC could take the first step in generating goodwill with Dhaka to ensure that this opportunity is not lost in the darkness of a chaotic world order.
Courtesy: trademap.org
South Asia is eclectic of competing interests, a shared colonial past, bilateral wars, and interlocking rivalries, which have led each of its countries to develop long-distance trade relationships with global hegemons like the United States.
These relationships are costly due to high shipping and freight costs and often come at a disadvantage for the smaller South Asian economies. With the United States now effectively closing its doors on countries having tariff barriers in place, the move could foster a new era of ‘regionalism’ with fresh alliances creating a quasi-multipolar world.
Whether Pakistan and Bangladesh will continue trading, or this was only a one-off occurrence like it happened when Pakistan renewed trade ties with Iran during former President Hassan Rouhani’s visit to Pakistan in 2016, is something that will only unfold in the coming months.
One thing that can be said with some degree of certainty is that if Donald Trump continues on the estrangement path that he has taken; regional alliances will replace the old-world order. However, regions could come in new shapes and forms depending on how the American establishment pushes closer to some states while bringing some into its disfavor.
As Trump makes his way back to the White House, one is woken up to the rude reality of a world marked more by isolationism than integration. Iconic images showing the dislodging of the USAID not only exemplify the broader contours of America’s new foreign policy and the political currents that are sweeping across the globe but also an opportunity for low- and middle-income countries to rethink their place in the Trumpian universe and forge new alliances that can rewrite rules of the game and reimagine a new world order.
*Asad Ejaz Butt is an economist based in Boston, USA. He tweets @asadaijaz.
*The views and opinions expressed in this article are those of the author and do not necessarily reflect the editorial stance of Nukta.
