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Economic Integration with India could lower Poverty Rates in Sri Lanka

Economic IntegrationSri Lanka has been facing one of the harshest economic declines in the last decade. The country’s poverty rate has jumped from 11.3% in 2019 to 25% in 2022. More than 2 million people in Sri Lanka are suffering from the economic contraction. Some of the causes include food insecurity, lack of fuel, hyperinflation, supply chain interruptions and rising unemployment rates due to market shrinkage. The country’s northern neighbor, India, has contributed more than $3 billion toward alleviating this hardship. The leaders of both countries have been discussing economic integration, an undertaking that could benefit Sri Lanka greatly.

The Economic Integration

India’s economy has been performing better than many other countries in the world. The country’s GDP ranks as the fifth highest in the world, trailing behind only the U.S., China, Japan and Germany.

With India’s economy continuously growing, economic integration with Sri Lanka could be beneficial for both parties. Two factors will need special attention for this to work according to the Indian Council of World Affairs. The factors include profitability collaboration and foundational incorporation.

Indian Council of World Affairs notes that there are several subcategories that will need attention. These subcategories  include integration, labor market, education and integration with the Indian electricity grid.

Linking Power Grids

The economic integration process has been underway since the countries signed an official pact “to link their power grids and start negotiations on an upgraded trade agreement.” Apart from boosting power generation in Sri Lanka, the linkage of power grids could also increase the usage of renewable energy. The plan is to place a transmission line leading from southern India to the north-central province of Sri Lanka. And from the Indian electricity grid, Sri Lankans could have a continuous power supply and drive an ambitious economy.

Free Trade

Sri Lanka is known for trading high-quality textiles and garments. In 2019, the country hit $2.7 billion worth of imports to the United States (U.S.), becoming the 60th biggest supplier to the U.S. The top two categories were knit and woven apparel.

During the economic integration, the leaders of Sri Lanka plan to make that one of the big exports when it comes to the free trade agreement. There was already an agreement between the two countries. However, making updates to the arrangements could open Sri Lanka to a higher probability of creating trade pacts with China and Thailand. For this to work, Sri Lanka may need to find a way to advocate itself to its partners that it is a profitable investment for new trades and businesses. To the country’s advantage, the short commute to India is highly convenient, and with Sri Lanka’s capital being Colombo, promoting itself as a business destination may not be challenging. And that is because Colombo has a great reputation as a hub for tourism.

The Future

Based on suggestions, India and Sri Lanka would need to come together to create more means of transportation. The increase in foot traffic could create an economic boom for Sri Lanka. Overall, an economic integration between the two countries could boost the labor market in Sri Lanka and give agricultural workers more time to recover from the chemical fertilizer ban in 2021 (it was one of the major reasons for the economic contraction). As things stand, collaborating with India carries the potential to bring about economical upliftment for the people of Sri Lanka.

– Zyairah White
Photo: Flickr

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The African Continental Free Trade Agreement

The African Continental Free Trade Agreement The African Continental Free Trade Agreement is the largest free-trade agreement in the world with a 1.2 billion-person market and a combined GDP of 2.5 trillion dollars. It was signed in March of 2018 by 44 African heads of state, and following the initial signing, 5 more countries joined in July for a total of 49. The African Continental Free Trade Agreement’s primary focus is to increase intra-African trade by promoting free movement of goods and tariff-free trade. In fact, for the countries that joined, tariffs are expected to decrease by 90 percent within 5 years.

According to an article by The Economist, roughly 82 percent of African goods are exported to other countries. Due to high transport costs, poor infrastructure (e.g. in West Africa, less than one-fifth of the roads are paved) and time-consuming border procedures, it is more costly to trade within Africa than to export to foreign countries.

With the new free-trade agreement, a more competitive market will emerge that will reduce costs for consumers. Additionally, producers will have access to a larger number of potential buyers, as well as more investment opportunities from foreign countries. Strengthening intercontinental trade has the potential to protect the countries in Africa from the impact of exogenous trade shocks.

Maximizing the Impacts of AfCFTA

In order to reap the highest benefits from the new intra-continental free trade agreement, it is imperative to make adjustments to Africa’s trade structure. However, trade facilitation is not an easy task. It involves coordination between countries, transparency in policies and easing the movement of goods. Currently, intra-African trade accounts for only 16 percent of Africa’s total exports, while the bulk of its exports are to Europe (38 percent), China (19 percent), and the U.S. (15 percent). With the implementation of the African Continental Free Trade Agreement, The United Nations Economic Commission for Africa estimates that intra-African trade will see a 52 percent increase by 2022.

Infrastructure Development

Reducing non-tariff barriers, like transport time for goods, is an essential component of solidifying the new free-trade agreement. According to the International Monetary Fund, the average cost of importing a container in Africa is about $2,492, which is significantly more expensive than the cost of exporting to another continent. This helps to explain Africa’s high incentive to export the majority of its goods.

In order to aid with the implementation of infrastructure projects, the New Partnership for African Development (NEPAD) has facilitated two main systems of information. The African Infrastructure Database (AID) concerns itself mainly with data management and stores information about ongoing infrastructure development projects including the location as well as relevant financial and economic information. The Virtual PIDA Information Centre contains regional and continental infrastructure projects and promotes investment opportunities.

Clearly, higher access to information regarding infrastructure projects can help countries organize themselves around infrastructure development efficiently. This will help to reduce the intra-African costs of trade by fostering more easily navigable and cheaper transport routes between countries.

Economic Integration

It is crucial to consider that the informal trade sector contributes to a large amount of overall trade in Africa. The Africa Economic Brief is a document published by Jean-Guy Afrika and Gerald Ajumbo that discusses the specifics of informal trade in Africa. It states that the informal cross border trade sector (ICBT) represents 30-40 percent of total intra-African trade. In West and Central Africa, women make up almost 60 percent of informal traders, and 70 percent in Southern Africa.

Problems that affect the formal sector, like infrastructure and trade, have a disproportionate effect on the informal sector—especially for marginalized groups such as women and youth. It is unclear how the African Continental Free Trade Agreement will affect these groups as trade is adjusted; however, an increased focus on local trade and easier trade routes will likely facilitate trade for everyone involved. Since informal trade struggles with the same main issues as formal trade, making trade more accessible in the formal sector can create positive spillovers.

The informal trade sector is an important one to protect. Big businesses often avoid trading with rural areas due to high transportation costs, so instead these areas rely on informal trade for food, clothing and other commodities. Furthermore, ICBT provides a vital source of income to individuals who are often low-income or low-skilled. According to the Africa Economic Brief, studies estimate the average value of informal cross border trade to be 17.6 billion dollars per year in the Southern African Development Community (SADC).

In order to provide support for informal traders in Eastern and Southern Africa, the United Nations is funding a project to help decrease gender-specific obstacles in Malawi, Tanzania and Zambia. A focus on female empowerment will help maintain and improve the informal trade sector and contribute to poverty reduction.

With support from various organizations, countries in Africa are taking defining steps to reduce taxes, transport times, and an increase in market competition. Signing the African Continental Free Trade Agreement opens Africa up to free trade and, if facilitated effectively, it will have enormous positive implications for Africa’s economy.

– Tera Hofmann
Photo: Flickr

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The Development of South Asia Through Integration

The Development of South Asia Through Integration
South Asia is considered one of the least integrated regions across the globe; yet in recent years, international organizations, such as the World Bank, are implementing strategies to unite the nations economically.

Understanding South Asia

South Asian countries consist of Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. South Asia is considered one of the fasting growing regions within the world today, and the region is home to two very fast-growing economies.

According to the World Bank, the development of South Asia is projected to increase from 6.9 percent to 7.1 percent in the upcoming year.

Bhutan, alone, is currently the fastest growing economy — the nation reports that it will grow at a staggering annual rate of 11.1 percent. India is also one of the fastest growing economies as well, with a growth rate at about 7.73 percent from 2017-2019.

The World Bank emphasizes the importance of cooperation and trade among South Asia, and they believe that the growth rate is predicted to increase if these nations work together in harmony.

Path to Progress

Regional, economic entwinement is the way in which development of South Asia progresses — the World Bank recognizes such measures and has initiated plans in order to unify this region.

As one of the first steps, the World Bank brought approximately 100 students together at the Fourteenth South Asia Economics Students’ Meet (SAESM). Economic undergraduates discussed their academic and experimental research about regional integration and its advantages.

They also explained how to attain economic prosperity through cooperation and trade, and students developed long-lasting friendships that should unequivocally encourage future relations among South Asian countries.

‘One South Asia’

Not only has the World Bank encouraged millennials, but they also have a twofold program called “One South Asia,” which directly forms connections among South Asian countries. The first objective is technical assistance, which will offer economic opportunities to strengthen trade connections. The second goal is to increase conversation about regional integration and local investments.

They are also trying to work with both the public and private sectors. The development of South Asia begins at the engagement of all levels of the economy.

There has been many obstacles to achieve “One South Asia,” yet the World Bank is determined to merge these nations together so they are successful economically, politically and socially. The development of South Asia as a whole will be difficult, yet it is possible and can occur if the region continues on this trajectory.

The World Bank’s Influence and Steps to Development

The World Bank has many projects within South Asian nations — particularly Afghanistan, Bangladesh, Nepal, Sri Lanka and Pakistan — to improve their economies individually. Most of these initiatives create jobs and opportunities for their citizens.

Regional integration is also crucial to the development of South Asia. The only way to reach prosperity is for countries to form a union — if South Asia mirrored the European Union, the opportunities for growth within each nation are endless.

This is a challenge, yet if international organizations, governments and the citizens of South Asia work tirelessly, they will surely reach their Sustainable Development Goals.

– Diana Hallisey
Photo: Flickr

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South Asian Countries Aim for Greater Integration

Society_India_Integration SAARC
The 42nd meeting of the standing committee of the South Asian Association for Regional Cooperation (SAARC) took place in Nepal in mid-March 2016. India’s External Affairs Minister, Sushma Swaraj, called for greater cooperation among member nations to increase overall prosperity and decrease poverty rates.

According to The Times of India, Swaraj emphasized the importance of regional integration and cooperation for the benefit of all: “We continue to face significant challenges in delivering food security, health, nutrition and education to our peoples. All this goes to show that while we are doing well individually, we have not been able to unleash our collective strength effectively. We must think innovatively and find solutions so that we may harness our economic complementarities and ensure a conducive environment for rapid growth.”

The SAARC comprises Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka. As a region, these South Asian countries have more people living under the poverty line than anywhere else in the world.

Swaraj acknowledged this fact in her speech, saying, “We must recognize that we have common enemies in poverty, illiteracy, terrorism and environmental degradation. We will need to fight these challenges together since we have a shared history and a shared destiny. Let us reach for it together.”

The historic tension between India and Pakistan has been one of the toughest barriers to regional integration among SAARC countries. Even so, new developments suggest that the relationship between the two countries may be improving.

During the summit, Swaraj met with Pakistan’s Foreign Affairs Advisor, Sartaj Aziz, multiple times. Greater cooperation between India and Pakistan’s intelligence and criminal investigation agencies was a major topic of conversation between the two leaders.

In November 2016, the Indian Prime Minister will visit Islamabad, the capital of Pakistan, for another SAARC summit. This visit could lead to an even greater relief of the tensions in India-Pakistan relations.

An article in The Indian Express asserts that the “SAARC countries have been held hostage by India-Pak tensions.” Thus, a stronger relationship between India and Pakistan would benefit the entire region.

India’s Foreign Secretary, S Jaishankar, has stated that only when India-Pakistan relations improve “will building a peaceful, secure and prosperous neighborhood yield rich dividends for all SAARC member states.”

Reducing regional poverty rates hinges upon greater economic integration among South Asian countries. Stronger India-Pakistan ties, along with increased cooperation in South Asia can help increase regional prosperity, secure peace and reduce poverty.

– Clara Wang

Photo: Flickr