IndraStra Global on March 13, 2016
The South Asian Association for Regional Cooperation was officially established in December 08, 1985. The South Asian Free Trade Area (SAFTA) enter into force on July 01, 2006 under the umbrella of SAARC. From the same platform the SAARC Agreement on Trade in Services enter into force on November 29, 2012. SAARC Agreement on Promotion and Protection of Investment is yet to be finalized and enter into force. In the meantime 30 years gone. SAARC is the home of 21% (1.7 billion) world’s population with 9.12 % of global wealth. Combined SAARC is the third largest economy of the world. But a significant number of world’s poor people are living in this region. With its diverse landscape and variety of natural resources SAARC has every potential for economic development and poverty alleviation within shortest possible time.
To achieve this objective SAARC leaders has to be committed for further economic integration under this common platform. Employment generation and entrepreneurship development could be an effective weapon in this regard. To generate employment for such a huge amount of population huge investment is needed. Intra SAARC investment promotion as well as attracting foreign direct investment (FDI) could be the one of the best options. SAARC Agreement on Promotion and Protection of Investment has to be enter into force as soon as possible. At the same time a central institution has to be established to promote FDI into the SAARC countries as per respective competitiveness, raw materials, skilled manpower etc. availability.
Till now SAARC do not have visible achievements in terms of investment promotion. But I think it’s ground works were started in form of signing and activating South Asian Free Trade Agreement (SAFTA), SAARC cooperation in Standards, SAARC Agreement on Trade in Services, Cooperation in Avoidance of Double Taxation, SAARC Customs Cooperation, Organizing SAARC Trade Fairs for several times, establishment of SAARC Chamber of Commerce and Industry, and SAARC Arbitration Council. Now it is the time to finalize and activate Agreement on Promotion and Protection of Investment among the SAARC Countries. This agreement may consider to establish a body for united effort to attract foreign direct investment (FDI) into the SAARC states based on respective competitive advantages of different member countries.
Current economic dynamics of the SAARC Countries SAARC is covering about 3% of global territory with all features of the earth. There are to mountains, deep oceans, longest sea beaches, deserts, plain lands, green fields etc. Most of the SAARC countries have more than thousand dollar GDP per capita and positive growth rates. SAARC countries are till now trade deficit countries. All the SAARC countries are importing more than that of their exports. As a result united SAARC is one of the largest buyers of the globe. Most of the SAARC countries used to import capital machineries, raw materials, and chemicals. On the other hand their export basket is comparatively small and fixed with same or similar products. They must have to diversify their export basket to grow further and capture a larger portion of the global trade.
Challenges and Constraints
Above discussion states that there are enormous potential to increase FDI attraction into SAARC countries. At the same time intra-regional FDI flow shall be increased day by day. But there are few challenges hindering deeper economic integration among the SAARC countries. These are as follows:
Political instability: Two major and influential SAARC member states fought twice in last century. Besides this intra SAARC level of confidence / trust is not at a satisfactory level. Almost all the SAARC countries other than India is suffering from political instability. Afghanistan faced a series of wars during last decade even last century. Therefore it is a challenge to implement a regional commitment with the change in power (either party or system). Autocratic rollers are not used to comply with people’s demands either in terms of local or regional perspective.
Restriction on investing abroad: In most of the SAARC countries only FDI inflow is inspiring but FDI outflow (investing abroad) is restricted. As a result intra SAARC FDI inflow is insignificant. To be deeply integrated SAARC countries have to overcome this challenge in near future.
Complex visa regime: Till now it is tougher to get an Indian visa for its neighboring Muslim states than that of getting a U.S. visa. As a result neighboring government are bound to follow same policy in case of Indian citizens. To make SAARC more result worthy in terms of investment, trade and commerce visa system must have to be easier. Even visa free SAARC regime could be considered. At least port entry shall be allowed for each other’s to promote intra SAARC trade and investment.
Connectivity and Transportation: Till now most of the SAARC countries are not connected even in air for daily business needs. Maximum SAARC states are disconnected for land and sea connectivity as well. Therefore effective intra SAARC trade is not occurring among the member countries. Transit and transshipment facilities are in negotiation stage till now. To make an economically integrated SAARC region free movement of people and free movement of goods has to be ensured first.
Increasing number of non-tariff measures: Till now SAARC countries are applying non-tariff measures to discourage intra SAARC trade. This trend of enforcing non-tariff measures is increasing day by day. vi. Emergence of New Regional / Bilateral Free Trade Agreement: To avoid existing political conflicting relationship among few countries new bilateral / regional agreements are signing with few or partial part of the SAARC. These agreements are decreasing the importance of SAFTA or SAARC. Therefore it is time to promote new economic initiative under the umbrella of SAARC rather bypassing it.
This article is an excerpt from a research paper, titled “Foreign Direct Investment (FDI) in SAARC Countries”, published at Global Journal of Management and Business Research: C Finance Volume 15 Issue 8 Version 1.0 Year 2015 Type: Double Blind Peer Reviewed International Research Journal Publisher: Global Journals Inc. (USA) Online ISSN: 2249-4588 & Print ISSN: 0975-5853
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© 2015. Md. Joynal Abdin. This is a research/review paper, distributed under the terms of the Creative Commons AttributionNoncommercial 3.0 Unported License http://creativecommons.org/licenses/by-nc/3.0/)