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July 2015 Economy and Policy

Published on: 2015-07-19 00:00:00     1699 times read    0  Comments
 
Just as Nepal faces this development dilemma so also the same is being felt by Bangladesh, Bhutan and India which together comprise the world's premier poverty belt. The estimated population of the growth quadrangle is around 500 million people. Of this 500 million, the absolute poor may comprise 250-350 million, which is around 50% of the world's poor!
 
--By Madhukar SJB Rana
 
Subregionalism occurs when at least three, but not all, countries of a regional association cooperate in any form. A 'growth quadrangle' is a special form of subregionalism where four geographically contiguous countries cooperate, at the subnational and/or local level, in core economic sectors in order to accelerate the speed of economic growth.
 
Where three contiguous countries participate in subregionalism, it’s referred to as a 'growth triangle'. When five or more countries are involved, it may be called a 'growth polygon'. Whereas growth polygons have tended to, in the past, be limited to intra regional cooperation, now localized inter regional cooperation is beginning to take shape as novel forms of subregionalism.
 
Some authorities also call such forms of economic cooperation by other names. For example, as 'growth poles', 'growth corridors' or 'growth zones' by drawing upon, as it were, the analogy from regional and urban planning theories and practices at the national level.
 
From the above definition, it should be clear that the general purpose of a growth quadrangle is to deepen economic cooperation through closer cooperation in the use of the existing resources in the participating countries through some measure of integration, harmonization of institutions and practices, and coordination in the policy framework.
 
When these resources are overarching and infrastructural (as in the case of transboundary rivers, national highways/railways/airways, energy and, also in the diverse areas of the environment) then sectoral cooperation may also be national in scope, rather than subnational or local, depending on the magnitude of the resources needed for cooperation and the complexity of the process of cooperation (e.g. Ganges-Brahmaputra-Meghana river basin, Asian Highway and Railway networks, power grids etc.). 
 
Further, it should be kept clearly in mind that a certain uniqueness to South Asian growth quadrangles, as compared to others, is bound to arise owing to the fact that, here in South Asia, only India has common borders with each of the SAARC nations. 
 
Goals of the Growth Quadrangle
As per the joint decision of the foreign secretaries of Bhutan, Bangladesh, India and Nepal on subregional economic cooperation, taken in Kathmandu on April 2, 1997 -¬which has subsequently been collectively endorsed by the foreign ministers and also by the SAARC heads of state/government at the Male Summit in May 1997  the following are the growth quadrangle's goals:
(a) to create an enabling environment for accelerating economic growth; 
 
(b) to overcome infrastructural constraints; 
 
(c) to make optimal use of and further develop the complementarities in the subregion, and
 
(d) to develop economic and institutional linkages and nodal points for facilitating cooperation on policy framework and project implementation.
 
Objectives & Governing Principles of Cooperation 
The joint decision of the four governments also enunciated the modus operandi and its governing principles. It has, therefore, been agreed that the objectives of subregional cooperation are: (a) to collectively identify and select projects and thereafter, (b) to implement these projects through the mechanism of the SAARC Action Committee as per Articles VII and X of the Charter.  
 
Governing principles agreed require that all projects should (a) serve to accelerate broader regional cooperation within SAARC, (b) make best use of' the neighbourhood synergies, (c) be supportive and complementary to national development plans, (d) mobilize the participation of the private sector in their implementation, and (e) yield tangible benefits to the people in the form of poverty eradication, income and employment generation and improvement in the quality of life. 
 
It is also agreed that, "Whilst learning from the experiences of other subregional cooperation initiatives, particularly in the Asian region, the growth quadrangle will seek to evolve an endogenous model of subregional cooperation in keeping with the particular conditions, needs and interests of the participating country." (Decision of the First Meeting of Foreign Secretaries).
 
Plan of Action 
It was the decision of the four governments, as recommended by the Foreign Secretaries, that subregional cooperation shall be in the areas of: (a) sustainable utilization of natural resource endowment (Bangladesh), (b) multi modal transportation and communications (Nepal), (c) energy (Bangladesh), (d) tourism (Nepal), and (e) trade and investment (India). 
 
Later, at the informal meeting of the foreign ministers during the NAM Meeting at New Delhi in April 1997, it was decided to add: (f) environment (Bhutan), as a further sector for subregional cooperation. They also decided to allocate the role of coordinating responsibility to each country (as shown in brackets above). Nepal was allocated the role of 'overall coordinator'. 
 
It has been decided that the establishment of the envisaged growth quadrangle shall take place in a phased manner to last for a minimum of seven to a maximum of 13 years. Hence, the target dates for the formation of the proposed growth quadrangle are anywhere between 2004 to 2009. The process shall consist of four phases as follows: 
 
Phase I: this is to comprise the study phase commencing July 1997 till June 1998. Four experts are required for each sector to undertake the subregional study by adopting a subregional perspective in the identification and selection of projects. In Phase I, it is also anticipated that each coordinating country may mobilize financial and technical assistance from regional institutions as it deems fit. However, it is expected that ownership of the ideas and initiatives, as also the stewardship of the phases and its various activities, shall rest with the cooperating governments. 
 
Phase II: at this time there shall be a Steering Committee of Foreign Secretaries to examine the recommendations of the Working Groups in Phase 1 and decide on the detailed feasibility studies. It is expected to last from 1 to 2 years. 
 
Phase III: during this period, following the commercial feasibility studies, the foreign secretaries will recommend to the concerned ministers of the participating countries for the launching of the projects. This phase will also be concerned with issues regarding sectoral coordination, policy framework, and institutional and financial arrangements. This phase is expected to last from 5 10 years.
 
Because of the decision of the Male Summit, it is now incumbent on Nepal, as overall coordinator, to introduce an additional Phase IV, which is the process of endorsement of the recommended projects by the Action Committee of SAARC.
 
It is believed that at the time of the meeting of the SAARC Action Committee, when all the seven countries assemble to decide on execution of the project, they should be solely concerned with the appraisal of the subregional project for its impact on two vital issues: Namely, (a) whether its implementation would compromise the greater SAARC interest? and (b) whether any of the non quadrangle countries would also like to participate in any suitable manner (e.g., finance, technology transfer, marketing, etc.)?
 
Growth Quadrangle and Nepal's National Interest 
There is an overwhelming national consensus amongst the political parties and academic circles that a need for subregional cooperation exists. The primary negative concern was over the possible weakening of the larger SAARC process through the isolation of Pakistan mainly. This problem has now been put to rest by the 9th SAARC Summit with its unanimous endorsement of the concept. 
 
Furthermore, the prospects of a new growth quadrangle (to be called BIST¬EC) are being studied by ESCAP. It groups Bangladesh, India, Thailand and Sri Lanka. Later Myanmar will join. Nepal is seeking Observer status because of its contiguity albeit landlocked and vital interest in the Bay of Bengal; and also because of the likely benefits of closer economic cooperation with Myanmar, Thailand and, not least, the dynamic ASEAN region.
 
Nepal's broad long-term development goals have been and (probably) are: (a), to eradicate poverty, (b) to speed up economic growth, and (c) to balance development regionally. Let us examine how these national development goals can be secured through subregional cooperation.
 
Poverty, eradication strategies have failed to yield the desired results so far as nearly 50% of the people lie below the poverty line. At best, past strategies have helped to alleviate poverty given the impact of the population explosion. 
Past achievements are founded on aid, which is likely to be curtailed significantly in the near future. The savings gap will not be able to be filled with commensurate increments in the national savings ratio.
 
This requires that new resources be generated. One source is debt forgiveness. Another is privatization of public enterprises. Both are, yet, riddled with political uncertainties. Hence new resources are needed. 
 
Just as Nepal faces this development dilemma so also the same is being felt by Bangladesh, Bhutan and India which together comprise the world's premier poverty belt. The estimated population of the growth quadrangle is around 500 million people. Of this 500 million, the absolute poor may comprise 250 350 million, which is around 50% of the world's poor! 
 
The new resource that all these countries have discovered is water with its vast potential to transform not only agriculture, where most of the poor are critically dependent on, but the entire economy provided the countries can cooperate to harness it.
 
The geo economic importance of the subregion is being rapidly realized by the world's markets as the Bay of Bengal hub, comprising Bangladesh, Bhutan, North and NE India and Nepal, which forms what may be called 'the eastern seaboard’ of SAARC, is seen to be strategically located with maritime, air and overland outreach to South East and Central Asia and to West Europe. It is an area rich in strategic resources like hydro energy, natural gas, coal and offshore oil. With its vast pool of labour the subregion is being seen as the next trajectory of the “flying geese" as industries relocate here, as they move out from SE and NE Asia, in search of lower wages. 
 
Further, the natural production complementarities of the subregion, that was severely hampered by the partitioning of India, will now be re engineered as trade and investment markets are opened up to each other through cooperation in the infrastructure sectors like transport and communication, energy, water, tourism and environment. 
 
Limited investment in infrastructure is the major bottleneck to both speedier economic growth and a more balanced regional development. It is expected that with cooperation in these fields regional and global foreign direct and portfolio investments will move into the quadrangle at a swifter pace arising from the sense of subregional harmony and, therefore, less uncertainties to investors. With the expected greater investment flows economic growth is bound to be faster in each of the quadrangle countries. 
 
The incorporation of river basin projects, as a result of subregional cooperation, will undoubtedly lead to greater regional balance nationally and, one should also add, greater balance between urban and rural development than in the past as new growth centres begin to unfold nationally. 
 
Critical Issues on Coordination 
1. The World Bank and Asian Development Bank (ADB) are strongly interested in this concept. Their approach may prove to be destabilising on the SAARC process, as they wish to keep their process out of the control by an overall coordinator. Parallelism, as in the choice of the ADB's modality, will be very difficult, if not impossible, to coordinate    either sectorally or overall. 
 
2. The ADB's choice of sectors does not coincide with the collective decisions of the Foreign Secretaries. Their process needs to, be effectively integrated by Nepal as we are responsible for 'overall coordination', which is to say we should be acting as the prime mover of the process in consonance of the agreed goals, objectives and action plans. The ADB wishes, like us, to adopt a project approach. But it also wishes to condense the phases so that implementation of some projects may take place in phase 1. They wish so because they feel there is a need to "demonstrate the benefits of subregional cooperation" (See ADB Reconnaissance Mission's Aide Memoire of August 1997 on the subject).
 
3. ADB's interest does not include tourism, environment nor air transport -all priority concerns for Nepal.
 
4. The World Bank's South Asian Growth Triangle initiative, (presumably started in 1996 on their own reckoning) is another parallel process, so far, which needs to be coordinated by ensuring that their efforts are in tune with the agreed goals, objectives, governing principles and phases as chosen by the quadrangle governments. Like the ADB, its interests lie in water, energy, transport and trade. 
 
5. Unlike ADB, for the World Bank environment is its main domain of interest presumably because of its commitment to the theme of 'sustainable development'. So far, it would appear that their orientation is for a 'programme approach'  and not the 'project approach', as sought by governments. They seem to be interested in engaging in 'scenario studies' concerned with trans boundary questions centred mainly on water resources. At the moment, they seem to have been able to embark on problem identification, modelling exercises on optimal water use, and creation of a computerized database on the "triangle" areas. (How the triangle was actually formulated, designed or drawn up is not known to governments!). 
 
6. Competition by and between the World Bank and Asian Development Bank, without sufficient in depth, active, localised participation by the national think tanks will, most likely, weaken the existing feeling of ownership of the concept of growth quadrangle existing in South Asia. In SAARC, the growth quadrangle concept came originally from the governments   not from the international financial institutions, as was the case with ASEAN. Unlike in the SAARC case, the ADB process does not have to be dovetailed within the ASEAN framework. Further, they have been allotted the responsibility for overall coordination, which now exists with Nepal. 
 
7. Effective coordination of the donor agencies can be achieved when there is a joint decision by all the actors over planning, strategy formulation, project preparation and control by the governments over the scheduling activities. Without these features, it is probable that the subregional efforts by the various parties will lead to a severe waste of money, time and expertise    not to mention possible conceptual confusion and sectoral conflicts at the national level. Possibly, too, conflicts subregionally, depending on the degree of openness in their attitudes to economic diplomacy among the participating actors. 
 
8. Coordination will be facilitated if sectoral position papers are available. So far only the Ministry of Transport has formulated its position paper. 
 
Conclusions 
Regionalism and subregionalism are ideal manifestations of the ‘tile success’ of Nepal's role in economic diplomacy in the post Cold War period. Witness the location of the SAARC Secretariat in Kathmandu. And now the assignment of overall responsibility for the subregional process.
 
As the thrust of globalisation picks up with greater momentum in the days ahead, regional and subregional trade and investment arrangements will become more pronounced as vital instruments of economic diplomacy. 
 
MOFA is already the national focal point for coordination over SAARC affairs. Now, another form of a national focal point for coordination of the subregional process is required. It needs to be led by, and institutionalised within MOFA, for effective coordination nationally and subregionally. The Nepalese embassies and missions located in the growth quadrangle countries need to be made fully active in the process. And the newly established system of International Relations' Desk Officers (IRD0s) in each of the sectoral ministries needs to be nurtured to link up with MOFA's Economic Relations & Coordination Division for more systematic operational coordination. 
 
Finally, a grand opportunity for institution building for economic diplomacy has now arisen. We must seize the movement. Consider the magnitude of the intended investments studies alone by the World Bank. For example, the World Bank proposes to spend U.S. $280,000 for six Workshops during its phase 1. And an additional U.S.$ 2.5 million and $15.0 million or a total of US 17 million for studies on co operation opportunity and techno economic analyses respectively during its phase II.
Rana is former Finance Minister of Nepal.

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