Developing Corridors for Growth South Asia Regional Transport and Trade Facilitation Program

May 12, 2014

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World Bank

In South Asia, the most binding infrastructure constraints to growth for firms are:

2

0

10

20

30

40

50

60

70

80

90

100

Afghanistan2005

Afghanistan2007

Bangladesh2002

Bangladesh2007

India 2002 India 2005 Pakistan 2002 Pakistan 2007 Sri Lanka2004

Total

%

Electricity

Transport

Telecommunication

1.

2.

3.

World Bank firm survey

% o

f firm

s w

ho re

port

ele

ctric

ity, t

rans

port

or T

elec

omm

unica

tion

as a

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int

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In 1909, freight could move by rail and road seamlessly from Karachi to Lahore to Delhi to Dhaka, and by inland waterways on the Brahmaputra and Jamuna Rivers (India and Bangladesh)

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However, barriers erected since Partition have made it harder than ever to trade in South Asia

A container takes 6-7 times as long to get from New Delhi to Dhaka using current indirect routes through Singapore and Colombo

Cut travel time down by 30 days (from 35 days to 5 days) via direct rail connectivity between Kolkata and Dhaka

Current Inefficiencies Potential Savings/Impact

A container travels 3 times the distance to get from Dhaka to Lahore using the maritime route

Cut travel distance by 4900 km (from 7200 km to 2300km) by using direct overland routes through India

Goods from Agartala (NE India) travel 8 times the distance to reach Kolkata Port instead of using Chittagong Port in Bangladesh

Cut travel distance by 1400 km (1600km to 200 km) by travel through Bangladesh

Inefficient circuitous routes impose high costs on traders and the economy

Indo-BD

BD-Pak

Indo-Pak A container costs 4-6 times more to travel the indirect maritime route than the direct route between India and Pakistan

Cut costs by $3200 to $4300 per 40ft container by taking the Mumbai-Karachi direct route rather than through Dubai

No wonder South Asia’s intraregional trade is the lowest in the world

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Region Intra-Regional Trade

as a share of total trade (%)

EU 60 EAP 40

NAFTA 35 ASEAN 25

MERCOSUR 15 ECOWAS 10

SAARC 5

World Bank (2012): “Preferential Trading Arrangements. Policies for Development.”

Zhai (2010): investments in transport infrastructure to increase Pan-Asian connectivity could reduce trade costs by more than 20% in India, and12.5% in Bangladesh and Pakistan. The lower trade costs would yield annual gains of around 6% of 2020 GDP for India and Bangladesh, and 4% for Pakistan.

(in 2008 prices).

Research Information Systems (RIS),

India: Intra-regional trade can more than double if constraints are removed (US$ 15 billion to US$ 40 billion annually)

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McKinsey 2010 Infrastructure Study estimates that logistics inefficiencies account for 4-5% of India’s GDP (US$45 billion in 2013, US$140 billion in 2020)

Figures for other economies in South Asia are likely comparable

Transport and Logistics inefficiencies impose high costs on South Asia’s economies

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South Asia is among the bottom three regions for logistics performance, and the 3 landlocked countries rank among the poorest performers

Region/ Country LPI Score

LPI Rank*

Customs Infra-structure

International shipments

Logistics competence

Tracking & tracing

Timeliness

East Asia & Pacific

2.84 2.57 2.66 2.82 2.72 2.91 3.32

Europe & Central Asia

2.71 2.47 2.6 2.66 2.65 2.75 3.14

Latin America & Caribbean

2.71 2.45 2.57 2.71 2.64 2.73 3.12

Middle East & North Africa

2.58 2.29 2.4 2.68 2.49 2.56 3.02

Sub-Saharan Africa

2.46 2.27 2.29 2.47 2.43 2.41 2.85

South Asia 2.58 2.47 2.39 2.59 2.58 2.49 2.93

Afghanistan 2.07 158 2.16 1.82 1.99 2.12 1.85 2.48 Bangladesh 2.56 108 2.09 2.11 2.82 2.64 2.45 3.18 Bhutan 2.29 143 2.09 2.18 2.38 2.48 2.28 2.28 India 3.08 54 2.72 2.88 3.20 3.03 3.11 3.51 Maldives 2.75 82 2.95 2.56 2.92 2.79 2.70 2.51 Nepal 2.59 105 2.31 2.26 2.64 2.50 2.72 3.06 Pakistan 2.83 72 2.84 2.67 3.08 2.79 2.73 2.79 Sri Lanka 2.70 89 2.56 2.23 2.56 2.91 2.76 3.12

World Bank Logistics Performance Index 2014: Regional and SAR Countries

*LPI rank is out of a total 160 countries.

8 Source: Doing Business 2014: Trading Across Borders

Time to import-export is higher than most other regions, and the landlocked countries are at a disadvantage

Rank of total189 countries Bhutan: 172 Nepal: 177 Afghanistan: 184

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The poorest and most deprived populations in South Asia are concentrated in the Ganga Basin

World Bank, 2011 South Asia Poverty Rate map

McKinsey, India Deprived Services map* *food, energy, housing, drinking water, sanitation, health care, education, and social security

Nepal, Bhutan, NE India, Bangladesh, Bihar

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Where World Bank corridor development and connectivity projects are focused…

Proposed Bhutan project Proposed Bangladesh projects India projects Nepal project

Unblocking trade barriers in the poorest and most densely populated regions has positive impact on poverty alleviation

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The World Bank’s investment and analytical program seeks to address key policy, procedural and infrastructure barriers along

SAARC priority corridors focusing on three key objectives:

Facilitating connectivity to the nearest ports, and to regional and global markets for the 4 landlocked areas in SAR.

Investments in missing links and especially last-mile links to establish multi-modal connectivity along strategic regional corridors.

Addressing policy and procedural issues to seamless cross-border transit.

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connectivity for landlocked states

multi-modal connectivity along strategic regional corridors

Bangladesh India Bhutan Nepal

Improve national and regional

connectivity for isolated

Chittagong Hill Tracts Districts

Improve national and regional connectivity for

landlocked NE India states

Address missing transport links and trade infrastructure along Southern E-W

Highway

Improve road and trade

infrastructure along

Kathmandu-Birgunj-Kolkata

Corridor

Leverage IWT for national and

regional transport

Multi-modal connectivity for NE India states to

Bangladesh Develop alternative trade routes incl. along Thimphu-

Phuentsholing C.

Explore alternative

trade routes through

Bangladesh

Multi-modal connectivity to Myanmar and East

Asia

Explore alternative multi-modal (road, IWT) trade routes through Bangladesh

Develop economic centers of growth along

the Golden Quadrilateral

Implement Eastern Dedicated Freight

Corridor

Multi-modal connectivity to

Myanmar and East Asia

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constraints to seamless cross-border transit

Bangladesh India Bhutan Nepal

Bangladesh to allow free transit of Indian trucks

across its territory?

Consider joint/ co-located

border post with India?

India to allow free transit of trucks from Bangladesh, Bhutan and Nepal across Siliguri Corridor?

Consider joint/ co-located

border post with India?

Consider joint/ co-located

border post with India?

Consider joint/ co-located border post

with neighboring countries?

Implement the GST?

India to allow alternative trade routes for Bhutan

and Nepal?

WB Program to Facilitate South Asia Transit and Trade

Afghanistan Second Customs Reform and Trade Facilitation Project Karachi Port Improvement Project Eastern Corridor Transport and Trade Facilitation Program NLTA

◦ Regional railway, IWT and trade potential/livelihood development studies and TA

Nepal-India Regional Trade and Transport Project Nepal Regional Trade Technical Assistance Project India: Eastern Dedicated Freight Corridor Program (incl Development Corridor

approach) India: Mizoram State Roads II Regional Connectivity Project India: Support to National Transport Development Policy Committee NE India Multimodal Transport Technical Assistance Project (proposed) India: National IWT Corridors Project (proposed) Bangladesh Regional Trade and Transport Project (proposed) Bhutan Regional Trade and Transport Project And supporting development of trade with Myanmar “Breaking Barriers” book/analytical work on supporting regional trade in South Asia Competitiveness studies in Afghanistan, Bhutan, Nepal, Pakistan

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Projects in the Program address key barriers along SAARC priority multimodal transport corridors to facilitate trade

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Anchor & “cluster”

Anchor & “cluster”

Stranded investment

Problem feeder

Stranded investment

Agri-node & “cluster”

Problem feeder

“DENSIFICATION” Feeders often

need to be funded thru’ fiscus/grant

DC logistics “catchment”

The spatial development approach is an attempt initially by the Government of South Africa to "unlock the inherent capital potential" of specific spatial locations in Southern Africa. The approach has since been adopted regionally in Southern Africa and continental by the African Union.

Source: Jourdan, 2008

World Bank using Development Corridor Approach to support Golden Quadrilateral Development

MAPUTO

Pande-Secunda Gas line. PPP Sasol completed

Coal-based Power Station 2 transmission lines to Matola

completed

Liquid Fuels & Petro-chemicals: Sasol

Al smelter 500ktpa BHPB completed

Joburg-Maputo Highway PPP- BOT completed

Port of Matola/Maputo Upgrades, PPP

Joburg to Maputo Railway line: Upgrade

Sout

h A

fric

a

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Anchor Projects to Crowd in Private Sector Investment, plus services and economic opportunities for local communities

Lessons Learned from Other Projects/Regions

Must be carefully planned: mapping what the potential is, where it lies, institutional and policy bottlenecks, grounded in economics

Three tiers of institutional collaboration ◦ Across Countries: Government-to-Government ◦ Within Countries: Inter-ministry Coordination ◦ Local Participation: Province-to-Province (Punjab-Punjab)

A catalytic event to focus energies ANCHOR PROJECT/s that can crowd in investment Benefit sharing and backward linkages: local communities

can benefit from SME and job creation Government must take the lead: Private sector should

participate but cannot do it alone (too many policy/regulatory issues, magnitude of investment too high)

Addressing core connectivity and services gaps is key to unlocking the latent potential of economic corridors

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US$101m in IDA-IFC investments & TA Board approval June 2013 Challenges: Long dwell time at Kolkata/Haldia ports Bilateral transit agreement limits Nepali transit

to only one corridor, and only containerized cargo for rail

Poor and narrow roads in Nepal and India No through bill of lading and inland clearance Duplicative domestic licensing/documentation/

customs procedures No cross-border electronic data interchange No mutual recognition of collaboration on SPS

and standards Insufficient parking/warehousing facilities Development Objective: Decrease transport time and logistics costs for bilateral trade between Nepal and India and transit trade along the Kathmandu-Kolkata corridor for the benefit of traders by reducing key infrastructure bottlenecks in Nepal and by supporting the adoption of modern approaches to border management.

Nepal-India Regional Trade and Transport Project addresses challenges along a typical SAARC Priority Corridor: Kolkata/Haldia-Raxaul-Birgunj-Kathmandu: Road, Rail, Border/Trade Infras, Procedural Reforms

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Inland waterways need development to exploit potential World Bank supporting efforts in both Bangladesh and India

Ashuganj Port needs better terminals, equipment, operations, Need rail connectivity from Tripura

Akhaura could soon become one of the main doorways to a $1billion/year trade corridor, but need wider approach roads on both sides, India building ICP

Short term of Bilateral Protocol prevents private sector investment; no night-time navigation permitted; dredging needed esp Nov-May; more and better navigational aids, safety and cargo handling equipment and terminals needed, esp in Bangladesh.

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US$107 regional and national IDA Board date June 2014 Challenges: Low road density in state Poor connectivity Difficult terrain Low level of trade and availability of jobs Low trade production capacity Development Objective: Increase transport connectivity along

regional trade corridors in Mizoram through (i) Improvement of Priority Cross-border Roads and Trade-Related Infrastructure; and (ii) Road Sector Modernization and Performance Enhancement through Institutional Strengthening

Mizoram State Roads II Regional Transport Connectivity Project: Enhancing connectivity to Bangladesh and Myanmar

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Infrastructure Gaps exist but the real challenge is no freedom of transit, protectionist policies and NTBs

Rail Road IWT

Gauge/Equipment Standards

Harmonization Regional Agreement

TIR Carnet Motor Vehicle Agreement

Road Design Harmonization

Longer-term IWT Protocol/

Agreement More Investments

Regional Bond

Through Bill of Lading

Customs Simplification, Harmonization, and Cross-border Cooperation

Simplification, Harmonization and Mutual Recognition of Quality and Technical Standards

Removal of NTBs (rules of origin, standards, etc..)

Restrictive Trade Agreements (positive list, etc..)

In addition to investments in infrastructure, policy reforms are needed for high impact:

Diep Nguyen-van Houtte Senior Transport Specialist Trade and Transport Facilitation World Bank dnguyenvanhoutte@worldbank.org +1-202-473-7213

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Thank you!