Dr. Ellen L. Frost
East West Center
Oceans and major rivers divide people, but they also connect them. They nourished some of South and Southeast Asia’s earliest civilizations. The Indian Ocean, the Bay of Bengal, the Ganges, the Brahmaputra, the Mekong, and other waterways carried not only goods but also culture, religion, ideas, and technology. Cities and towns arose along their banks and on the coast, populated by outward-looking cosmopolitan communities. Well developed trading networks linked Punjab and Gujurat with the Middle East, and Masulipatnam, on the Coromandel Coast of India, with Southeast Asia. Following the construction of colonial-era railways and canals, Madras (Chennai), Calcutta (Kolkata), and Rangoon (Yangon) became prominent ports.
Today, seaborne and riverine trade and investment connectivity between South and Southeast Asia is lagging well behind world standards. South Asia is among the least integrated regions of the world, accounting for only about two percent of world trade and 1.7 percent of foreign direct investment. By contrast, Southeast Asia’s trade and investment are highly globalized and at least partially integrated. Since 1990, trade and investment between the two regions have increased substantially, but this expansion started from a very low base and is still far below its potential.
Overcoming current divisions would add up to significant opportunities. Streamlining port procedures, rationalizing cross-border river traffic, and harmonizing regulations can create jobs, boost incomes, reduce migration, and help foster stability. Increasing the depth, capacity, efficiency and throughput of ports can boost trade and investment, thereby creating jobs and raising incomes. Numerous studies have established a direct link between expanded trade and investment and higher levels of economic growth. Economic cooperation and integration also contribute to security.
For example, better connectivity can foster export-oriented regional value chains in agriculture, textiles and clothing, leather goods, fisheries, and services. Modern port facilities can attract more cruise ships and thereby facilitate local tourism, which would benefit small and medium enterprises and encourage the preservation of local arts and crafts. For all of these reasons, most if not all governments in the greater Bay of Bengal and Indian Ocean region are committed to the modernization of ports and inland river transport in one form or another.
Conversely, the cost of doing nothing to improve the status quo is high. Failure to promote connectivity spells not only lost economic opportunities but also security risks. The allocation of water rights, fishing quotas, hydropower, and pollution control measures can and do breed conflict. Severe environmental damage and loss of livelihoods can prompt desperate people to migrate in large numbers or to engage in destabilizing criminal activity. Furthermore, China’s “One Belt, One Road” initiative, and particularly its “Maritime Silk Road” ambitions, highlight the need for BIMSTEC members to pay strategic attention to maritime connectivity. Strategic concerns have also arisen in other regional powers, such as the United States, Australia, and Japan as well as in smaller countries of the Indo-Pacific region.
Given the enormous scale of infrastructure initiatives connecting South and Southeast Asia, governments and development banks will be unable to supply more than a small fraction of the funding needs. Even China’s proposed grants and loans will not go very far. Participation by the private sector, whether alone or through public-private partnerships (PPPs), is thus essential.That is why improving the business and investment climate in BIMSTEC countries is crucial to expanding maritime and inland river connectivity.
Opportunities for BIMSTEC
Since connectivity is so vital to Asia’s future, members of the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC)and selected private sector and civil society representatives should make a coordinated, high-priority effort to improve the logistics of cross-border maritime and inland riverine transportation and facilitate the movement of money and people. Fortunately, the political transformation of Myanmar, the end of the civil war in Sri Lanka, and the ascendancy of a strong and reform-minded government in India are combining to open up new opportunities to do just that.
The most logical leaders of a stepped-up effort to improveSouth-Southeast Asian maritime and river connectivity are the seven members of BIMSTEC. At present, intra-BIMSTEC connectivity is quite low, with both imports and exports barely reaching five percent. BIMSTEC’s much ballyhooed Framework Agreement on a Free Trade Area, signed in 2004, has reaped few results.
The region abounds in underutilized assets. India, Bangladesh, Myanmar, and Thailand frame the Bay of Bengal and have a combined total of well over 12,000 km of coastline. Myanmar alone has a coastline that is 2,200 km long. The southern arm of Thailand reaches to the Strait of Malacca, a vital gateway connecting the Indian and Pacific Oceans. The mountains of Bhutan and Nepal are home to the headwaters of some of the region’s mightiest rivers, which support the livelihoods of hundreds of millions of people. Sri Lanka’s location has made it a trade hub for centuries.
Challenges and Precedents
Managing maritime connectivity is a complex task. Major ports must service three kinds of vessels: container ships, bulk cargo ships, and tankers. Some container ships are too huge for even major ports to handle. Successful management of maritime traffic requires compatible regulations and customs procedures, the issuance of visas for crew members, the allocation of anchorage and berthing rights, procedures for the loading/unloading and temporary storage of cargo, protection of the maritime environment, measures to cope with oil spills, physical and digital security, and the ability to detect and combat illegal trafficking. Such complex management tasks call for skilled and experienced people, who are in short supply in most BIMSTEC countries.
Successfully managing cross-border river traffic requires many of the same standards, procedures, and human resources. In addition, riverine management must encompass the construction of new dams and locks, facilities for the temporary storage of goods in transit, the development and allocation of hydropower, water access rights, the prevention of unauthorized water diversion, the preservation of fish stocks, flood control, measures to combat water pollution from agricultural runoff and industrial discharges, and on-site and downstream effects on coastal resources and livelihoods.
The Amazon, the Nile, and the Danube rivers have been the subject of cooperative multilateral agreements at least since the late 1990s. Governments engaged in the Greater Mekong Subregion initiative—whose members include BIMSTEC members Myanmar and Thailand—have been pursuing cooperative solutions with the help of the Asian Development Bank (ADB) ever since the program was launched in 1992. Other major rivers in South and Southeast Asia, however, lack similar management efforts.
Existing Policies and Institutions
There is no shortage of organizations devoted to improving maritime and cross-border riverine connectivity between South and Southeast Asia, but they vary widely in depth, political support, and effectiveness.
The most important source of research, analysis, and advocacy is the ADB. In 2015 the ADB’s Office of Regional Economic Integration and the Tokyo-based ADB Institute issued a study of connectivity between South and Southeast Asia that outlines a wide range of connectivity initiatives and impediments. All in all, the ADB has identified connectivity-related port projects estimated at $5 billion for South Asia (of which the largest amounts are for India and Myanmar) and $5.5 billion for Southeast Asia. Associated road, rail, and energy projects bring the total estimated need to $26.7 billion for South Asia and $46.5 billion for Southeast Asia.
One of the newest organizational initiatives is the Indo-Pacific Economic Corridor (IPEC), put forth by the United States. Designed to be broadly compatible with India’s “Look East” and Thailand’s “Look West” policies, IPEC transcends the longstanding U.S. bureaucratic gap between South and Southeast Asia. IPEC’s broadest mission is to foster connectivity, energy security, and open markets, which are seen as contributing directly to security and prosperity. Obama administration officials describe the role envisaged for the United States as “convener, partner, and supplier.”
The United States is constrained from financing large-scale“hard” (physical) infrastructure projects. Butthe U.S. government, U.S. companies, and individual experts are well qualified to supply “soft” infrastructure, such as digital connectivity, electricity generation and cross-border energy transmission, logistics management, and project design. The sharing of best practices is an easy and inexpensive way to start a dialogue.
The other area where the United State can make a direct contribution to connectivity is coordinated maritime safety and security. In November 2015 the White House announced an expansion of regional maritime capacity-building for the Philippines, Indonesia, Vietnam, and Malaysia. Enhanced security assistance, information-sharing, coordinated port security measures, and shared maritime architecture are on the list of initiatives. Although these countries are not BIMSTEC members, we can expect similar U.S. interest in upgrading joint security-related activities in the Bay of Bengal region.
Other relevant institutions and groupings include the ASEAN-India Connectivity project, the Mekong-Ganga Cooperation group (MGC), and the Mekong-India Economic Corridor proposal. For the Brahmaputra River, the most suitable framework would appear to be the Bangladesh-China-India-Myanmar (BCIM) Economic Corridor.
Among the BIMSTEC governments, India has announced the most ambitious and comprehensive set of proposals thus far. An ambitious port-led development initiative known as the Sagarmala Programme was approved by the Cabinet in March 2013. Pursuant to this initiative, a National Perspective Plan has been prepared that identifies more than 150 projects covering the modernization of existing ports and the development of new ones, the enhancement of port connectivity, port-led industrialization, and coastal community development and skills training. To provide equity and funding support, a new Sagarmala Development Company has been formed under the administrative control of the Ministry of Shipping. Implementation will be carried out by relevant port authorities, state governments, and central ministries, which will establish “Special Purpose Vehicles” for particular projects. Additional funding is projected to come from private sources or through public-private partnerships (PPPs).
Given the enormity of infrastructure needs, attracting foreign investment in the Sagarmala Programme is a high priority. In a week-long tour of the United States in July 2016, India’s Union Minister of Road Transport & Highways and Shipping asserted that the Modi government is committed to improving infrastructure connectivity “in a time-bound, results-oriented, corruption-free and transparent manner through e-governance and [a] fast-tracking decision-making process.” New port-centered initiatives are announced in New Delhi almost every week.
A recent sample of Sagarmala initiatives includes the establishment of new ports, government-sponsored plans to reduce energy costs by implementing solar photovoltaic power at various ports, and awarding waterfront and associated land to port-dependent industries in a transparent manner. If these initiatives actually succeed, their example will send a strong signal to potential investors.
In its 2015 study, the Asian Development Bank (ADB) identified three priority port and port-related projects:
- The Sonadia deepwater port in Bangladesh,
- The Sagar Island deepwater port, servicing Kolkata and the west coast of the Bay of Bengal, and
- Improved road connections to the Thilawa Port in Myanmar
Others highlighted by the ADB include:
- Improved port connectivity in the East Dagon township of greater Yangon,
- The development of a new port at Dawei and a deepwater port at Kyaukpyu, both in Myanmar,
- The Kaladan River Project linking Sittwe, on the coast of Myanmar’s Rakhine Province, with northeast India,
- The expansion of South Harbor in Colombo, Sri Lanka,
- A Phase II expansion of the deepwater port of Hamantota, on Sri Lanka’s south coast, and
- A new container terminal in Chittagong.
A priority rail project also identified by the ADB would link Kolkata to Yangon, via China’s Yunnan Province.
Perhaps the most pressing candidate for a cooperative riverine management framework is the Brahmaputra River basin, which comprises China, India, Bangladesh, and Bhutan. Political rivalry and competing claims to the Brahmaputra’s vast resources pose potentially serious security risks that should be addressed sooner rather than later.
Despite extensive historical and cultural ties, South Asia and Southeast Asia remain conceptually divided (as one author put it) by “a line between them…right through the middle of the Bay [of Bengal].” This division stems in part from the artificial boundaries imposed by the colonial powers. Today it is reinforced by vast differences in geography, languages, ethnicity, religion, standards of living, and (in some cases) political disagreements.
Efforts to bridge the huge gap between South Asia and Southeast Asia face numerous challenges. One is the absence of high-level leaders who are truly committed to improving connectivity between South and Southeast Asia—and who are willing to energize the bureaucracy and overrule vested interests. No BIMSTEC government has appointed a supra-ministerial “czar” tasked with overriding bureaucratic arguments, facing down domestic lobbies, and forcing improvements in connectivity at the local level. One reason could be that both South and Southeast Asia have huge “first-order” domestic and regional priorities that demand their leaders’ attention and strain their administrative capacity.
Poor or mediocre business climates in various BIMSTEC countries add more obstacles. Given the enormity of financing needs, attracting domestic and foreign investment in connectivity-related infrastructure is essential. Yet BIMSTEC countries score poorly in the World Bank’s 2016 “doing business” rankings. The Bank’s criteria encompass the ease of starting a business, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, and resolving insolvency. Of particular concern is the local politics of land acquisition and dispossession, which can undermine investor confidence. Thailand tops the BIMSTEC’s “doing business” rankings at #49 (out of 189), Bhutan is second at #71, and the others range from #99 (Nepal) to a dismal #174 (Bangladesh), with India coming in at #130.
In addition to these impediments, there are a number of technical obstacles. The World Bank’s Logistics Performance Index (LPI) lists six indicators: customs, infrastructure, international shipments, logistics competence, tracking and tracing, and timeliness. In 2016 India and Thailand earned the highest global LPI rankings among BIMSTEC members (#35 and #45, respectively), with the others well behind.
Most BIMSTEC members also score relatively poorly on the Liner Shipping Connectivity Index, which captures how well countries are connected to global shipping networks. Quantitative indicators record the number of ships, their container-carrying capacity, maximum vessel size, number of services, and number of companies that deploy container ships in a country’s ports. Leaving aside landlocked Bhutan and Nepal, the BIMSTEC member with the highest score is Sri Lanka.
Still other impediments are not confined to maritime or cross-border riverine connectivity as such. Taken together, they hobble private sector investment in infrastructure. They arise from the shallowness of financial markets and the associated weakness of financial connectivity, compounded by a regulatory mismatch and a lack of harmonized regulatory procedures.
The ADB has identified a number of broad constraints in this category. First, in some countries financial institutions such as insurance companies and pension funds are restricted from investing in infrastructure. Some governments prohibit equity investment in infrastructure by foreign companies and/or decide against them in the event of a contract dispute. Second, the fiscal environment is often neither transparent nor uniformly compatible with capital and profit repatriation. Third, governments are reluctant to rationalize user charges to allow cost recovery, preferring to impose a regulatory environment that reflects a political agenda and deters investors. Finally, despite pledges to establish a “single window” and streamline the approval process, investors seeking approval must go through multiple, time-consuming steps and frequently encounter demands for bribes and other forms of corruption.
Institutional impediments include the inadequacy of existing rating frameworks; the slow pace of reform of financial markets, including the general absence of a commercial debt market; the lack of mechanisms to permit foreign exchange hedging; and the possibility of sudden capital controls.
Finally, energy is needed to sustain infrastructure projects. Barriers that inhibit the cross-border available of energy include incompatible energy subsidies and unwillingness to share information on threats to energy security.
Conclusion and Policy Recommendations
A “grand vision”encompassing closer linksbetween South Asia and Southeast Asia might include the following pillars:
- Kolkata and Chittagong as twin hubs of a revived and flourishing trading network across the entire Bay of Bengal maritime region
- Seamless, efficient links to the Indian Ocean and global trade through southern India and Sri Lanka
- Adequate feeder roads conveying goods to and from the ports
- Rapidly developing transport nodes along Myanmar’s coastline with links to inland towns and cities
- Management of inland waterways originating in the Himalayas, reducing tensions and contributing to environmentally sound development
- Regulatory convergence/ harmonization, supplemented by a mechanism to resolve regulatory disputes
- Progress toward the goal of free movement of people, goods, services, and capital
Regional connectivity in the maritime and inland waterways sectors should feature prominently in national development plans and receive the highest political backing.
Plans should center on creating the conditions for public-private partnerships, private investment, and wide-ranging people-to-people ties.
Representatives of the private sector as well as young entrepreneurs should be involved in the selection of connectivity projects, in close consultation with local communities. Port authorities, managers of riverine traffic, and others with relevant infrastructure and financial experience should form cross-border working groups under BIMSTEC auspices to begin the hard work of planning “bankable” projects, overcoming impediments, and keeping projects on schedule and within budget. Conditions are currently favorable for launching such a process now or in the very near future.