Sunday, January 1, 2012

Trans-shipment or transit for India?

Bangladesh has a unique geographical location within the region and has every possibility to become an economic hub. So, we need to prepare ourselves for exploiting the opportunity through broader regional connectivity. To this end, our infrastructure and other related facilities need to be urgently developed. 

Bangladesh government is considering multi-modal transport connectivity not only with India, Nepal or Bhutan but also with China, Myanmar and beyond. We, the business community fully agree with this approach of the government.

Although South Asia has been one of the fastest growing and open economic regions in the world, intra-regional trade is still only 5 per cent of the total trade, as compared to 26 per cent in ASEAN, 52 per cent in NAFTA, and 58 per cent in EU.

Poor regional connectivity between Bangladesh and its immediate neighbours results in loss of developmental opportunity for all concerned.

Surface transport networks in South Asia continue to remain fragmented due to historical and political reasons. As a result, their potential as levers of economic growth at the regional level remains largely unrealised, whereas in today’s competitive world economy, transport costs are considered as an extremely significant determinant of competitiveness. Integrated and efficient surface transport networks are essential element for enabling economic integration at any level, including linkage to any regional or global supply chains. Due to lack of integration of the transport system in South Asia, the logistic costs are very high and range between 13-14 per cent of the value, compared to only about 8 per cent in the USA.

According to the joint communiqué signed by two Prime Ministers in January 2010 there has been understanding to introduce transit trade through Bangladesh, among others, to connect the rest of India with its north-eastern states. The issue, however, raises serious questions relating to economic, political and sub-regional development strategies that need to be holistically dealt with. There are a number of bilateral issues of national importance that has remained unresolved, including but not limited to water-sharing, marine boundary and border demarcation. So the transit issue has to take note of these outstanding problems with our neighbours.

Some experts observe postponement of the transit agreement had been a blessing in disguise. It has given Bangladesh government time to re-visit the benefits to be derived from such a treaty. Now the government can undertake a needling cost-benefit analysis. Apparently, the transit facilities will provide more benefits to India’s seven states in the north-east as the distance and time for transportation of goods will be reduced to almost one-third and thus bring down costs significantly.  Indian producers will thus be able to sell their products in the region at a lesser price and consequently, Bangladeshi businesses will lose opportunity for expansion of trade to these states.

It has been mentioned on various occasions that providing the transit facilities to India, Bangladesh will earn hundreds of million dollars a year as transit fees and related activities. But a research finding by the Centre for Policy Dialogue (CPD) recently stated that Bangladesh could expect no more than US$ 2.8 billion net present worth or value (NPV) over 30 years by providing transit facilities to India. This is really a pittance compared to the investment required for infrastructure development in Bangladesh.

In order to develop infrastructure for transit traffic, it is estimated that Bangladesh would need to spend approx US $ 7.00 billion to bring about improvements of existing facilities and creation of new one in order to be able to cater to the additional traffic. These will include developing the road and rail sectors as well as Chittagong and Mongla Ports. In addition, the country would need to spend hundreds of million dollars towards operation and maintenance of infrastructure over a 30 year period.

Against such investment requirement, Bangladesh would earn only about US$ 50 million annually during first five years when facilities are being created along the routes identified. Once the capital works are completed, the country would earn more and at certain stage the earnings may reach to a billion US Dollar; according to ADB.

The actual capital investment as well as maintenance costs will definitely be much higher than the estimate when the physical work will be undertaken. This is evident from our present experience with Padma Bridge.

The estimated cost of Tk.101.62 billion (US$1.5 billion approx.) of the Padma Bridge approved by ECNEC in 2007 has already increased to Tk.205.07 billion (US$ 2.93  billion) meaning double in four years, even before the start of construction.

Development of road infrastructure would not only require expansion of existing highways or development of new ones, but also resettlement of people who will be affected as a result, besides loss of already scanty agricultural land; which became smaller due to construction of new mills and factories as well as new housing for ever-increasing population. The government should, therefore, appoint internationally reputed consultants to undertake detail studies including cost-benefit analysis and develop a concrete action plan before going for any further advancement.

From the business point of view, operationalisation of the trans-shipment concept could be the best option for both Bangladesh and India. The practice of trans-shipment has been in operation throughout the world ever since trade expanded beyond borders and as such, an agreement to this end will resolve the issue of long-awaited transit facilities being requested by India. Such a treaty compared to the proposed transit plan will generate enhanced economic activity of several dimensions including creation of employment and business opportunities as well as addressing security concerns of Bangladesh. In the event of transit, such a huge economic benefit of multi-dimensional nature will be denied.

In other words, ‘transit’ may be termed as someone making his livelihood from the ‘rental’ income of inherited property and ‘trans-shipment” can be compared with building mills and factories to create employment, economic activity, generate wealth for growth and prosperity.

India has sought transit facilities to its north-eastern states through road, railway and ports in Bangladesh. India has also promised to open rail and surface routes for transit to link Nepal and Bhutan with Bangladesh. It is claimed that transit to and from Nepal and Bhutan would bring good revenue for Bangladesh. But consider the facts: Bhutan’s GDP is less than US $2 billion and Nepal’s economy is not big either. Besides, their economies are inextricably integrated with the Indian economy. It is unlikely that a significant volume of cargo from Nepal and Bhutan (to & fro) would go through Bangladesh simply because they don’t manufacture much exportable goods.

The Asian Development Bank (ADB) and the development partners see Bangladeshi gains too, from better roads, ports, railways and much-needed trade. In that event, movement of Indian goods from one part to another, by the Bangladeshi transport system could accrue huge economic benefit to Bangladesh and at the same time resolve long-awaited Indian request for transporting goods through Bangladesh to save time and money.

Some quarters think that trans-shipment procedure would be cumbersome and time consuming.  So long as the goods are in containerized form, and that is how they would travel in any case, there should not be any problem. Methods could be developed for seamless movement from one truck to another directly, at the borders.  If needed, Bangladeshi trucks could go into the warehouses in India, and then deliver goods to another Indian point after traversing the territory of Bangladesh.  The same procedure could be adopted for the railway as well.   

The direct benefit for Bangladesh from extending transit facilities to India is limited, according to a study by Dr KS Murshid, Senior Research Fellow of Bangladesh Institute of Development Studies (BIDS). It can be meaningful to a limited scale through rail connectivity which would be mainly trans-shipment, the study suggested. The core committee on transit has also recommended trans-shipment initially for three years.  

It may be mentioned here that, when  I was the president of The Federation of Bangladesh Chambers of Commerce & Industry (FBCCI) during 1992-94, we had a business meeting at FBCCI with the then Indian Commerce Minister Pranab Mukherjee.  In reply to the Indian proposal for transit facility, I strongly recommended for trans-shipment agreement with India; for which I was heavily criticised by a vernacular daily, on the following day. I am happy to note that recently CPD Chairman Prof Rehman Sobhan in one of his reviews also favoured the trans-shipment concept.

It is, therefore, strongly recommended that the concept of transit should be re-visited and Bangladesh should go for a trans-shipment agreement to help Indians gain easy and cost-effective access to their seven north-eastern states.

We came to know from newspaper reports that transit facilities for transport of Indian goods have already started through Ashuganj River Port. We also note that consignment coming from India is being given preference in crossing to Agartala over exportable commercial goods from Bangladesh, which is rather worrying for us.

Trans-shipment or transit for India through Bangladesh is not a simple issue. Thus, before providing such facility, a detailed serious study must be undertaken by internationally reputed professionals/consultants, appointed through international tenders, to determine the benefit accruing to Bangladesh. Lessons should also be drawn about legal, administrative and logistical aspects of transit/ trans-shipment from international experience.

BY : Mahbubur Rahman.