One of the key themes shared by the narratives of rapid economic rise of Japan, South Korea, China, and the Asian Tiger economies, has been the expansion of global trade. As Bangladesh continues its own growth journey, one needs to be keenly aware of the shifts in geopolitical attitudes, particularly in relation to free trade and its implications to our own pathways to prosperity.
The US-China trade dispute, at the time of writing this piece, is set to escalate to USD 360 billion, according to CNN. The spectre of protectionism and economic nationalism looms large over the world. Analysis of the World Input-Output Tables database suggests that around 20 per cent of global GDP is generated by foreign demand via global trade. In such an interconnected world, it is clear that there can be no winners from rising tensions. However, from Bangladesh's perspective, the shifting landscape does lead to possibilities with potential upsides.
Bangladesh's trade with China (the nation's largest source of imports with over USD 10 billion in 2016-17, more recent data is not yet available) and the US (biggest export market in 2017-18, with exports of around USD 6 billion) is significant. Analysts suggest that it runs a bit of risk of being targeted by additional tariffs by either side. In fact, Bangladesh is already subjected to some of the highest US duties, equivalent to 15.2 per cent of the total value of our exports to the country. But with rising protectionist fervour, Bangladesh - with its strategic location, pool of skilled labour and growing domestic demand - is ideally placed to welcome industries and capital seeking to relocate.
In addition to opening up new possibilities, the global trade impasse also serves to remind us of another fact: while global trade is as vital as ever, so is regional trade. In fact, data from WTO's World Trade Development 2015 show that in many cases, regional trade can be a more critical driver. This is certainly the case in Asia, where inter-regional merchandise trade accounted for over 56 per cent of total global volume. This is also true for the more mature markets in Europe (68.7 per cent), and North America (39.2 per cent). For Bangladesh, strategically wedged as it is between the emerging giants China and India, the opportunities can be enormous.
Inter-regional trade within South Asia seems to be lagging, where intra-regional trade accounts for just 5 per cent, or USD 23 billion, of South Asia's total trade, compared to 50 per cent of total trade in East Asia, according to recent data. Analysis suggests that while Bangladesh's trade with South Asia stands at USD 7.6 billion, there exists potential to ramp this up to US 18.9 billion. In other words, Bangladesh is able to leverage only around 40 per cent of its trading potential with its South Asian neighbours.
This state of affairs is not a legacy of Bangladesh's history, but a present-day reality, and in itself represents vast untapped potential for the region. The trade routes within South Asia are as old as the land itself. The ancient civilisations cradled in the Indus valley, and those that followed them, thrived on these routes. They have shaped the history of this region - facilitating the flow of goods, technologies, people, ideas and indeed invaders.
Today, Bangladesh is as strategically located as it was during its early days, if not more so, in view of the rising significance of its neighbours to the east. It has the potential to become a critical connecting node between South Asia and East Asia, by becoming a major regional transhipment point. This can translate into a host of wider economic benefits for the nation. A number of key infrastructure projects that are already underway or are approaching implementation can bring this to reality.
The nearly-completed Padma Bridge will allow greater connectivity in the region, particularly with India to the west, and Myanmar and Southeast Asia more broadly to the east. To the northwest, the Jamuna Bridge offers the potential of connecting Bangladesh with Bhutan and Nepal. The proposed Sylhet-Chittagong highway will enable interconnectivity with India's north-eastern markets and major East Asian cities such as Bangkok, Yangon and Kunming. The Asian Highway project, a corridor passing through Jessore and Khulna while connecting Dhaka with Kolkata, will further strengthen Bangladesh's position within the pan-Asian corridor network.
Development work for the air and waterways are also progressing. Upgradation of the Cox's Bazar Airport can help as it can become a transportation and refuelling hub for both passenger and cargo flights. The proposed rehabilitation of the Buriganga and Shitalakshya rivers, together with further development of strategic waterways such as Arial Kha, Buriganga, Dhaleswari, Padma, Lakkhya and Meghna will boost connectivity at both national and regional level.
And then there are the emergent opportunities from the Bangladesh-China-India-Myanmar Forum for Regional Cooperation (BCIM). The most tantalising prospect of this would be a surface link between Shanghai and Mumbai, two of the leading economic hubs of Asia. A key component of this route would be Kungming-Kolkata connectivity, a route that would traverse through Myanmar and Bangladesh. Projects such as the mooted bullet train service between Kunming and Kolkata, would not only facilitate greater connectivity, but also spur a development of industrial clusters and employment all along the 2,800 km route.
To fully realise all of this potential, Bangladesh's infrastructure deficit must be bridged. While the current government has undertaken a massive development scheme, the investment requirement for infrastructure development is still likely to be in the range of 7-8 per cent of GDP per annum, according to the government's Seventh Five Year Plan. For Bangladesh, securing resources for this investment, including funding, has become crucial.
Developing viable and efficient financing strategies for infrastructure projects is vital to the viability of projects given the funding mismatch they present, where long-term economic benefits are set against present-day project costs. A close partnership between the public, private and financial sector will be critical in adequately financing the nation's infrastructure development, by mobilising resources domestically and globally. Here, specialised banks, which are vastly experienced in project financing in developing markets, can play a vital role in answering how to structure these projects, starting from scoping out, advisory, structuring and financing.
Bangladesh today finds itself at a crossroads, both in a literal and metaphorical sense. It finds itself at the crossroads of the pan-Asian corridor network, with all the opportunities that it entails. It also finds itself at the crossroads on its growth journey, ready to change track and jump on to a higher growth trajectory. Bangladesh's roads to prosperity are being built, a prosperity that can be shared by the region as a whole.
Enamul Huque is Managing Director and Head of Global Banking at Standard Chartered Bangladesh.
© 2017 - All Rights with The Financial Express