CCC focuses on need for stronger regional integration

Regional integration between SAARC countries is atrocious, asserted Senior Economic Adviser of Deloitte Consulting LLP Dr. Jayanta Roy, emphasising on the need to aggressively diversify the export markets and look to greater regional integration and markets with large emergent middle-classes in Asia, Latin America and Africa.

He expressed these views while delivering the keynote address at a members’ forum held in celebration of the 173rd anniversary of the Ceylon Chamber of Commerce last week. Speaking on the topic ‘The Impact of Global Downturn and the Strategies and Actions for South Asian Economies to Remain Competitive,’ Roy noted that Sri Lanka has been a standard bearer in South Asia, being one of the first countries to initiate economic reforms, and has historically had some of the best human development indicators in the region.

“As Sri Lanka emerges from conflict, one expects great things from this country, as it leverages its geo-strategic location at the heart of the shipping lanes connecting Asia to Europe, Middle-East, and Africa.

 The country is also uniquely placed to take advantage of the emergence of what would soon become the world’s second largest middle-class, and one of the fastest growing consumer markets in the world, India,” he added.

Global downturn

Speaking on the global downturn, Roy pointed out that the economic downturn that started in 2008/09 was not a brief shock, but a structural and systemic crisis of the global financial network centred on financial hubs in advanced industrialized economies.

“The immediate impact of the global crisis on countries such as India and Sri Lanka was a large short-term capital outflow as international investors moved short-term capital into safer havens.

This first round effect quickly gave way to a liquidity shortage amid the international credit crunch and access to capital for South Asian entrepreneurs became more difficult and expensive,” he said.

Roy went on to say that South Asian economies, especially Sri Lanka and Bangladesh, were dependent on exports, and their major export destinations were the high-income OECD economies that were in the throes of the crisis.

He acknowledged that while exports constituted a fifth of India’s GDP in 2007, it was less dependent on just merchandise exports, and had a high share of services exports. Services exports were much more resilient in the economic downturn, allowing India to weather the storm more effectively than some other South Asian economies.

Roy also noted that South Asian economies are highly dependent on imported fuel.

This increased their vulnerability during the crisis as oil, and other raw material prices continued to remain high, creating inflationary trends in South Asian economies. South Asia as a whole is a net importer of minerals, fuels, and other raw materials, and increasing global demand and therefore prices of such raw materials will continue to remain a source of concern for South Asia.

Key learnings

Sharing some key learnings for the region, he stressed on the need to diversify the export basket, look to developing integrated regional production networks to create greater product diversity and competitiveness.

Developing long-term procurement relationships, increasing regional integration in commodity trade, and investing in alternative fuel technologies were suggested as a way to curb the escalating commodity prices. He said that linking remittance flows to entrepreneurial opportunities is vital for the region. According to Roy, the high debt to GDP ratio of South Asian economies led to their inability to undertake ambitious stimulus packages. Better fiscal management is needed to meet the challenges of the future.  

Roy urged South Asian businesses to actively seek new markets in fast growing emerging economies and pointed out that the CCC provides a ready platform through its bilateral relationships with industry chambers across the world.

 However, there is a need to make this more focused and targeted. He pointed out that the goal should be commercial intelligence and effective B2B platforms.

 Another key aspect would be business-government partnership in developing commercial intelligence in growing markets by developing close working relationships with diplomatic missions abroad. Increase investment in HR for inclusive growth and developing national competitiveness. PPP approaches that have worked successfully in countries like Germany, Austria, Singapore should be looked at as possible models.

He highlighted the importance of encouraging and investing in inclusive growth through grassroots entrepreneurship. Such bottom of the pyramid entrepreneurship adds great value by widening the domestic consumption and production base. He commended the CCC for its YBSL programme, which he said is “doing great work in this area.”

New product development

He also observed that it is imperative to invest in new product development to reduce dependence on a limited basket of exports. Product development and R&D can be dirty words in emerging countries, with many firms feeling that they just don’t have the resources to divert to such activities. However, creativity and new product development does not always need deep pockets. Develop innovation clusters and knowledge platforms.  Countries like Sri Lanka and Bangladesh can take advantage of the institutions being developed in India through Public-Private platforms and develop linkages with them.  He urged to aggressively develop South Asian regional markets and production networks. Businesses need to become champions of policy change leading to greater South Asian integration.

Roy noted that being the home of SAARCTrade.info portal, CCC is an innovator in this respect. He urged the business community to become champions of trade and business facilitation reforms and not to shy away from engaging governments on an ongoing basis for reforms that would lead to greater trade facilitation and reduce the barriers for entrepreneurship and investment.