Informal trade hurts intra regional trade

The level of informal trade in South Asia is 72 per cent of formal trade, according to World Bank study.
To help formalise the intra region trade, Nepal Business Forum (NBF) and International Finance Corporation (IFC) organised a workshop 'Public Private Dialogue for Enhancing Trade Facilitation in South Asia' here in the Valley today.
"Customs harmonisations and reducing customs related documents will help increase formal trade within the South Asia," said secretary at the Prime Minister Economic Affairs Division Purushottam Ojha.
"Two major needs to be addressed," he said, adding that inside the borders and outside the borders to increase trade.
Increasing connectivity within the country from market to production centres and simplifying the transit issues to boost intra regional trade apart from diversification of transit are keys to trade facilitation, according to Ojha.
The NBF has prepared a draft of Public Private Dialogue for Enhancing Trade Facilitation in South Asia that will be developed as a phase-wise work plan -- short term ,medium term and long term.
The draft has focused on three specific components like simplification and harmonisation of procedures and documentation; integrating risk management systems into border inspections and clearance; and Implementing electronic processing / automation and single window systems. South Asia -- one of the less integrated regions has a mere seven per cent Intra-regional trade of total regional exports. "There is a good potential for the north-east sub-region of South Asia to integrate and reap the benefits of enhanced trade," said Regional head of Advisory Services IFC South Asia Anil Sinha.
"Improved trade relations in this region would well pave the way for trade integration with larger blocs like ASEAN opening newer opportunities for the people," he said, adding that the South Asia region, despite its recent progress, still houses most of the poor in the world.
One region of special concern is the north-east sub-region of South Asia comprising of the Eastern and North-Eastern states of India, Bhutan, Nepal, Bangladesh and Sri Lanka. Much of the sub-region with about 400 million people can be classified as a low income area with heavy dependence on volatile agriculture, limited industrialisation, high poverty, low social indicators and high vulnerability to natural disasters.
Consequently, improving trade facilitation and access to markets across the region is critical to create the economic foundation for development.
The intra regional trade has not picked up also due to lack of regional trade implies opportunities forgone.
The World Bank study revealed that increased regional cooperation helps increase access to resources. Despite varying levels of endowment, trade in energy is very low in South Asia with only India, Bhutan and Nepal currently trading in electricity.
A careful look at South Asia’s geography shows that significant pockets of poverty and underdevelopment tend to be located either in land-locked countries or border areas. In most cases, economic activities in the areas are constrained by poor connectivity with the regional growth centres and by lack of access to international trade outlets such as a sea port.
However, in many cases the barriers are artificial in the sense that these facilities are available in nearby bordering towns of other countries but access is prevented by border restrictions.
Efficient and accountable trade logistics services and systems are also fundamental to facilitating growth in trade and investment.
Faster, leaner and more responsive supply chains are essential for businesses to survive in a competitive globalised world.
Examining the indicators data for a number of countries it is apparent that over 50 per cent of the total time to export or import is explained by documentation and trade transactions. The Trade Logistics product includes a connection to the DB Trading Across Borders indicator catalysing reform momentum for governments wishing to increase the potential for investment.
IFC -- a member of the World Bank Group -- and the UK's Department for International Development are supporting Nepal Business Forum, an independent body that facilitates dialogue between the government of Nepal and private sector to build consensus toward improving trade facilitation in South Asian countries, including Nepal.
The programme will help implement measures to reduce costs and promote trade through simplified documentation and procedures, electronic processing, and risk management approaches for border inspections and clearances.
"The government seeks IFC's support to implement trade facilitation measures, which will help achieve trade liberalisation and create value," Ojha said, adding that there is a need to enhance competitiveness of local goods and services by reducing transaction costs.
"It is heartening to see Nepal making a strategic move toward improving trade in South Asia," said Nepal Chamber of Commerce (NCC) president Suresh Kumar Basnet reiterating its support. Trade facilitation involves reforms in border operations, including the reliability and efficiency of transportation infrasturcture, logistics operations, and customs and border management regulations and procedures.
"IFC works with both private sector and government in identifying areas where reform efforts can help maximise improvements for cross-border private sector activity," said IFC head of Advisory Services in South Asia Anil Sinha.