Bangladesh's real income gains will be 6.9 percent of GDP and its export will grow by 86 percent by 2030 if connectivity between South Asia and Southeast Asia improves, according to a new study.

However, Bangladesh will have to do its part: the country will have to spend $14.268 billion to prepare its road, rail, ports and energy infrastructures to contribute to the integration, the Asian Development Bank and the Asian Development Bank Institute said in a joint study.

In transport projects, Bangladesh needs to establish new deepwater ports, roads and railways. In the energy sector, it will have to develop the Myanmar–Bangladesh– India gas pipeline project.

Besides, the country needs to develop the infrastructure bonds market and improve the environment for boosting public-private partnership (PPP) projects.

As trade facilitation measures, transit agreements have to be signed with India and Myanmar and border operations have to be streamlined through easier documentations and procedures.

The study report said the potential gains from the connectivity-led closer South Asian–Southeast Asian integration are potentially large.

The connectivity would raise welfare by $375 billion or 8.9 percent of gross domestic product in South Asia.

In case of Southeast Asia, it would be $193 billion or 6.4 percent of GDP.

Most participating countries show large gains, especially the smaller countries in South Asia, including Bangladesh, said the study.

The gains will however depend on the removal of all tariffs associated with South Asian and Southeast Asian trade, a 50 percent reduction in inter-regional non-tariff barriers, and a 15 percent reduction in trade costs reflecting improved trade facilitation and investment in infrastructure.

The study said the time is ripe for enhancing economic integration between the two subregions.

"Asian economies will need to rely on domestic and regional demand to secure inclusive growth because of slow growth in advanced industrial economies and the slowdown in China." 

Economic ties between the two subregions, while making progress, have been limited, hindered by bottlenecks in infrastructure, financial markets, trade facilitation, trade barriers and limited regional cooperation.

South Asia and Southeast Asia cross-subregional trade increased 23 times from $4 billion to $90 billion over 1990–2013.

But Southeast Asia's share of South Asian trade rose from 6 percent to only 10 percent, while South Asia's share of Southeast Asian trade just doubled from about 2 percent to only 4 percent.

"The same story applies to cross-subregional investment and cross-subregional financial flows. This suggests that there is significant potential for growth of economic ties between the two subregions."

It said key land barriers to cross-subregional transport are located mainly in Myanmar, while other gaps can be found in Bangladesh, Cambodia, India, the Lao People's Democratic Republic, Thailand and Vietnam.

Although road connections exist, many segments need to be upgraded, especially in Bangladesh, India and Myanmar.

Moreover, the incompatibility of railway gauges between the regional border countries of India, Bangladesh, Thailand and Myanmar and other technical differences mean that transshipment will be required even after rail links are developed, said the study.

The bulk of cross-subregional trade still moves by ship.

However, important seaports for South Asia–Southeast Asia trade, notably Kolkata Port in India, Chittagong Port in Bangladesh and Yangon Port in Myanmar, suffer from problems relating to limited accessibility for large ships.

Gaps in facilities, variable operational efficiency and gaps in connectivity between seaports and rail and road networks were the other problems identified by the study.

Some $73 billion of investment is needed to enhance connectivity by way of highways, railroads, ports and energy trading, it said. "However, our analysis suggests that the overall benefits substantially outweigh the costs."

Priority seaport projects include the construction of new deepwater ports or floating container transshipment terminals at Chittagong and Kolkata, and improvement of the road infrastructure linking Thilawa Port with Yangon.

The study identified financing cross-subregional infrastructure projects as a challenge, as traditional sources of infrastructure financing, including public finance and bank loans, are becoming more constrained.

"The development of Asian financial markets and related initiatives is needed to strengthen access to infrastructure finance. Bond markets can play a greater role in channelling Asian savings towards infrastructure projects."

It said guarantees for project bonds may help foster demand for these products by long-term institutional investors. Infrastructure funds, both domestic and international, are valuable.

The study said measures to integrate regional financial markets and ease restrictions on international capital flows can also contribute.

Future collaboration, including co-financing infrastructure projects between development banks such as the ADB, the emerging Asian Infrastructure Investment Bank and the World Bank would contribute to increasing the supply of infrastructure finance in Asia.

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