ADB’s RCI Strategy and Experience

1. ADB’s RCI Strategy and Experience Ganeshan Wignaraja Asian Development Bank Technical Workshop on Cross-Cutting Aid for Trade Issues Geneva. 19 November 2007

2. Contents • The Regional Cooperation and Integration (RCI) Strategy and Role of ADB • Examples of ADB RCI projects • Lessons and Experience

3. ADB’s Mandate for Regional Cooperation • ADB’s Charter mandates it to play an active role in “regional cooperation” • ADB’s Regional Cooperation Policy (RCP) in 1994 and various other documents of ADB have placed emphasis on regional cooperation and integration • Most recently, the Report of the Eminent Persons Group to ADB’s President has identified regional integration as one of six core activities for ADB in the future

4. Emerging Trends Economic openness, IT revolution, improved physical connectivity, the spread of vertically integrated production networks, and the rapid growth of the People’s Republic of China (PRC) and India, have brought Asian economies ever closer together. Intra-regional trade in East Asia has increased from about 30% in 1990s to about 56% in 2005. Free trade agreements (FTAs) are proliferating, and this trend looks to continue. The Asian financial crisis highlighted the high degree of financial interdependence and provided the stimulus for greater monetary and financial cooperation. These emerging trends suggest that RCI is likely to intensify in a number of regions, subregions and in a number of areas. Given the diversity of Asia and the Pacific, RCI will likely follow a multi-track, multi-speed approach.

5. Regional cooperation and integration and poverty reduction Improved cross-border physical connectivity provides greater access for developing countries to each other’s and external markets. FDI inflows can have a positive impact on poverty reduction by fuelling economic growth. Maintaining regional macroeconomic and financial stability is crucial to sustain robust growth for poverty reduction. The 1997–1998 Asian financial crisis was testimony to this. By working together, developing countries can deal with the adverse impact of cross-border issues e.g., outbreak of communicable diseases, environmental problems, and other transnational issues.

6. ADB’s Mission and the Role of Regional Cooperation and Integration in Poverty Reduction POVERTY REDUCTION OVERACHING MISSION/ OBJECTIVE FOUR PILLARS OF REGIONAL COOPERATION AND INTEGRATION Regional and Subregional Economic Cooperation Regional Cooperation and Integration Trade and Investment Cooperation and Integration Individual Country Programs Monetary and Financial Cooperation and Integration Regional Public Goods Pro-Poor Sustainable Economic Growth Inclusive Social Development Good Governance CORE AREAS OF INTERVENTION

7. RCI Strategy and Role of ADB ADB adopted the RCI strategy on 25 July 2006. The RCI strategy has four pillars: • Pillar 1 • Regional and • Subregional • Economic • Cooperation • Pillar 2 • Trade and • Investment • Cooperation and • Integration • Pillar 3 • Monetary and • Financial • Cooperation and • Integration • Pillar 4 • Cooperation in • Regional • Public Goods

8. RCI Strategy a key tool for AfT • Cross-border infrastructure and related services—trade facilitation, and customs modernization (Pillar 1) • Natural link with trade and investment (Pillar 2) • Money and finance—mobilizing savings for trade-related infrastructure investment and possible trade finance (Pillar 3)

9. The RCIFPF was established in February 2007. It has two main components: Regional Cooperation and Integration Fund (RCIF): For technical assistance (TA), including advisory, project preparatory, and regional TA RCI Trust Funds – For grant components of investment projects, TA, and any other activities that may be agreed upon between donors and ADB All DMCs are eligible Around $80 million Regional Cooperation and Integration Financing Partnership Facility (RCIFPF) 9

10. RCI website (www.aric.adb.org)

11. Economic Corridor Project • GMS regional cooperation project since 2000 • 1,500 km road link connecting the South China Sea and Indian Ocean (East-West Corridor) • ADB support to around $60 million • will improve connectivity and market integration among Thailand, Lao PDR, Myanmar and Vietnam • complements government programs to enhance supply capacity in agriculture and industry • big gains exemplified by Savannakhet Province, Lao PDR upon completion of project components, i.e., Road 9 and Second Mekong International Bridge

12. Regional Power Project • Nam Theun II Hydropower Project ($1.45 billion) • world’s largest private sector, cross border, power project financing • good example of interregional cooperation and development of private sector investment • located in Lao PDR, will export up to 5,345 GWh of electricity annually (95% of power generated) to Thailand • expected to generate $1.9 billion in revenues for Lao PDR over 25 years • ADB support includes $20 million public sector loan; $50 million private sector loan; and $50 million political risk guarantee

13. Regional Trade Facilitation Project • $22.75 million customs reform and modernization for Kyrgyz Republic and Tajikistan (Phase II) • development of a unified automated information system (UAIS) for customs services and customs border post infrastructure • ADB support $18.2 million • positive regional impact by improving transit conditions of the two countries, and contributing to improvement of overall trade and investment environment among CAREC member countries

14. Pacific Aviation Safety Office • established in Port Vila, Vanuatu, a single regional organization replacing fragmented national aviation authorities • example of regional cooperation as an effective approach to safety regulation and oversight in air transport • to benefit governments, air transport operators and users of 7 member countries i.e., Fiji, Kiribati, Papua New Guinea, Samoa, Solomon Islands, Tonga and Vanuatu • ADB support of $1.9 million loan and grant • will eventually become self-sustaining

15. Trade Finance Facilitation Program • $150 million portfolio to help local banks of DMCs provide trade finance products to private sector importers and exporters through: • Revolving guarantee facility • Revolving credit facility • Encourages trade between and among countries in the region • Focus on South Asia, future expansion to Central Asia and the Pacific

16. Lessons from RCI projects • Well-designed cross-border infrastructure projects can bring large gains to all countries (Theun-Hinboun Hydropower Project in Lao PDR) • Best practice cross-border projects have several elements: transport infrastructure development, trade facilitation and regulatory reforms (East West Corridor Project) • A good model in RCI is public-private partnership and innovative financing terms (Nam Theun II Hydroelectric Project) • Involvement of an honest broker such as ADB will overcome investor’s risk perceptions in cross-border energy projects (Nam Theun II Hydroelectric Project)

17. Lessons from RCI projects • Informal institutional arrangements and flexible, pragmatic and results-oriented approach to cooperation generate tangible results (GMS Program) • Promoting country ownership brings sustained commitment and leadership which aids effective implementation of sub-regional initiatives (GMS Program) • Participatory approach and stakeholders involvement in all project phases is key

18. Lessons from RCI projects • Effective donor coordination critical in extending concerted support and ensuring sustainability (CAREC Trade Facilitation Program) • Capacity-building i.e., institutional strengthening and training activities are essential • Specific cultural and institutional factors are major influences on outcome

19. What needs to be done in Asia and the Pacific • Scale up regional projects • Expand geographical coverage • Tailor-made to LDCs and small states • Build institutional and human capacities • Closer coordination with development partners • Enhance public-private sector partnership