At a time of declining global growth and trade, South Asia can become the next manufacturing and export powerhouse through the right mix of reforms and investments, the World Bank said today.
However, given that countries in the region have not been particularly successful in integrating with each other, challenge to the region’s competitiveness remain, it said.
“South Asia is at a turning point. The region is benefiting from a confluence of positive internal and external forces. South Asian countries are starting to receive the competitiveness dividends from the economic reforms and public investments in infrastructure and education carried over the last 25 years,” said the World Bank in its report.
With around one million people entering the workforce each month and a growing urban population, South Asia can seize the opportunity to become the next manufacturing and export powerhouse through the right mix of reforms and investments, the bank said.
South Asia it argued will be home to more than a quarter of the world’s working adults by 2030 and should take advantage of a confluence of positive forces, such as favorable demographics, increasing education levels, growing cities, and rising labor costs in East Asia.
“To realise this potential, countries should work diligently to increase regional and global integration, take advantage of agglomeration economies, strengthen firm capabilities, and improve the business environment. The region’s great competitiveness potential can be shown by the success of its leading firms,” the Bank said.
“South Asia’s leading firms have risen to standards of global excellence, demonstrating that world class levels of operational performance, efficiency, and innovation can be achieved with the right management, technology and worker training,” said Anabel Gonzalez, the World Bank Group’s Senior Director for Trade & Competitiveness.
“These flashes of brilliance across a growing number of areas, locations, and leading firms can provide inspiration for reforms and serve as examples for millions of rising firms in the region,” the bank official said.
The Bank said overall South Asian countries have underperformed in terms of both the quantity and quality of their exports – fundamentally because most firms in South Asia have low productivity which is the main driver of sustained competitiveness.
According to the new report, entitled ‘South Asia’s Turn: Policies to Boost Competitiveness and Create the Next Export Powerhouse’, the four main policy levers to boost the productivity and thus the competitiveness of firms are to improve the business environment, connect firms to global value chains, leverage agglomeration benefits, and strengthen the capabilities of managers and workers.
“South Asia has tremendous potential to increase incomes and gain market share in exports through policies that enhance productivity and investment,” said Annette Dixon, World Bank South Asia Vice President.
“If the region harnesses its productivity potential, it could be the fastest growing exporting region, for instance, tripling its share in global exports of electronics and motor vehicles by 2030.”
To better connect and expose South Asian firms to international good practices, governments should deepen reforms to improve the capabilities of firms to participate in global value chains, which will require making it much easier for exporters to import what they need, gradually reducing tariffs, while improving trade logistics, the Bank argued.
Policymakers can encourage the flow of resources to more productive firms by actively managing urbanization and reducing congestion constraints, as well as fostering productive agglomerations of firms next to pools of qualified workers with easy access to key domestic and export markets, it said.