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Global Economy

What’s behind South Asia’s low exports?

Hans Timmer's picture
South Asian countries’ exports are only one-third of what they should be, had they mirrored the experience of economies with similar characteristics. Without further integration into global markets, South Asia will not sustain its growth. Photo: Shutterstock 

This blog highlights the findings from the recent South Asia Economic Focus: Exports Wanted

Bela Balassa worked for the World Bank from 1966 till his death in 1991. Luckily, his insights on international integration, revealed comparative advantages, trade diversion, and natural progress toward political integration have outlived him.

And what Bela is best-known for—and rightfully so—is the Balassa-Samuelson effect.

Put simply, this effect explains why a haircut or a restaurant meal is much cheaper in poor countries than in rich countries whereas the price tag for a car or a television is almost the same everywhere.

What’s behind this phenomenon is simple and can be summed up in three parts.

First, international competition equalizes the price of tradable goods like televisions across countries.

Second, the prices of non-tradable goods like haircuts can differ.

And third, the difference in productivity across countries is much more significant in tradable goods than in non-tradable goods. For example, a barber in Dhaka needs roughly the same amount of time as a barber in New York to cut my hair.

But manufacturers or farmers in Nepal need more labor to produce the same output than their counterparts in Germany.

Countries tend to be poor because their level of productivity in tradable goods is low.  

In Pakistan, tech-savvy youth reinvent government

Emcet O. Tas's picture
Fellows of the KP Government Innovation Fellowship Program
Digital fellows visiting historic sites in Peshawar, Pakistan. Credit: KPITB.


Khyber Pakhtunkhwa (KP), one of Pakistan’s most underserved provinces, is emerging from decades of conflict and has turned to the digital economy to boost economic growth and provide jobs to its youth.
 
Since 2013, the World Bank and its partners have helped the Khyber Pakhtunkhwa Information Technology Board (KPITB) build a strategy to bring the province into the digital age and improve technology-related skills and governance.

These early efforts later morphed into an even closer partnership that aims to foster hundreds of digital jobs for youth and kickstart infrastructure projects to attract technology investments across the province.
 
One outcome of this partnership is the successful KP Government Innovation Fellowship Program which is co-sponsored by Code for Pakistan.

Since 2014, the program has linked up highly talented technologists with government agencies to help these institutions become more user-centric and transparent, as well as deliver better services to citizens. Twenty fellows divided into five teams join each cycle of the program.

Based on their host agency’s needs, each group may bring expertise in web or mobile app development, graphic design, content, user experience, or networks.
 
During the first month, fellows learn how government works as they interact with department staff and stakeholders to understand their problems. Next, they propose solutions and develop prototypes, which they then test and deploy in the final two months.

During their tenure, fellows actively collaborate and train government staff to ensure their solutions are properly used and sustained.
 
To date, four fellowship cycles have produced 70 graduates, who earned great experience within the government.

Skilling up Bangladeshi women

Tashmina Rahman's picture
Learning new skills for better jobs in Bangladesh: Meet Kamrul Nahar Omi


The Bangladesh garments industry is poised to grow into a $50 billion industry by 2021 and for this, two million semi-skilled workers are needed.

Non-garment industries such as leather, furniture, hospitality and Information & Technology (IT) are also poised to grow.

But how can we think equal, build smart, innovate for change, the theme of this year’s International Women’s Day? 

Female participation in the workforce has been increasing but remains less than half of male participation rates across primary working ages.

Of those females joining work, over 80 percent are engaged in low-skilled, low-productivity jobs in the informal sector with little opportunity for career progression.

Technical and vocational education and training (TVET) is one important medium to equip women with employable skills and improve their job market participation.  

Overcoming the perception of TVET as ‘male-dominated’ training, women’s participation in technical programs has been steadily rising over the past decade.

Yet, Bangladesh still has a long way to go with female share in enrollments around 25 percent in TVET programs.

In fact, a World Bank study identifies some keys areas of intervention for improving female participation in technical diploma programs:

  1. creating a gender-friendly environment in polytechnics and workplaces;
  2. developing more service-orientated diploma programs;
  3. developing a TVET awareness campaign for females;
  4. (supporting a career counseling and guidance system for females;
  5. improving access to higher education;
  6. providing demand-stimulating incentives; (vii) generating research and knowledge;
  7. leveraging partnerships to promote opportunities for females and
  8. generating more and better data to track progress and inform policy and operations for female-friendly TVET. 

How to succeed as Sri Lanka’s top woman entrepreneur: Honesty, hard work, and perseverance

Idah Z. Pswarayi-Riddihough's picture
This International Women’s Day I chose to have a conversation with a lady who is recognized as the leading Sri Lankan woman entrepreneur, Mrs. Aban Pestonjee.  

Her story is an inspiration to youth (male and female) and women who are afraid of failure and taking risks.

Starting from a modest home-based business, 50 years ago, today Aban is a household brand name that is island wide in Sri Lanka.

South Asia: A bright spot in darkening economic skies?

Hartwig Schafer's picture
South Asia is set to remain relatively insulated from some of the rising uncertainties that are looming large on the global economic horizon. The region will retain its top spot as the world’s fastest-growing region. The Siddhirganj Power Project in Bangladesh. Credit: Ismail Ferdous/World Bank

If, like me, you’re a firm believer in New Year’s resolutions, early January ushers in the prospect of renewed energy and exciting opportunities. And as tradition has it, it’s also a time to enter the prediction game.
 
Sadly, when it comes to the global economy, this year’s outlook is taking a somber turn.
 
In the aptly titled Darkening Skies, the World Bank’s new edition of its twice-a-year Global Economic Prospects report shows that risks are looming large on the economic horizon.
 
To sum up:  In emerging market and developing economies, the lingering effects of recent financial market stress on several large economies, a further deceleration in commodity exporters are likely to stall growth at a weaker-than-expected 4.2 percent this year.
 
On a positive note, South Asia is set to remain relatively insulated from some of these rising global uncertainties and will retain its top spot as the world’s fastest-growing region.
 
Bucking the global decelerating trend, growth in South Asia is expected to accelerate to 7.1 percent in 2019 from 6.9 percent in the year just ended, bolstered in part by stronger investments and robust consumption.  

Among the region’s largest economies, India is forecast to grow at 7.5 percent in fiscal year 2019-20 while Bangladesh is expected to moderate to 7 percent in fiscal year 2018-19. Sri Lanka is seen speeding up slightly to 4 percent in 2019.
 
Notably, and despite increasing conflicts and growing fragility, Afghanistan is expected to increase its growth to  2.7 percent rate this year.

In this otherwise positive outlook, Pakistan’s growth is projected to slow to 3.7 percent in fiscal year 2018-19 as the country is tightening its financial conditions to help counter rising inflation and external vulnerabilities.

However, activity is projected to rebound and average 4.6 percent over the medium term.

An update on Bhutan’s economy

Tenzin Lhaden's picture
Accelerating the reform momentum after the 2018 elections is key to consolidating and furthering Bhutan’s development
Accelerating the reform momentum after the 2018 elections is key to consolidating and furthering Bhutan’s development. Credit: World Bank

Bhutan is one of the smallest, but fastest-growing economies in the world.
 
Its annual average economic growth of 7.6 percent between 2007 and 2017 far exceeds the average global growth rate of 3.2 percent.
 
This high growth has contributed to reducing poverty: Extreme poverty was mostly eradicated and dwindled from 8 percent in 2007 to 1.5 percent in 2017, based on the international poverty line of $1.90 a day (at purchasing power parity).
 
Access to basic services such as health, education and asset ownership has also improved significantly.
 
The country has a total of 32 hospitals and 208 basic health units, with each district hospital including almost always three doctors.
 
The current national literacy rate is 71 percent and the youth literacy rate is 93 percent.
 
The recent statistics on lending, inflation, exchange rates and international reserves (Sources: RMA, NSB) confirm that Bhutan maintained robust growth and macroeconomic stability in the first half of 2018.  

Gross foreign reserves have been increasing since 2012 when the country experienced an Indian rupee shortage.
 
Reserves exceeded $1.1 billion, equivalent to 11 months of imports of goods and services, which makes the country more resilient to potential shocks.
 
The nominal exchange rate has been depreciating since early 2018 (with ngultrum reaching Nu. 73 against the US dollar in early November).

Doing better business to fight poverty

Duvindi Illankoon's picture
The new Doing Business ranking places Sri Lanka at 100 out of 190 economies, compared with 111 last year. This year Sri Lanka made it easier for businesses to register property, obtain permits, enforce contracts and pay taxes. Credit: World Bank

End Poverty Day fell on the 17th of October. Two weeks later, the new Doing Business rankings come out for this year.

If you’re wondering what the link is, here’s a quick summary: business-friendly regulations can be instrumental in lowering poverty at the national level.

This is one of those happy instances where economics, common sense and the data align.

A better regulatory environment encourages more businesses to register and expand, bringing more employers to the economy.

Then the market responds- not only do these employers create more jobs, but also going to offer better jobs to attract capable workers to their companies.

Ultimately, a reliable source of income is the catalyst to moving out of poverty.

Sounds too simple? Trust the numbers.

Commitment to reforms improves business climate in South Asia

Hartwig Schafer's picture
 
Rikweda, an Afghan fruit processing company in the Kabul Province is well on its way to restoring Afghanistan as a raisin exporting powerhouse—a status the country held until the 1970s when it claimed about 20 percent of the global market. Credit World Bank


Imagine a state-of-the-art processing plant that harnesses laser-sorting technology to produce a whopping 15,000 tons of raisins a year, linking up thousands of local farmers to international markets and providing job opportunities to women.
 
To find such a world-class facility, look no further than Rikweda, an Afghan fruit processing company in the Kabul Province that’s well on its way to restoring Afghanistan as a raisin exporting powerhouse—a status the country held until the 1970s when it claimed about 20 percent of the global market.
 
In Afghanistan’s volatile business environment, let alone its deteriorating security, Rikweda’s story is an inspiration for budding entrepreneurs and investors.
 
It also is an illustration of the government’s reform efforts to create more opportunities for Afghan businesses to open and grow, which were reflected in the country’s record advancement in the Doing Business 2019 index, launched today by the World Bank.
 
Despite the increasing conflicts and growing fragility, and thanks to a record five reforms that have moved Afghanistan up to the rank of 167th from 183rd last year, the country became a top improver for the first time in the report’s history.
 
And Afghanistan is not the only South Asian country this year that took a prominent place among top 10 improvers globally.
 
India – which holds the title for the second consecutive year – is a striking example of how persistence pays off, and the high-level ownership and championship of reforms are critical for success. Its ranking has improved by 23 places this year and puts India ahead of all other countries in South Asia. This year, India is ranked 77th, up from 100th last year. 

Moving India’s railways into the future

Joe Qian's picture
Laying Tracks
Progress is being made on the largest railway project in India's modern history – the Dedicated Freight Corridor Program. 
View the 3D presentation here
Thump…thump…thump...like a slow rhythmic drum, concrete ties that hold the track in place are laid down one after another with the latest machinery as rails are placed precisely on top of them.

It’s nearing sunset near the town of Hathras in India’s state of Uttar Pradesh, home to 220 million people—more than the entire population of Brazil.

Progress is being made on the largest railway project in India’s modern history that will increase prosperity by helping move people and goods more safely, effectively, and in an environmentally-friendly way.
India’s Dedicated Freight Corridor (DFC) program is building dedicated freight-only railway lines along highly congested transport corridors connecting the industrial heartland in the north to the ports of Kolkata and Mumbai on the eastern and western coasts.
India Trains
Passengers and freight trains currently share tracks in India which can cause congestion and delays. The project will help increase the speed of freight rail to up to 100km/h from the current 25km/h average. 

Through these efforts, DFC is expected to improve transport and trade logistics – bringing much needed jobs, connectivity, and urbanization opportunities to some of India’s poorest provinces – including Bihar and Uttar Pradesh while helping protect the environment. The electric locomotives will help ease India’s energy security issues and escalating concerns about traffic accidents, congestion, carbon emissions, and pollution created by road traffic. 

Near Hathras and simultaneously in different sites in the country, workers equipped with modern equipment and techniques efficiently lay 1.5 km of new track per day in different weather conditions. Once completed, electric cables are stretched above and signaling is installed, all in preparation for the electric locomotives reliably to carry their cargo across the country at maximum speed of 100km/h, compared to an average current speed of 25 km/h.

Finishing the job of ending poverty in South Asia

Hartwig Schafer's picture
This Bangladeshi woman was born in poverty. With the right kind of education, life in poverty quickly became a story from the past for her. Credit: World Bank

"I have a four-year-old son back in my village. I want to make a better life for him,” says Sharmin Akhtar, a 19-year-old employee in one of Dhaka’s many flourishing garment factories.

Like thousands of other poor women, Sharmin came down to Bangladesh’s capital from her village in the country’s north to seek a better job and create a more prosperous future for her family—leaving behind a life of crushing poverty.

Today, as we mark End Poverty Day 2018, it’s important to note that Sharmin’s heartening story is one of many in Bangladesh and the rest of South Asia, where economic growth has spurred a dramatic decline in extreme poverty in the last 25 years.

And the numbers are striking: In South Asia, the number of extreme poor living on less than $1.90 a day dropped to 216 million people in 2015 from 275 million in 2013 and 536 million in 1990.

Even more remarkable, South Asian countries experienced an increase in incomes among the poorest 40 percent of 2.6 percent a year between 2010-2015, faster than the global average of 1.9 percent.

On a global scale, the highest concentration of poor shifted from South Asia to Sub-Saharan Africa in 2012. And India is likely to be overtaken, if it has not already been, by Nigeria as the country with the most people living in extreme poverty.

It’s worth thinking about how far South Asia has come – but remaining clear-eyed about how far we must go to finish the fight against extreme poverty.

Indeed, it is increasingly clear that poverty is more entrenched and harder to root out in certain areas, particularly in rural areas and in countries burdened by violent conflict and weak institutions.

Estimates for 2015 indicate that India, with 176 million poor people, continued to have the highest number of people in poverty and accounted for nearly a quarter of the global poor.

True, the extreme poverty rate is significantly lower in India relative to the average rate in Sub-Saharan Africa. But because of its large population, India’s total number of poor is still large.

And while there has been a substantial decline in the numbers and rate of people living below $1.90 in South Asia, the number of people living on less than $3.20 has declined by only 8 percent over 1990-2015 because of the growing population.

In 2015, 49 percent of the population of South Asia were living on less than $3.20 a day, and 80 percent were living on less than $5.50 a day.

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