This blog is part of the series #OneSouthAsia exploring how South Asia can become a more integrated, thus more economically dynamic region.The blog series is a lead up to the South Asia Economic Conclave, an event dedicated todeepening existing economic links through policy and investments in regional businesses.
Here’s an interesting statistic: 95 percent of trade by South Asian countries is focused on Europe, North America, and, to a lesser extent, East Asia. This has kept the sub-continent, with several landlocked and border regions being some of the poorest in the world, from realizing the wealth in its own neighborhood. By contrast, 25 percent of ASEAN’s trade is within its own region.
This blog is part of the series #OneSouthAsia exploring how South Asia can become a more integrated, thus more economically dynamic region.The blog series is a lead up to the South Asia Economic Conclave, an event dedicated todeepen existing economic links through policy and investments in regional businesses.
Which South Asia do you live in? The one which offers world-class metros and malls, super-specialty hospitals, gourmet eateries and designer homes where servants make your meals, drive your car or clean your mess?
Or do you live in the South Asia where sanitation, water and electricity are a luxury, where filth, ignorance and violence means death comes early and more frequently from illness, poverty and natural disasters? Statistically, the latter is more likely.
Having lived in Southeast Asia, where the emergence of the Tigers has transformed the lives of millions of poor through investment in human development, infrastructure and exports producing high growth rates, the visible poverty and chaotic streets of South Asia are troubling. So, too, is the contrast provided by India's dollar billionaires -- the third-largest rich man's club in the world.
As Pakistan readies to celebrate its independence day, we can all feel satisfied about progress in restoring macroeconomic stability, but should also realise that the country can and should do much better. Pakistan has many assets, of which it can make better use — from its vast water and river endowment, to its coastline and cities, to its natural resources. And there are upsides: a growing middle class, a lively informal economy and a strong influx of remittances. Pakistan can also be proud of the first peaceful transfer of power between two civilian governments. But to reach its full potential, Pakistan needs to focus on two critical areas, both obvious and urgent. It needs to ensure that its people have the means to fully participate in and contribute to the economy. And it needs to integrate itself more, globally and regionally.
The first challenge is demographic. As a result of rapid population growth, 1.5 million youngsters reach the working age each year. The question is, will the private sector be able to provide the jobs they need and want? And will the youth have the skills to get good jobs? Pakistan must do far better in education. Primary school net enrollment is about 57 per cent, well below other South Asian countries. Enrollment drops by half in middle school, with much lower levels for girls and children from poor families. This is not a good foundation to build on.
It is not surprising then that Pakistan also struggles to give all its citizens the opportunity to participate in building better lives for themselves. Only 25 per cent of women participate in the labour force, compared to 50 and 80 per cent in most developing countries. Women and girls deserve better. Research shows that girls with little or no education are far more likely to be married as children, suffer domestic violence, and live in poverty. This harms not only them, but also their children, their communities and the economy. Greater gender equality can enhance productivity and improve development outcomes for the next generation. It is smart economics.
Pakistan has taken steps to empower women. The Benazir Income Support Program, supported by the World Bank, has provided millions of women with national ID cards and makes direct payments to them, strengthening their ability to take decisions and move out of poverty.
Sail Food Production Company is one of the largest food manufacturing factory in Nangarhar Province, Afghanistan. Despite countless hours spent on manual bookkeeping, its owner always complained about errors when reporting profits and losses on the company’s balance sheets.
At the close of each monthly accounting period, the company was always late in submitting profit and loss statements to the Provincial Department of Finance. Similarly, there were many inefficiencies in production and raw material tracking due to the absence of a proper inventory control system.
The scarcity of information technology integration within business operations has limited the development of Sail Food Production and many other Afghan small and medium enterprises (SME) as they are trying to remain competitive in a global business environment. How could this be improved?
One of the many successful fiscal initiatives implemented in Afghanistan was the HIPC, the Highly Indebted Poor Country program, a joint IMF–World Bank effort to reduce the public debt of poor countries. We called this the forgiveness of debt.
At an early stage in this work I had to meet with a senior Afghan government official to explain the program. The official, the Deputy Auditor General, was a dedicated, serious man who had trained in the former Soviet Union as an engineer and did not speak English, so we relied on an interpreter.
In those days any Afghan who spoke some English could find work as an interpreter, and ours was a medical doctor. He told me he was anxious to find work in his own field but in the meantime was willing to work anywhere, even interpreting in this arcane field of auditing, although he was unfamiliar with the jargon. The conversation was not to be long; just outline that the external public debt, which was mostly Russian debt from the communist era, would be absorbed by a trust fund and hence “forgiven” if Afghanistan met the program requirements – basically good fiscal transparency and discipline.
Nepal is coping with the consequences of a disastrous earthquake. During the next months the government will be under a lot of pressure to respond quickly to the needs of the population.
Public procurement units across the country will also feel this pressure. They will be deciding over the purchase of goods and services with taxpayer money. On the one hand, the purchases are urgently needed. On the other, there is a risk that taxpayer money can be wasted if decisions are taken too hastily.
One instrument that can be helpful in this kind of situation is a framework agreement. This should be part of any country’s Disaster Risk Management plan. Its aim is to have a procurement system ready that responds quickly to an emergency. But this quick response should not increase risks beyond what policymakers have defined as acceptable. Special procurement procedures for emergencies should be part of disaster management systems and should especially include tailored framework agreements.
“The real end winner of NAFTA (North American Free Trade Agreement) is going to be Mexico […]” said then Mexican president Vicente Fox, in 2001. He was referring to Mexico’s gains from trade integration with the USA through NAFTA.
Vicente Fox was right. Mexico has continued to make sustained gains in trade over a 20 year period after signing NAFTA in 1994 with the US, its much larger partner (figure 1).
Opening up trade is not easy because losses can be immediate, while gains, despite being potentially much larger and more widespread, are often dispersed over time. Producers that may sustain losses from more open imports are often well organized and can hold up reforms quite effectively. Moreover, when one of the countries involved in mutual trade liberalization is disproportionately large, it enables the smaller country lobbies to raise the specter of being swamped by imports from its larger partner.
In the case of South Asia, a history of political differences further complicates deeper trade and economic cooperation within the region. Under these circumstances, opening up trade to neighbors requires strong leadership and a bold vision about the role of trade and regional integration in economic development.