Po­ten­tials and Prospects

South Asia is a dy­namic yet de­prived re­gion that needs the help of the in­ter­na­tional com­mu­nity to en­ter a new era of sus­tained growth.

Southasia - - Cover story - By Ta­hera Sa­jid

So­cial in­di­ca­tors of de­vel­op­ment in the dy­namic South Asian re­gion are not al­ways promis­ing. How­ever, the South Asian econ­omy is re­silient as are its peo­ple, and can do well with sus­tained in­ter­na­tional fo­cus in lend­ing and knowl­edge in­vest­ment to sup­ple­ment and di­rect ef­forts of lo­cal gov­ern­ments.

South Asia com­prises eight coun­tries: Afghanistan, Bangladesh, Bhutan, In­dia, Mal­dives, Nepal, Pak­istan and Sri Lanka, rep­re­sent­ing the largest con­cen­tra­tion of the world’s poor and also of the high­est num­ber of the con­flict-af­flicted. Over-pop­u­la­tion, en­vi­ron­men­tal is­sues and bad gov­er­nance fea­ture high on de­vel­op­ment chal­lenges, as do in­ter­nal or ex­ter­nal con­flict.

Nepal’s sta­bil­ity is af­fected by decades of Maoist in­sur­gency. Sri Lanka has strug­gled through years of eth­nic con­flict. In­dia has had to deal with ma­jor in­ter­nal in­sur­gen­cies and the po­lit­i­cal and mil­i­tary chal­lenges with neigh­bor­ing coun­tries. The arms race in the re­gion be­tween the two largest coun­tries of the re­gion, In­dia and Pak­istan, which started in the 80s and grew to in­clude nu­clear ca­pa­bil­ity, con­tin­ues to chal­lenge re­la­tions be- tween them. Also, the power pol­i­tics of ma­jor world play­ers over the years, the U.S. and the former USSR, has caused huge in­sta­bil­ity in the re­gion and Pak­istan bat­tles se­ri­ous reper­cus­sions in the form of drugs and ter­ror­ism, and the fall­out of War on Ter­ror in neigh­bor­ing Afghanistan.

Not sur­pris­ingly, South Asian coun­tries have ex­ten­sive ar­eas of in­equal­ity and ex­treme poverty di­rectly con­nected to the con­flict ar­eas and the in­clu­siv­ity of de­vel­op­ment de­pends on re­duc­ing this in­equal­ity. Since con­flict is a ma­jor de­ter­rent to po­lit­i­cal sta­bil­ity, no sus­tained growth poli­cies have been suc­cess­fully ap­plied over the decades. How­ever, do­mes­tic re­forms and ex­ter­nal as­sis­tance has helped pro­vide some re­lief in phases.

A brief over­view of the eco­nomic out­look of South Asian coun­tries is as fol­lows:

Bangladesh is an agri­cul­tural coun­try, and one of the world’s most densely pop­u­lated na­tions (164 mil­lion). A wide ma­jor­ity works in agri­cul­ture, though ser­vice in­dus­tries con­trib­ute over half of GDP. Bangladesh has a gar­ment in­dus­try. How­ever, weak in­sti­tu­tions, poverty, fre­quent cy­clones and floods and cor­rup­tion (CPI 2009: 139th/180). These un­der­mine eco­nomic de­vel­op­ment and in­crease un­rest de­spite rea­son­able in­flow of aid and around $100 mil­lion a year in aid from the United States. Un­em­ploy­ment rate is cur­rently closer to 5.1% and in­fla­tion 6.0% (CIA Fact Book 2011). From the ‘90s to 2010, in­dus­trial pro­duc­tion in­creased to 30% from 20%. The in­crease in de­mand for power and other in­fra­struc­ture has not been suc­cess­fully met with and the coun­try’s in­dus­tries and man­u­fac­tur­ing sec­tor have suf­fered greatly.

Bhutan is ranked among the top 10 hap­pi­est coun­tries of the world. This has been achieved due to its unique five-year national de­vel­op­ment plan se­ries based on ‘Gross National Hap­pi­ness’, and the coun­try is well into achiev­ing its ob­jec­tive to re­duce poverty to 15 per­cent by 2012-13 in its Tenth Five-Year Plan (2008-2013). Bhutan has not only been suc­cess­ful at most of the orig­i­nal MDGs but in some cases, it is also go­ing be­yond the MDGs. How­ever, trade and fi­nance need some pol­icy plan­ning to fa­cil­i­tate more for­eign in­vest­ment. Re­gion­ally, the econ­omy is closely aligned with In­dia’s and hy­dropower exports to In­dia have boosted Bhutan’s over-

all growth. The World Bank has been as­sist­ing Bhutan since the early 80s and projects worth U.S.$73 mil­lion fo­cused on ed­u­ca­tion, health, pri­vate sec­tor and ru­ral de­vel­op­ment and in­fra­struc­ture are un­der­way. The Global Fund is also com­mit­ted to pro­grams to fight AIDS, Tu­ber­cu­lo­sis and Malaria. The per capita in­come has ex­ceeded U.S.$2000, mak­ing Bhutan third only to the Mal­dives and Sri Lanka in South Asia.(World Bank, 2011)

In­dia in­her­ited 90% of the in­dus­try at par­ti­tion. Due to land re­forms in­tro­duced shortly af­ter par­ti­tion, the In­dian econ­omy con­tin­ues to move in the right di­rec­tion. With an av­er­age growth rate of 8% in the last three years, it is rec­og­nized as one of the world’s fastest de­vel­op­ing economies. How­ever, the CIA Fact Book’s fig­ures chal­lenge the in­clu­siv­ity of In­dia’s eco­nomic poli­cies as peo­ple liv­ing be­low poverty line re­mains at 41.6%, and In­dia’s lev­els of child un­der-nu­tri­tion are dou­ble that of Sub-Sa­ha­ran Africa. (World Bank, 2007). De­spite govern­ment’s ex­ten­sive wel­fare poli­cies, so­cial progress has also been ham­pered by Hindu caste sys­tem and anti-Mus­lim sen­ti­ment. The In­dus­trial ac­tiv­ity in In­dia has, how­ever, helped ac­cel­er­ate eco­nomic growth in the ur­ban ar­eas, cre­at­ing jobs and in­creas­ing exports sig­nif­i­cantly. The rev­enue gen­er­ated through tax col­lec­tion has also helped cre­ate in­creased pub­lic spend­ing on ed­u­ca­tion, health care and var­i­ous so­cial pro­grams to fight poverty.

Mal­dives com­prises 1191 is­lands in the In­dian Ocean of which al­most 200 are in­hab­ited. Tourism is the main in­dus­try, con­tribut­ing al­most 20% to the GDP. The Mal­dives econ­omy is grow­ing at an av­er­age of over 10% since the past two decades, although the 2005 tsunami caused a tem­po­rary set­back. In 2009, the global fi­nan­cial cri­sis also caused de­cline of tourist ar­rivals and in­vest­ment. How­ever, the thor­ough pol­icy plan­ning of govern­ment, aided by In­ter­na­tional fi­nan­cial in­sti­tu­tions like World Bank, con­tin­ues to draw sub­stan­tial in­vest­ment through econ­omy-friendly in­cen­tives. Over the longer term though, a big­ger threat to Mal­di­vian econ­omy is seen to be the im­pact of ero­sion and global warm­ing as 80% of the area lies one me­ter or less above sea level. The de­vel­oped coun­tries can help here by re­duc­ing their car­bon emis­sions.

Nepal is among the least de­vel­oped coun­tries in the world, and was ranked 29th on the Global Hunger In­dex 2010. It is a land­locked state bor­dered by China and In­dia. Nepal’s GDP for 2008 was es­ti­mated at over $12 bil­lion mak­ing it the 115th-largest econ­omy in the world. Agri­cul­ture ac­counts for about 40% of GDP, ser­vices com­prise 41% and in­dus­try 22%. Nepal has con­sid­er­able po­ten­tial in hy­dropower, but po­lit­i­cal in­sta­bil­ity has ham­pered for­eign in­vest­ment. Civil strife and la­bor un­rest, and its sus­cep­ti­bil­ity to nat­u­ral dis­as­ter are a chal­lenge. Nepal meets its en­ergy de­mands through In­dia and is con­tracted to im­port all its pe­tro­leum prod­ucts through the In­dian Oil Cor­po­ra­tion (IOC), which also means pay­ing ex­tra du­ties and taxes. For­eign aid ac­counts for more than half of the de­vel­op­ment bud­get, though lately fo­cused on real es­tate rather than de­vel­op­ment projects. Govern­ment pri­or­i­ties over the years have been the de­vel­op­ment of trans­porta­tion and com­mu­ni­ca­tion fa­cil­i­ties, agri­cul­ture and in­dus­try. The ex­port-ori­ented car­pet and gar­ment in­dus­tries to­gether now ac­count for ap­prox­i­mately 70% of mer­chan­dise exports. A pos­i­tive mote from World Eco­nomic Out­look 2010 re­ported Nepal’s in­fla­tion at 6.8% in 2010-11.

Pak­istan’s econ­omy is pre­dom­i­nantly based on agri­cul­ture and has seen growth since the early 1950s de­spite in­ter­nal strife, ex­ter­nal con­flict, sanc­tions, global re­ces­sion, and nat­u­ral dis­as­ters (2005 earthquake, 2010 floods). It is the 27th largest econ­omy in the world. 17.2% pop­u­la­tion lives be­low poverty-line (WB 2011). The tax col­lec­tion in Pak­istan re­mains at less than 10% of GDP and the lack of rev­enue re­stricts Pak­istan’s spend­ing on de­vel­op­ment pro­grams. Tex­tiles ac­count for most of Pak­istan’s ex­port earn­ings, but Pak­istan’s fail­ure to ad­dress power is­sues and hence ex­pand a vi­able ex­port base has left the coun­try’s econ­omy vul­ner­a­ble. How­ever, in 2005, Pak­istan was named the top re­former in its re­gion and in the top 10 re­form­ers glob­ally (WB), and in­cluded by the Gold­man Sachs Global eco­nomics Group as one of the “Next Eleven” (N-11), a group of coun­tries with size­able eco­nomic po­ten­tial for global im­pact. Un­for­tu­nately, the in­ter­nal strife and fall­out of War on

Ter­ror and global fi­nan­cial cri­sis has forced mas­sive cap­i­tal flight from Pak­istan. Still, Pak­istan was ranked 83 among 181 coun­tries around the globe (Ease of Do­ing Busi­ness In­dex 2011), much higher re­gion­ally than coun­tries do­ing bet­ter in other ar­eas; Bangladesh is ranked 107, Bhutan 142, In­dia 134, Nepal 116 and Sri Lanka is 102.

Sri Lanka has an econ­omy of $56 bil­lion (IMF, 2011) and GDP of about U.S.$7000. Sri Lanka has shown strong growth rates in re­cent years, and is far ahead of Bangladesh, In­dia and Pak­istan. Its main eco­nomic sec­tors are tourism and agri­cul­tural prod­ucts. Over­seas em­ploy­ment also con­trib­utes highly in for­eign ex­change. Since 2009, Sri Lanka is among the world’s fastest grow­ing economies af­ter its civil war against the Tamil Tigers ended. In 2010, Sri Lanka’s GDP was es­ti­mated at 8% and is ex­pected to grow by an­other 8.5% in 2011. Im­prove­ments in se­cu­rity and in­fra­struc­ture projects have lead to a re­turn of for­eign in­vest­ment. For many years, the United States has been Sri Lanka’s big­gest mar­ket for gar­ments, tak­ing more than 63% of the coun­try’s to­tal gar­ment exports, and China has in­vested in multi-bil­lion dol­lar in­fra­struc­ture projects. In­ter­na­tional in­vestors in the tourism and hos­pi­tal­ity in­dus­try have also shown in­ter­est to in­vest in Sri Lanka due to its ob­vi­ous tourism po­ten­tial.

In con­clu­sion, given the scale of South Asian de­vel­op­ment is­sues, de­vel­op­ment plan­ners and prac­ti­tion­ers need to take var­i­ous ap­proaches to help the re­gional econ­omy find a solid foot­ing in the global mar­ket. How­ever, eco­nomic strate­gies must bal­ance se­cu­rity so­lu­tions, and work through wel­fare pro­grams to re­duce poverty, strength­en­ing lo­cal govern­ment, civil ad­min­is­tra­tion, im­prov­ing health and ed­u­ca­tion in­fra­struc­ture, and pro­vid­ing in­cen­tives for in­ter­na­tional fund­ing sources. To ease the bur­den of this de­prived but dy­namic re­gion, the in­ter­na­tional com­mu­nity needs to con­tinue its sup­port for de­vel­op­ment projects through its fund­ing and knowl­edge as­sis­tance and help them move into a new era of sus­tained growth.

South Asia waits for a se­cure fu­ture.

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