Challenges facing Asian century

Challenges facing Asian century

We are a part of the Asian continent but oddly enough, Pakistan finds itself
growth-wise too far from what is called the rising Asia. Physically we are next-
door neighbors of China, the country that leads Asia and India that is striking
out its own Asian path but progress-wise Pakistan seems to be located in too
distant a continent. And we are just a stone’s throw from the oil-rich Middle
East that includes Saudi Arabia, the UAE and Iran but energy-wise Pakistan
seems to be embedded in too poor a locale. We need a lot of catching up to do
to be able to belong to the real Asia which by 2040, is likely to generate more
than 50% of world GDP, and could account for nearly 40% of global
consumption. According to Jonathan Woetzel and Jeongmin Seong, Senior
Fellow of McKinsey Global Institute (We’ve entered the Asian Century and
there is no turning back—published on Oct. 11, 2019 in the World Economic
Forum’s Weekly Agenda) today, the region has an increasing global share of
trade, capital, people, knowledge, transport, culture, and resources.

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 Challenges facing Asian century

Asia now accounts for around one-third of global trade in goods, up from
about a quarter ten years ago. Over roughly the same period, its share of
global airline travelers has risen from 33% to 40%, and its share of capital
flows has increased from 13% to 23%. Those flows have fueled growth in Asia’s
cities. The region is home to 21 of the world’s 30 largest, and four of the ten
most visited. And some of Asia’s lesser-known cities are now also on investors’
radar. In Yangon, Myanmar’s commercial capital, greenfield foreign direct
investment (FDI) in knowledge-intensive sectors totaled $2.6 billion in 2017,
up from virtually zero in 2007. Similarly, Bekasi, a smaller city near Jakarta,
has emerged as the Detroit of Indonesia – the center of Indonesia’s automotive
and motorcycle industry. Over the last decade, FDI in the city’s manufacturing
industry has grown at an average rate of 29% per year. And India’s Hyderabad
– which generated over 1,400 patents in 2017 – is quickly catching up with
India’s Silicon Valley, Bangalore. But it’s not only external flows being
channeled into Asia. Dynamic intraregional networks are also driving
progress. Around 60% of Asian countries’ total trade in goods occurs within
the region, facilitated by increasingly integrated Asian supply chains.
Intraregional funding and investment flows are also increasing, with more
than 70% of Asian startup funding coming from within the region. Flows of
people – 74% of travel within Asia is undertaken by Asians – help to integrate
the region as well.

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 Challenges facing Asian century

In fact, according to authors there are at least four “Asias,” each at a different
stage of economic development, playing a unique role in the region’s global
rise. The first Asia comprises China, the region’s anchor economy, which
provides a connectivity and innovation platform to its neighbors. In 2013-17,
the country accounted for 35% of Asia’s total outward FDI, with about one-
quarter of that investment going to other Asian economies. Reflecting its
rapidly growing innovation capacity, China accounted for 44% of the world’s
patent applications in 2017. The second grouping – “Advanced Asia” – also
provides technology and capital. With total outward FDI of $1 trillion, these
countries accounted for 54% of total regional FDI outflows in 2013-17. South
Korea alone provided 33% of all FDI flows to Vietnam. Japan accounted for
35% of Myanmar’s FDI inflows, and 17% of the Philippines’.

Then there is “Emerging Asia,” which comprises a relatively diverse group of

small emerging economies that provide not only labor, but also growth
potential, owing to rising productivity and consumption. These economies are
deeply integrated with their regional neighbors: their average share of
intraregional flows of goods, capital, and people is 79%, the highest of the
four Asias. By contrast, the fourth grouping – “Frontier Asia and India” – has
the lowest average share of intraregional flows, amounting to just 31%. But
this figure – which reflects historic ties to Europe, the Middle East and Africa,
and the United States – is set to increase, as these economies, which
historically were less integrated, forge closer bonds with their Asian
neighbors. This group has a lot to offer, including a relatively young labor
force that is capitalizing on the growing Asian import market, and a growing
middle class that can serve as a new market for regional exports.

The differences among the four Asias are complementary, making integration
a powerful force for progress. For example, as one country’s labor force ages,
a country with a younger population fills the gap. The median age of India’s
population stood at 27 in 2015, compared to 37 in China and 48 in Japan and
is expected to reach just 38 by 2050. Likewise, when wages – and thus
manufacturing costs – begin to rise in one country, an economy at an earlier
stage of development takes over its low-cost manufacturing activities. From
2014 to 2017, when China’s share of all labor-intensive emerging-economy
exports declined from 55% to 52%, Vietnam’s share increased by 2.2
percentage points and Cambodia’s by 0.4 percentage points.

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Over the last three decades, significant gains in workforce size and quality
helped Asia to become a hub of global supply chains – and thus to sustain
rapid progress toward advanced-economy income levels and living standards.
But with workers increasingly unable to meet the demands of the labor
market, the region’s remarkable development success could be derailed.
According to Lee Jong-Wha Director (How can Asia close its emerging skills

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 Challenges facing Asian century

gap? Published on 15 Jan, 2016 in WEF’s Weekly Agenda) governments across

Asia must devise ways to transform their education and training systems, so
that workers acquire the skills they need to boost economic growth and
productivity – the key to better jobs and higher wages. Moreover, general
education and technical and vocational education and training (TVET) systems
need to be restructured. In many Asian countries, formal education is often
overly academic or simply low-quality, undermining not only graduates’
employability, but also their capacity to reap the benefits of further TVET. To
be effective, secondary and tertiary schools must produce graduates with both
soft skills, such as communication and teamwork, and relevant technical
skills. As for TVET systems, both their capacity and quality must be improved.
As governments improve their capacity for supervision, coordination, and
regulation of the TVET system, actual skills training should be shifted to the
private sector, thereby transforming the current supply-driven system to one
that responds effectively to changing market demand.

To this end, governments should encourage public-private partnerships

focused on, for example, identifying the labor market’s unmet needs, setting
TVET policy priorities, developing curricula and national standards, training
TVET teachers, and implementing cost-sharing mechanisms. Governments
must also ensure better access to TVET systems for disadvantaged groups,
including children from poor families and rural areas and employees in SMEs
and the informal sector. According to Masakazu Toyoda Chairman & CEO, The
Institute of Energy Economics, Japan (How can Asia cope with its biggest
challenge – energy security? Published in the Agenda Weekly of WEF)
developing nations in Asia need to adopt policies that include improving
energy efficiency to restrict demand growth, developing domestic resources
proactively, diversifying their energy mix and import sources to disperse risks,
and preparing for possible energy supply disruptions.

They also need to strike a balance between affordability and environmental

sustainability. Affordability means that no country has any choice but to use
cheap energy as far as average income levels are low. Environmental
sustainability implies that if energy consumption causes a grave
environmental problem, it may affect national interests. Given the lock-in
effect of energy infrastructure, it is desirable to adopt the best available
technology (BAT) for investment. Developing countries can take advantage of
successful and unsuccessful experiences in developed countries to plot their
own path forward. This means that developing countries may be able to
address or avoid problems more efficiently than developed countries did in the
past.

—- Written by Muhammad Ziauddin. Published in Pakistan Observer on

October 21, 2019.

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