Asia’s rise and the ADB report

The ADB-commissioned study titled ‘Asia 2050 – Realising the Asian Century’ has been released recently. The foreword states that this study was commissioned because of the rapid rise of Asia, which is one of the most successful stories of economic development in recent times.

It was in this context that the study was commissioned to develop possible scenarios of where the region would be in 40 years and to identify the drivers of change and the policy changes the region must make.

With the recent developments in Asia indicating that Asia is the future of global economic development, the study is undertaken at an appropriate time when, as the report states, Asia is in the midst of a ‘historic transformation’ and if it continues to grow on its recent trajectory, by 2050 it could account for more than half of the global GDP, trade and investment and enjoy widespread affluence. Its per capita income could rise six-fold to reach the global average and be similar to European levels.

The study cautions that although some have called it the ‘Asian Century,’ the rise is not preordained. High growth rates have to be sustained, widening inequalities have to be addressed and environmental degradation must be mitigated. Asian countries, particularly those who are in the middle income bracket, must ensure that they do not fall into what is termed as the ‘Middle Income Trap’. This refers to a country stagnating in the middle income level and not growing to advanced country levels.

In a steadily growing economy, the per capita GDP would rise continuously over time towards higher incomes. But many middle income countries do not follow this pattern. Instead, they have short periods of growth followed by periods of stagnation or even decline or are stuck at low growth rates. In other words, they are caught in the ‘Middle Income Trap’ and are unable to compete with advanced economies in manufacturing exports and high skill innovations. Such countries are unable to make the timely transition from resource-driven growth with low cost labour and capital to productivity-driven growth.

The findings of this study would be useful for Sri Lanka as the country is trying to move into higher levels of growth. According to the study, increasing access to quality infrastructure, urban inequality and rural development, including agriculture, will remain important in low and middle income economies to uplift the rural population.

It warns that rural development alone is not an alternative to urban development and that they must be complementary. Between now and 2050, Asia is expected to be transformed as the urban population will be nearly doubled. Asia’s cities, which already account for more than 80% of the economic output, will be centres of education, innovation and technological development.

Urban buildings and transport would account for the bulk of energy consumption and carbon emission. The quality and efficiency of urban areas will thus increasingly determine Asia’s long-term competitiveness and social and political stability. Asia must merge its coming rapid urbanisation by promoting energy efficient, safe and liveable cities become more reliant on mass transport rather than on cars. The city of Colombo is an example of reliance on cars rather than mass transport.

A key policy implication pointed out in the study is that the future competitiveness of all Asian countries and wellbeing will depend on improving the natural resources and winning the global race to a low carbon future.

The need for quality education to take Asia forward is emphasised in the study. Education that promotes creativity, supported by an eco system necessary to foster innovation and entrepreneurship, will be needed. This is yet another aspect that would be important to Sri Lanka.

On the need for good governance, the study states that “all countries must improve governance and continually transform their institutions. The recent deterioration in the quality and credibility of national political and economic institutions (illustrated by rising corruption) is a serious concern and likely to become a binding constraint to growth... Asia must modernise governance and retool its institutions with emphasis on transparency, accountability and enforceability.”

It recommends that middle income countries should focus on the fundamentals of development, promoting faster and more inclusive growth by reducing inequalities through better education for all, infrastructure development, the business environment and openness to external markets. To sustain region-wide economic growth, the need to fully open the markets to neighbours in the region is also mentioned. Sri Lanka being in the middle income bracket would benefit by implementing such recommendations.

The report outlines four overriding tangibles which will ultimately determine Asia’s long-term stability, among which are the ability of Asia’s leaders to persevere during the inevitable ups and downs and to focus on the long-term, which requires mature, farsighted and enlightened leadership, commitment and ability of leaders to modernise governance and retool institutions which encourage transparency and accountability.

As Sri Lanka attempts to become the ‘Wonder of Asia,’ an in-depth study of this report by policymakers would be beneficial.

(Manel de Silva holds an Honours Degree in Political Science from the University of Ceylon, Peradeniya and has engaged in professional training in Commercial Diplomacy at ITC and GATT. She has served as a trade diplomat in several Sri Lankan Missions overseas and was the first female Head of the Department of Commerce as Director General of Commerce.)