Graeme Wheeler
World Bank Managing Director
Second SAARC Business Leaders Conclave
Mumbai, India
February 18, 2007
Mr. Chairman, Dasho Ugen Tsechup Dorji [President SAARC Chamber of Commerce] and Co-chair, Mr. S.N. Agarwal [Vice President, SAARC Chamber of Commerce], and fellow panelists, Dr. Wolfgang Gerhardt, Thank you for your kind invitation to speak; it’s a great privilege to be here. We’re living through extraordinary times. Three powerful and interrelated global forces are transforming our lives – nowhere more so than in Asia. I refer to the global transfer of skill-enhancing technologies, the massive increase in cross-border private capital flows, and the rapid increase in developing countries’ share of world exports. IT inputs in services and manufacturing are rising exponentially as the cost of storing, processing, and transmitting information approaches zero. We’ve never before seen such an important factor cost decline so dramatically. Asian firms lead this revolution, while the economies of agglomeration and sound economic policies help attract large flows of foreign capital. South Asia’s challenge is to transfer the dynamism of its service sector to the manufacturing sector. If it can do this, South and East Asia will be the growth hub of the global economy for years to come. South Asia has the world’s largest concentration of poor people. But, for the first time, eliminating poverty within a generation is no longer a dream. The task won’t be easy. Inequality is rising in every South Asian country. Rural areas – where most of the poor live – have not seen the economic growth that urban areas have. Economic growth will need to accelerate from the 6 percent annual rate achieved over the last decade, to about 8 percent a year. Growth will have to be much more inclusive, and pick up the pace of human development. As Jeffrey Sachs said, there are two South Asias. One has high growth and great dynamism. In the other, there is tremendous poverty and conflict. The two South Asias need to be integrated into one. Eliminating poverty is possible because South Asia has two underused resources. One of these is geography. Despite a common location, history, customs, food, and culture – all of which we saw at this conference – South Asia is the least-integrated region in the world. Countries that have opened up trade with the rest of the world remain closed to each other. Everyday we see the obstacles – protective policies, poor infrastructure, corruption and red tape. Trade between India and Pakistan is about $1 billion a year. Without barriers, it could be $9 billion within five years. Trucks have to wait around 100 hours at the border to cross from India to Bangladesh. It costs an average of $200 in bribes to clear an import consignment from that border. Two hundred signatures are needed before Nepal can trade goods with India, and 140 signatures are required for India to trade with Nepal. Trade integration is a major opportunity. But regional cooperation in energy and water could produce even bigger returns. India, one of the most energy-hungry nations in the world, sits next to three energy-surplus countries – Bangladesh, Nepal, and Bhutan. Yet, except for Bhutan, energy trade between them is miniscule. Everyone can win from cooperation. Look northwest and the potential for energy trade with gas-rich Central Asia is enormous. We saw how cooperation between India and Pakistan on the Indus River ushered in the Green Revolution during the 1960s. Further cooperation on that same river, as well as on the Ganges-Brahmaputra by India, Bangladesh, and Nepal, could create a new revolution for the whole subregion. Regional cooperation can open many doors to prosperity, and the welfare of the 1.5 billion South Asian people depends on it. Himalayan rivers are the lifelines of the region’s economies and populations. A seven-country meeting in Abhu Dhabi last year identified climate change impacts on the Himalayan waters as a major unifying challenge for the region. It is clear that cooperation is essential for understanding and addressing this challenge. South Asia’s second untapped resource is its people – particularly the young people who will enter the labor force in the next two decades. Unlike East Asia, whose population will be aging, South Asia can accelerate growth by employing its surging labor force in productive jobs. But to realize this, two things must change. First, the manufacturing sector must become more competitive and grow more rapidly. India’s and Bangladesh’s share of industry in GDP is around 20 percent; in Korea, it’s 41 percent; in China, 48 percent. South Asia’s service sector has grown much faster than manufacturing because it’s less dependent on infrastructure, which is a serious bottleneck for manufacturing firms. To transport garments from China to the United States takes an average of 15 days; from India, 24 days. Second, more workers could be hired in South Asia’s manufacturing sector. Employment in Indian manufacturing actually fell between 1996 and 2002. Restrictive labor regulations were the main cause. A high proportion of firms in Sri Lanka hire fewer than 15 workers in order to avoid paying an average of 175 weeks of severance pay to separate workers. In India, 93 percent of the labor force is found in the informal sector, while the share of small manufacturing firms – small enough to avoid labor regulations – is 40 percent – 10 times the ratio in Korea. Regulations need to be replaced with safety-net programs that protect workers, not jobs. Programs are needed that incentivize firms to expand employment, and help workers enter the formal labor market. We all know that such reforms can be politically sensitive. But they are necessary to help hundreds of millions of South Asian workers become the engine of growth in the coming decades. As it has in the past, the SAARC Business Conclave can be a champion of this cause. South Asia stands at the cusp of history. At the entrance to the World Bank building in Washington, D.C., there’s a plaque that reads, “Our dream is a world free of poverty.” In South Asia over the next 20 years, we can together make that dream a reality. Thanks very much.
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