Increasing exports to Boost South Asia’s Recovery from Covid-19

The Covid-19 pandemic has wreaked havoc on the international economy and trade. As South Asia recovers from its worst economic performance in decades, exports can play a key role in fostering economic growth.

Exports have played a critical role in altering many Asian economies and pulling hundreds of millions of people out of poverty in recent decades. However, South Asia, which was one of the world’s fastest expanding sub-regions prior to the pandemic, has yet to experience rapid export development across a wide range of industries.

According to World Development Indicators, despite having a quarter of the world’s population, South Asia provides only 4% of global GDP and only 2.5 percent of total global exports (WDI). Despite having an even lower share of global GDP (3.4%), Southeast Asia accounts for 7.5 percent of worldwide exports, three times that of South Asia.

In recent years, the trend has not improved. South Asian exports have decreased in proportion to the size of their economies since 2014. Sri Lanka’s exports used to account for about 40% of GDP, but they currently account for half of that. Exports in Pakistan and Nepal have remained stagnant in recent years, while exports in Bangladesh and India have grown at a slower rate than their overall economies.

Exports serve a variety of important purposes. Export-driven economies can compete in international markets and take advantage of their comparative advantages. Exports connect economies to the rest of the world, allowing native businesses and sectors to expand. This sets in motion the virtuous cycle of exports, investments, economic expansion, and social progress that has significantly benefited Asia.

Why hasn’t South Asia caught up to the rest of the region in terms of export growth? Except for a few areas like ready-made garments in Bangladesh, IT services in India, and luxury tourism in the Maldives, its goods and services have failed to achieve high competitiveness versus other exporting countries. The fact that foreign companies dominate the marketplaces for heavy machinery, home appliances, and smartphones in South Asia demonstrates this. Trade restrictions, infrastructure bottlenecks, currency overvaluation, and institutional and regulatory limits are among the other reasons for the region’s poor export performance.

South Asia may draw from Southeast and East Asia’s experience and build more robust trade, investment, and industrial promotion regimes to enhance exports and improve competitiveness. The epidemic increases the urgency of the situation while also providing opportunities.

First and foremost, the region must consider FDI (FDI). In 2018, FDI into South Asia accounted for 1.4 percent of GDP, compared to 5% in Southeast Asia, which is very competitive. FDI brings technology and managerial know-how to the local economy, which benefits them in the long run and improves their international competitiveness. More FDI and trade openness necessitate legislative and regulatory changes that encourage stronger export-oriented initiatives. Introduce economic zones, provide simple credit access and tax incentive policies, encourage enterprises to migrate up value chains, and invest in human resources are all examples of these measures.

Second, governments must focus on areas with low worldwide rankings in order to enhance the business environment. Unbundling energy conglomerates has been a success story in India and Bangladesh, demonstrating that state-owned businesses (SOEs) are being reformed throughout South Asia. However, inefficient SOEs continue to dominate sectors including banking, utilities, and infrastructure, thwarting efforts to enhance competitiveness. Subsidies to these SOEs are also a drag on governments’ necessary spending on education, health, and infrastructure, as well as a drag on export competitiveness.

Third, proactive policies are required to increase market competitiveness and assure good functioning. Most areas should be simpler to enter and depart, while monopolistic behavior should be reduced. To stimulate technological adaptation and innovation, set product standards and certifications, offer trade finance, and remove bureaucratic red tape, reforms are required.

The countries do not have to deal with these issues on their own. South Asian countries and regions come together in dynamic regional forums like the Asian Development Bank-supported Central Asia Regional Economic Cooperation Program and South Asia Sub-regional Economic Cooperation Program to develop markets, scale-up economies, and enhance productivity. They also collaborate on important regional infrastructure projects such as international motorways and cross-border commerce initiatives.

Following the pandemic’s devastating effects in 2020, a rebounding global economy in 2021 and 2022 could enhance global demand and commerce, providing possibilities for South Asia to expand its exports. Many countries in the hard-hit region expanded their spending in health and education and deepened structural reforms in response to the outbreak. South Asia can become an export powerhouse by extending these investments and reforms to commerce and industry promotion.

Photo Credit: https://blogs.worldbank.org/endpovertyinsouthasia/what-s-behind-south-asia-s-low-exports