ISLAMABAD: With around one million people entering the workforce each month and a growing urban population, South Asia can seize the opportunity to become the next manufacturing and export powerhouse through the right mix of reforms and investments.

According to a new World Bank report “South Asia’s Turn: Policies to Boost Competitiveness and Create the Next Export Powerhouse”, the four main policy levers to boost the productivity and thus the competitiveness of firms are to improve the business environment, connect firms to global value chains, leverage agglomeration benefits, and strengthen the capabilities of managers and workers.

“South Asia has tremendous potential to increase incomes and gain market share in exports through policies that enhance productivity and investment,” said Annette Dixon, World Bank South Asia Vice President. “If the region harnesses its productivity potential, it could be the fastest growing exporting region, for instance, tripling its share in global exports of electronics and motor vehicles by 2030.”

To better connect and expose South Asian firms to international good practices, governments should deepen reforms to improve the capabilities of firms to participate in global value chains, which will require making it much easier for exporters to import what they need, gradually reducing tariffs, while improving trade logistics.

Policymakers can encourage the flow of resources to more productive firms by actively managing urbanization and reducing congestion constraints, as well as fostering productive agglomerations of firms next to pools of qualified workers with easy access to key domestic and export markets, it says.

With support from governments, firms can improve their productivity and competitiveness by investing more in training their workers and managers, innovating to introduce new products and processes, as well as making greater use of the Internet to buy, sell, market, or manage their inventory.

Although South Asia has had some success in penetrating new markets, almost 80 percent of the region’s export growth from 2001 to 2013 came from the sale of the same goods to the same destinations, and the remaining 20 percent came from selling the same products to new markets.

Overall, the region’s export basket does not reflect substantial transformation of production structures or innovative activities. While the sophistication of exports has increased in India, it has remained low in the rest of South Asia and quality has generally remained low and has declined for some countries, report points out.

South Asia will be home to more than a quarter of the world’s working adults by 2030 and should take advantage of a confluence of positive forces, such as favourable demographics, increasing education levels, growing cities, and rising labour costs in East Asia.

To realise this potential, countries should work diligently to increase regional and global integration, take advantage of agglomeration economies, strengthen firm capabilities, and improve the business environment. The region’s great competitiveness potential can be shown by the success of its leading firms.

High import tariffs on cotton and man-made fibers combined with ineffective duty drawback mechanisms, have been the main constrain to the growth of the apparel sector in India and Pakistan.

Published in Dawn October 8th, 2016