ISLAMABAD, Oct 13: The Asian Development Bank suggested Asian countries to cut red tape to unlock the full potential of the services sector, which remains a relatively backward sector of economies.

In most Asian countries, labour productivity in services is less than one-fifth of the current OECD figure. Consraints that hinder greater efficiency and productivity in the region’s service industries are pervasive, says a new report of ADB.

Across the region, there is a huge need to improve infrastructure and developing Asia needs to invest some $8 trillion in physical infrastructure during 2010-2020 just to maintain growth rates like those enjoyed in recent years, the report says.

Low productivity in Asia’s service sector partly reflects the dominant role of traditional service industries such as wholesale and retail trade, hotels and restaurants, real estate, transport, personal services, and public administration. Modern services such as information and communication technology (ICT), finance and professional business services still occupy only a ‘silver line’ of Asia’s service economy.

ADB says that political will is needed to tackle the entrenched vested interests that hinder competition in the service sectors of many Asian countries. Meaningful service sector reform requires strong political commitment and a top priority of reform should be to enact laws to ensure competition and vigorously implement them.

The report says that developing Asia’s service sector must confront the related challenges of lifting its low productivity and moving to activities with higher value added.

In Asia, services sector occupied an average share of 45 per cent of GDP in 1990 but now accounts for about half of GDP. The recent increases in services’ contribution to GDP can be seen as evidence that Asian economies are beginning to catch up with more advanced economies, where services account for larger shares of output. However, in most Asian countries, the services share of GDP remains well below that of advanced economies.

The service sector is a big employer in the region, and the share of the Asian labour force engaged in services has rapidly grown to about 34 per cent of all workers, though it still lags that of the advanced economies.

Services’ contribution to growth has been higher in South Asia than in other sub regions. In Pakistan, like India, Maldives and Sri Lanka, contribution of services sector was 60 per cent of the growth or more in 2000-2010. In South Asia, the modern services sector has played an especially prominent role in overall growth, notes the report.

Despite neglect, the service sector is large and expanding in Asia and the Pacific. All three of the world’s top airports are in Asia, as are five of the six best airlines and four of the best airport hotels.

Asia remains backpacker favourite, boasting four of the top ten destinations and two of the four cities offering the best street food. Half of the world’s ten coolest movie theatres are in Asia, as is the world’s best mass transit system, the report says.

ADB says that a dynamic service sector can contribute to Asia’s quest for inclusive growth, helping to ensure that broader segments of the population participate in generating growth and that the fruits of growth are spread more widely and equitably.