The FINANCIAL — South Asia could become the fastest growing exporting region of the world if authorities in Pakistan and its South Asian neighbors implement a set of policy actions aimed at improving the business environment, connecting to global value chains (GVC), leveraging clusters, and strengthening firm capabilities, says a new World Bank report – South Asia’s Turn: Policies to Boost Competitiveness and Create the Next Export Powerhouse.
The report argues that increasing productivity of firms in Pakistan and the rest of South Asia is the only sustainable path to improving competitiveness. Today, a broad set of constraints limit the growth and export potential of Pakistani firms vis-à-vis their competitors in East Asia and the rest of the world. In order to address these, the report highlights the well-known challenges in the region’s investment climate, but more importantly draws attention to less-well-researched areas such as the role of cities and clusters, global value chains, and firms’ abilities to innovate and efficiently use resources, including technology.
The region’s great potential to boost its competitiveness is evidenced through a number of examples in the report, ranging from the highly successful apparel industries in Bangladesh and Sri Lanka to Pakistan’s light manufacturing cluster in Sialkot which has achieved dominant global market shares in products such as soccer balls and surgical instruments. “Pakistan, in particular, has important strategic endowments and development potential”, says Illango Patchamuthu, World Bank’s Country Director for Pakistan. “Located at the crossroads of South Asia, Central Asia, China and the Middle East, Pakistan is at the heart of a regional market with a vast population, large and diverse resources, and untapped potential for trade.”
Pakistan leads many global competitors when it comes to wage competitiveness and proximity to key markets yet continues to experience weakening in exports competitiveness. Exports remain concentrated in the textiles and food sectors and investment in global value chain capabilities including physical capital, human capital, institutions and logistics remain limited.
“The region has a significant untapped potential in raising productivity through development of urban ecosystems providing thick markets for skilled labor, large tracts of industrial land, and world class logistics,” says Vincent Palmade, Lead Economist and one of the report’s co-authors. According to the report, firms realize significant productivity benefits from locating in areas with a wide diversity of workers, suppliers, and customers.
With the right set of productivity-enhancing policies, South Asia could more than triple its share in global markets of electronics and motor vehicles and come close to doubling its already significant market share in apparel (excluding textiles and leather) by 2030. To achieve that progress, South Asian countries, Pakistan in particular, will do well to improve their business environment. As acknowledged in the recent World Bank 2017 Doing Business report, the implementation of needed reforms is gaining momentum, and needs to be accelerated. Pakistan should also leverage the benefits of its cities clusters by actively mitigating congestion forces and facilitating access to industrial land. Expanded participation in global value chains to markets through improvements in trade policies, logistics, and skills will also be beneficial. The report also calls for helping firms innovate, improve their managerial capabilities, and use technology to better connect with customers and suppliers for boosting competitiveness.