A South Asian Private Sector Perspective to Emerging Employment Prospects

Anura EkanayakeSeptember, 2011New York Source: Google Maps

Abstract

Emerging employment prospects in South Asia are discussed based on some mega global trends and selected key developments of significance to business in the region. While available secondary data and relevant research are utilized for specific elements in the discussion, the synthesis of these in a holistic picture, admittedly is of a “crystal ball gazing” nature. The justification for this approach being that private sector decisions are often made in this manner.

Contents• South Asia in Brief• South Asian private Sector• How Business People Respond to Markets • Some Mega Trends Relevant to South Asia• Key developments in South Asia• Constraints• Adjustment Costs in Transition • Business Prospects• Employment Out Comes• Policy Implications

South Asia in Brief• South Asia – Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka • Geography – elevation ranges from Maldives entirely at sea level to the Himalayas in Nepal,

with climate varying from tropical in the south to temperate in the north, with tropical rainforests to hot and cold desserts.

• Demography – accounts for almost one quarter of world population with India accounting for 1.2 billion people, a young and growing labour force, and low but rapidly improving education.

• Economy – Accounts for half of the worlds poor with per capita GDP ranging from US$ 6900 in Maldives to US$ 900 in Afghanistan (in PPP 2010). Agriculture in the economy ranges from 32% of GDP and 79% of employment in Afghanistan to 5.6% and 11% respectively in the Maldives.

• HDI – overall index ranking ranges from 91 in Sri Lanka to 155 in Afghanistan. • Ease of Doing Business ranking ranges from 83 for Pakistan and 167 for Afghanistan. • Global Competitiveness Index ranking ranges from 52 in Sri Lanka to 125 in Nepal.• Interestingly when the two economies with less than a million people are left out the

country with the highest per capita GDP, Sri Lanka, has the highest HDI, the highest GCI and the second highest DBI ranking.

• Conversely Afghanistan has the lowest per capita GDP, lowest HDI and the lowest DBI ranking.

Some Key Data on South Asian Economies

Population GDP / Cap HDI 2010 1/ Global Comp.ness 2/ Doing Business 3/

Country (ml in 2010) (PPP 2010) Index Rank Index Rank Rank

Afganistan 29.8 900 0.349 155 167

Bangladesh 158.5 1700 0.469 129 3.73 108 107

Bhutan 0.7 5500 142

India 1189.0 3500 0.519 119 4.30 56 134

Maldives 0.4 6900 0.602 107

Nepal 29.3 1200 0.428 138 3.47 125 116

Pakistan 187.3 2500 0.490 125 3.58 118 83

Sri Lanka 21.2 5000 0.658 91 4.33 52 102

World 6928 11000

Notes:1/ Out of 169 countries2/ 2011/12, out of 142 countries3/ Ease of Doing Business 2011 out of 183 countries

Table 1

South Asian Private Sector

• Non homogeneous, • Global MNCs operating in South Asia • A few local MNCs with global operations• Some large local conglomerates• A larger percentage of Medium sized businesses• Predominance of small and micro enterprises,

accounting for 60% of employment and 40% exports.

• Very different in the way they behave

How business people respond to markets

• Multinationals and large conglomerates have the resources and the capacity to be proactive. Most have corporate strategy units to monitor global developments and strategize. They may carry out scenario planning, SWOT analysis and ‘Blue Ocean’ strategizing.

• Others respond to market signals and are reactive to varying degrees

• Large businesses react to global and national market signals• Medium and Small businesses react to local market signals• Micro enterprises react to neighbourhood market signals• There are firm specific differences, but the above is the general

pattern.• Business people look for business opportunities, job creation is an

outcome and not a business objective / goal. • Essentially what is presented is an optimistic overall view

characteristic of private enterprise and not a “dismal” one.

Some Mega Trends relevant to South Asia

• Trends which ‘we have to come to terms with’!• Global slow down in the medium term• High growth in Asia and growing intra Asian trade (42% to 47% of the

large economies as per ADB 2011)• The shifting centre of gravity towards Asia, with ‘re-

balancing’.• Limited natural resource availability, climate change may

have drastic impacts (consumption of natural resources / capita / day in North America

was 88 Kgs. compared to 14 Kgs. In Asia) • Rapid urbanization• Technological change elsewhere and their speedy adoption /

adaptation in South Asia (example of ICT)

Global GDP Growth

Source: WEO June 2011, IMF

Figure 1

Trade Volumes

2008 2009 2010 2011

Import Export Import Export Import Export Import Export

Advanced Economies

0.4 1.9 -12.7 --12.4 11.0 4.6 5.0

Emerging/DevelopingEconomies

8.6 4.5 -8.3 -8.5 12.5 10.5 9.3 9.0

2008 2009 2010 2011

Import Export Import Export Import Export Import Export

Advanced Economies

0.4 1.9 -12.7 --12.4 11.0 4.6 5.0

Emerging/DevelopingEconomies

8.6 4.5 -8.3 -8.5 12.5 10.5 9.3 9.014.5

2008 2010 2010 2011

Import Export Import Export Import Export Import Export

Advanced Economies

0.4 -12.2 12.7 --12.4 10.1 4.6 5.0

Emerging/DevelopingEconomies

8.6 4.5 - 12.5 10.5 9.3 9.0

11.2 12.0 5.8

13.5

2009 2011 2012

Import Export Import Export Import Export Import Export

Advanced Economies -12.6 6.8 5.5 5.9

Emerging/DevelopingEconomies

-8.2 -7.5 10.2 8.8 9.4 8.7

International Monetary Fund, World Economic Outlook, June ,2011

Table 2

Key Developments in South Asia

• Growing middle class in India, 50 ml in 2007 to 267 ml by 2016 and 523 ml in 2025 (NCAER 2011, MGI 2007); accelerating consumption.

• Growing labour force and the demographic dividend• Rapid rise in educational attainments• Capability to rapidly adopt / adapt new technology• Culture of ‘hard work’.• Low per capita use of resources• High propensity to save• Extended family and low pressure on public support• Potential role of India similar to that of China in East and South

East Asia

Projected Demand for Consumer Durables in India

Source: NCEAR 2005

Table 3

Source: The Economist 21st July 2011

Figure 2

Constraints• Barriers to trade (trade facilitation reforms can increase intra regional trade by 75% and

inter regional trade by 22% according to Herzal and Mizra 2009)

• Low ‘ease of doing business’ and all related constraints • Mistrust among nations• War for talent – attraction, motivation and retention ( widespread

shortage of skilled labour in South Asia, across the board labour shortage in Sri Lanka)• Gap in skills and aspirations – nearly 10% of youth (age 15 – 24 yrs) unemployed.

20% in Sri Lanka

• Gender gap – (In Sri Lanka for every one female of 15 yrs and above in the labour force two are out side the labour force)

• Poor access to capital for micro and small businesses• Poor infrastructure

World Ranking in Ease of Doing Business (2010)

  Ease of Doing

Business

Starting a Business

Dealing with

Construction

Permits

Registering

Property

Getting Credit

Protecting

Investors

Paying Taxes

Trading Across Borders

Enforcing Contracts

Closing a Business

Bangladesh 107 79 116 172 72 20 93 112 179 101

Siri Lanka 102 34 169 155 72 54 166 72 137 43

Pakistan 83 85 98 126 65 28 145 81 155 67

Malasya 21 113 108 60 10 40 32 37 59 55

Thailand 19 95 12 19 72 12 91 12 25 46

Philippines 148 156 156 102 128 132 124 61 118 153

Vietnam 87 100 62 43 15 173 124 63 31 124

Taiwan 33 24 95 32 72 74 87 17 90 10

Mongolia 73 85 104 27 72 28 66 158 35 119

Nepal 116 96 130 25 89 74 123 164 123 107

Table 4

Europe & Cen-tral Asia

East Asia & Pacific

Sub-Saharan Africa

Latin America & Caribbean

Middle East & North Africa

South Asia0%

10%

20%

30%

40%

50%

60%

48.1%

31.4%

13.0%

9.0%7.2%

5.5%

Intra-regional Trade as a Share of GDP, 2008

Source: World Development Indicators Database

Figure 3

Country Exports to EU

Exports to US

Other

2009 (%) 2009 (%)

Bangladesh 51.2 25.7 23.1

Sri Lanka 36.9 23.1 40

Pakistan 24.6 18.3 57.1

India 20.5 10.8 68.7

Maldives 31 ----- 49 (Thailand)

Nepal 11.1 7.1 63.5 (India)

Bhutan  -----  ----- 93.5 (India)

Table 5

Source: WTO

Export Destinations of SAARC Countries 2009

  Membership Trade Liberalization

  Original Current Significant Dates Intra regional trade - 2005

SAARC 7 8 SAPTA – 1993 4-5%

SAFTA – 2005

ASEAN 5 10 AFTA – 1992 25%

EU 6 27 EU single market launched in 1992

66.60%

Table 6

A Brief Comparison of SAARC with EU and ASEAN

Adjustment costs in transition

• Transition from inter regional to intra – regional trade, investment and business

• Transition from commodities to value added• Serving the new middle class and urban middle

and working class communities• Costs of information, business contacts, capital,

technology and skills• Not a case of instant switching from one to

another

Business Prospects

• Catering to the needs of the growing regional Middle Class• Catering to the needs of regional urbanization including

infrastructure• Building regionally integrated supply chains• Exporting to new Asian markets• Competing better in the old ‘mature’ markets• Developing niches ‘sending coal to new castle’ • Adapting /adopting technology fast at lower costs to those of the

pioneers • Leapfrog, synergize and create fusion • Specifically for Sri Lanka plugging into the Indian growth

generator appears to be the best prospect in the light of the global slowing down and ‘re-balancing’.

Example 1

Example 2

Example 3

Example 4

Employment Out-Come

• Futile to attempt listing specific industries or even sectors given the complexity of the environment and the ingenuity of the private sector – how can policy makers second guess enterprise?

• FMCG and CDs, construction, transportation, leisure, services are obvious.

• Even with growing middle class and urbanization, the consumption patterns will not exactly replicate those of the West, but the sheer number of middle class people will boost the demand.

• Low resource intensive, highly ICT leveraged, knowledge intensive and relatively labour intensive businesses.

• Continuing high share of micro enterprises leveraged by ICT and low costs and linking with local value chains.

• Will depend on PPP in skill development and private initiatives in attracting, motivating and retaining employees.

Policy Implications

• Greater regional economic integration• Trade liberalization instead of industrial policy • Reduced tariff and non tariff behind the border

barriers to trade• Continuing and even increased investment in

education, health and physical infrastructure• Greater private sector participation in education• Vocational training and seed capital for youth• Attract more females to the labour force• Allowing private enterprise to decide ‘what’ to do

‘when’, ‘where’ and ‘how’.

Thank You