A South Asian Private Sector Perspective to Emerging

Employment Prospects

Anura Ekanayake
September, 2011
Source: Google Maps
New York
 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.
 Table 1

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 countries
2/ 2011/12, out of 142 countries
3/ Ease of Doing Business 2011 out of 183 countries
 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 Figure 1

Source: WEO June 2011, IMF

 Table 2

Trade Volumes

2009
2008 2010
2009 2011
2010 2012
2011

Import
Import Export
Export Import
Import Export
Export Import
Import Export
Export Import
Import Export
Export
Advanced
Advanced
Economies 0.4
-12.6 1.9
-12.2 -12.7
11.2 --12.4
12.0 5.8 6.8
11.0
10.1 5.5
4.6 5.9
5.0
Economies
Emerging/
Emerging/
Developing
Developing -8.2
8.6 -7.5
4.5 13.5
--8.3 14.5-8.5 10.2
12.5 8.8
10.5 9.4
9.3 8.7
9.0
Economies
Economies

International Monetary Fund, World Economic Outlook, June ,2011

 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
 Table 3

Projected Demand for Consumer Durables in India

Source: NCEAR 2005

 Figure 2

Source: The Economist 21st July 2011

 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 Table 4

Ease of Doing Business (2010)

  Ease of  Starting a  Dealing  Registeri Getting  Protectin Paying  Trading  Enforcing  Closing a 
Doing  Business with  ng  Credit g  Taxes Across  Contracts Business
Busines Construc Property Investor Borders
s tion  s
Permits

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

 Figure 3

Intra-regional Trade as a Share of GDP, 2008

60%

50% 48.1%

40%
31.4%
30%

20%
13.0%
9.0%
10% 7.2%
5.5%

0%
c ia
si a ci fi ri ca
e an ri ca
As
lA Pa Af bb Af th
ra an ri
en
t &
ar Ca rth So
u
C si a h & N o
& st
A
- Sa i ca &
pe Ea ub er ast
ro S E
Eu Am d le
tin id
La M

Source: World Development Indicators Database

 Table 5

Export Destinations of SAARC Countries 2009

Country Exports to Exports to Other
EU US
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)

Source: WTO
 Table 6

A Brief Comparison of SAARC with EU and ASEAN

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 66.60%

launched in 1992
 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