Inclusive growth will lift Asia's boats

Countries around the world, including Asia, have been buffeted by a succession of economic, financial and climate-related shocks over the past four years. Many countries in this region are finding it increasingly difficult to sustain past stellar rates of economic growth and poverty reduction, raising the spectre that even more of the poor will be left behind.

All this is challenging governments to respond with policies to protect their citizens, especially their most vulnerable segments. This is not to say that the outlook for the region is overcast. Far from it. But there are enormous challenges and risks, and the urgency for greater inclusion represents an overarching challenge in Asia.

True, the region has made remarkable progress over the past decade in reducing the rate of income-based poverty, thanks to its economic success and social policies. Yet, because of rising populations, the absolute numbers of people struggling on less than US$2 (64 baht) a day in the region is unacceptably high at an estimated 1.7 billion.

What's more, income and non-income inequalities are widening between rich and poor, between rural and urban centres, and across different economic sectors.

The idea of inclusive growth - growth that is shared among all income strata - is changing how the development community views the challenge of poverty reduction, which by itself is no longer enough. Countries are realising that inclusive economic growth will be the tide that lifts all boats.

For a country's economic and social well-being, inclusive growth can change the outlook in two distinct ways. It facilitates greater sharing of an economy's gains, which brings with it social and political benefits. And by drawing on all the people as sources of growth, inclusive growth broadens an economy's human resource base and generates new sources of growth.

There are three crucial requirements for bringing about greater inclusion in the growth process: entrepreneurship, innovation and governance.

First, developing entrepreneurship will require sizeable efforts in skills training for the poor. But this must be relevant and match the needs of industry and local employment situations.

A project showing promise in this area is the Anudip Foundation's microfinance programme to develop entrepreneurs in the information technology sector in rural India. Targeted at unemployed youth, it offers computer and business training for setting up micro-enterprises, such as small cyber cafes, desk-top publishing ventures and digital photo studios.

To ensure the programme is aligned to the needs of the market, employers working in the IT sector are involved in drawing up the courses. Its success in this area has been remarkable: 70% of its 4,000-plus graduates have landed jobs in the formal IT sector.

Second, innovative approaches are needed to help generate productivity gains that increasingly underlie all economic progress. Here, market constraints and inefficiencies can be formidable obstacles, especially to small-scale entrepreneurs.

An example of innovative solutions is Vanuatu's sandalwood programme for women. Where the provision of collateral has served as a binding constraint to financing, using sandalwood trees as collateral and providing sandalwood seedlings have been shown to be a promising avenue. In this and many other cases, expanding the scale of good ideas is a major challenge.

Third, weak governance in public institutions hurts the poor most. Civil society organisations and academia can play a vital role in monitoring public services, strengthening participation and improving transparency, plus reducing leakage in the provision of services.

This form of citizen participation helped bring down the cost of school textbooks in the Philippines. G-Watch, a local organisation, mobilised citizens to monitor the procurement process from bidding and production to delivery. A study on the initiative showed textbook costs were substantially reduced, as was production time, and the textbook delivery rate increased from 60% to 95%, saving $3.6 million from books that did not disappear in transit.

The development community - from multilateral institutions to civil society organisations - is playing a role in promoting inclusive growth by raising awareness, supporting projects and assisting governments at the level of policy support.

But resources are limited for such a huge endeavour, underscoring the need for effective targeting and preventing leakage in interventions. Take the degree to which microfinance actually reaches the poor, an issue that is under increasing scrutiny.

The scale of microfinance has steadily grown over the past decade. According to the Microcredit Summit Campaign, there were 3,652 microfinance institutions worldwide at the end of 2010, reaching about 205 million clients.

In Asia, microfinance is recognised as a tool for delivering greater inclusion, and this is good.

But do the very poor benefit from these programmes? Evaluations of microfinance question if the very poor, say clients living below $1.25 a day or even $2 a day, are reached effectively by many programmes.

In microfinance and beyond in health, education and environment, low penetration rates of poverty-oriented efforts are not unique to Asia. Even so, better targeting and effectiveness go hand in hand.

In sum, a strong commitment by governments to develop the considerable untapped human capital among Asia's poor through livelihood and skills training, innovative approaches and improved governance will be essential for widening their access to work and markets.