Opening Remarks at the ADB Institute Annual Conference

Speech | 27 November 2013

Opening remarks by ADB President Takehiko Nakao at the ADB Institute Annual Conference held in Tokyo, Japan on 27 November 2013 (as drafted).

Your Excellencies, distinguished guests, ladies and gentlemen:

Good morning. It is my honor to welcome you to the 16th ADBI Annual Conference. This year's conference theme is "Realizing an Innovative, Inclusive, and Integrated Asia and the Pacific."

ADBI

First of all, I would like to congratulate ADBI for another productive year.

Since its establishment in 1997, ADBI has played an important role as the think tank of ADB. In this time, it also has become a leading knowledge center for economic development in the region.

As evidence of its success, I am pleased to note that ADBI was ranked the 6th best government-affiliated think tank in the world for 2012 by the Global Go-To Think Tanks Report published by the University of Pennsylvania.

ADBI's research focus is medium-to long-term development issues of strategic importance as well as capacity building and training activities that contribute to ADB's overarching objective of poverty reduction.

Today's conference reflects the combined efforts of all of ADB's knowledge departments, including ADBI, the Economics and Research Department, the Office of Regional Economic Integration, and the Regional and Sustainable Development Department.

ADB's response to Typhoon Yolanda

Before starting on today's theme, I would like to briefly touch upon Typhoon Yolanda, which caused loss of thousands of lives and widespread destruction in the Philippines, and ADB's response to it. This event reminds us that developing countries are particularly vulnerable to extreme weather events and natural hazards. Typhoon Yolanda brought a severity of historical proportions that has affected an estimated 12 million people.

As a first response to this disaster, ADB has provided $23 million in grants to the Philippines to meet immediate needs. In addition, ADB will provide a $500 million emergency loan to help reconstruct communities devastated by Typhon Yolanda. In addition, ADB is preparing to establish an ADB-administered multi-donor trust fund. We will also work with bilateral and multilateral development partners as well as the Government of the Philippines for effective reconstruction.

At this moment, it is difficult to make any definite conclusion on whether disasters such as Yolanda are linked to global climate change, but it is clear that severe disasters are occurring at a high frequency in the Asia and Pacific region.

Disaster risk management, including preparedness, must be at the forefront of our planning. ADB's mid-term review of Strategy 2020 will seek to mainstream adaptation and resilience to climate change in core development planning.

Today's conference will explore the role of innovation, inclusiveness, and integration in achieving lasting and sustainable growth in Asia. These "3 I's" are not unrelated to improved disaster preparedness.

Allow me to briefly touch on them.

First, innovation is vital in strengthening disaster risk management. Effective governance structures, well-developed information and communications technology (ICT) systems, and technology innovations are key components in improving preparedness. Disaster risk financing instruments such as disaster risk insurance, reinsurance, and catastrophe bonds are a particularly crucial innovation that Asia and the Pacific needs to develop further. Currently, less than 5% of disaster losses in developing Asia are insured compared to 40% in developed countries.

Second, inclusiveness improves capacity for disaster risk management, including preparedness. Poor households are most vulnerable to natural disasters. Affordable health care, education, and public services can reduce the severity of disaster and human suffering. Disaster resilient infrastructure and urban development, including housing and roads, can greatly strengthen capacity.

Finally, integrationis important. A single extreme weather event or natural hazard often affects and poses challenges for neighboring countries. Thus, a regional approach to disaster risk management is required. ADB's Greater Mekong Subregion Flood and Drought Risk Management and Mitigation Project seeks to reduce economic losses resulting from floods and droughts. In addition, Asia and the Pacific has taken steps to develop an early warning system for tsunamis.

Realizing an innovative, inclusive, and integrated Asia and the Pacific

Now, let me turn to today's main theme. Speaking more broadly about the 3 I's, Asia has prospered over the past several decades. Hundreds of millions of people have been lifted out of poverty. Out of 45 developing members of ADB, 33 Asian economies are now middle-income status, and 5 are high income status.

Yet, tremendous challenges remain. First, Asia is still home to two-thirds of the world's poor. Widespread malnutrition, poor health, illiteracy, and uneven access to basic sanitation persist. Addressing the poverty issue will require further sustained economic growth.

Second, rapid growth has brought with it increased inequality in many countries. Developing Asia's aggregate GINI coefficient rose from 39 in the 1990s to 46 in the late 2000s.

Third, rapid growth has also resulted in a degraded environment. Contamination of air, water, and soil is threatening people's health.

Fourth, as income levels rise, it becomes progressively more difficult and complex to maintain high growth rates. Without innovative policies, many economies face the risk of falling into the so-called "middle-income trap."

As Asian economies develop, the work of ADB must adapt to these changing circumstances to remain relevant. It is critical that we support Asia and the Pacific in maintaining its growth momentum to reduce poverty and inequality while protecting the environment. I believe that to achieve sustainable growth, Asia must become more innovative, more inclusive, and more integrated. To support this shift, ADB must become more knowledge focused in the services it provides developing member countries. Let me now touch briefly on each of these.

First, Innovation:

Innovation is essential to avoid the "middle-income trap" in the region. Innovation raises productivity and promotes structural change. The private sector is the cornerstone of innovation. To enhance innovation, Asia must invest more in research and development, knowledge, and in its people. We should also
strengthen vocational and tertiary education, and university-industry ties.

And we must improve governance and institutions. The rule of law, accountability, and protection of intellectual property rights are essential in building a good climate for private sector investment and innovation in the region.

Second, Inclusiveness:

For growth to be sustainable, it also needs to be inclusive. Asia must address issues of income inequality by ensuring that each individual is given an equal opportunity in terms of access to good education, health and other public services, and social safety nets.

Affordable and accessible infrastructure, inclusive financial systems, investments in human capital, and a commitment to good governance are some important ways to enhance the social inclusiveness of economic growth. It is vitally important to address the jobs challenge for the young and unskilled entering the workforce, and to deal with high levels of informal employment.

Third, Integration:

Over the past half century, Asia has benefited tremendously from regional cooperation and integration, particularly through infrastructure connectivity and trade and financial linkages. The development of supply chain networks has been particularly effective in spreading the benefits of regional economic development to low-and middle-income countries, and steps should be taken to encourage the expansion of such networks. Greater financial integration can also enhance capacity to finance needed investments, including infrastructure.

At the same time, Asia must remain an integral part of the global economy. With our various subregions working together, I believe more can be done to create a truly integrated Asia.

Conclusion

In summary, as many of the region's emerging economies have reached middle-income status, Asia and the Pacific faces new challenges in addressing remaining poverty, rising inequality, environmental degradation, severe natural disasters, and a lack of adequate opportunities.

I believe these challenges can be overcome through policies that promote the 3 I's of innovation, inclusiveness, and integration.

This conference has assembled today an eminent group of experts on these three drivers of growth. I trust you will find the presentations and open-floor discussions interesting and thought provoking.

Thank you very much.