Statement by ADB President Takehiko Nakao at the Japan-LAC Business Forum

Statement by ADB President Takehiko Nakao on 8 November 2013 at the Japan-LAC Business Forum in Tokyo, Japan

as drafted

Prime Minister of Jamaica, Your Excellency Portia Simpson-Miller, Vice Minister of Finance, Mitsuhiro Furusawa, Inter-American Development Bank President Luis Alberto Moreno, distinguished guests, ladies and gentlemen.

It is a privilege for me--as President of the Asian Development Bank--to speak at this Japan-LAC Business Forum today. The Asia and Pacific region, and the Latin America-Caribbean (LAC) region, have become significant economic players in the rapidly evolving global economic landscape. The two regions combined make up more than 60 per cent of the world population and over 40 per cent of world GDP.

Countries in Asia-Pacific and LAC are predominantly at middle income status; of 71 developing countries in the two regions (45 members for ADB and 26 for IDB), only 8, (7 in Asia and 1 in LAC region1), are still in the low income status. Total trade between the two regions has grown by over 20 percent per annum in the past decade. As of October 2013, there are 21 signed free trade agreements between countries in the Asia-Pacific and LAC regions.

Just by looking at these numbers, I believe that our two regions have numerous opportunities to better reap the benefits of working together.

In my short speech this morning, I will highlight three points. First, the strengths and challenges common to both regions; second, opportunities for Asia and Latin America working together; and third, how ADB and the Inter-American Development Bank (or IDB), can help to strengthen the partnership between the two regions.

The two region's strengths and challenges

I would first like to highlight the common strengths shared by Asia and Latin America. Both regions have achieved impressive economic growth. While external demand from other regions is an important source of growth, they also have succeeded in nurturing their own large regional markets. In both Asia and LAC, middle income class has emerged and expanded. Those people aspire to a better life and they drive consumer spending - an increasingly important growth engine for both regions.

Both regions have made remarkable progress in reducing poverty, including non-income aspects of poverty such as access to safe drinking water, and gender parity in education. They have also achieved near-universal primary school enrolment. The spread of infectious diseases has also been contained.

But at the same time, both regions face many significant challenges that are often common between them. The major challenge for both regions is the middle income trap--where countries are no longer benefiting from low wage/low cost production but still cannot compete against countries producing higher value-added products.

Both regions also have to tackle challenges such as remaining poverty, climate change, aging populations, and problems associated with rapid urbanization. Some LAC countries that have been traditionally regarded as having a wide social gap, for example Brazil, have successfully pursued more inclusive growth over the past decades while widening inequality in Asia is of a great concern.

Opportunities for two regions working together

When we address these challenges, there is a clear benefit for the two regions in learning from each other and working together.

For instance, Asia can benefit from Latin America’s successful experience in pension systems, urban infrastructure, and agricultural modernization. Similarly, Latin America can benefit from Asia’s experience in manufacturing production and supply chains, ICT infrastructure development, and regional cooperation initiatives. Of course, there are differences between the two regions, and among the countries in both regions, in terms of economic circumstances and opportunities. However, here I would like to stress that both regions can focus on what I call three "I’s", namely, Inclusion, Innovation and Integration to address their challenges. Please allow me to discuss these briefly.

Inclusion is important for sustainable growth, which is one of the key ingredients to avoid the middle-income trap.

Inclusive growth promotes a high employment economy with social inclusion and economic cohesion. Inclusiveness is essential to unleash the potential capacity of the vast majority to contribute to economic growth. Key elements for inclusive growth include equal opportunities for education and health, narrowing of the rural-urban divide, and social protection.

The second "I" - innovation - is also essential for avoiding the middle income trap as it raises productivity. The private sector is the cornerstone of innovation. Thus, emerging economies in Asia and Latin America need to build an enabling environment for private sector investment, skills development, and research and development.

History suggests that manufacturing is important to promote continued innovation, sustain growth, and achieve higher income status. A recent ADB study shows that no country has achieved high-income status without its manufacturing sectors reaching at least 18% share of total employment at one stage of their economic development. Moving directly from agriculture to low productivity services without industrialization, as some Asian middle income countries are now experiencing, does not seem to improve overall per capita income.

Finally, regional integration - the third "I" - can help provide middle-income countries with new and diversified opportunities through supply chains, production networks, and new external markets. These efforts must be underpinned by regional cooperation in large scale infrastructure investments that will strengthen connectivity, as well as “soft infrastructure” such as trade facilitation.

In this context, I wish to specifically highlight the success of economic cooperation in the Greater Mekong Subregion (or GMS) and the Central Asian Regional Economic Cooperation (or CAREC) programs. These programs have proven effective in fostering integration through infrastructure and trade facilitation. We are pleased that some LAC policy makers have found value in participating in a recent CAREC meeting to explore the possibility of replicating the CAREC model in Latin America. Role of ADB and IDB to support Asia-LAC partnership

Let me conclude my speech with the roles that ADB and IDB can play in supporting Asia-LAC partnership.

One of important challenges for ADB and IDB is the fact that our client middle income countries have a wider array of access to market-based funds. Thus, the value addition of regional development banks, such as ADB and IDB, lies in combining knowledge and financial resources that are relevant to these middle income countries. Just one without the other will not work.

ADB and IDB are currently supporting the member countries of both regions for knowledge sharing in several areas. Government officials, civil society entities, and private sector partners have participated in ADB and IDB sponsored conferences, joint research projects and capacity development events. The areas we are jointly supporting cover inclusive business schemes, trade facilitation & regional integration, conditional cash transfers schemes to support the poor, and urban issues. These are all essential to achieve sustainable growth and tackle the middle income trap.

For example, in April 2013, ADB and IDB, together with World Customs Organization, co-hosted the Asia-LAC Customs Dialog which was attended by over 100 custom agencies from 54 Asia and LAC countries. During the Dialogue, the participants discussed how to strengthen cooperation in trade facilitation and trade security between the two regions.

As President Moreno and I discussed and agreed yesterday, ADB and IDB will enhance our joint work to facilitate cooperation between Asia Pacific and Latin America Caribbean regions. We look forward to working with our member countries and development partners in both regions for our better common future.


1 Based on the gross national income per capita at 2012 prices computed by the Atlas Method, and using the World Bank’s income classification system, those countries are: Afghanistan, Bangladesh, Cambodia, Kyrgyz Republic, Myanmar, Nepal, Tajikistan, and Haiti. See the links: http://data.worldbank.org/about/country-classifications; and http://data.worldbank.org/about/country-classifications/country-and-lend....