Welcome and introductory remarks by Xiaoyu Zhao, ADB Vice President, at the 2nd South Asia Economic Summit: South Asia in the Context of Global Financial Meltdown, New Delhi, India
Distinguished guests, ladies and gentleman,
It is a great pleasure for me to be here for the 2nd South Asia Economic Summit: South Asia in the Context of Global Financial Meltdown. The recent global crisis has brought to the fore a new range of economic challenges for Asia. The US, Europe, and Japan together account for about 66% of world gross domestic product (GDP) and about 68% of world consumption. A slow-down in these economies has naturally affected the growth prospects of South Asian countries as well as emerging economies in other regions of the world.
South Asia is already feeling the effects of this global recession, with growth having slowed down from 8.6% in 2007 to 6.3% in 2008. If this trend continues, it threatens to reverse the gains made in terms of poverty reduction and social development in the region. I am happy to note that the timely and decisive efforts made by South Asian countries to stimulate their economies has gained traction. There are positive signs that the region as a whole is now on the recovery path.
In today's presentation, I would like to focus on three inter-related subjects, which in our view, will help in ensuring that this recovery is broad-based and sustainable, and taps the full economic potential of the South Asia region. I will focus first on the role that can be played by enhanced regional cooperation as an anti-crisis response. In this context, I will discuss the urgent need to promote public-private partnerships as a means of building infrastructure connectivity in support of regional cooperation. Last but not the least, I will also emphasize the importance of knowledge management as a means of facilitating cross-learning and sharing of development experience for the mutual benefit of countries in the region.
Given that the financial crisis and the subsequent slow-down in the developed countries is at the root of this crisis, this underscores the need for South Asian economies to focus more on regional cooperation and trade in order to enhance their resilience to future global shocks. South Asian economies have so far managed to maintain a healthy balance between domestic and export-led growth. While this may have led to a relatively milder impact of the global financial crisis on South Asia, this does not diminish in any way, the role that greater trade can play in making the South Asian economies more competitive and strong in the years ahead. Increasing intraregional trade within South Asia will allow these economies to diversify and deepen their trade links, and insulate them from future fluctuations in trade with the industrialized countries. Removal of trade and non-trade barriers, the simplification and standardization of cross-border procedures, and the development of cross border infrastructure will help to increase intraregional trade in South Asia, which now stands at only 5.5% of total trade, much less than the ASEAN average of 27%. However, increase in trade will not be possible without an improvement in cross-border infrastructure, and this brings me to the second major point of my presentation.
Better connectivity across South Asian countries is essential for expanding intraregional trade and in providing more balanced sources of growth for the region. Developing roads, ports, rails, air, and energy infrastructures facilitates the movement of goods, peoples, and services; and attracts investment. More importantly, regional infrastructure development allows for more broad-based growth. It connects remote communities to major hubs, increases access to economic opportunities and basic social services, allows better exploitation of scale economies, and thereby, lays the foundation for shared prosperity.
Infrastructure investment in the South Asian region has however, been adversely affected by the global crisis, which has lowered the availability of finance, raised its cost, and increased the overall risk perception. Given the huge demand for infrastructure investment in South Asia, it is clear that public funding alone will not be able to support the infrastructure financing needs of the region. I am confident that deepening regional economic cooperation within South Asian, would over the medium term, help in attracting greater private sector participation in the infrastructure sector.
A sustained and structured process for mainstreaming Public Private Partnerships (PPPs), as is being successfully done in India, will be critical in this regard. We are pleased to note that South Asian countries are adapting and adopting the successful experiences of other countries to their advantage. ADB is aiding in this process through technical and financial support, and by facilitating dialogue and cross-learning. As a multilateral institution, assisting in mainstreaming PPP in member countries is a key priority for ADB.
We are aware that countries are at different stages of PPP development in terms of instituting enabling conditions for PPPs, the types of PPP models applied, and the number of sectors in which PPPs have been attempted. Looking forward, we also note that in most of emerging Asia, the infrastructure finance market is largely characterized by inadequate flow of long-term funds. Substantive and sustained institutional and market reforms in the financial sector are required to channel resources from domestic and internationally-available debt and equity sources to infrastructure. Without policy reforms, it will be difficult to significantly enhance the market-based flow of resources from banks, as well as pension and mutual funds. In the wake of the global financial crisis, such reforms appear to have taken a back seat. Efforts must be made to continue on the path of reforms for mitigating the constraints in PPP financing. ADB will continue to work with the South Asian countries to facilitate the policy, regulatory, and institutional reforms that are required to promote PPPs in the reqion.
Knowledge will also be a powerful catalyst for propelling development forward. ADB will continue to draw on the development experience of its member countries to prepare and disseminate relevant knowledge products which will benefit all countries including those in South Asia. Indeed, improved knowledge management and greater support for regional cooperation are two core planks of ADB's Strategy 2020.
Given the importance of regional cooperation, we are also launching today, the Study on Intraregional Trade and Investment in South Asia, which was financed by the Australia-Asian Development Bank South Asia Development Partnership. The report shows that South Asia is now more open to the policies of liberalization and openness than has been the case in the past. The establishment of the South Asian Association for Regional Cooperation (SAARC) in 1985, the signing of the SAARC Preferential Trading Arrangement signed in 1993, and the signing of the South Asian Free Trade Area (SAFTA) in 2004 were significant milestones in regional cooperation. Much has been achieved, but there is a long way to go in bringing about the desired expansion in trade and investment, and in forging closer ties both, within and outside the region. The study recommends broad, parallel initiatives to widen and deepen existing cooperation and integration in regional trade and investment. It is our hope that the findings and recommendations of the study will contribute positively to the strengthening of regional cooperation in South Asia.
Distinguished delegates, ADB stands firm in being your effective and trusted development partner in promoting regional cooperation in South Asia. The importance of South Asia as a bridge to East and Southeast Asia, Central Asia, and Europe cannot be emphasized enough. ADB will help the region to seek innovative ways to advance regional cooperation in South Asia and promote inclusive growth in the region.
Thank you very much.