- Attempts to contain the COVID-19 pandemic sharply curtailed regional mobility and economic activity, causing job cuts, business closures, and contraction of the economies.
- Regional cooperation is crucial to combatting the pandemic as well as driving the social and economic recovery while building resilience to future shocks.
- In 2020, ADB and its financing partners supported the developing members’ economic recovery, focusing on enabling financial infrastructure and digital platforms to get businesses back on their feet.
ADB’s Strategy 2030 Operational Priority 7 works toward a more integrated Asia and Pacific region through
- greater and higher-quality connectivity between economies
- expanded global and regional trade and investment opportunities
- increased and diversified regional public goods
ADB breaks down its approach to regional cooperation and integration (RCI) by tailoring its agenda to the different subregions in the Asia and Pacific—the Central Asia Regional Economic Cooperation, Greater Mekong Subregion, Pacific Islands Forum, and South Asia Subregional Economic Cooperation.
The year the borders closed
The pandemic caused by the global spread of COVID-19 severely impacted big and small businesses that are dependent on connectivity and economic integration across Asia and the Pacific. One by one, countries rushed to close their borders and restricted mobility to contain the spread of the virus.
The often year-long stay-at-home measures sent demand and consumption plummeting, causing the regional economy to contract. By the end of 2020, Asia’s economy had contracted by 0.2%1, marking the first recession in the region in nearly 6 decades. Trade was adversely affected by the combined impact of the temporary closure of borders and disruptions in global and regional supply chains. Toward the end of the year, news of the development of vaccines sent a wave of optimism across the region. ADB moved quickly to support developing members put in place the finances to access vaccines.
Developing members are also laying down policies to revive local businesses and economic life across societies. Economic integration through closer regional cooperation can open avenues to make this possible and accelerate the recovery. It gives small and medium-sized enterprises (SMEs) opportunities to regain traction in the local and regional economies. Since more than 90% of Asia and the Pacific’s businesses are SMEs, helping them get back on their feet is critical to economic recovery.
Financing partnerships drum up local and regional economy
ADB’s partners have been helping ADB developing members achieve greater connectivity, expand trade and investments across borders, and widen the market through more diversified goods. In 2020, cofinancing was committed for around 702 projects with RCI elements. Of these, 22 projects are related to ADB’s COVID-19 response.
Examples of these COVID-19-related projects include immediate financing to help Pakistan strengthen its public health preparedness and responsiveness, improve social protection to help meet the basic needs of the poor and the vulnerable, and stimulate the domestic economy. These projects also help select developing members in South Asia plan the medium-term recovery from the economic impact of COVID-19 and adjust their long-term development strategies; address weakly targeted social protection measures and expand social protection systems in the Pacific; and address health threats among developing members in Central Asia and the Caucasus regions. In 2020, eight RCI projects also had elements contributing to the development of the health sector.
RCI enables slow-moving economies to speed up their expansion. This is why ADB supports developing members to establish strong finance sectors as a foundation for integration. For example, financial inclusion is a constraint in many parts of the region. Challenges include low participation in formal financial institutions (being banked), efficiency issues, weak investment climates, and underdeveloped capital markets.
To spur financial integration, ADB has reform priorities in these subregions’ finance sectors. These reforms include improving access to financial services, expanding economic opportunities for underserved populations, and increasing private sector lending and funding to SMEs. In 2020, 15 projects that contribute to RCI had finance and trade elements built into their design.
ADB’s partners also contribute to other forms of financing modalities to support the RCI agenda. Established in 2007, the Regional Cooperation and Integration Financing Partnership Facility provides technical assistance to help enhance cross-border connectivity; increase trade and investment; preserve macroeconomic and financial stability; and improve regional environmental, health, and social conditions. Two bilateral partners, Japan and the United Kingdom, contribute to the two trust funds under this facility: which are the Investment Climate Facilitation Fund (ICFF) and the Asia Regional Trade and Connectivity Fund (ARTCF), respectively.
The ICFF, set up in 2008, addresses the challenges of promoting investments and facilitates RCI through the development of basic financial infrastructure, improvements in the investment climate, capacity building, and promotion of good governance, among other things.
The ARTCF, established in 2018, supports ADB’s RCI operations by financing RCI activities in selected developing members in Central and South Asia, leading to improved integration with other regions of the world.
Projects that contribute to RCI also help advance ADB’s other operational priorities. For example, out of the 70 projects with RCI elements, 64 have governance elements complementing their objectives, while 40 projects help advance green recovery and the climate change agenda.
The financing partners with the highest amounts of support to the RCI agenda were the Asian Infrastructure Investment Bank, the Government of Australia, Japan International Cooperation Agency, KfW, and the World Bank.
The work ahead
Regional connectivity that enables trade and businesses to thrive is a key ingredient to drive the post-COVID–19 economic recovery. As the pandemic is pushing more consumers online, small and big businesses alike have accelerated the adoption of e-commerce.
ADB’s report on economic integration discussed how developing members could respond to the 2020 economic disruptions by leveraging existing digital platforms. The report cited the enormous economic opportunities and emergence of new business models with digitalization. In 2019, digital platform business-to-consumer revenues reached $3.8 trillion, equivalent to 4.4% of global gross domestic product.
Despite this, large segments of the population in the region remain unconnected. ADB and its partners have an opportunity to expand economic opportunities by supporting digital inclusion. Potential areas of collaboration are digital infrastructures and widening access to mobile and internet networks, including ADB’s push to modernize telecommunication and digital development in the Pacific.