AS the world was ushered into a new millennium 18 years ago, the economies of the West and the East rode a seesaw in the playground where the former was considered the bully; the latter steadily rose to the top.
For the Asian Development Bank (ADB), that ride was more filled with glee and faster for the economies in Asia and the Pacific.
To note, the region has seen its global GDP share rise by 33 percent in 2016 from 25 percent in 2000. Meanwhile, North America and Europe saw their shares drop to 27 percent and 26 percent in 2016 from 33 percent and 30 percent in 2000, respectively.
Leading the growth in the region are the People’s Republic of China, India and the 10-member Association of Southeast Asian Nations (Asean).
China’s share in Asia and the Pacific region’s GDP increased to 45 percent in 2016 from 14 percent in 2000, while India accounted for 9 percent in 2016 from 2000. Japan’s share in the region’s GDP declined to 20 percent in 2016 from 57 percent in 2000.
Southeast Asian nations, meanwhile, have been posting high economic growth that will be sustained at an average of 5.2 percent this year and next year. The ADB said this is no surprise since the subregion boasts of a market of 640 million.
“In the last 25 years, economic growth across Asia, but particularly in Southeast Asia, has been built on deepened trade relations between intra-Asian trade relations and global trade. So the economic success story of China, the economic success story of Vietnam, of Thailand, of any of these countries like Bangladesh, is very much built on the increases in free trade,” ADB Vice President for East Asia, Southeast Asia and the Pacific Stephen Groff said.
“And I think what we see, even if we see a slight downturn in global trade following the global financial crisis, we did continue to see very stable levels of trade, intra-Asia trade. And even as there is continued downward pressure on global trade following Brexit and following elections in the US, there’s been some pickup recently in global trade, but intra-Asia trade has continued to strengthen at the rate that exceeds that of global trade. So I think free trade is what has made Asia a global economic powerhouse,” Groff explained.
Exceeded expectations
BASED on the ADB’s flagship publication, the Asian Development Outlook for 2018, trade within Asia grew by 13.1 percent, slightly outpacing 12.7-percent growth in total trade. However, this was not enough to alter the share of intra-Asia trade in total trade, estimated at over 45 percent in 2017.
The ADB said export demand exceeded expectations, growing by 10.9 percent after contracting 5.4 percent in 2016. However, imports increased faster than expected, by 16.5 percent in US dollar terms.
The volume of commodity exports from the region’s 10 largest economies (comprising about 90 percent of total exports) rose by 8.6 percent after falling slightly in 2016. Real manufacturing exports in these economies rose by 4.5 percent after a slight decline in 2016.
Imports of commodities and primary products, which comprise about 70 percent of all imports, grew by 29 percent after falling by 10.5 percent in 2016.
The ADB also said both exports and imports of manufactured goods grew substantially in 2017 in real terms, by 4.5 percent and 4 percent, respectively, with the direction of trade in intermediate goods revealing links through global value chains.
The report noted that the ADB expects trade to grow in 2018 and 2019, albeit more slowly. It added that data available to February 2018 suggests “growth in trade continues [February itself being seasonally slow because of the Lunar New Year].”
“However, growth is expected to slow to half of the 2017 rate as effects from the strong pickup in 2017 wane,” the ADB said. “Domestic demand in developing Asia will take the driver’s seat as private consumption and investment expands, triggering continued high growth in imports.”
Major roles
ECONOMISTS agree that intraregional trade will play a major role in the Asean and in the Philippines in the next 20 or so years. This is especially in the context of the Asean integration.
Former Tariff Commissioner George Manzano told the BusinessMirror in an interview that greater integration, particularly in the case of the Asean, can cushion the impact of a trade war between “great powers” such as the United States and China.
Manzano said diversifying markets by trading more with its fellow members in Asean will enable the Philippines to continue earning from its exports in case of external shocks that would emanate from the impending trade war.
Further, Ateneo de Manila University Dean of Social Sciences Fernando T. Aldaba said both intra- and extraregional trade in the Asean can help boost antipoverty efforts, especially if the government ensures that there is a level playing field for all businesses.
“If the food and agriculture processing sectors located in relatively poor regions are competitive and are able to export in and outside the region, this will definitely help reduce poverty and inequality. Thailand and Vietnam are prime examples,” Aldaba said.
Addressing inequality
HOWEVER, Manzano said that in terms of addressing widening inequality, trade can still have a positive impact. But it has to be accompanied by infrastructure investments, he added.
Manzano explained that trade can open opportunities for millions. The more opportunities there are, the greater chance for people to be lifted from poverty, he added.
However, this will not be enough to address inequality, Manzano said, adding that trade can increase incomes but not at the same time. This is the problem with addressing inequality since it is a complex issue.
He said in order to address inequality, there is a need to not only be an open market, but also to have sufficient infrastructure and good governance to keep trade flowing. These are needed to supply the markets and allow the market to access producers.
“Even though we are open, our neighbors are open to our exports, we cannot fill up our exports because we don’t have enough roads or the capacity to increase supply so even though we negotiate that their markets become open, it will not be very fruitful if, despite their opening, we cannot meet their demands because we ourselves are constrained by our supply. Usually the constraint is due to infrastructure and poor governance,” Manzano said.
Asian challenges
DESPITE the robust economic growth exhibited by the Asia and the Pacific region in recent decades, its socioeconomic development remains incomplete as millions struggle with poverty and countries experience high income inequality.
The region remains home to 1.24 billion people living below $3.20 per day. This is composed of 915 million living above $1.90 per day but below $3.20 per day and 326 million in extreme poverty and living below $1.90 per day.
Further, the ADB said the number of food-insecure people living in Asia remains significant by accounting for 64 percent of the undernourished people in the world, or almost 520 million people in 2016.
Apart from poverty, income and social inequalities among and within countries in the region persist. The ADB noted data from the World Bank which stated that nearly 80 percent of the region’s population lived in countries with widening inequality between the 1990s and 2000s.
The gini coefficient, one of the main measurements of inequality, is a range of numbers between 0 and 1, where 0 represents perfect equality and 1 represents perfect inequality.
Based on the World Bank’s Gini Index, the Philippines’s gini cofficient has been pegged at around 0.40 to 0.46 between 1985 and 2015. The highest level of inequality was recorded in 1997 during the Asian financial crisis at 0.46, while the lowest was in 2015 at 0.40.
According to data from the Philippine Statistics Authority (PSA), Metro Manila’s gini coefficient was at 0.3909. But the highest gini coefficient where there is wider inequality is in Davao, which has a gini coefficient of 0.4695, while the lowest gini coefficient is in the Autonomous Region in Muslim Mindanao (Armm) at 0.2801.
Other inequalities
MORE than income inequalities, there are social inequalities that prevent all people living in Asia from equally accessing education opportunities and health needs, as well as access to electricity, water sources and sanitation.
“Systemic gender gaps in productivity, wages and income poverty persist, particularly in households headed by women,” the ADB said. “Growing inequality could undermine social cohesion, endanger social and political stability, and hamper the region’s economic prospects.”
These existing conditions could worsen if governments in the region fail to address threats that are coming their way. These threats include technological advancements that render routine jobs obsolete; disasters that wipe out gains in socioeconomic development; and, environmental degradation and urban ills that threaten the health and well-being of people.
Technological advances, which are good for economies since they can increase productivity and create new industries, can worsen employment prospects of workers who are not well versed in using or working with these technologies.
The ADB said new technologies can create new ways of learning through online learning platforms like virtual classrooms; improve health of people via telemedicine; create digital marketplaces to grow and develop micro, small and medium enterprises; and revolutionize banking and finance, among others.
“While new technologies will lead to the creation of new jobs, including in new industries, these jobs may require skills that many workers do not yet possess, contributing to the possibility of unemployment and/or low wage growth for less-skilled workers. The challenge for the region is to capitalize on the opportunities technology brings, while preparing for and mitigating the risks,” ADB said.
Climate woes
THE ADB said climate change and disasters risk jeopardizing the gains in socioeconomic development of the recent decades. Climate change can send more tropical cyclones, floods, droughts and heat waves knocking at the door of countries in Asia and the Pacific. Not to mention geophysical hazards, including earthquakes and tsunamis, which can also claim lives and property.
Further, environmental degradation and urban ills threaten the health and well-being of people. Air pollution, water pollution and stress, inadequate waste management, deforestation, land degradation and biodiversity loss, among others, are just some of the growing environmental pressures in the region.
Rapid economic growth has caused the bad side of urbanization, growth and development, to rear its ugly head. The region’s urban population in the region increased to 48 percent in 2015, from only 20 percent in the 1950s. This is projected to rise to 58 percent in less than 15 years.
Urbanization has also caused the growth of slums in the region. The ADB estimated that around 431 million people are living in slums in developing Asia as of 2014. This was 58 percent of the world’s total slum population. With environmental pressures rife, the ADB said this worsens the plight of the poor and vulnerable.
External shocks
THE ADB also pointed out that amid these, there is a need to address the external shocks created by globalization; meet the new global agenda or the 17 Sustainable Development Goals (SDGs) and the Paris Agreement; wipe out infrastructure deficits; respond to aging societies; improve governance; and foster greater cooperation in the region.
The draft Strategy 2030 document stated that more countries are part of global value chains (GVCs) for various commodities, which has created a plethora of economic opportunities for many countries.
However, the caveat is that these countries become exposed to external shocks that could affect these GVCs. Proof of this was the widespread impact in financial markets, which resulted in the 2007 to 2009 global financial crisis.
Apart from these, countries are hard-pressed to meet their commitments to the SDGs and the Paris Agreement.
The SDGs or Global Goals is a set of 17 socioeconomic goals that 193 United Nations member-countries like the Philippines committed to meet by 2030. The goals are composed of around 169 targets and over 300 global indicators. The SDGs were adopted in September 2015.
The Paris Agreement, meanwhile, aims to strengthen the global response to climate change by keeping a global temperature rise this century well below 2 degrees Celsius above preindustrial levels and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius.
“Given the size of the region’s population, meeting key SDGs on poverty, hunger and lack of access to social services will depend critically on Asia and the Pacific’s success,” the draft stated.
Power failure
MEANWHILE, the region also has a large infrastructure deficit. The ADB estimates that the region’s infrastructure needs could be anywhere from $22.6 trillion to a climate change-adjusted amount of $26.2 trillion between 2016 and 2030.
Based on the ADB’s estimates, the largest deficit is in the power sector, with over 400 million Asians lacking electricity.
The 45 Developing Member Countries (DMCs) need to invest around $11.7 trillion to $14.7 trillion on power-related infrastructure. Under the baseline estimates, this accounts for 52 percent, while under the climate change-adjusted scenario, this can take up 56 percent of all infrastructure investments.
The second largest area for investment is the transport sector, which will require as much as $7.8 trillion under the baseline scenario or $8.4 trillion under the climate-adjusted scenario.
This is followed by communications and water and sanitation investments reaching as much as $2.3 trillion and $0.8 trillion under the climate-adjusted scenario, respectively.
“Poor quality infrastructure requires urgent attention. In many countries, power outages restrain economic growth and underdeveloped transportation networks restrict the flow of people, goods and services. Rehabilitation and better management and maintenance of infrastructure assets are essential,” ADB said.
Aging Asia
ANOTHER major challenge is rapidly aging societies across the Asia and the Pacific region. While many countries still enjoy young populations, including the Philippines where the median age is 23, the experience of countries like China offers perspective. From being an aging society, China became an aged society in just 15 years.
The ADB said the United Nations estimates the elderly population—those aged 65 and over—in Asia and the Pacific to increase to about 870 million by 2050 from about 334 million in 2016.
The rapid aging in Asia, ADB Chief of the Social Development Thematic Group Wendy Walker earlier told the BusinessMirror, could be traced back to the reproductive health policies implemented in various countries in the region. The rapid aging in China, she said, was certainly brought about by its one-child policy.
This is the reason University of Asia and the Pacific School of Economics Dean Cid Terosa said it is no longer advisable for the Philippines to continue cutting its fertility rate.
The PSA said fertility refers to the average number of children that would be born alive to a woman—or group of women—during her lifetime if she were to pass through her childbearing years conforming to the age-specific fertility rates of a given time period.
Health financing
THROUGH the years, the National Economic and Development Authority (Neda) said the country’s total fertility rate declined to 2.7 children in 2017, from 3 children in 2013.
The aging problem is also placing health systems and facilities at risk. To date, ADB Sustainable Development and Climate Change Department Principal Health Specialist Eduardo P. Banzon said health systems must be able to respond not only to acute conditions but also chronic ones.
In an Asian Development blog, Banzon said health-care services for chronic conditions, including noncommunicable diseases, such as heart disease and cancer, will become more in demand.
Apart from this, Banzon said countries should also look at health financing, particularly in many low- and middle-income Asian countries, which “lack the cohesiveness and efficiencies required for universal health coverage.”
“To cope with aging populations, countries in developing Asia will have to reconfigure their health-service delivery systems and step up ongoing moves around the region toward universal health coverage, so older people will not face the risk of financial hardship as they access care,” Banzon said.
Lastly, challenges of the region include improving governance and fostering greater cooperation in the region. These will pave the way for solutions to various challenges faced by the region, the ADB said.
The multilateral lender added that countries must institute reforms to counter corruption and strengthen professional civil services, regulatory quality and the rule of law to ensure that the benefits of growth are equitably and widely shared.
This, ADB said, also puts to light the need to tap the private sector as well as other development partners since governments and MDBs like ADB cannot finance all the solutions to the region’s massive development challenges.
Strategy 2030
IN order to respond to the mounting needs of the region, the ADB is in the process of crafting Strategy 2030, the ADB’s new long-term corporate strategy.
Strategy 2030 is an updated version of Strategy 2020 that was crafted in 2008. It sets the course for ADB engagement with DMCs in Asia, taking into consideration their changing needs.
To date, the ADB said there are 73 activities in various parts of the world that are related to the formulation of Strategy 2030, and some 1,150 individual stakeholders were consulted between October 2015 and April 2018.
The draft was presented and discussed at the recently concluded Governors’ plenary on the Strategy 2030 draft at the 2018 ADB Annual Meeting. The ADB board is set to release the final strategy by the third or fourth quarter of this year.
“It builds on various assessments of ADB performance, including the Midterm Review of Strategy 2020, development effectiveness reviews, and studies by the Independent Evaluation Department,” the ADB said.
The ADB’s priorities are addressing poverty and reducing inequalities; accelerating progress in gender equality; making cities more livable; fostering regional cooperation and integration; and tackling climate change.
Country support
IN terms of addressing poverty and inequality, the ADB intends to support countries in efforts that will improve the business environment for small- and medium-enterprises; enhance efforts to support core labor standards; as well as supporting DMCs with efforts that seek to maximize information and communication technology to deliver education outcomes; and re-skilling programs that can help mid-career and older workers.
The ADB also aims to support reforms in health financing to reduce out-of-pocket expenses in DMCs, as well as programs in transport, urban areas, water, sanitation and energy to ensure that indirect health benefits are met. The bank also aims to support efforts that seek to improve the design and delivery of social protection programs.
In terms of gender equality, the ADB aims to increase its sovereign and nonsovereign projects linked to improving gender equality. By 2030, the ADB said at least 50 percent of all its projects will promote gender equality.
This means supporting projects that seek to generate employment and entrepreneurship opportunities for women; projects that are designed for elderly care services that ease the burden of women’s family care duties; removing discriminatory policies and provisions in laws that prevent women from taking on larger roles in nation building; ensuring safety and mobility of women, as well as their access to basic services, as well as reduce their burden in performing unpaid domestic work; and protecting women against economic, food, and other crises by encouraging gender-responsive budgeting.
Developing partners
TO help megacities in Asia cope with rising demand for sustainable solutions, apart from supporting social and economic reforms, the ADB aims to support mass public transport such as subways and bus systems linked to cycle and pedestrian pathways that will enable urban populations to be more mobile in cities.
The Manila-based multilateral development bank also aims to support urban planning efforts and extending financing to help cities explore other sources of financing. The ADB said it is open to partnering with stakeholders and service providers to improve sector plans, institutional creditworthiness, project design and delivery, and sustainability of services.
This also means helping value chains to make both urban and rural areas food secure. ADB said it will help build rural roads, market infrastructure and agri-logistics centers to achieve this.
Drones, satellites
THE ADB said it intends to promote the use of satellite and drone-assisted applications to increase irrigation efficiency and ensure sustainable use of land and water resources. The bank will also help efforts that ensure food safety.
The bank is also open to helping government improve service delivery and capacity, as well as the promotion of regional cooperation and integration that will boost economic opportunities for millions.
In terms of climate change, the ADB intends to make 75 percent of its commitments climate relevant by 2030. This means helping DMCs access clean technology and financing and scaling up support for low greenhouse gas emission energy and sustainable transport strategies, as well as disaster risk reduction efforts.
“The ADB will pursue this through the selective use of concessional financing, greater engagement with the private sector, and support for innovative PPPs. The ADB will also facilitate access to carbon finance through domestic and/or international carbon markets to incentivize mitigation investments,” the document stated.
Grave concerns
WHILE Strategy 2030 proves to be an exhaustive strategy to combat numerous development constraints faced by the region, grave concerns have been raised, particularly on addressing climate change.
Institute for Climate and Sustainable Cities Executive Director Renato Redentor Constantino said the strategy remains unclear on how to operationalize the Paris Agreement. He said Strategy 2030 lacked concrete measures by which the ADB can help DMCs meet the 1.5 degree Celsius threshold mandated by the Paris Agreement.
Constantino said increasing financing for climate change-related projects is not enough to help DMCs meet their Paris Agreement commitments. He said, “The goal of vulnerable countries is to not only survive but to thrive in the midst of the climate crisis. This means transforming member-country economies and more importantly transforming nothing less than the investment agenda itself of ADB.”
Constantino said the ADB should take a more proactive stance by phasing out financing for carbon-intensive activities. Civil society organizations (CSOs) expressed their dismay over the ADB’s financing of coal projects, saying the Manila-based multilateral development bank extended $10.74 billion worth of financing for coal projects between 2009 and 2017.
In the Philippines, the CSOs said the ADB extended loans of $120 million for the construction of the Korea Electric Power Corp.’s 200-MW coal-fired power plant in Cebu province, and $200 million for the rehabilitation of the Masinloc Power Partners Ltd.’s 600-MW coal-fired thermal power plant in the Zambales province.
Questionable spending THE bank has also made equity investments worth $1,054,850 in a project of the Philippine Investment Alliance for Infrastructure, which involves a 552-MW coal-fired power plant in Kauswagan, Lanao del Norte, southern Philippines.
“Public spending for fossil fuels was already questionable a decade ago, when the ADB had identified massive and growing threat of climate change to the region’s economies. Refusing to definitively phase out lending for carbon-intensive activities today is just pig-headed myopia,” Constantino said.
The CSOs expressed “grave concern” for the energy policy of the bank, saying that this will not help DMCs meet the SDGs and the Paris Agreement.
They urged the ADB to stop financing new coal-fired power plants and coal mines, and move in the direction of swiftly phasing out fossil-fuel use, especially coal, and ensuring a just transition.
“Setting restrictions in funding coal projects is no longer adequate at a time of intensifying climate change and increasingly catastrophic impacts, especially on developing countries. They are also pointless since the policy also promotes actions that worsen climate change,” the CSOs said.
“Further burning of fossil fuels contributes to exacerbating the climate crisis and multiplying the difficulties of vulnerable populations. Poverty deepens with the destruction and loss of lives, homes, natural resources and livelihoods brought about by climate change,” they added.
Enormous challenges
NGO Forum on ADB Executive Director Rayyan Hassan also raised concerns regarding the 2009 Safeguard Policy Statement (SPS), saying that higher standards of safeguards should apply in any ADB-financed project.
In recent times, the forum said projects such as the Myingyan Gas Project cofinanced by IFC, ADB, and the China-led Asian Infrastructure Investment Bank (AIIB) showed that various local grievances surrounding environmental degradation, labor violations and displacement are surfacing.
Hassan also said the ADB-AIIB cofinancing initiative would further underline the glaring gaps in the ADB’s delivery mechanism of its safeguards as revealed by the operational review conducted by its own Independent Evaluation Department in 2014.
He said there was a lack of any disclosure and reporting gaps in the ADB’s financial intermediary private-sector projects, and there was an increase in Category B projects to avoid more stringent environmental and social assessments.
Hassan also said projects suffered from poor quality at entry of information in regards to environment, resettlement and indigenous peoples’ issues preproject approval and a lack of clear response on project monitoring by the ADB on safeguards with almost nonexistent on-site field visit by ADB safeguard staff.
Without clear applications of ADB safeguards in this cofinancing project, Hassan said the local people are being left helpless in the face of private-sector operators.
“The stringent application of environmental and social safeguards with strong human-rights dimension is integral for the ADB to prove that it is indeed a bank for development,” Hassan said in a statement.
The economic success of the region cannot overshadow the enormous challenges it faces. The ADB’s Strategy 2030 provides solutions, but these are not enough to plug development gaps.
Asia may be the belle of the ball in terms of economic growth and diversity, but its time is running short. If DMCs do not meet these challenges head on, when the growth pendulum swings again, its economic success could be no more and only its development challenges will remain.
Image credits: AP/ Bullit Marquez