Transforming Beyond 'Factory Asia' Key to Keeping Economies Strong
Developing Asia must invest in skills, technologies, and the private sector to move beyond low-cost manufacturing and ensure economic growth remains strong, delegates at the Governors’ Seminar at the 46th Annual Meeting of the Board of Governors of the Asian Development Bank (ADB) heard today.
“’Factory Asia’ itself is clearly evolving,” ADB President Takehiko Nakao said. “Huge investments must be made in education and skills training that are appropriate for the needs of the future. For any of this evolution to proceed, the right infrastructure must be in place.”
Exporting manufactured goods has transformed many Asian economies over the past few decades, helping lift millions out of poverty. However, that growth model needs to evolve given changing global patterns of growth, demographics, and technology, according to Beyond Factory Asia: Fuelling Growth in a Changing World, which was presented at the Governors’ Seminar, the flagship seminar of the Annual Meeting.
Slow growth in the US, Europe, and Japan together with a growing Asian middle class means demand is shifting away from developed markets to emerging economies. Expanding markets in other regions of the world may also present a new opportunity for Asia.
Meanwhile, production in Asia is becoming more expensive as wages and commodity prices tick up and as the labor pool shrinks, eroding Asia’s cost advantage. Complex supply chains and volatile foreign exchange rates make management of manufacturing across multiple countries difficult and increasingly risky.
While low-cost manufacturing will remain a key part of Asia’s economies going forward, its contribution will decline and governments need to be ready now to help their economies continue to transform. The region needs to boost domestic demand and help firms target other emerging markets in Asia and beyond. Greater regional cooperation will open up trade across borders and keep protectionism in check.
Support will be needed to help the private sector move up the value chain and to develop the financial markets needed for companies to raise funds and manage risks. Meanwhile, countries need to help their people learn the skills that companies need to produce more sophisticated goods and to invest in the research that will encourage development and adoption of new technologies.
Other panelists at the seminar included Japanese Finance Minister Taro Aso; Anne Sipilainen, ADB Governor for Finland; Armida Alisjahbana, the Indonesian State Minister for National Development Planning; Raghuram Rajan, the chief economic advisor to the Government of India; and Harvard Business School Professor Tarun Khanna.