South Asia has experienced a long period of robust economic growth, averaging 6% a year over the past 20 years. Real GDP growth in the region is expected to be 5.8% in 2012. This strong growth has translated into declining poverty and impressive improvements in human development. Yet poverty remains widespread in many areas, and South Asia has the world’s largest concentration of poor people—more than 500 million people live on less than $1.25 a day.
The World Bank Group is a key development partner in South Asia, with a portfolio of 210 projects and current total commitments of $38 billion. The 2012 Regional Update summarizes the World Bank’s approach to addressing key challenges in South Asia. It provides a road map to accelerate growth and foster human development and informs the development of country-specific strategies.
With a lending program of about $8 billion in fiscal year 2012, the strategy is built on four key pillars: creating more and better jobs by mitigating constraints on growth; building skills and improving health and nutrition outcomes, both closely linked to a focus on women; promoting regional cooperation; and strengthening governance.
Creating More and Better Jobs
Growth in South Asia is increasingly concentrated in some regions -- the leading regions -- while poverty is concentrated in other regions -- the lagging regions. The lagging regions are located in the northern border areas of Afghanistan, Pakistan, Bangladesh, India, and Nepal. Growth in the region can be more inclusive to address the growing gap between leading and lagging regions. It is therefore important for the countries to turn their attention to spreading the benefits of growth to larger segments of the population.
The key link between growth and inclusiveness is creation of more and better jobs. Job creation is good for growth and for equity. South Asia is already undergoing a major structural transformation based on rapid growth of services and manufacturing. The GDP share of agriculture is shrinking fast. South Asia so far has seen a rapid increase in the contribution of the services sector in employment. However, there is a concern that job creation has been mostly in the informal sector, characterized by low skills and low earnings. At the same time, the reduction in the GDP share of agriculture is not matched by a commensurate reduction in the employment share.
The key asset of South Asia is its people. South Asia has a young population and the lowest female participation rate in the labor force. The “demographic dividend” will result in more workers entering the labor force in the future. More than 300 million people are expected to enter the prime working-age population over the next decade. Creating jobs for them will contribute to growth, equity, and peace in the region.
In 2011, the Bank produced a regional flagship report, More and Better Jobs in South Asia. To strengthen the World Bank’s understanding of the policies conducive to inclusive growth, the South Asia region team is working on a new flagship report on Equity for Development, in which inequality in income and consumption will be studied alongside inequality of access and opportunities.
Building Skills and Improving Health and Nutrition Outcomes
The World Bank has strengthened its focus on promoting a multi-sectoral agenda to tackle the severe nutrition problems in South Asia, and on mainstreaming gender issues into its operations. South Asia has 330 million undernourished people, more than sub-Saharan Africa.
The World Bank is drawing on the World Development Report (WDR) 2012 findings as it intensifies its efforts to enhance gender parity in the region. Efforts include strategic mainstreaming across the portfolio, such as the South Asia Gender Initiative, which is working across sectors to mainstream gender; understand gender identities (women’s and men’s) across generations; and support Impact Evaluations of Rural Livelihoods projects in India and Nepal and gender-specific projects. In addition, the Bank has many stand-alone gender-based projects such as the National Rural Livelihoods Project in India and the Adolescent Girls Initiative in Afghanistan, which aims to help girls stay in school and build skills so they can find jobs.
South Asia is the least integrated of global regions, and barriers to trade, investment, and movement of people are very high. Regional cooperation can be a powerful tool for increasing growth, reducing the gap between leading and lagging regions, and reducing vulnerabilities for the poor. By focusing on the income of the poor, both through the growth mechanism and by reducing vulnerability, regional cooperation can be helpful in lowering income inequality.
The World Bank strategy for promoting regional cooperation in South Asia has five components:
• Build on the emerging view in the region that regional cooperation is key to being part of the Asian Century.
• Support regional networks to promote cooperation by sharing information and build institutional capacity through analysis and dialogue.
• Focus on trade in goods, services, and electricity; people-to-people contact; and cooperation in water resources management among Bangladesh, Bhutan, India, Pakistan, and Nepal.
• Strengthen regional cooperation in wildlife protection, water resource management, food security, and disaster risk management.
• Leverage partnerships including the U.K.’s Department for International Development, AusAid, South Asia Water Initiative, South Asia Food and Nutrition Security Initiative, and the Central Asia Water and Energy Development Program
South Asia has the potential to accelerate growth and reduce poverty if the region can exploit four under-utilized spatial features of the region: geography, transportation, mobility, and scale economies.
First, South Asia is densely populated, with a significant proportion of the population living close to the borders between countries. Regional cooperation initiatives will unlock the growth benefit of geography and support income convergence across regions and countries. Regional trade is more sensitive to transport costs, scale economies and factor mobility than global trade.
Second, South Asia suffers from high trade and transportation costs compared to other regions because of border restrictions and poor transport. The cost of trading across borders is high compared to other regions. The quality of transport infrastructure, especially the highway networks, in South Asia is poor.
Third, factor mobility, and in particular migration rate, is low in South Asia. Labor mobility is limited. Increased agricultural productivity will help to re-allocate labor and capital from the lower-value activities (agriculture) to high-value activities (manufacturing and services sectors) and support growth.
Fourth, South Asian companies are unable to reap the benefits of scale economies because of labor and regulatory restrictions which prevent them from growing. The policy changes aimed at taking advantage of the interactions between geography, transportation, factor mobility, and scale economies will not only lift growth in the lagging regions but also support higher growth rates at the country level and across South Asia.
The lagging regions share a number of common vulnerabilities, apart from being poor. Foremost is the vulnerability to natural disasters. South Asia has lost a significant amount of its GDP because of natural disasters, and this impact is particularly harmful because of the region’s high population density. It is also the poor who are affected the most.
A second and related vulnerability is access to water. An estimated 400 million people, many of whom are poor, directly or indirectly depend on the water flows of the three mighty rivers of Indus-Ganges-Brahmaputra for their livelihood. Frequent water shortages and intermittent floods create serious challenges to maintaining the income level of these large numbers of poor people.
South Asia’s poor would probably gain most from regional cooperation in water and climate. The melting of Himalayan glaciers leading to the disastrous prospect of reduced water availability in some of the South Asian rivers, the frequency of floods and cyclones, and the evidence of rising sea level have given South Asia an opportunity for collective action for managing changing climate to reduce vulnerability and poverty over the longer-term.
Finding solutions for flood control, irrigation, and river transport will require cooperation with upstream countries. Thus, cross-border cooperation on water between India, Bangladesh, and Nepal offers the only long-term solution to flood mitigation.
The Bank’s governance strategy aims to integrate governance analytics in all stages of projects. It has a demand-driven business to strengthen country resources and is driving a culture change to promote frank discussions about governance and accountability.
South Asia is also exposed to conflict and violence. It is not accidental that border regions are more prone to conflict and violence than other parts of South Asian countries. Indeed, cross-border conflicts in South Asia are both a cause and effect of lack of cooperation. Again, the poor suffer most from these conflicts. The World Bank is at the forefront of finding practical solutions to the challenges of conflict and fragility in the region.
In fiscal 2011, the Bank approved 44 projects in the region and made $3.7 billion in IBRD loans and $6.4 billion in IDA commitments.
The South Asia Regional Brief provides more information on Bank's activities in the region.
Alison Reeves, (202) 473-8955 or firstname.lastname@example.org
Gabriela Aguilar, (202) 473-6768 or email@example.com