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Asia must mind the gaps to secure its future

Stephen P. Groff

Jun 30, 2014 10:09 AM IST

The latest Asian Development Outlook from the Asian Development Bank (ADB) underlines the economic prowess of the Asia and Pacific region in the wake of the global financial crisis. Its economies continue to shine while many advanced countries have floundered, and they are expected to lead global growth, at least in the short term.

Those of us who have lived and worked here over recent decades have seen one of the most extraordinary economic transformations in history. On the back of strong growth rates, the number of desperately poor people (living on $1.25 a day or less) more than halved from 1990 to 2010 – from 54.5% in 1990 to 20.7% in 2010 (the last year for which we have consistent data). In raw numbers, that’s a fall from 1.88 billion to 733 million people.

We all agree, however, that 733 million is still too many. The fact remains that Asia is home to 60% of the world’s extremely poor people and two thirds of the world’s hungry. And while impressive progress has been made on the Millennium Development Goals (MDGs), this progress has been uneven within and across countries.

So, while we can celebrate progress on many fronts, a ‘Jekyll and Hyde’ Asia of haves and have-nots remains a persistent challenge. Whether they are in the slums of the region’s ever-swelling cities or living in rural squalor, the poor often have little or no access to even the most basic of services.

Unfettered and unequal economic growth has other costs, including more pollution, environmental degradation, and biodiversity loss. As Typhoon Haiyan demonstrated so disastrously last year, this region is also highly vulnerable to hazards, and is home to more people at risk than any other region worldwide.

And we don’t have to travel far to see a common problem throughout Asia: the lack of adequate infrastructure. Without much-needed roads, ports, bridges, transport, schools, sewage, and clean water, there is only so far the region can go to tackle its inequalities. But right now, the financing gap for infrastructure in the region is immense, estimated in a recent ADB Institute report to be more than $8 trillion from 2010 to 2020.

Against this background, it is discouraging that official development assistance (ODA) to Asia has actually fallen over the past two decades – from 0.93% of the gross domestic product (GDP) of the beneficiary countries in 1990 to 0.20% in 2012. Other types of development financing, including government resources, remittances, foreign direct investment, and other non-government resources, have risen in importance. Meanwhile, philanthropic organisations and foundations have emerged as new and important sources of finance. Development agencies must recognise this and engage with these new sources, and it is encouraging that many are already actively doing so. Collectively, however, these sources are still too small to meet the region’s vast development needs. So where is Asia’s development finance going to come from?

First, it is vital to leverage public resources through effective partnerships with the private sector. As well as plugging the financing gap, the private sector has the potential to promote innovation and efficiency in delivering the services that poor people need. Meanwhile, there must be more progress on public-private partnerships (PPPs) – one of the core objectives under ADB’s Strategy 2020, which lays out the organisation’s long-term strategic vision.

Second, stronger regional cooperation is needed to help the region consolidate its economic gains. Cooperative management of regional public goods and coordinated policy responses on global issues are essential for long-term development. And despite some encouraging progress in recent years, the full potential of regional cooperation has yet to be harnessed.

The region’s growing interconnectedness has fuelled the transmission of HIV/AIDS and other communicable diseases. Yet with incomes rising and the communicable disease burden falling, financing from global mechanisms for HIV/AIDS and malaria for Asia is declining. Once more, development financing must fill the gap between the national ability to finance action and shrinking global health finance. To tackle this problem, ADB established the Regional Malaria and Other Communicable Disease Threats Trust Fund in December 2013, and is working with countries in the region to explore the potential for a regional financing mechanism.

In stark contrast to ODA, climate finance has increased significantly in recent years, with key global fund commitments to date amounting to $13.6 billion. Yet, estimates of the adaptation and mitigation costs in the Asia and Pacific region alone are far higher than that. Once again, leveraging private sector finance is key, alongside working with countries to ensure they are ready to access and use climate finance effectively – to become ‘climate-finance ready.’

Finally, governments and development partners should recognise the tremendous potential of social enterprises and inclusive businesses in the development field. By combining the ‘heart’ of the aid sector with the ambitions, drive and business acumen of entrepreneurs, social enterprises have created a powerful model to tackle social and environmental problems. There are many examples of effective social enterprises in this region, but most of them remain small-scale initiatives that lack the funding to scale up their operations. To realise their full potential, they need financing for scale-up, together with the right policy and regulatory environments in which they can grow.

No doubt, the future of development financing in Asia will see a coalition of governments, international institutions (including ADB), civil society, the private sector, and social enterprises uniting around issues of common concern. On the way, we need changes in the way the aid industry works, with 21st century challenges requiring both new perspectives and modern global governance practices. I look forward to working within this new framework – one that will bring about a brighter future for millions more in Asia and the Pacific.

Stephen P. Groff  is a vice-president at the Asian Development Bank. This article was first published by the Asian Development Bank.

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