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Overview

Will South Asia become the next global factory?

South Asia¡¯s potential is unquestionable: education levels are on the rise, more than one million young workers enter the labor market each month, and the population of the region¡¯s mega agglomerations and sprawling cities is expanding at roughly the same pace. By 2030 more than a quarter of the world¡¯s working adults will live in South Asia. As the work force ages and labor costs rise in China and other East Asian countries, many eyes turn to South Asia.

According to the new report, , to realize the region¡¯s potential, countries in South Asia should increase regional and global integration, take advantage of agglomeration economies, strengthen firm capabilities, and improve the business environment. The success of the region¡¯s leading firms demonstrate South Asia¡¯s great competitiveness potential.

Findings

Overall, however, South Asian countries have underperformed in terms of both the quantity and quality of their exports. Fundamentally, this is because most firms in South Asia have low productivity which is the main driver of sustained competitiveness. The report highlights four main policy levers to boost the productivity and thus the competitiveness of firms:

• improve the business environment, 
• connect firms to global value chains, 
• leverage agglomeration benefits, and 
• strengthen the capabilities of managers and workers.

To better connect and expose South Asian firms to international good practices, governments should deepen reforms and improve the capabilities of firms to participate in global value chains. This  would require gradually reducing tariffs and improving trade logistics to make it easier for exporters to import what they need. Policymakers can encourage the flow of resources to more productive firms by actively managing urbanization and reducing congestion constraints, as well as fostering productive clusters of firms next to pools of qualified workers with easy access to key domestic and export markets.