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Takehiko Nakao on Asia’s Development Challenges
Image Credit: REUTERS/Issei Kato

Takehiko Nakao on Asia’s Development Challenges

 
 

In our time, the greatest challenge for Asia’s development is creating the right conditions for institutional investors to help grow the region’s infrastructure. This requires active dialogue between the private sector, governments, and multilateral institutions, such as the Asian Development Bank.

Now led by Takehiko Nakao, the ADB has been around for 50 years, giving it much experience to share about how to wisely invest in developing economies. In this interview, Nakao reflects on his bank’s role in Asia’s rise, poverty reduction, the digital era, and building new metropolises.

Maurits Elen: This year marks the 50th anniversary of the ADB. How has your institution been helpful to the region’s development during those years?

Takehiko Nakao: Since opening its doors in 1966, ADB has mobilized and invested more than $267 billion in infrastructure, research, and sharing of knowledge to expand opportunities and build prosperity across Asia and the Pacific.

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When ADB was established 50 years ago, Asia was poor and one of the most important challenges was how to feed the large and growing population. Half a century later, Asia has evolved to become a dynamic growth center of the world. The region now accounts for one third of GDP and more than half the world’s economic growth. Countries in the region have made significant progress in raising living standards and reducing poverty. Most of developing Asia is projected to reach middle-income status by 2020.

But there are still 330 million living in absolute poverty in Asia and the Pacific. The region faces other challenges including a large infrastructure deficit, increasing inequality, gender equity, aging, rapid urbanization, and climate change. ADB aims to remain a major partner to help developing member countries achieve Sustainable Development Goals, including eradicating extreme poverty by 2030, not only in terms of the volume of financing, but also in the quality of knowledge support. We will also play an increasingly important role in catalyzing additional resources for the region including through expanding private sector operations and public-private partnerships.

As a key driver of growth, China is very important to intra-regional trade in Asia. Has this changed the way the ADB invests in the region’s infrastructure?

China is certainly playing an important role, but is not the only factor driving growth in Asia. Asia’s development is evolving from the “flying geese” model popular in the 1960s, in which certain industries shifted from the front runner — Japan — to the “four tigers” and others as technology advanced. Asian economies are now following a “production sharing network” model, in which different countries share parts of production processes, not necessarily reflecting their development stages. We are seeing this model take shape in some of Asia’s fastest growing economies, such as Bangladesh, India, and Vietnam.

For ADB, this means ensuring our financing helps developing countries integrate into regional and global value chains effectively and quickly. Infrastructure is clearly essential for building globally integrated industries. ADB’s business model aims to help countries build the hard and soft infrastructure that can help them follow the new growth model.

What does the Fourth Industrial Revolution mean for Asia and how has it impacted the way the ADB operates and formulates strategies?

Advances in technology, such as expanding computing power, mobile internet, artificial intelligence, robotics, and nanotechnology are driving the Fourth Industrial Revolution. Countries can capitalize on these technological changes if they are well prepared.

There need to be fundamental changes in the nature of work and business in developing Asia, given that the size of the labor force is increasing — by about 16 million a year in the 15 years to 2030. Asia must be ready to provide more and higher quality jobs since new technologies should be able to trigger productivity growth to create these jobs and lift incomes. But to capitalize on this trend, labor market regulations need to be conducive to more flexible working arrangements, such as telecommunicating and contracts. There also need to be safety nets in place to protect workers from loss of income and other shocks.

Key will be improving the quality and relevance of education and training. This is one area where ADB can play a vital role. We are helping countries to produce workers with the right skills for this new world of work.

ADB’s current long-term strategic framework commits us to expand investments in education and build a more skilled labor force in the region. We are involved in vocational training in countries ranging from China and Indonesia to the Kyrgyz Republic and Papua New Guinea. ADB is working on a new strategy to 2030, which will focus on, among others, providing effective assistance to middle-income countries, including through continued support for technical development and higher education.

An unstoppable force in Asia has been and will be mass migration, with many people flocking to cities, for example in India. Drawing from the ADB’s experience, do you think there is a clear and cost-effective approach to building sustainable and smart infrastructure for these large emerging cities?

Strained transport systems, rising water insecurity, and climate change will be the biggest urban challenges in Asia and the Pacific in the next 15 years. To address these problems, ADB is supporting cities to improve their urban planning, introduce innovative solutions, and apply advanced technologies for cost-effective services.

ADB is promoting an integrated approach to urban planning in which solutions to different urban issues are provided simultaneously through cross-sectoral interventions. For example, in Mandalay, Myanmar, we are supporting the clean-up of the Thin-Gazar Creek, the city’s central water channel, through measures to improve sanitation and solid waste management while also addressing the social and health impacts of these urban services on communities. Through a livelihood improvement program, ADB is working with women in these communities to benefit from the recovery and sales of recyclable waste.

In Kolkata, India, we are helping to improve the city’s water supply system by assessing the landscape through satellite imagery and geographical information systems. In Tbilisi, Georgia, we are helping the city undertake a detailed infrastructure assessment of its subway system to ensure commuter safety and improve the performance of the stations. And in Jaffna, Sri Lanka, ADB is supporting the city install a desalination plant to treat seawater for potable water supply, using semipermeable membranes to separate sea salts from the water.

All of these efforts are underpinned by active engagement with knowledge partners and local capacity building. Strengthening the capacity of stakeholders to operate and maintain the projects is key to building sustainable infrastructure and delivering quality services. So we work with local governments and utilities to enhance staff skills and improve financial management.

Do you agree with criticism that regional integration in the Asia-Pacific has been somewhat lagging. What can you do from your side to help set ‘‘closer cooperation between governments’’ ablaze?

We should not underestimate the progress that has been made in regional cooperation within ASEAN. Looking at tariffs alone, ASEAN’s 10 member states have cut 96 percent of tariff lines to 0 percent. Moreover, ASEAN has been a global leader in voluntarily extending more than 90 percent of their trade tariffs to non-members. This means that ASEAN is both more open intra-regionally as well as globally. ASEAN governments have agreed to focus on difficult areas of reform such as reducing non-tariff measures, simplifying rules of origin, and deepening trade facilitation.

ADB has been supporting regional integration efforts in its member countries for years. The Greater Mekong Subregion program has significantly enhanced connectivity between ASEAN countries, with ADB playing a facilitating role. ADB has also helped the region work together to become more resilient to exogenous financial shocks through the creation of new institutions, such as the Chiang Mai Initiative Multilateralization, the ASEAN+3 Macroeconomic Research Office, and the Asian Bond Markets Initiative.

ADB remains committed to assisting ASEAN achieve its ambitious 2025 agenda. Our 50 years of experience across Asia allows us to help ASEAN meet its priorities through both project lending and in our advice to member countries.

This interview has been edited for clarity.

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