South Asia Remains One of the World’s Poorest Regions, yet is Poised for Strong Growth in the Future
Bhutan is a world leader in terms of hydropower reserves.South Asia’s aggregate GDP in 2016 totaled $10.72 trillion USD, placing it fourth behind East Asia, the European Union (EU) and the US. With GDP per capita just below $6,300 USD as of 2016, South Asia’s economy is clearly the poorest compared with other regions we’ve reviewed. Yet with 5 of its 8 members realizing GDP growth of more than 4.5% last year, the future looks bright for continued future growth.
With a population of 1.71 billion citizens, South Asia is the most populous region in the world. Led by India with a population of 1.27 billion (2nd in the world behind only China), Pakistan and Bangladesh are also among the world’s top 10 populations with 202 and 156.2 million citizens, respectfully.
In addition to India, Pakistan and Bangladesh, Sri Lanka, Nepal, Afghanistan, Bhutan and the Maldives make up the South Asian region.
The Outlook for South Asia Looks Strong
According to this article published by the Asian Development Bank, “Economic growth in developing countries in Asia and the Pacific is expected to tick down a notch—from 5.8% in 2016 to 5.7% this year—due in part to slower growth in the People’s Republic of China”. The article continues to state that “someone forgot to tell India, Bangladesh, Bhutan, and other parts of South Asia—where surging economic growth is now the norm for many countries. South Asia’s economy as a whole is expected to grow at 7% in 2017, increasing to 7.2% in 2018.
According to the World Bank, South Asia remains the world’s fastest-growing region globally; this despite declining capital inflows, inflation on the rise, and weakening remittances from oil-exporting countries. Economic growth rose to 6.9 percent in 2015, up from 6.7 percent in 2014, and is projected to slightly lower at 6.7 percent in 2016.
Which South Asian Countries Offer the Best Investment Opportunities?
Bhutan: expanded production of hydropower to support local growth as well as to export to neighboring countries
Bhutan’s 8.2% percent growth forecast in 2017 and 9.9% in 2018 rests primarily on the building of hydropower plants and selling the power they generate to energy-hungry India and other neighbors. If hydropower is your thing then you must have a presence in Bhutan.
Bhutan currently taps only 6.5% of its 24,000-megawatt hydropower potential and is behind schedule in building 12 new hydropower dams with a combined capacity of 10,000 megawatts by 2020. This could be a substantial business opportunity for companies with this expertise.
The run-of-river 126 megawatt (MW) hydropower plant project generates a new supply of clean energy for sale to neighboring India. The project allows clean energy to be traded across borders, improving access to green power, supplying thousands of households with modern energy and allowing Bhutan to profit further from its indigenous renewable energy resources.
Bhutan is a world leader in terms of hydropower reserves. The present installed capacity of around 1,500 MW far exceeds the 300 MW domestic peak demand, and more potential exists beyond that. Around 70% of the electricity generated in Bhutan is exported to India. This revenue stream subsidizes costly rural electrification in mountainous Bhutan and helps keep electricity prices affordable to rural users.
Other exports include ferrosilicon, cement, cardamom, calcium carbide, steel rods/bars, dolomite, and gypsum. India and Bangladesh account for over 95% of exports.
India: South Asia’s largest economy still forecasts continued strong growth
In India, South Asia’s largest economy, GDP is expected to expand by 7.4% in 2017 and further to 7.6% the year after, based on increased consumer spending and government initiatives to boost private investment. The government has ambitious plans to transform India into a competitive, high-growth, high productivity middle-income country. The economy is now diversifying from being largely agro-based to a manufacturing and service-based economy.
These ambitious plans to transform the Indian economy are highly dependent on the availability of jobs and the quality of the labor force. According to this article “Skilling India” published by the World Bank, more than 12 million youth between 15 and 29 years of age are expected to enter India’s labor force every year for the next two decades. The government’s recent skill gap analysis concludes that by 2022 another 109 million or so skilled workers will be needed.
Only 2.3 percent of India’s workforce has received some formal skills training. The recently-launched National Skill Development Mission aims to train approximately 400 million people across India by 2022. It appears that India has the workforce to fuel projected growth. Now there is a race to make sure that available workers will possess the required skills.
India’s growth sectors include the following:
- Food processing: India is the world’s largest producer of food after China. With increasing impetus by the government on research, it is estimated that India’s food production is likely to double in the next decade. This opens up huge opportunities in food processing areas like canning, packaging, frozen food and thermo processing.
- Healthcare: The Indian healthcare industry, which comprises hospitals, medicines, infrastructure, and medical devices, outsourcing telemedicine, health insurance and medical equipment is forecast to continue growing by 20% annually over the next several years. An increase in the average life expectancy, an increase in earnings, and investments to build hospitals and health centers to support medical tourism.
- Retail: A large young working population with median age of 24 years, nuclear families in urban areas, along with increasing working women and emerging opportunities in the services sector are going to be the key factors in the growth of the organized Retail sector in India. Food and telecom are two key retail segments driving the growth of 20%-plus per year. Retail currently accounts for 10% of India’s total GDP.
Bangladesh: 6%-plus GDP growth over the last 2 decades
Bangladesh’s economy has grown roughly 6% per year since 1996 despite prolonged periods of political instability, poor infrastructure, endemic corruption, insufficient power supplies, and slow implementation of economic reforms. The growth rate was 6.9% in 2016,
Bangladesh has made substantial progress in reducing poverty, supported by sustained economic growth. Based on the international poverty line of $1.90 per person per day, Bangladesh reduced poverty from 49.0 percent in 1991 to 28.1 percent in 2010 and is projected to decrease to 12.9 percent in 2016 (source – the World Bank).
Garment exports, the backbone of Bangladesh’s industrial sector, accounted for more than 80% of total exports and surpassed $25 billion in 2016. This industry sector continues to grow. Steady export growth in the garment sector combined with remittances from overseas Bangladeshis – which totaled about $15 billion and 8% of GDP in 2015 – are key contributors to Bangladesh’s sustained economic growth and rising foreign exchange reserves.
Expanding Globally in South Asia is extremely difficult for investors
South Asia is an extremely difficult region to do business in (according to the World Bank’s Ease of Doing Business Index).The “easiest” country to conduct business in is Bhutan (# 73). The next easiest to do business in Nepal (# 107). The most difficult in doing business in the region are Bangladesh (# 176) and Afghanistan (# 183).
Contact us at Blueback Global and improve your chances of success for expanding globally in South Asia. This region is one of the strongest globally and is well worth your efforts.
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