Asia expected to bounce back in 2020 with positive trade growth

Asia-Pacific economies may see positive trade growth in 2020 but are still facing downside risks from the adverse impacts of the United States-China trade tensions, two new trade briefs by the United Nations (UN) Economic and Social Commission for Asia and the Pacific (ESCAP) released today revealed.
Trade in the Asia-Pacific region contracted during 2019. For the first time since the 2009 global economic crisis, the value and volume of trade in the region is declining. Total export volume fell by 2.5 per cent, while import volume decreased by 3.5 per cent. Oil exporting economies such as Islamic Republic of Iran and Indonesia as well as Japan, Singapore and Hong Kong, China registered some of the largest declines in export volume.
Merchandise trade in the region also faced strong headwinds in 2018-2019 caused by the worldwide economic growth slowdown and heightened trade tensions. These have had an adverse effect on trade, particularly in the case of economies closely integrated with China through Global Value Chains (GVCs). Integration of smaller traders into the global and regional economy through GVCs is becoming more difficult. New import barriers increase the cost of production and reduce the competitiveness of companies participating in regional production networks.
The ESCAP earlier estimated the tariff war-related toll on gross domestic product (GDP) could reach as much as $400 billion worldwide and $117 billion in the Asia-Pacific region. These projections are materialising and could increase unless current efforts to reduce trade tensions are successful.
“For the Asia-Pacific region, the challenge is to increase trade and deepen economic integration to support sustainable development,” UN under-secretary-general and executive secretary of ESCAP Armida Salsiah Alisjahbana said, adding that looking ahead to 2020, the agreement reached between China and the US is welcome and should reduce policy uncertainty.  She further underscored the importance of the multilateral trading system to underpin future trade growth.
The new guarantees provided by the implementation of the Phase-I deal reached between China and the US might boost investor and consumer confidence enough for trade in the region to grow by about 1.5 per cent in 2020. This growth would be felt more in developing economies, which could see a 1.9 per cent and 2.7 per cent growth in exports and imports respectively in 2020. However, country-level forecasts vary widely and uncertainties are high.
In trade in commercial services, the region again outperformed the rest of the world in 2019. Relatively slower growth is expected in 2020, with transport services, other business services and goods-related services expected to be most affected sectors. The mid to long-term prospects for trade in services – in particular ICT and business services – remain bright, supported by technological advances.
Commercial services trade in Asia and the Pacific continue to be dominated by a relatively small number of economies, namely China, Japan, India, Singapore, Republic of Korea and Hong Kong, China – accounting for over 70 per cent of total commercial services trade in the region. Increasing business opportunities associated with digital technologies may lead to a further concentration of trade opportunities in those economies.
The ESCAP trade briefs serve as a complement to the Asia-Pacific Trade and Investment Report 2019. They provide in-depth analysis of performance and trends in 2018-2019, and the outlook for 2020 at regional and country levels, with a special emphasis on the impact of escalating trade tensions within and outside the region.

LDCs must nurture dynamic business to create jobs

Least Developed Countries (LDCs) including Nepal must prioritise dynamic enterprises and enact policies to help them thrive, create jobs, innovate and transform the economy, according to a report.
The report ‘The Least Developed countries Report 2018: Entrepreneurship for Structural Transformation’ released today by UNCTAD also calls for the LDCs to nurture dynamic businesses that create jobs and help end poverty.
Subtitled Beyond Business as Usual, the report looks at the conditions for creating and growing high-impact businesses in the LDCs – a group of 47 nations that includes most of sub-Saharan Africa, some Asian countries, and several island states – and establishes a more active stance for the state in steering the emergence of dynamic and transformational local entrepreneurship.
According to UNCTAD secretary-general Mukhisa Kituyi, "By encouraging policymakers to value the benefits of entrepreneurship, the report makes an invaluable contribution to efforts to add value to the LDCs’ implementation of the 2030 Agenda for Sustainable Development.”
Several structural features of the economies of LDCs tend to weaken entrepreneurship and the growth of enterprises, including limited finances, insufficient infrastructure, lack of institutions, poverty, restrictions on women’s empowerment, high registration costs, and elevated political, economic and environmental risks, according to the report. "The result is that most firms in LDCs are micro-or small enterprises and 58 per cent of the formal firms have at most 20 employees."
The report says that large numbers of people in LDCs are forced into small-scale, low-value entrepreneurship by necessity. Entrepreneurship is dominated by self-employment – which accounts for 70 per cent of total employment – informal micro- and small enterprises with low chances of survival and growth and little propensity to innovate.
Small companies account for 58 per cent of all firms in these countries.
The report also reveals that the vast majority of entrepreneurs in LDCs are 'necessity-driven'. There are 1.7 times as many early-stage entrepreneurs in LDCs on average who describe themselves as 'opportunity-driven' than there are who say they are 'necessity-driven', compared with 2.8 times as many in other developing countries.
The report says that governments in LDCs – a group that qualifies for preferential treatment in world trade and climate-change arrangements due to chronic disadvantages that leave them among the world’s poorest nations – should therefore focus on boosting entrepreneurs and established firms that seize opportunities to create innovative products and services, employ more people and grow dynamic businesses that have a transformative, ripple effect throughout the economy.
Fostering the type of enterprises that matters for root-and-branch economic transformation means going beyond the 'business-as-usual' approach of establishing an enabling environment for business, correcting market failures, and supporting small enterprises.
"Importantly, the report calls upon the least developed countries not to overlook the pivotal and complementary role played by large enterprises, alongside medium-sized and smaller enterprises, with a view to formulating deliberate strategies to nurture entrepreneurship that has impact,” Dr Kituyi said.
While at least 20 out of the 47 LDCs have national industrial policies that articulate to a various extent the interface between entrepreneurship and structural transformation, the report reveals that much less attention is currently devoted to the determinants of entrepreneurship.
The report calls for a renewed 'developmental state' that engages in transformative, mission-oriented investments and involves the private sector in a strategic vision that charts a clear path for development.
Policymakers should provide support that is tailored to the life cycle of firms – start-up, scale-up, maturity – based on objective selection criteria and linking clearly communicated time-bound rewards, advantages and incentives to performance. Entrepreneurship policies need also to foster linkages between firms of different sizes, stages of maturity and sectors, for instance by means of business clusters, networking and alliances which allow for a sustained flow of new ideas into firms throughout their life cycle and enable dynamic growth.
Greater attention needs to be given to the development of domestic supply chains, since linking LDCs to global value chains has not provided any significant boost to local enterprise development.
Coherence and coordination between entrepreneurship policies, industrial policies, rural policies and policies for science, technology and innovation are also critical, as is entrepreneurship skills development in education.
The report also recommends for a pragmatic, strategic and evolutionary approach to increase public-sector capabilities, enact locally-appropriate institutional reforms, build on centres of excellence, promote policy learning and nurture coalitions for change.
Briefing the press in the capital about the report, former vice chair of National Planning Commission (NPC), Swarnim Wagle said that the LDCs including Nepal have not been able to create conducive environment to link themselves to global supply chains. "Global value chains (GVCs) have tightened the conditions for LDC local entrepreneurship," he said, adding that it’s harder competition for many of these countries. "LDCs need to strategically reframe policy to unlock GVC potential opportunities."
He further stated that if Nepal wants to graduate to the league of developing nations then the country needs to promote entrepreneurship among the youths based on the spirit of the SDGs. Also speaking at a panel discussion, founders of some start-ups including Tootle and Khaalisisi said that scaling up their businesses has been a major challenge for them.