The World’s Next Factory Won’t Be in South Asia
Vietnam seems to be the consensus pick for winner of the U.S.-China trade war, as Chinese and other manufacturers shift production to the cheaper Southeast Asian nation. If there’s a loser, at least in terms of missed opportunities, it may be the countries of South Asia.
There may not be another such chance this generation. The only proven pathway to long-lasting, broad-based prosperity has been to build a manufacturing sector linked to global value chains, which raises productivity levels and creates knock-on jobs across the whole economy. This was how most rich nations, not to mention China itself, lifted themselves out of poverty.
Yet the evidence suggests that South Asian countries are lagging behind in attracting manufacturing investment. It’s not just Vietnam that’s racing ahead. African countries, too, are making manufacturing a top priority.
The fantasy, most common in India, that a country might somehow “leapfrog” from a rural, agriculture-heavy economy straight to a services-based economy is just that: a fantasy. South Asia can’t afford to lose this chance to grow its manufacturing sector.
Attracting manufacturing investments will require, first and foremost, that governments in the region acknowledge the competition is passing them by. India, for example, must abandon its overconfidence that investors will come simply for its large population.
Secondly, South Asian countries need to undertake a concerted, whole-of-government push to boost investment levels. Specifically, they need to create the conditions manufacturers need to thrive, from steady power supplies to efficient port operations and customs clearance.
Moreover, they need to understand the specifics of these businesses. Factories have unique requirements depending on what they make. For example, cloth and clothing factories, despite their seeming similarities, have extremely different requirements: The former is capital-intensive, with huge amounts of power-hungry machinery churning out bolts of cloth, whereas the latter is labor-intensive and features rows of workers cutting and sewing.
Countries need to analyze which manufacturing sub-sectors they are best positioned for, meet the requirements those manufacturers have in order to set up shop, and target the regions of China (and elsewhere in the world) where those types of manufacturers are to be found.
The good news is that all of these measures are eminently feasible. And in many cases, the first steps are already being taken, such as with the construction of Bangladesh’s first deep sea port at Matarbari. The bad news is that unless South Asia moves faster, others may have already seized the opportunity to industrialize.