Asian industry needs to move to next level

Asian industry needs to move to next level

More productive services sector also important as region strives to reduce dependence on agriculture.

To transform themselves into high-income economies, more Asian countries have to continue with industrialisation, although the process of change will not be as rapid as what happened with economies such as Japan and South Korea, according to the Asian Development Bank (ADB).

However, the transformation may not be as the region still relies heavily on agricultural activities, even in countries such as Thailand and Malaysia where industry is relatively well developed, said Dr Jesus Felipe, an adviser to ADB’s Economics and Research Department.

More than 700 million people in Asia work in the agricultural sector, accounting for 42.8% of total employment in the combined agricultural, industrial and service sectors, he said recently in Bangkok. The share is huge if compared with developed economies.

The percentage of workers in agriculture in Asia is similar to that of the developed world nearly two centuries ago. In the United Kingdom, for example, 60% of workers were in agriculture in 1700 and the number fell to 40% in 1820. By 1890, with Britain established as one of the world’s biggest industrial powers, the share of agricultural labour had fallen to 16% and in 1980 it was just 2.5%.

The share of workers in the agricultural sector in Japan in 1870 was 72.6%. The number gradually declined to 47% in 1940 and stood at 10% in 1980, according to data compiled by the ADB.

“In each step in both countries, it took more than a decade to reduce the percentage of labourers working in the agricultural sector. So, it will take time for Asia as well. The transformation process will not happen as quickly as in the past,” said Dr Felipe.

In the ADB’s view, the agricultural sector’s low output relative to gross domestic product (GDP) prevents Asian economies from moving up the income ladder.

“It’s impossible for countries with a reliance on agriculture to be high-income economies,” said Dr Felipe.

The employment share of agricultural workers in Asia was 66.8% in 1975, compared with 16% for industrial workers and 17.3% in the service sector. The figure for industry was 23.6% in 2010, but that of services had expanded much more, to 33.6%.

On the output side, the contribution of agriculture to the region’s GDP was 22.8% in 1975, and the number dropped to 10.9% in 2010. The contribution of services rose to 48.9% from 43.4% over the same period, and that of industrial activity to 40.2% from 33.8%.

According to the ADB data, there are eight countries in which industry holds the largest share of GDP. They include Indonesia, China, Thailand and Vietnam. In 31 countries in the region, the service sector accounts for the largest share of GDP. They include Hong Kong, Japan, India, South Korea, Malaysia, the Philippines and Laos.

In terms of employment, however, industry does not lead in any of the countries surveyed by the ADB. The agricultural sector has the largest share of workers in 17 countries, including Thailand, Vietnam, India, Myanmar and China. In 15 economies — among them Hong Kong, Indonesia, Japan, South Korea, Malaysia, the Philippines and Singapore — the service sector is the largest employer.

Economic transformation normally starts from agriculture, moving first into industry and then into services. The trend may already be evident in China.

According to China’s Commerce Ministry, foreign direct investment (FDI) to the country’s manufacturing sector during the first seven months of this year fell 2.4% from a year ago, while investments into the service sector increased by 15.8%.

Unfortunately, productivity in the service sector in Asia is lower than in industry, the ADB notes. Thus, governments should have a clear policy to upgrade their service sectors from to high-productivity activities.

Meanwhile, the countries that now put more emphasis on industrial activity, such as Thailand and Malaysia, need to deepen that development in order to develop more advanced industries.

“Thailand and Malaysia have not done too badly in developing the industrial sector, but they have to do more if they want to be more advanced,” said Dr Felipe.

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