Like the rest of the world, Asia is grappling with Covid-19 with varying degrees of success. But looking beyond the pandemic, the headlines about Asia’s longer-term ascent seem appealing. Asia is already nearly 40 percent of global GDP and is forecast to account for half of global output by 2040. The region is becoming more self-reliant and trade-wise, with several hundred million Asians soon to enter the middle class, forming a powerful consuming force to solidify that trend. The Regional Comprehensive Economic Partnership (RCEP), which includes the 10 ASEAN economies, Australia, China, Japan, South Korea and New Zealand, entered into force at the beginning of 2022, bolstering the positive outlook for trade. The twin visions of trade facilitation and digital trade are coming along.
Today, there is broad agreement across both the private and public sectors that post-pandemic Asia should be about sustainable, inclusive growth. The progress achieved so far show that economies know how to produce the “growth” part of the equation; but the pathways towards the “sustainable” and “inclusive” are more challenging.
Though most major Asian economies have embraced the net zero challenge (by 2050, 2060 or beyond), their pace of decarbonization – at 0.9 percent in 2020, according to PwC – is far below the global average of 12.9 percent that is needed to reach the global warming target limit of 1.5 degrees Celsius. According to BCG and the World Economic Forum, the supply chains in eight sectors – many of which Asia dominate – account for over 50 percent of the global emissions reductions needed to achieve net zero.
Accelerating the shift to renewable energy is of course one of the key carbon abatement strategies, but it is not always the most important one. Other tactics such as process and product redesign, manufacturing efficiency, and circularity and recycling, all of which are frequently tied to investment in new technology and the acquisition of fresh skills and knowledge, are equally urgent.
So how does the region make this happen?
If Asia’s industrial landscape were primarily comprised of large conglomerates and state-owned companies, the task would be simpler: Engage and direct capital to the few influential players and use policy to address the rest. But alas, in contrast to the developed world, the majority of the region’s businesses are micro, small and medium- sized enterprises, or MSMEs, with fewer than 250 employees, frequently in rural areas, and with a low level of financial and technology access.