Productivity to drive economic and income growth in Malaysia

Malaysia's economy remains resilient to external headwinds, with GDP growth projected around 4.2% in 2016 and 4.3% in 2017, according to a new economic analysis from the World Bank. This outlook reflects a gradual slowdown in the growth of consumer spending and investment as global economic growth and commodity prices remain subdued, and as households adjust to moderating job prospects and fiscal consolidation.

The World Bank’s Malaysia Economic Monitor notes that the Malaysian economy faces risks stemming mostly from external developments. Such external risks include uncertainties around a rebalancing of the Chinese economy, further declines in the world prices of oil and other commodities that Malaysia exports, and evolving US economic policies and their impact on global trade, energy prices, financial flows and exchange rates. Uncertainty in global financial markets could affect investor and business sentiment.

The latest Malaysia Economic Monitor includes a special focus on increasing productivity, which the World Bank sees as the main engine of economic and income growth in the future. Traditional drivers of growth are expected to moderate, with capital accumulation facing headwinds and labour force growth gradually slowing as the Malaysian population ages.

In addition with rising total factor productivity, the report envisages increased female labour force participation and enhanced human capital through skills upgrading as the key drivers behind Malaysia reaching the income levels of high-income economies by 2050.

“For the past 25 years, from 1990 to 2014, Malaysia has enjoyed a period of solid growth mainly led by factor accumulation,” says Datuk Abdul Rahman Dahlan, Economic Minister in the Prime Minister's Department. “The economy has benefitted greatly from high investment rates associated with infrastructure and private sector development, as well a growing working age population and an expanding female participation in the labour force. Throughout this period, total factor productivity growth has been relatively stable, indicating the economy's flexibility and opening to new sectors of investment.Having said that, there is room to improve based on the recommendations given by the World Bank. Going forward, Malaysia will undertake further improvement measures in order to raise the level of human capital and productivity.”

Productivity growth has been steady in Malaysia for the past 25 years, but has trailed that in several high-income and regional economies. The World Bank's new Enterprise Survey for Malaysia issued in 2016 indicates that labour productivity declined in the country between 2012 and 2014, reflecting both a moderation in sales and continued employment creation.

Malaysia’s existing institutional architecture has sustained consistent productivity growth for more than two decades, though challenges need to be addressed in order to refocus attention on productivity growth. These challenges include overcoming skills gaps, maintaining high quality of infrastructure, strengthening the research and development ecosystem, and addressing distortions in output markets.

“Raising productivity will be the key to future economic growth and prosperity in Malaysia," says Ulrich Zachau, World Bank Country Director for Southeast Asia.“Malaysia has an opportunity to reach high income country status and catch up with the advanced economies with a combination of policies and investments that focus on productivity – including policies to upgrade skills, promote innovation, further strengthen competition and trade to increase firm level efficiency, and support women in the workforce.”

The World Bank report notes that Malaysia has an opportunity to strengthen existing institutions in delivering on new areas of research around productivity. Gathering more detailed information and adding capacity to analyse productivity can help inform the development of targeted policies to raise productivity. Open policy dialogue and close consultations among both private and public sector stakeholders can help validate results and implement policy options to raise productivity growth, the report states.

The Malaysia Economic Monitor series provides an analytical perspective on the policy challenges facing Malaysia as it grows into a high-income economy. The series also represents an effort to reach out to a broad audience, including policymakers, private sector leaders, market participants, civil society and academia.

World Bank shares 2017 outlook for Thai economy

Thailand’s economy is expected to grow at 3.1% in 2016 and 3.2% in 2017, up from 2.8% last year, according to the 2016 Thailand Economic Monitor released today by the World Bank.

The key drivers of growth remain private consumption and public investments, such as the dual rail track and rail upgrading projects, the report says. Tourism growth has been strong in 2016, with the number of tourist arrivals, mostly from China, increasing by 13.1% in the third quarter.

In the fourth quarter, a temporary slowdown and the postponement of economic activities during the period of mourning after the passing of HM King Bhumibol Adulyadej in October are expected to be offset in part by holiday tax breaks on shopping and domestic tourism at the end of the year.

“To remain competitive, Thailand has to embark on extensive reform of the economy to lay down a future for the country in areas such as infrastructure and advanced manufacturing,” said Kobsak Pootrakool, Vice Minister for the Office of the Prime Minister. “At the same time, ensuring that the grassroots can reap the benefits of development.”

As the ageing of Thailand’s working-age population begins to affect its economy in the next five years, it will be increasingly important for Thailand to harness new engines of growth, in particular the service sector, to take the country from upper-middle to high-income levels, according to the report.

“Thailand’s economy is on track to recovery, and further strengthening the service sector will help create new and better jobs, higher incomes and more opportunities for Thai people,” said Ulrich Zachau, the World Bank Country Director for Southeast Asia.“Liberalising services and ensuring all Thai people have access to quality education to acquire skills for work in a modern economy will be key to raising productivity in the service sector and to a continued acceleration of economic growth in Thailand.”

The service sector is 30% less productive than manufacturing in Thailand, according to the new Thailand Economic Monitor. Services account for 50% of gross domestic product (GDP) and employ 40% of the workforce. In comparison, the manufacturing sector employs 15% of the workforce and yet accounts for as much as 35% of GDP.

“The combination of private sector initiatives and government support has led to successes in the service sector in many ASEAN countries,” said Kiatipong Ariyapruchya, World Bank Senior Economist for Thailand. “Thailand’s continued commitment to structural reforms can unleash the potential of the service sector and lift Thailand’s long-term growth path to above 4%."

Thailand has generally more restricted service sector markets than its peers in the Association of Southeast Asian Nations (ASEAN). Some services are more protected from foreign and domestic competition, such as education and health facilities, which are required to be majority Thai-owned.

The World Bank report notes that liberalisation of professional services can help increase efficiency, productivity, and quality in the service sector, for the benefit of Thai consumers. Thailand can strengthen its service sector by providing a supportive regulatory environment for doing business, fostering competition and deepening trade integration with the ASEAN Economic Community (AEC).

World Bank outlook improves for Philippines

The World Bank has upgraded its economic outlook for the Philippines for 2016 to 2018 as part of its quarterly forecast exercise.

The World Bank now projects the Philippine economy to grow at 6.8% in 2016, rather than the 6.4% forecast released in October (World Bank Philippines Economic Update October 2016). Growth in the third quarter of 2016 was higher than expected with accelerating investment and private consumption growth, the World Bank said, following strong growth performance of the Philippines economy in 1H16 which was driven by the government’s pre-election stimulus.

“Recent economic trends illustrate the high confidence among investors and consumers, and provide the foundation for a more optimistic outlook for the remainder of 2016 and for 2017,” said Birgit Hansl, World Bank Lead Economist for the Philippines. “The economy’s strong performance in October and November, and continued policy commitment to an increase in public infrastructure spending are expected to carry the economy’s growth momentum over to 2017 to 2018.”

As growth momentum shifts away from advanced economies back towards emerging markets and developing economies, Philippine exports are expected to grow in 2017 at a similar rate as in 2015 to 2016. The World Bank has revised its growth projection for the Philippine economy in 2017 upwards to 6.9%, compared with an October forecast of 6.2%. In 2018, the economy is expected to expand at 7%.

Growth in capital investment is projected to remain the Philippine economy’s primary growth engine. Despite an expected increase in interest rates in 2017, monetary policy is expected to remain supportive of growth, resulting in continued credit expansion.

The implementation of large infrastructure investments is projected to lead to significant spillover effects into consumption growth next year. Robust credit growth to households and healthy remittances is also expected to fuel consumption.

South Asia has the potential to be the world's premier export region

With the right set of productivity-enhancing policies, South Asia could more than triple its share in global markets of electronics and motor vehicles and come close to doubling its already significant market share in apparel (excluding textiles and leather) by 2030. South Asia could become the fastest-growing exporting region of the world if authorities in Pakistan and its South Asian neighbors implement a set of policy actions aimed at improving the business environment, connecting to global value chains (GVC) and leveraging clusters, said a new World Bank report – South Asia’s Turn: Policies to Boost Competitiveness and Create the Next Export Powerhouse.
The report argues that increasing productivity of firms in Pakistan and the rest of South Asia is the only sustainable path to improving competitiveness. The report highlights well-known challenges in the region’s investment climate, but more importantly draws attention to less well-researched areas such as the role of cities and clusters, global value chains, and firms’ abilities to innovate and efficiently use resources, including technology.

As acknowledged in the recent World Bank 2017 Doing Business report, the implementation of needed reforms is gaining momentum, and needs to be accelerated. Pakistan should also leverage the benefits of its city clusters by actively mitigating congestion forces and facilitating access to industrial land. Expanded participation in global value chains to markets through improvements in trade policies, logistics, and skills will also be beneficial. The report also calls for helping firms innovate, improve their managerial capabilities, and use technology to better connect with customers and suppliers for boosting competitiveness.

The region’s great potential to boost its competitiveness is evidenced through a number of examples in the report, ranging from the highly successful apparel industries in Bangladesh and Sri Lanka to Pakistan’s light manufacturing cluster in Sialkot which has achieved dominant global market shares in products such as soccer balls and surgical instruments. 

“Pakistan, in particular, has important strategic endowments and development potential,” says Illango Patchamuthu, World Bank’s Country Director for Pakistan. “Located at the crossroads of South Asia, Central Asia, China and the Middle East, Pakistan is at the heart of a regional market with a vast population, large and diverse resources, and untapped potential for trade.”

Pakistan leads many global competitors when it comes to wage competitiveness and proximity to key markets yet continues to experience weakening in exports competitiveness. Exports remain concentrated in the textiles and food sectors and investment in global value chain capabilities including physical capital, human capital, institutions and logistics remain limited.

“The region has a significant untapped potential in raising productivity through development of urban ecosystems providing thick markets for skilled labour, large tracts of industrial land, and world class logistics,” says Vincent Palmade, Lead Economist and one of the report’s co-authors. According to the report, firms realise significant productivity benefits from locating in areas with a wide diversity of workers, suppliers, and customers.

Oman leads Arab countries in World Bank index on ease of doing business

The Sultanate of Oman has advanced three ranks in the World Bank 2017 Doing Business Report, ranking 66th globally. In the business sub-index, Oman was the top Arab country and 32nd globally, a jump of 127 points compared to the previous report.

Doing Business studies quantitative indicators on business regulations and the protection of property rights across 190 economies. Ten indicators are measured on the ease of doing business: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.

The Sultanate made a progress in the Starting a Business Index by removing the requirement to pay minimum capital within three months of incorporation and streamlining the registration of employees. In the  Trading Across Borders index, Oman has reduced the time for border and documentary compliance by introducing a new online portal that allows for rapid electronic clearance of goods.

HE Dr Ali bin Masoud Al Sunaidy, Minister of Commerce and Industry, commented on this success saying: “We appreciate all the efforts made to achieve this international recognition and improve the Sultanate's business environment. The latest changes and updates in the Invest Easy portal played a major role in this success as we cancelled the request to provide proof of the company's capital at the beginning of the registration, the Article 5 and Article 11 in the commercial agencies Law and simplify the procedures for business registration records by allowing 76 electronic services through the portal.”

Dr Salim Sultan Al Ruzaiqi, said: “This advanced ranking of the Sultanate is an international recognition from a leading organisation, The World Bank, that the provision of electronic services in doing business in Oman is moving steadily towards a big success internationally.”

Al Ruzaiqi added: “The Invest Easy project of the Ministry of Commerce and Industry is one of the pioneering projects in this field and it deserves this international recognition. It is designed to provide electronic services to investors and entrepreneurs and owners of small and medium enterprises through a single window; in addition to simplifying and streamlining procedures and make the process of investing and doing business in the Sultanate easier with high quality and more transparent.”

Salma Khalfan Al Burtmani, Invest Easy Project Manager at ITA, said: “Invest Easy is a leading e-transformation project that has been implemented with the Ministry of Commerce and Industry in order to facilitate the business environment in the Sultanate to be done online through a single window.

“This is the first portal that uses the e-signature service over the mobile phone provided by the National Digital Certification Center at Information Technology Authority. Through this service the beneficiary can complete some transactions completely after activating the electronic certification on mobile sim card.”

ITA is the agency in Oman charged with implementing Digital Oman, a strategy to transform the Sultanate of Oman into a knowledge-based economy for the achievement of social and economic benefits to Omani society.

Bhutan improves business climate significantly in 2015

Efforts to improve the business climate in Bhutan accelerated during the past year and have helped it to be the highest ranking country in the South Asia Region at 71 out of 189 countries ranked worldwide, says the World Bank Group’s annual ease of doing business measurement.

Doing Business 2016: Measuring Regulatory Quality and Efficiency, finds that Bhutan instituted two reforms during the past year. In Getting Electricity, Bhutan made it easier for entrepreneurs to connect to the grid by speeding up the process for obtaining a new connection. Five years ago, it took an entrepreneur 93 days to get electricity, now it only takes 61- less time than in France. Bhutan also implemented a reform in the Registering Property indicator through which transferring property has been streamlined by introducing a computerised land information system, decreasing the time to complete a transfer by 15 days.

“Bhutan has been advancing steadily in recent years in improving its regulatory environment and making it more business friendly. In doing so, the country can stimulate both entrepreneurship and job creation for its population,” said Genevieve Boyreau, the World Bank’s Country Representative for Bhutan.

“Through thoughtful and well-executed policies and reforms that support improvements in the business environment, Bhutan has the potential to foster a dynamic and expanding private sector that will help realize its development aspirations. The World Bank supports in Bhutan a better investment climate for private sector through a series of Development Policy Credits and technical assistance.”

This year’s Doing Business report completes a two-year effort to expand benchmarks that measure the quality of regulation, as well as efficiency of the business regulatory framework, in order to better capture realities on the ground. In the report, five indicators saw changes - Dealing with Construction Permits, Getting Electricity, Enforcing Contracts, Registering Property and Trading across Borders. For example, the indicators on Dealing with Construction Permits which previously measured the procedures, time and cost to comply with the formalities to build a warehouse now also measures, through the Building Quality Control index, good practices in construction regulation.

Bhutan performs well on this new index scoring 13 out of 15- the same score as Ireland. The economy also scores well on the new index for Registering Property, Quality of Land Administration. The score of 24 out of 30 indicates Bhutan has a high quality of infrastructure for ensuring the reliability of information on property titles and boundaries as well as a high level of geographic coverage in land ownership registration and cadastral mapping (Editor's note: mapping that outlines the boundaries of a country).

The World Bank strategy in Bhutan focuses on improving rural livelihoods and managing urbanisation while protecting its natural assets. It has currently committed US$191 million in concessional development credits, a number of technical assistance grants and analytical work for these areas to improve fiscal and spending efficiency, fostering private sector growth and competitiveness and supporting green development. Private sector development is one of the key priorities of the World Bank Group in Bhutan, through supporting a good environment for private sector investment and job creation.

Interested?

Read the full report and accompanying datasets

World Bank to help Indian, Kazakhstani SMEs grow

The World Bank has approved a US$500 million loan for the MSME Growth Innovation and Inclusive Finance Project to improve access to finance for micro, small and medium enterprises (MSMEs) in the manufacturing and services sector in India. This includes MSMEs from early to growth stage, including those which provide innovative financial products.

In India, MSMEs account for more than 80% of total industrial enterprises, produce over 8, 000 value-added products and employ an estimated 60 million people. It contributes around 45% to manufacturing output and about 40% to exports, both directly and indirectly. In addition, over 50% percent of MSMEs are rural enterprises and widely distributed across low-income states, making them an important sector for promoting economic growth and poverty reduction.

However, lack of adequate finance is one of the biggest challenges facing the MSME sector. Financial institutions have limited their exposure to the sector due to a higher risk perception, information asymmetry, high transaction costs and the lack of collateral. The MSME census of 2006-07 estimated that about 87 % of MSMEs did not have any access to finance and were self-financed. Credit towards micro and small enterprises represent only 13 to 15% of formal financial institutions portfolios.

The project will support MSMEs through direct financing by the Small Industries Development Bank of India or SIDBI, an apex financial institution for promotion, financing and development of MSMEs in India, and also through participating financial institutions across three components. These include support to startup debt financing and risk capital as well as support to service and manufacturing sector financing models.

“With 8 million people entering the labour force every year, MSMEs have the potential to be an important source of wage employment and entrepreneurship in India, foster innovations as well as be the cradle for the government’s `Make in India’ vision formulated recently. For these ideas to take shape, addressing the key constraints that inhibit MSMEs from accessing finance is of utmost importance. This project will work with the government in developing innovative products that address the current constraints of MSMEs, respond to the changing needs of the Indian economy and also catalyse private sector financing,” said Onno Ruhl,World Bank Country Director in India.

The project's first component will support SIDBI in developing, innovating and scaling up its startup debt financing programme as well as encourage participation of potential financing institutions in the development of this missing financial market segment. The India’s startup ecosystem is currently one of the fastest growing in the world and the third largest startup base with 3,100 startups (after the US with 41,500 start-ups and the UK with 4,000). While there has been incredible growth in equity financing in the Indian ecosystem, debt financing is non-existent for the majority of the vast growing startup enterprises which severely constrains the necessary rapid growth startups need to survive. The project will seek to address this gap to demonstrate financial products that both align with a fast growth economy and address missing financial markets that can unlock the incredible potential of India’s startup and early stage ecosystem.

Its second component supports service sector firms’ financing. Although the structure of the Indian economy is shifting towards services, now 65% of Indian GDP, enterprises in this sector continue to face challenges in accessing formal finance mainly due to lack of physical assets to provide as collateral. Financial depth (credit to GDP) for this sector is 25%*. In an attempt to address this issue SIDBI has introduced new products and considering their potential to grow, this project will support scale up of innovative products which are better tailored for MSMEs in the service sector such as use of movable and intangible assets, including light assets and franchise financing. Information asymmetry and credit risk will be mitigated by using information from alternative/multiple sources (such as franchisors for franchisee financing).

The project will also support manufacturing MSMEs through innovative financial products including loan extension services and cluster financing - including women-led clusters. Particular focus will be to expand manufacturing activity in financially underserved areas, including low income states especially through refinancing, as banks and other public financial institutions have a deeper network in these states.

“Addressing financial constraints of MSMEs and start-ups should generate multiplier effects across the economy by unlocking their inherent growth potential, fostering entrepreneurship and creating employment opportunities,” said Gloria Grandolini, Senior Director of the World Bank Group Finance and Markets Global Practice.

The loan, from the International Bank for Reconstruction and Development (IBRD), has a five-year grace period and a maturity of 10 years.

The World Bank earlier approved a US$40 million loan to help enhance the competitiveness and management capacity of small and medium sized enterprises in Kazakhstan as well.

“Small and medium sized enterprises are widely identified as important sources of economic growth and employment and, therefore, an essential foundation for shared prosperity,” said Ludmilla Butenko, World Bank Country Manager for Kazakhstan. “The project is expected to increase the competitiveness of Kazakhstani SMEs to contribute to diversification of the economy by reducing its reliance on extractive industries.”

Lack of professional and management skills as well as limited market connections are some of the key obstacles for Kazakhstan’s private sector. The SME Competitiveness Project is aimed at strengthening the management capacity of SMEs to grow and create more and better jobs. Existing SME advisory programmes will be enhanced in terms of quality and methodology in line with international standards. Several hundred business consultants will be trained and certified to deliver in turn professional consulting to several thousand entrepreneurs and SMEs.

The project will also focus on increasing market linkages for SMEs in non-extractive sectors with a market-based growth potential. The new linkages between SMEs and large buyers will provide entrepreneurs with an increased access to markets. To facilitate the process, the project aims at piloting a supplier development programme and enhancing the capacity of policy making authorities in developing competitive sectors in emerging areas of the economy. The evidence-based policy making will be strengthened through improved existing monitoring and evaluation frameworks and public-private dialogue.

All these activities will result in increased firm productivity and revenues as well as overall contribution of SMEs to the country economy.

The implementation of the five-year project (2015-2020) will start after the country approval process is completed. The SME Competitiveness Project will be financed through a US$40 million IBRD loan, with a 15-year maturity period and a five-year grace period, with US$6 million in co-financing from the government of Kazakhstan.
*Reserve Bank of India figures.

posted from Bloggeroid

Indian government and World Bank sign loan agreement to support MSMEs

The Government of India (GoI) and the World Bank today signed a US$200 million loan agreement to enhance the productivity of micro, small and medium enterprises (MSMEs) by expanding and upgrading Technology Centers across India.

Today, the manufacturing sector in India is facing several constraints including difficulties in accessing markets and finance, poor infrastructure, disincentives for MSMEs to grow and difficulties for MSMEs to access technology and skills. Technology Centers are shared facilities – often located near industry clusters – that enable MSMEs to access technologies, business advisory and training that can directly help them improve their productivity and competitiveness.

The Technology Center Systems Program (TCSP) will develop the technological and skills base of MSMEs in selected manufacturing industries. The Technology Centers (TCs) will support industry clusters across manufacturing chains, both upstream (tooling industry) and downstream (such as automotive, electronics and fragrance and flavour industries).

“Select manufacturing industries face shortages of skilled labour and have limited access to advanced technologies. Technology Centers under this programme will provide practical machine-based and hands-on vocational training for MSMEs and youth, especially women, in select manufacturing industries and clusters,” said Tarun Bajaj, Joint Secretary, Department of Economic Affairs, Ministry of Finance.

The loan agreement was signed by Bajaj on behalf of the Government of India and Onno Ruhl, World Bank Country Director in India, on behalf of the World Bank.

“With the largest youth population in the world, India has the potential to benefit from an immense demographic dividend. However, with 13 million young people entering the labour force each year, increasing the skills base of its youth will have to be a key priority for the country to gain from this demographic dividend,” said Ruhl.

The programme will set up 15 new Technology Centers and upgrade the technological capabilities of the existing 18 Centers by developing links with Indian and international research institutes and leading manufacturers.

“The unique proposition of this programme is that it aims to create an ecosystem of engagement for Technology Centers and Small and Medium Enterprises. Through introduction of entities such as cluster network managers, technology partners and a pervasive IT platform, Technology Centers can learn from each other and help their end customers better,” said Manju Haththotuwa, Senior Private Sector Development Specialist and World Bank’s Task Team Leader for the programme.

The programme will also complement the work being done by public private providers of vocational training like the Industrial Training Institutes (ITIs), the polytechnics, the Advanced Training Institutes (ATIs) and Nettur Technical Training Foundation (NTTF); help them improve their curricula; train their trainers; and establish links between the Technology Centers and other institutes like the National Skill Development Agency.

The loan, from the International Bank for Reconstruction and Development (IBRD), has a seven-year grace period, and a maturity of 22 years.

UAE in top 10 for improving business environment: World Bank

A recent World Bank Group report finds that local entrepreneurs have faced challenging circumstances in the past year in the Middle East. While several economies improved the business environment for local firms—such as the UAE, among this year’s 10 top global improvers—the pace of regulatory reform in the Middle East and North Africa region was comparatively slow.

Doing Business 2015: Going Beyond Efficiency finds that 55% of the region’s economies reformed business regulations—compared with 60% in East Asia and the Pacific but notes that the scope of business regulatory reforms remained narrow. In the past year, economies in the region implemented the most regulatory reforms in the area of trade. Jordan improved port infrastructure, thereby reducing port and terminal handling time, for example.

“While regional unrest continues to roil the Middle East and North Africa, several economies in the region have made notable efforts to improve their business environment,” said Rita Ramalho, Doing Business report lead author, World Bank Group. “In the past year, the UAE improved its business environment the most in the region across multiple areas captured by the report, making it one of the 10 top global improvers. It enhanced the administrative efficiency of its land registry, improved access to credit information, and strengthened minority investor protections.”

The report this year expands the data for three of the 10 topics covered, and there are plans to do so for five more topics next year. In addition, the ease of doing business ranking is now based on the distance to frontier score. This measure shows how close each economy is to global best practices in business regulation. A higher score indicates a more efficient business environment and stronger legal institutions.

The report finds that Singapore tops the global ranking on the ease of doing business. Joining it on the list of the top 10 economies with the most business-friendly regulatory environments are New Zealand; Hong Kong; Denmark; Korea; Norway; US; UK; Finland, and Australia.