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- 1. Regional Economic Integration – Strategic role of the financial industry Dr Raymond Madden, CEO Asian Institute of Finance
- 2. Malaysia – Benefits from Regional Economic Integration Trade integration Malaysia’s Gross Exports: Composition of Trade Partner Share of Exports to Share of gross exports (%) East Asia have Increased 1980 – 30% 2010 – 48% 2 Source: Department of Statistics, Malaysia 2
- 3. Malaysia – Benefits from Regional Economic Integration Manufactured Exports as a Share of Malaysia’s Gross Exports Share of gross exports (%) Trade integration Resulted on broader trading base Significant increase in: – E&E products (48% of total exports to East Asia) –Commodity-based (expanded at 13.3% pa) 3 3 Source: MATRADE and Department of Statistics, Malaysia
- 4. Malaysia – Benefits from Regional Economic Integration Trade integration Malaysia’s Gross Imports by Major Markets Imports are Share of gross imports (%) increasingly sourced from East Asia 1980 – 24.3% 2010 – 50.2% 4 Source: Department of Statistics, Malaysia 4
- 5. Malaysia – Benefits from Regional Economic Integration Trade integration Malaysia’s Gross Imports by Type of Goods Decline in share of Share of gross imports (%) intermediate goods import is matched by an increase in the imports of final goods Import of final goods 2000 – 21.9% 2010 – 29.9% Source: Department of Statistics, Malaysia 5
- 6. Malaysia – Benefits from Regional Economic Integration Investment integration FDI flows from regional countries have increased 6
- 7. Malaysia – Benefits from Regional Economic Integration Investment Cumulative Net FDI Flows by Sector integration 2008 – 2010 Investments are Finance & Insurance Mining 8.9% 42.2% channelled to Others 6% manufacturing, finance & insurance sectors Manufacturing 43.1% Source: Department of Statistics, Malaysia 7
- 8. Malaysia – Benefits from Regional Economic Integration Investment Cumulative Net DIA Flows by Country (2008 – 2010) integration Others Malaysian 33.2% Asia companies are 42.9% capitalising on opportunities from deepening regional integration Australia 12.6% UK Euro 5.2% 6.2% Source: Department of Statistics, Malaysia 8
- 9. Malaysia – Benefits from Regional Economic Integration Investment Cumulative Net DIA Flows by Sectors (2008 – 2010) integration Agriculture Construction 1.2% 3.3% Range of DIA activities has Finance & widened. Insurance 37.1% Mining Significant rise in 31.7% DIA by telecommunications & finance & Other Services insurance 17.6% Manufacturing 9.1% Source: Department of Statistics, Malaysia 9
- 10. Key Benefits from Regional Integration • Provides effective diversification of Malaysia’s export destinations & creates higher demand for Malaysia’s exports • Strengthen Malaysia’s economic ties within the region through various investment ventures • Receive higher value-added FDIs that will spur Malaysia’s transition into a high income economy • More competitive domestic companies through DIA 10
- 11. Towards Regional Financial Integration Greater financial integration will: • Enhance economic growth • Achieve more efficient & effective intermediation of funds • Promote greater financial stability • Channel surplus savings to productive investments at lower costs & improved risk diversification • Act as a catalyst for deeper regional economic integration. 11
- 12. High Income by 2020? Financial services sector to serve the needs of businesses and consumers in a high-income economy and to increase its depth and regional and global market shares in select niches. 12
- 13. Strategic Role of Financial Sector To a key driver & catalyst of growth Projected to expand 6x of GDP Contribution to nominal GDP expected to grow From an enabler of between 10% & 20% economic growth 13
- 14. Strategic Role of Financial Sector Greater participation in facilitating regional financial flows to support regional trade and investment, regional financial integration & internationalisation of Islamic finance 14
- 15. Strategic Role of Financial Sector Strengthening regional financial integration •Larger role in mobilising regional and cross-border funds •Supporting the needs of both Malaysian corporations expanding abroad and corporations that invest in Malaysia •Tun Razak Exchange – develop KL as a leading global centre for international finance, trade and services 15
- 17. Malaysia is home to 2nd & 3rd largest IPO, after Facebook (USD16 billion) Felda: USD3.3 billion IHH Healthcare: USD2 billion 17
- 18. Economic Corridors 18
- 19. Strategic Role of Financial Sector Internationalisation of Islamic Finance •Enhance Islamic financial ecosystem •Provide conducive environment for the mobilisation of higher volume of Islamic financial flows •Contribute to strengthened economic and financial ties among emerging economies including in Asia and the Middle East 19
- 20. Strategic Role of Financial Sector Internationalisation of Malaysian businesses •Cater to Malaysia's growing affluent segment and maturing population •Enhance services for wealth management, retirement and long-term healthcare •Develop a vibrant private pension industry 20
- 21. To support the greater role of the financial industry……. …..requires coordinated talent development efforts 21
- 22. Talent Development: Holistic and Collaborative Approach Growing a talented workforce to support the industry’s expansion represents a challenge that requires a ‘blue ocean’ strategic approach 22
- 23. Talent Development: Holistic and Collaborative Approach 5 key factors to move beyond the middle income trap: •Quality human capital •Ability to innovate & move up the value chain •Presence of core physical infrastructure •Reasonably flexible & transparent business climate •Demographic 23
- 24. Talent Development: Holistic and Collaborative Approach 24
- 25. Talent Development: Holistic and Collaborative Approach Leadership through the Financial Services Talent Council • Provide a greater strategic focus - develop an effective human capital development framework • Spearhead collaborative efforts between various agencies in public and private sectors • Coordinate efforts in up-skilling and building capability with a view towards strengthening the institutional capacity 25
- 26. Talent Development: Holistic and Collaborative Approach Improve Communication and Coordination between Industry and Higher Education • Narrow the gap between the demand and supply of skilled professionals in the industry • Establish industrial curriculum committee/taskforce representing industry and higher learning institutions with the mandate of developing consensus on the education and training needs of the industry 26
- 27. Talent Development: Holistic and Collaborative Approach Collaboration beyond the Financial Industry • Collaborative efforts between sectors are important to ensure that talent is nurtured beyond the broader needs of a single sector. • This would not only enable greater future availability of talent, but in the long term support future growth of related businesses. • A paradigm shift is necessary to develop talent to meet the demand of all related sectors to ensure a more sustainable talent pipeline 27
- 28. Talent Development: Holistic and Collaborative Approach Workforce up-skilling • Additional 56,000 finance professionals will be needed in the next decade to support the financial industry • Not enough to have an adequate supply of talent • Talents must be equipped to handle the complexities of the evolving economic and financial landscape • Align talent competencies must be a key priority. 28
- 29. Moving Forward To move forward, all relevant stakeholders must first appreciate and recognise that current solutions in meeting talent demand are not filling the gaps that need to be plugged. 29
Notas do Editor
- As one of the open economies in East Asia, Malaysia benefits significantly from the rising level of regional economic integration, through both trade and investment channels. In the 1980s, Malaysia’s exports were channelled mainly to the advanced economies (US, Europe & Japan). Regional exports accounted for only 30% of gross exports. Following the intensification of regional economic integration and subsequently trade integration, East Asia is currently the main export market for Malaysia, accounting for 48% of exports in 2010. East Asia – China, Hong Kong, Chinese Taipei, Korea, Singapore, Thailand, Indonesia, Philippines The emergence of East Asia as Malaysia’s top export market illustrates the potential of the region to boost demand for Malaysia’s exports.
- In line with the region’s role as the production and assembly hub for electronic & electrical (E&E) products, Malaysia’s manufactured exports to the region has increased significantly to register about 43% share of gross exports in 2010. There is also a significant increase in the exports of commodity-based manufactured goods, particularly chemical and chemical products. Since 1990, exports of commodity-based products have expanded at 13.3% per annum. And this was supported by strong regional demand. This trend reflects the steady shift in Malaysia’s economic activity from extracting crude commodities to manufacturing downstream products.
- Malaysia’s changing export structure has also been complemented by a diversification in import sources where goods are increasingly source from the region instead of the traditional markets. This is reflected by the rise in Malaysia’s imports from the regional economies from 24.3% in 1980 to 50.2% in 2010.
- Although the bulk of imports continue to be intermediate goods, its share has diminished over the years. This has been matched by an increase in the imports of final goods. In 2010, the imports of final goods accounted for 29.9% of gross imports. In 2000, it was 21.9%. Imports of final goods consist mainly of motor vehicles, optical and scientific instruments, and jewellery. Imports of final goods are increasingly sourced from within the region – China, Singapore & Thailand.
- Malaysia has also benefitted from the expansion of investment opportunities within the region due to deepening regional economic integration. Malaysia has been receiving a steady rise in FDI inflows. Although there was a temporary decline in 2009 given the global economic downturn, FDI flows resumed its increasing trend in 2010, amounting to RM27.6 billion. While FDI flows continue to be mainly sourced from advanced economies, FDI flows from regional countries have increased in recent years.
- FDI flows from regional countries are mainly channeled to the manufacturing and finance & insurance sectors. Trend reflects that FDIs received: have shifted towards higher value-added economic activities. More have channeled into the less capital intensive but high-skilled services sector – financial services and shared services operations
- Net direct investment abroad (DIA) by Malaysian companies has been increasing since 2005 to reach a high of Rm50.2 billion in 2008. A large share of DIA by Malaysian companies has been channeled to Asia, particularly the ASEAN countries.
- In the early 1990s, DIA was undertaken mainly by GLCs, particularly in the agriculture and oil& gas sectors. Recent years, DIA has focused on gaining greater access to natural resources and tapping the vast opportunities in the region. Although oil & gas continues to account for the largest share of DIA, there has been a significant rise in investments by the telecommunication and financial & insurance sectors, mainly through M&A. DIA by Malaysian companies contributes towards deepening regional integration and stronger relationships between Malaysia and economies in Asia.
- The aspiration for greater economic and financial integration in Asia is to achieve greater shared prosperity that is mutually reinforcing for the economies in the region. Gains from greater financial integration: Achieve more efficient and effective intermediation of funds to enable at least some part of the surplus savings of the region to be channelled to productive investments in the region, and at lower costs with improved risk diversification. Improve access to financing – this would also support intra-regional trade and facilitate greater collaborative efforts on safeguarding financial stability. Collective actions would also enhance the ability to better manage and respond to risks to the region. Asia would be better represented in the governance structure and processes in the international financial system.
- As Malaysia transforms to a high income economy, financial sector’s role will change from a key enabler of the overall economy, i.e. providing capital (in various forms) to enable the growth of all other industries (as well as consumers) in the economy to a key driver and catalyst of growth.
- Pre-global crisis, globalisation manifested itself in the form of trade and investment between the emerging and developed world. Post-crisis, emerging economies are now becoming more connected with each other within and across regions. This trend is being reinforced by changes in the pattern of financial flows. Previously, financial flows were predominantly between the developed and emerging world, greater financial integration among the emerging economies is facilitating the intensification of this connectivity.
- As a testament to the country's commitment to promoting free trade and business incentives (deepen regional economic integration), the government has established five economic growth corridors, to further develop Malaysia. The five economic growth corridors are: • Iskandar Malaysia in Southern Johor (IRDA); • Northern Corridor Economic Region (NCER); • East Coast Economic Region (ECER); • Sabah Development Corridor (SDC); and • Sarawak Corridor of Renewable Energy (SCORE). Priority will be given to building urban agglomerations, focusing corridors around clusters and developing high economic impact sectors under the 10th Malaysia Plan (10MP) (2011-2015).
- Increasing role of Islamic finance in the international financial system is another important key factor towards achieving greater regional financial integration. In its early stages of development, Islamic finance was highly domestic-centric in its orientation. This recent decade has seen the rapid internationalisation of Islamic finance resulting in significant growth in cross border financial flows. The development of Islamic financial markets, in particular, the sukuk market, the progressive financial sector liberalisation, and the establishment of international arrangements and institutions to safeguard financial stability, cumulatively have contributed to enhance the international dimension of the industry. With its internationalisation, it has become an increasingly more important channel for the efficient allocation of financial resources across borders and for the diversification of risks. This new international dimension of Islamic finance has facilitated stronger financial ties between Asia and the Middle East. The sukuk market in particular has become an important avenue for international fund raising and investment activities that generate significant cross border flows. There are now more than 600 Islamic financial institutions operating in more than 75 countries.
- As Malaysia deepens its trade and investment linkages (greater regional economic integration), the financial sector is envisaged to have a larger role in supporting the internationalisation of Malaysian businesses. To cater to Malaysia's growing affluent segment and maturing population, emphasis will be placed on enhancing the provision of financial services for wealth management, retirement and long-term healthcare. The development of a vibrant private pension industry is also expected to enhance the role of pension funds as a key source of funding for the longer-term and risk-based financing needs of the economy.
- Malaysia, like most emerging economies in Asia, faces some longer term risks to high growth performance. One that is now prominently discussed is the risk of growth petering out, caught in the ‘middle-income trap’ before advanced country levels of per capita income are attained. ‘ The middle-income trap’ is an idea that derives from the experience of a host of emerging economies that looked as if they were on the road to high-income status but did not really make it. Stagnation in growth rates occurred before they were able to progress from being a middle-income country to a high-income country. An important element of this phenomenon is the failure to invest in the human capital that is necessary to take income to a higher level. The Malaysian government is very commitment to improving the quality of their education. Malaysia already have some of the highest educational attainments in the world. Yet the fiscal and institutional challenges to lifting educational performance in the way that is needed to sustain economic growth is another thing altogether.