Professional Documents
Culture Documents
AN
SMU
ECONOMICS
INTELLIGENCE
CLUB
PRODUCTION
-
Examining
the
Middle-Income
Trap
in
Malaysia
(Part
1)
-
SMEs
in
Turkeys
Emerging
Market
-
Uncovering
Key
ASEAN
Needs
Vital
to
US
Economic
Legitimacy
in
ASEAN
(Part
1)
The
Fortnight
In
Brief
(10th
June
to
23rd
June)
US:
FOMC
turns
hawkish
A
hawkish
Ben
Bernanke
emerged
from
the
2-day
FOMC
meeting
announcing
that
the
tapering
could
occur
as
soon
as
late
2013
through
the
first
half
of
2014
and
ending
around
m id-year.
The
FOMC
"see
the
downside
risks
to
the
outlook
for
the
economy
and
the
labor
market
as
having
diminished
since
the
fall,"
and
medium
term
inflation
to
be
close
to
target.
The
Committee
maintains
that
monetary
policy
will
remain
accommodative.
In
his
dissent
against
the
Committee,
St.
Louis
Fed
President
James
Bullard
saw
the
decision
as
"inappropriately
timed"
and
a
creep
back
to
date-based
forward
guidance.
US
10-year
treasury
broke
above
2.5%
for
the
first
time
in
22
months
while
the
dollar
rallied
against
its
m ajor
peers
on
the
back
of
tapering
and
stronger
growth
forecast.
Asia
Pacific:
Chinas
credit
squeeze
Chinas
benchmark
one
day
money-market
rates
spiked
527
basis
points
on
20
June
to
all-time
highs
before
the
Peoples
Bank
of
China
(PBoC)
finally
injected
funds.
The
PBoC
reluctance
to
inject
funds
comes
as
the
government
places
more
emphasis
on
achieving
balanced
growth
in
the
longer
term
rather
than
instinctively
reacting
to
economic
slowdowns.
A
preliminary
reading
of
the
Purchasing
Managers
Index
by
HSBC
and
Markit
revealed
a
value
of
48.3,
indicating
deterioration
in
private
sector
sentiment.
Investors
have
reacted
by
punishing
the
Shanghai
Composite
Index
with
a
one
m onth
drop
of
9.41%.
EU:
EU
to
decide
who
pays
when
banks
fail
The
European
Union
sought
last
Friday
to
forge
rules
to
force
losses
on
large
savers
of
failed
banks,
an
act
initially
unprecedented
until
the
recent
Cyprus
bailout.
A
300-page
draft
EU
law
recommends
a
pecking
order
in
which
first
bank
shareholders
would
take
losses,
then
bondholders
and
finally
depositors
with
more
than
100,000
euros
in
their
accounts.
Although
some
politicians
have
tried
to
portray
Cyprus
as
a
one-off,
the
new
law
could
mark
a
dramatic
change
in
how
Europe
deals
with
troubled
banks.
Countries
are
divided
over
how
strict
the
new
rules
should
b e,
with
some
worried
that
imposing
losses
on
depositors
could
prompt
a
b ank
run
while
others
argue
rules
must
be
made
clear
from
the
start.
300
295
290
285
280
275
530
520
510
500
490
IN COLLABORATION WITH
1660
1640
1620
1600
1580
S&P 500
lower socioeconomic strata. Deprived of good opportunities, many non-Bumiputeras (especially the Chinese) are compelled to pursue further education and work in other countries such as Singapore, Australia and Britain. These people often remain overseas and do not return, fueling a severe brain drain. The lack of local talent therefore poses a formidable challenge in escaping the middle-income trap. This problem is illustrated in Figure 1 from a World Bank report. Figure 1: The Malaysian diaspora in 2010 is estimated at 1 million, a third representing brain drain
Najib has attempted to mitigate the Bumiputera policys adverse effects through his 1Malaysia programme in 2010. 1Malaysia does not abrogate Bumiputera privileges, but rather improve its implementation in a more equitable manner. Through the use of six National Key Results Areas (NKRA) in issues such as corruption, transportation and infrastructures, the programme is designed to emphasize ethnic harmony and national unity amongst all Malaysians. Key Performance Indicators (KPIs) have also been set to measure the proposed changes in the six areas. Unfortunately, such a programme has been met with strong resistance from Bumiputera-affiliated groups who stand to lose their deeply entrenched benefits. Should Malaysia wish to curtail its brain-drain problem, it has to first tackle this issue. This problem does not end here. Development has not trickled down from the cities such as Kuala Lumpur, Penang and Johor Bahru to the kampungs (rural areas). One only needs to observe how the surrounding areas along the North-South expressway have remained relatively unchanged for the past few decades to understand this. The bulk of Malaysias wealth, according to the World Bank, is highly concentrated at the upper classes as shown in Malaysias Gini coefficient of 0.462 in 2009. GDP per capita also varies drastically amongst the states as shown in the table below. Such social inequality breeds contention and polarization if left unattended. For a continuation of Kah Haws and Wei Zhengs discussion on Malaysias middle income trap, please refer to next weeks publication. 3 Copyright 2012 SMU Economics Intelligence Club
th 1 10 Malaysia Plan
The 10th Malaysia Plan is a blueprint approved by the Cabinet of Malaysia which allocates economic budget from the year 2011 to 2015. It was unveiled on 10 June 2010. 2 Total Factor Productivity Total Factor Productivity represents the growth in output or GDP not represented by inputs such as labour or capital in the Solows model. It is usually a measure of technological advancement. 3 Vision 2020 Vision 2020 is a Malaysia ideal introduced by the former Prime Minister of Malaysia, Mahathir Bin Mohammed during the 6th Malaysian Plan in 1991. The vision calls for the nation to achieve a self-sufficient industrialized nation by the year 2020. Sources: 1. Daniel Fleming, Hendrik 2012. Malaysian skills development and the middle income trap 2. 10th Malaysia Plan 2010. Prime Minister Office. 3. Times Higher Education 2013. Times University Rankings Website. 4. Aaron Flaaen, Ejaz Ghani, Saurabh Mishra 2009. The World Bank. How to avoid middle income traps? Evidence from Malaysia 5. Malaysia Economic Monitor 2011. Brain Drain 6. The World Bank. Unlocking Womens Potential Key Findings 7. Vikram Nehru 2013. Can Malaysia beat the Middle Income Trap? 8. New Economic Model. Economic Planning Unit
The role of SMEs in the Turkish Economy Accounting for 79% of all employment in Turkey, SMEs are central to creating jobs for an underutilized and growing labour force in the country. Traditionally, SMEs have also been largely dependent on the domestic market. As Turkey gradually opened its economy to foreign companies, key industries like automobile manufacturing and heavy industries expanded rapidly. SMEs fill an important gap in the supply chain by serving as independent contractors to these big corporations, thereby supporting the growth of these important Turkish industries. In recent years, diversification in the SME sector out of the domestic market has become increasingly important for the continued growth of the industry, giving rise to a need for SMEs to internationalise. Hence, this has then resulted in increased urgency relating to the implementation of policies to support SMEs in internationalizing their strategy and operations. Turkish government support is predicated on the recognition that local SMEs are susceptible to market failure and these policies shroud SMEs in a veil of protection so as to achieve economic growth and job creation. Supporting SMEs in Turkey SMEs have been underrepresented in Turkey thus far and actions have been taken to redress this situation. Government organizations and agencies have been set up to facilitate the needs 5 Copyright 2012 SMU Economics Intelligence Club
of SMEs and offer a plethora of measures that effectively cover all the different angles of the challenges SMEs face. In tandem with the growing number of professionals entering the workforce, these government agencies have been promoting entrepreneurship in planting the seeds for future generations of SMEs. A series of revisions had been made to the SME Strategy and Action Plan that was approved in 2003 and targeted at improving the business environment. Other strategy fields have been promoted to integrate SMEs into international markets and develop innovative capacity. The Coordination Council for the Improvement of the Investment Environment (YOIKK) conducts the agenda with the help of 12 Technical Committees. The SME Technical Committees conduct studies to solve problems faced, as well as, improve the system for credit guarantee1 and venture capital2 companies. Another activity would be to enlarge the scope of KOSGEB support to cover sectors aside from manufacturing. KOSGEB (Small and Medium Enterprises Development Organization) was founded in 1990, to increase the rate and activity of SMEs. KOSGEB lends support to SMEs in a multitude of avenues such as consultancy, marketing, technology research, e-commerce, economic and computer software. In light of the increased foreign investments, KOSGEB aims to raise the competitiveness of SMEs and align them with national economic developments. After an internal restructuring, the application process has been streamlined into four key procedures: screening; strategic road map; support implementation; monitoring. In order to better serve the SME sector, KOSGEB provides support for potential entrepreneurs and startups that are categorized as micro enterprises. KOSGEB provides free start-up training, start-up capital, incubators with office space and facilitates access to networks. Another KOSGEB initiative is the Business Plan Award that is bestowed upon each university annually. Endeavor Turkey Turkeys SME sector thrives on a strong spirit of entrepreneurship, with many aspiring business owners amongst its people, reflected in high self-employment and entrepreneurship rates across the country. The countrys culture embraces entrepreneurship, and promotes it through extensive media coverage of successful entrepreneurs to highlight the ease of becoming an entrepreneur in the country, further reinforcing the entrepreneurship culture in Turkey. In addition, the government also established an Entrepreneurship Council to serve as a link between all stakeholders and SMEs to solve various issues facing entrepreneurs. With the development and maintenance of a positive environment for SMEs to grow in, the strong entrepreneurship culture remains a key strength of the Turkish SME sector. Endeavour Turkey was incorporated in 2006, dedicated to the support for high-impact entrepreneurship. The organization provides financing and mentoring support for start-ups. In recent efforts in 2009, their Venture Corps recruiting campaign resulted in a growth of their mentor network to more than 110 members, representing a diversified base of experts from a range of fields, offering a strong backbone of support for aspiring entrepreneurs. In 2010, they also launched the Akbank-Endeavour Credit Pool to provide entrepreneurs with very favourable financing terms. Access to finance Compared to the other countries in the EU, Turkish banks are more willing to provide loans to SMEs. On the part of the government, a new SME support scheme launched by KOSGEB in 6 Copyright 2012 SMU Economics Intelligence Club
2011,
also
involving
the
Capital
Markets
Board
of
Turkey
and
BORSA
Istanbul,
was
designed
to
help
SMEs
to
be
traded
on
the
stock
exchange
and
obtain
funds
via
capital
markets.
In
addition,
a
new
financing
programme,
the
Anatolian
Venture
Capital
Fund,
is
also
available
to
support
SMEs
in
the
less
developed
regions
of
Turkey.
With
a
wide
range
of
financing
options
available,
Turkish
SMEs
receive
robust
support
in
terms
of
financing
in
comparison
to
their
peers
in
the
EU.
Future
trends
The
SME
sector
in
Turkey
has
massive
potential
for
further
growth
and
development.
In
recent
years,
growth
from
the
fastest
growing
SMEs
has
been
largely
export-driven.
Hence,
this
indicates
a
shift
from
the
traditional
reliance
on
the
domestic
market,
with
the
SME
sector
now
poised
to
enter
the
next
phase
of
international
expansion
and
capitalize
on
growth
opportunities
outside
the
Turkish
borders.
In
addition,
as
development
in
cities
like
Istanbul
and
Ankara
have
become
saturated
in
recent
years,
expansion
of
SMEs
into
the
new
industrial
cities
in
other
regions
of
Turkey
would
also
further
propel
the
growth
of
the
economy,
strengthen
key
sectors
and
stimulate
exploration
into
the
uncharted
territories
of
new
industries.
As
the
Turkish
SME
sector
continues
its
expansion,
it
is
essential
to
note
and
counter
the
limitations
arising
from
their
administrative
framework
and
the
traditional
mindsets
of
family-run
businesses.
With
improvements
to
these
key
weaknesses
and
further
efforts
to
encourage
the
pursuit
of
opportunities
for
SMEs,
the
Turkish
SME
sector
will
be
set
to
flourish
and
prosper
in
the
coming
years.
1
Credit
Guarantee
Credit guarantee is the guarantee that often provides for a specific remedy to creditor if his debtor does not return his debt. 2 Venture Capital Venture capital is financial capital provided to early-stage, high-potential, high risk, growth startup companies. The venture capital fund makes money by owning equity in the companies it invests in.
Sources: 1. Enhancing the competitiveness of SMEs in Turkey. (2012). KOSGEB. Retrieved from: http://www.comcec.org/UserFiles/File/%C3%BClkeraporlar%C4%B1/28_ised ak_%C3%BClke_rap/T%C3%BCrkiye.pdf 2. Enterprise and Industry: Fact sheet 2012 Turkey. (2012). European Commission. Retrieved from: http://www.comcec.org/UserFiles/File/%C3%BClkeraporlar%C4%B1/28_isedak_%C3% BClke_rap/T%C3%BCrkiye.pdf 3. Investment Climate Assessment: Enhancing regulatory capacity for better regulation. (2010). The Coordination Council for the Improvement of Investment Environment. Retrieved from: http://siteresources.worldbank.org/TURKEYEXTN/Resources/361711- 1291879250519/ICA2010_Chapter5-en.pdf 4. Kelly,Tom. (2013, April 26). SMEs must embrace the cloud to achieve global growth. The Guardian. Retrieved from: http://www.guardian.co.uk/media-network/media-network- blog/2013/apr/26/cloud-services-sme-businesses-growth 7 Copyright 2012 SMU Economics Intelligence Club
5. Mohapatra, Sanket., Ratha, Dilip. & Silwal, Ani. The Migration and Remittances Factbook 2011. (2011). Retrieved from: http://siteresources.worldbank.org/INTPROSPECTS/Resources/334934- 1199807908806/Singapore.pdf 6. SME Policy Index Western Balkans and Turkey. (2012). European Commission. European Bank for Reconstruction and Development. European Training Foundation. Organisation for Economic Co-operation and Development. Retrieved from: http://ccd.kosgeb.gov.tr 7. The new SME definition: User guide and model declaration. (2005). Luxembourg: Office for Official Publications of the European Communities. 8. Turkey Countries Network | Endeavor Global. (n.d.). Retrieved from: http://www.endeavor.org/network/countries/turkey/2 9. Turkey Improving Conditions for SME Growth Finance and Innovation. (2011). Document of the World Bank. Retrieved from: https://openknowledge.worldbank.org/bitstream/handle/10986/12211/NonAsciiFileNa me0.pdf?sequence=1
ASEAN will also stand to gain in many ways. Part of a strategy to strengthen ASEAN is to encourage investments in the region. By creating the E3, the US will encourage enhanced investments in the regions institutions. And with the support of the US, ASEANs heightened statue in forums such as the annual East Asian Summit (EAS) will reap benefits, allowing it the confidence necessary to pursue vital regional and global interests in maritime security, nuclear non-proliferation, energy security, food security, and global health. The ultimate achievement of ASEAN interests can potentially lead to enhanced regional stability. But the benefits to the marriage between the US and ASEAN with the E3 Initiative as the marriage proposal extend far beyond those listed above Not only will it allow the US an opportunity in shaping rules, norms and terms of engagement with one of the fastest rising regional economy in the world, but it will also allow the US an alternative economic mechanism that can complement the various weaknesses and arduous progress of the Trans-Pacific Partnership (TPP). Crouching Tiger, Hidden Dragon ( ): The Untapped Potential of ASEAN as a Global Economic Force Long hidden behind the shadows of India and China, ASEANs growing strategic relevance in the global economic arena can no longer be dismissed. The region boasts a combined GDP of 1.9 trillion, exceeding that of India; a population of 600 million people, which amounts to almost twice that of the US; and an average per-capita income mirroring Chinas. The region will rank as the fifth largest in Purchasing Power Parity2 (PPP) terms (Figure 1), and is one of the fastest growing developing economic regions globally, with growth rates far outstripping that of the Middle East and Latin America (Figure 2). And if India is touted to be a global economic giant, ASEANs GDP growth rate has already outperformed Indias (Figure 3). Figure 1: GDP in US dollar terms, adjusted for Purchasing Power Parity (PPP) exchanges rates (2010)
Source: UBS, UN, Haver ASEAN would also be the region most dependent on trade, with a trade-to-GDP ratio exceeding 150%, outperforming that of many other regions. And despite the Asian Financial Crisis, middle-income countries like Indonesia, Malaysia, the Philippines, and Thailand have averaged a remarkable 7% annual growth rate since 2000 Also notwithstanding the 2008 global financial crisis, the entire sub-region bounced back brilliantly to soar beyond the 8% growth rate mark. This therefore highlighted a region that is resilient to global economic shocks, with the ability to adapt wisely through rapid policy adjustments. Another avenue that might have piqued US interest on ASEAN lies in the regions strategic geographic location. The Malacca Straits is the worlds second busiest shipping channel after the English Channel, and the second most popular oil tanker route, after the Straits of Hormuz. The Malacca Straits is the passage to more than half of the worlds merchant fleet capacity annually, and disruptions in the straits would be catastrophic to global trade and US regional interest. And with the materialization of the ASEAN Economic Community (AEC) in 2015, ASEAN will become one of the most integrated economic regions in the world. 11 Copyright 2012 SMU Economics Intelligence Club
The
AEC
constitutes
an
initiative
to
achieve
the
economic
goals
set
under
the
umbrella
of
the
ASEAN
Community
Blueprint.
It
aims
to
establish
ASEAN
as
a
single
market
and
production
base,
a
region
fully
integrated
into
the
global
economy
that
also
achieves
equitable
economic
development
between
member
states,
thereby
turning
it
into
a
highly
competitive
economic
region.
And
apart
from
the
economic
benefits
derived
from
engagements
with
a
fast
rising
economic
region,
the
E3
Initiative
and
other
forms
of
ASEAN
public
or
private
sector
engagements
such
as
the
US-ASEAN
Business
Forum
and
the
US-funded
Maximizing
Agricultural
Revenue
through
Knowledge,
Enterprise
Development,
and
Trade
(MARKET)
Program
constitutes
a
hedging3
strategy
towards
the
slow
and
arduous
progress
of
the
TPP.
For
a
continuation
of
Kwan
Hongs
discussion
on
the
US
economic
legitimacy
in
ASEAN,
please
refer
to
next
weeks
publication.
1
ASEAN
The
Association
of
Southeast
Asian
Nations
(ASEAN)
is
a
geo-political
and
economic
organization
of
ten
countries
located
in
Southeast
Asia,
which
was
formed
on
8
August
1967
by
Indonesia,
Malaysia,
the
Philippines,
Singapore
and
Thailand.
2
Purchasing
Power
Parity
Purchasing
Power
Parity
asks
how
much
money
would
be
needed
to
purchase
the
same
goods
and
services
in
two
countries,
and
uses
that
to
calculate
an
implicit
foreign
exchange
rate.
3
Hedging
A
hedge
is
used
to
reduce
any
substantial
losses/gains
suffered
by
an
individual
or
an
organization.
Sources:
1. UBS
2. United
Nations
3. World
Bank
4. Haver
The S&P 500 is a free-float capitalization-weighted index published since 1957 of the prices of 500 large- cap common stocks actively traded in the United States. It has been widely regarded as a gauge for the large cap US equities market The MSCI Asia ex Japan Index is a free float-adjusted market capitalization index consisting of 10 developed and emerging market country indices: China, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan, and Thailand. The STOXX Europe 600 Index is regarded as a benchmark for European equity markets. It represents large, mid and small capitalization companies across 18 countries of the European region: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.
Correspondents : Vera Soh (Vice President, Publication) vera.soh.2011@economics.smu.edu.sg Singapore Management University Singapore Samuel Ong (Publications Director/ Editor) samuel.ong.2010@business.smu.edu.sg Singapore Management University Singapore Ng Yongxiang (Marketing Deputy / Writer) yx.ng.2011@accountancy.smu.edu.sg Singapore Management University Singapore Tan Kwan Hong (Writer) Undergraduate School of Economics Singapore Management University kwanhongtan.2009@economics.smu.edu.sg Tan Wei Zheng (Writer) Undergraduate School of Economics Singapore Management University weizhengtoh.2009@economics.smu.edu.s
Ng Jia Wei (Vice President, Operations) jiawei.ng.2012@economics.smu.edu.sg Singapore Management University Singapore Yingyu Zeng (Liaison Officer) yingyu.zeng.2010@economics.smu.edu.sg Singapore Management University Singapore Darren Goh Xian Yong (Editor) darren.goh.2010@business.smu.edu.sg Singapore Management University Singapore Tong Kah Haw (Writer) Undergraduate Lee Kong Chian School of Business Singapore Management University kahhaw.tong.2009@business.smu.edu.sg
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