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Regional Economic
Integration – Strategic role
          of the
    financial industry

             Dr Raymond Madden, CEO
             Asian Institute of Finance
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
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
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
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
Malaysia – Benefits from Regional
       Economic Integration

Investment
integration
  FDI flows from
  regional countries
  have increased




                                      6
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
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
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
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
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
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
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
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
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
Malaysia is home to 2nd & 3rd largest IPO,
after Facebook (USD16 billion)

 Felda: USD3.3 billion   IHH Healthcare: USD2 billion




                                                    17
Economic Corridors




                     18
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
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
To support the greater role of the financial
industry…….




…..requires coordinated talent development efforts

                                                     21
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
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
Talent Development: Holistic and
    Collaborative Approach




                                   24
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
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
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
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
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
THANK YOU




THANK YOU

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ADB 9th Oct

  • 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
  • 16.
  • 17. Malaysia is home to 2nd & 3rd largest IPO, after Facebook (USD16 billion) Felda: USD3.3 billion IHH Healthcare: USD2 billion 17
  • 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

Notes de l'éditeur

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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
  7. 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.
  8. 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.
  9. 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.
  10. 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.
  11. 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.
  12. 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).
  13. 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.
  14. 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.
  15. 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.