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Digital Economy has the Potential to Drive ASEAN Integration

MD Staff

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In a session on the emergence of the digital economy in South-East Asia at the 25th World Economic Forum on ASEAN, global and regional IT leaders said that countries in the region could miss out on major opportunities. They urged governments to collaborate on harmonizing regulations and liberalizing the sector.

“What is happening is that the uptake of digital services is going so fast and is bringing down borders between these different nations,” said Sigve Brekke, President and Chief Executive Officer of Norway’s Telenor Group. Telenor, among other investments in the region, holds a mobile operator’s licence in Myanmar. “But I don’t see ASEAN countries taking part in this. I am afraid that ASEAN is losing out. There are too many big words about digital opportunities, but I don’t see the action,” Brekke added.

In addition to coordinating policy frameworks, the region needs to foster start-ups and create products to meet the demand for digital services, Brekke continued. Local content could include information for farmers, which would allow them to cut out middlemen, and for use in education. Cashless payment systems should also be possible. Brekke’s message to policy-makers was: “The revolution is coming extremely fast. There are great opportunities for ASEAN companies to take charge of the future. Get your act together – the sooner the better.”

There are indications that ASEAN countries are waking up to the opportunities of the digital economy and the priorities for achieving it. “For many years, South-East Asia has had an insecurity complex relative to China and India,” said Nick Nash, Group President of Garena in Singapore. “But we are beginning to see home-grown companies. On the one hand, I appreciate the need for the proverbial kick in the pants, but there are rays of light.” He added: “There really is strong potential here if we build it the right way.”

Nash noted that countries in the region, notably Singapore and Thailand, have bolstered their educational institutions. “We are improving from a human capital standpoint. That is a strong check mark.” In addition, some countries have been implementing pro-growth IT policies. Vietnam has kept IT costs low, significantly boosting the proliferation of smartphones – an example of “how a lower-income country can get this policy right”. According to Nash, another challenge ASEAN economies need to address is the liberalization of foreign ownership limits.

“No matter how you define the digital economy, government and policy play an important role” in making it happen, Yasmin Mahmood, Chief Executive Officer of the Malaysia Digital Economy Corporation (MDEC), noted. While the Fourth Industrial Revolution will be driven by business, she observed, young people in South-East Asia, where 40% of the population is below 30 years old, will be creating the innovations from the cutting-edge technologies. Government policy has to focus on schools and invest in education to turn young digital natives into digital producers, Yasmin stressed. Inclusion is important. But this does not just involve access to the internet; it also entails delivering faster transmission speeds. According to Emirsyah Satar, Chairman of the Indonesian e-commerce group Matahari Mall, a user in Papua New Guinea downloads files 25 times more slowly than someone in Jakarta. “That is the challenge for the government.”

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Modi’s India a flawed partner for post-Brexit Britain

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With just two weeks to go until Britain is scheduled to exit the European Union, Boris Johnson and his ministers are understandably focused on the last-minute dash to formulate a workable Brexit deal with the EU. Once this moment has passed, however, either Johnson or whoever replaces him as PM will come under intense pressure to deliver the trade deals Brexit side supporters have so talked up since 2016.

One such envisaged deal is with India. Seven decades after securing independence from Britain’s colonial empire, New Delhi has the world’s seventh-largest economy and one of its fastest growth rates. The prospect of deeper trade ties with Asia’s third-largest economy has been a major feature of the pitch for a “Global Britain” that extends the UK’s reach beyond the continent, and Johnson himself made a big thing of expanding economic ties with India while campaigning to become PM.

Unfortunately, any plans to kickstart trade agreements with India will run into problems, and not just over immigration and visa issues. India is on the verge of a serious economic downturn, hit by job losses and decreasing levels of foreign investment. With growth slowing down, Indian PM Narendra Modi has fallen back on his aggressive brand of Hindu nationalism to galvanise public support, a gambit that has most recently resulted in his government’s controversial move to strip automony from Kashmir.

Bad time for a UK-India trade deal

Whereas only a few years ago India was held up as one of the world’s fastest growing economies and an enticing prospect for global trade and investment, Moody’s new projection of a 5.8% growth rate represents a danger to Narendra Modi’s promise of a $5 trillion economy. Recently released figures show India’s GDP growth falling for the fifth successive quarter, to a six-year low of 5.2%.

India’s economic woes are reflected in patterns of foreign investment. Around $45 billion has been invested in India from abroad over the last 6 years. The downturn in the country’s economic fortunes has seen a record $4.5 billion of shares sold by foreign investors since June this year. These economic problems are linked to Modi’s failure to carry through on economic reforms promised when he came to power in 2014, when a number of structural problems were seen as inhibiting external trade relationships.

India currently has over 1,000 business regulations and more than 3,000 filing requirements, as well as differing standards for social, environmental and human rights. These have been sticking points in the moribund trade deal negotiations between India and the EU, and Brexit advocates have not explained how they plan to overcome these hurdles.

Hostility to foreign companies

Structural issues are only part of the problem. Another key concern is the Indian government’s adversarial attitude towards foreign investors. Despite Modi’s promises to make India an attractive place to do business, his government has continued protectionist policies that throttle the country’s ability to attract outside capital.

One issue is retrospective taxation. Under Modi’s predecessor, Manmohan Singh, several British and international firms were hit with sizeable, legally dubious tax bills by the Indian government. Modi came to power on a promise of ending retrospective tax bills being imposed on overseas companies, and yet British firms such as Vodafone and Cairn Energy still find themselves pursued through the courts for back-dated tax bills, despite the protections they should enjoy under the bilateral investment treaty between India and the UK.

Vodafone’s case involved its 2007 acquisition of a stake in cellular carrier Hutchinson Essar. While the deal did not take place in India, New Delhi determined Vodafone still owed $5 billion in taxes on the overseas transaction. After the Indian Supreme Court dismissed the claim in 2012, India’s previous government introduced a new law to tax transactions of this nature that retroactively applied to cases going back to 1962. Modi attacked this “tax terrorism” at the time, but his government has continued its dogged pursuit of Vodafone in the courts.

Cairn Energy has faced an equally arduous struggle with the Indian Ministry of Finance, which in 2014 blocked the British firm from selling its 10% stake in Cairn India and subsequently demanded $1.6 billion in taxes. Indian officials used the 2012 law to justify their actions, violating the bilateral investment treaty and breaking one of Modi’s own campaign promises in the process.

Immigration laws a further sticking point

This recent history should already give British businesses pause, but the most obvious obstacle in any trade negotiations between UK and India will be the issue of immigration. The Centre For European Reform has argued post-Brexit trade will be closely linked to opening up UK borders to workers from partner countries, but a UK Commons Foreign Affairs Select Committee report in June highlighted how Britain’s immigration restrictions on Indian workers, students and tourists has already impacted bilateral trade relations. The report noted how the UK has slipped from being India’s 2nd largest trade partner in 1999 to 17th in 2019, adding that skilled workers, students and tourists are deterred from coming to the UK by the complicated, expensive and unwelcoming British migration system.

It is unlikely the Modi government will agree to any UK-India trade deal that doesn’t guarantee a relaxing of immigration rules that will allow a free flow of people as well as goods and capital between the two countries. The question is whether the British government, which has veered ever more closely towards a Brexit-fuelled populism at odds with relaxed border controls, will be flexible enough to sign up to this.

Given these issues, are Britain’s hopes for a post-Brexit dividend in Indian trade dead on arrival? Unless Modi’s government starts living up to international standards and honouring his country’s investment agreements with British companies, “Global Britain” may not get much further with India than it has with the US.

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A more effective labour market approach to fighting poverty

Cynthia Samuel-Olonjuwon

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Gainful employment is still the most reliable way of escaping poverty. However, access to both jobs and decent working conditions remains a challenge. Sixty-six per cent of employed people in developing economies and 22 per cent in emerging economies are in either extreme or moderate working poverty, and the problem becomes even more striking when the dependents of these “working poor” are considered.

Thus, it is not just unemployment or inactivity that traps people in poverty, they are also held back by a lack of decent work opportunities, including underemployment or informal employment.

Appropriate labour market policies can play an important role in the fight to eradicate poverty, by increasing access to job opportunities and improving the quality of working conditions. In particular, labour market policies that combine income support for jobless people with active labour market policies (ALMPs).

The new ILO report What works: Promoting pathways to decent work  shows that combining income support with active labour market support allows countries to tackle multiple barriers to decent work. These barriers can be structural, (e.g. lack of education and skills, presence of inequalities) or temporary (e.g. climate-related shocks, economic crises). This policy combination is particularly relevant today, at a time when the world of work is being reshaped by global forces such as international trade, technological progress, demographic shifts and environmental transformations.

Policies that combine income support with ALMPs can help people to adjust to the changes these forces create in the labour market. Income support ensures that people do not fall into poverty during joblessness and that they are not forced to accept any work, irrespective of its quality. At the same time, ALMPs endow people with the skills they need to find quality employment, improving their employability over the medium- to long-term.

New evidence gathered for this report shows that this combination of income support and active support is indeed effective in improving labour market conditions: impact evaluations of selected policies indicate how people who have benefited from this type of integrated approach have higher employment chances and better working conditions.

One example of how this combined approach can produce results is the innovative unemployment benefit scheme unrolled in Mauritius, the “Workfare Programme”. This provides workers with access to income support and three different types of activation measures; training (discontinued in 2016), job placement and start-up support. The programme was also open to those unemployed people who were previously working in an informal job. By extending coverage to the most vulnerable workers, the scheme has helped reduce inequalities and unlock the informality trap.

Another success came through a public works scheme implemented in Uruguay as part of a larger conditional cash transfer programme, the National Social Emergency Plan (PANES). The programme was implemented during a deep economic recession and carefully targeted the poorest and most vulnerable.

Beneficiaries of PANES were given the opportunity to take part in public works. In exchange for full-time work for up to five months, they received a higher level of income support as well as additional job placement help. This approach reached a large share of the population at risk of extreme poverty and who lacked social protection. The report indicates that providing both measures together was critical to the project’s success.

The effects of these policies on poverty eradication cannot be overestimated. By tackling unemployment, underemployment and informality, policies combining income support with ALMPs can directly affect some of the roots of poverty, while enhancing the working conditions and labour market opportunities for millions of women and men in emerging and developing countries.

ILO

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CPEC vs IMF in Pakistan

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International Monetary Fund (IMF) was created just after World War II (WWII) in 1945. The IMF is an organization of 189 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

Pakistan has been knocking doors of IMF since 1958, and it has been 21 agreements with IMF. Generally, the IMF provides loans at very low-interest rates and provides programs of better governance and monitoring too. But for the last 6 decades, Pakistan has suffered a lot, in terms of good governance. Especially last 2 decades, corruption, nepotism, poor planning, bribery, weakening of institution, de-moralization of society, etc were witnessed. We may not blame the IMF for all such evils but must complain that the IMF failed to deliver, what was expected. Of course, it is our country, we are responsible for all evils, and wrongdoings happened to us. We have to act smartly and should have made the right decision and at right times.

IMF also dictates its terms and condition or programs like: devaluation of local currencies, which causes inflation and hike in prices, cut or draw-back of subsidies on basic utilities like fuel, gas, electricity, food, agriculture etc, which causes cost of life rather higher for local people, cut on development expenditures like education, health, infrastructure, and social development etc, which pushes the country even more backward. IMF focusses only on reducing expenditures and collection of taxes to make a country to meet the deadlines of payments. IMF does not care about the development of a country, but emphasizes tax collections and payment of installments on time, to rescue a country from being a default.

While CPEC is an initiative where projects are launched in Power Generation, Infrastructure development under the early harvest program. Pakistan was an energy trust country and facing a severe shortage of Electricity. But after completion of several power projects under CPEC, the shortfall of electricity has been reduced to a great extent. One can witness no load shedding today, while, just a few years back the load shedding was visible throughout the country for several hours a day. Several motorways and highways have been completed. Gwadar port has been operational partially. Infrastructure developments are basic of economic activities.

Projects under CPEC has generated jobs up to 80,000. CPEC was the catalyst to improve GDP by around two percent during 2015-2018. CPEC has lifted the standard and quality of life of the common man in Pakistan. CPEC was instrumental to move the economic activities and circulation of wealth in society. Under CPEC, early harvest projects, 22 projects have been completed at the cost of approximately 19 billion US dollars.

It is understood that early harvest projects were heavy investment and rather slow on returns. But, these projects have provided a strong foundation for the second phase, where Agriculture, Industrialization and Social Sector will be focused. Return on Agriculture and Industrial produce is quick and also generates more jobs. The second phase will contribute toward the social development of Pakistan as well as generate wealth for the nation.  Pakistan’s agriculture sector has huge potential as cultivatable land is huge, workforce is strong and climate is favorable.  Regarding Industrialization, Pakistan is blessed with an abundance of mines and minerals. The raw material is cheap and the labor cost is competitive. Pakistan has 70% of its population under the age of 40 years, which means an abundance of the work force. Pakistan’s domestic market is 220 million and the traditional export market is the whole of the middle-east and the Muslim world.

The major difference between the CPEC and IMF is that CPEC generates wealth, while IMF focuses on tax collection and reducing the developments and growth. China is the latest model of developments in the modern days, China is willing to replicate its experience with Pakistan for its rapid development.

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