The role of the private sector in regional cooperation
With the private sector’s vital role in building regional cooperation now accepted as conventional economic wisdom, governments are focusing their efforts on providing the necessary legislative and regulatory frameworks to help businesses move trade and investments across borders. These initiatives, however, must strike a balance with the public sector’s long-term responsibilities to the people.
A new economic reality in the ASEAN age
Minister of Finance of Indonesia, HE Sri Mulyani Indrawati, cited the Association of Southeast Asian Nations (ASEAN) as a stellar example of how governments and businesses could collaborate to boost regional prosperity. “The ASEAN economy is growing significantly and has doubled from USD 1.3 trillion in 2007 at the start of the ASEAN economic community blueprint to USD 2.6 trillion today,” she said. “The share of world investment flowing into the region has also grown, creating huge opportunities for member-countries and boosting confidence in this vibrant region.”
A successful economic platform like ASEAN and its ability to create prosperity for its member-countries is becoming more significant as recent global scepticism around the feasibility of regional cooperation within the European Union is rising.
Sri Mulyani said good cooperation between the public and private sectors is needed not only to expand and integrate tangible infrastructure such as roads and ports, but also for “soft” infrastructure related to policies and regulation of merchandise and people.
In Africa, ECOWAS leads the way
An example of a successful platform for regional cooperation in Africa is The Economic Community for West African States (ECOWAS). HE Prof Dato’ Dr Koutoub Moustapha Sano, Minister of International Cooperation of Guinea, said that while ECOWAS began as a regional grouping to strengthen cooperation and deal with shared problems, it is now benefiting the private sector to take root and thrive across the member-countries.
The grouping mitigates the impact of multiple systems of protocols and procedures, for example, and facilitates travel for members of local business communities within member-countries. Sano said the grouping has been so successful that it now serves as a model for the rest of the continent. “The ECOWAS economy, with a population of around 400 million or 600 million, is prospering. The GDP growth for this ‘country’ is about 4.6 percent to 5.6 percent per year. It is one of the fastest growing economies in Africa,” said Dr Koutoub. The grouping aims to develop further to become more than just ECOWAS of states but ECOWAS of people, where solutions to shared problems will be addressed and will not need to go primarily through political mechanisms. Only then, he said, would integration become real.
“ECOWAS taught us that we have to work hand-in-hand—we face the same problems and we have the same objectives and agenda of development,” he said. “The private sector will prosper once democratic institutions are working, so that the rights of people are protected and security is provided.” HE Aisha Abubakar, Minister of State for Industry, Trade and Investment of Nigeria, added that ECOWAS allowed the private sector to increase efficiency in member-countries’ management of resources, implementation of projects and ability to source for funds from different avenues.
She said these sources included the Ecobank, which is in most West African countries as well as other African countries outside ECOWAS, and the African Development Bank, which has partnered with the private sector to provide funding, particularly for infrastructure projects. The African Union meanwhile, provides consultancy services while the Dangote Group, one of the largest conglomerates in West Africa, has now established itself in some 14 African countries.
Having this multiplicity of funding sources, she said, is especially important in West Africa where infrastructural deficiencies still affect the movement of goods, services and people. “When you belong to a body like ECOWAS, it stands as a credit guarantee for you. When you are coming from some distance away, it is easier for you to open doors,” she said.
The experience of an island state
HE Kabir Hashim, Minister of Public Enterprise Development of Sri Lanka, said his Government’s efforts to engage with the private sector lay in the recognition of its key role in economic growth and regional cooperation. “The World Bank reports that 90 percent of employment that is generated in the world is through the private sector,” he said, “and if you look at most of our countries,
the SME sector contributes to over 80 percent of GDP. Most often, over 60 percent of the workforce is employed by the SME sector.”
The private sector, therefore, could open the door to new markets, new technology, job creation and the provision of better service delivery. To maintain the country’s current GDP growth rate of eight percent per annum, the Government recognised that investment levels needed to climb, which it hoped the private sector could assist with.
One way of helping the private sector strengthen regional cooperation was to formalise bilateral and multilateral agreements with other countries beyond the Government sphere. “It should not just take place at the government level but also with the chambers of commerce and business associations of different countries. They should formally engage in identifying cross-border opportunities,” he said.
He said while there were a raft of regional agreements, such as the South Asian Free Trade Area (SAFTA) and the Transatlantic Free Trade Area (TAFTA), they had their limitations: “Sometimes it did not get implemented to its fullest extent, probably because nations feared sometimes to trade with each other. In competition there are winners and losers.”
In light of this, members of the business community made the best ambassadors for their respective countries because they became familiar with the cultures and business environments of other nations: “They have been surviving without any formal agreements, so imagine how you can increase the potential if you have formal agreements in place.”
To supplement these private business activities, the Sri Lankan Government was looking into establishing mechanisms such as non-tariff barriers and identifying avenues for free trade. Kabir said his country was also opening its market despite the inherent risks involved: “Even if there are winners and losers in regional cooperation, there are always opportunities for each country to exploit a potential market and vice-versa. Then you will find that the most competitive businesses in your country will survive.”
Kabir said Sri Lanka was intent on maintaining its healthy rate of GDP growth—which has been at 8 percent per year—and was looking into increasing its current level of investment from 28 percent to 35 percent to accomplish this. Without public investments and government funding, however, Sri Lanka is aiming for that money to come from the private sector in the form of foreign direct investment.
Private sector leadership in halal tourism
Riyanto Sofyan, Chairman of the Halal Tourism Team in the Ministry of Tourism of Indonesia, said the Indonesian Government is encouraging local businesses to take a leading role in helping the country capture a share of the burgeoning halal tourism industry.
The size of the global market and its projected growth, he said, explained the Government’s ambitions: “With 1.6 billion Muslims in 57 Organisation of Islamic Cooperation (OIC) countries and 350 million in non-OIC countries, the GDP is about USD 7.7 trillion. Muslims make up the third largest economy in the world. It is projected that the number of Muslim travellers or tourists will grow at about 9 percent per annum, from 112 million Muslim travellers in 2014 to 180 million in 2020.”
He said the Government is also striving to play an effective supporting role to assist the private sector, through developing joint packages for family-friendly travel services; cross-selling among countries within the region; expanding accessibility through air, water and land transportation services and providing capacity-building and training programmes within ASEAN.
“We have cooperated with Malaysian tourism for the joint packages and will expand them to other ASEAN countries. We also have standards of Mutual Recognition of Agreement, which will make the flow of tourism professionals within the region easier,”
How can business climates and therefore national progress be encouraged in periods of political uncertainty?
Aisha Abubakar: In terms of leadership in Nigeria, we have continued the policies that were implemented in previous administrations. We realised that changing strategies that have been put in place deter the growth of a country, and we are determined to have economic growth and to diversify our economy. We are continuing with all policies just to ensure continuity, as well as the execution and completion of a number of projects that have been abandoned.
With regard to the labour market, what standards help to drive economic growth while ensuring fair labour practices?
You need to have legislation and regulations in your country to ensure best labour practices but that alone doesn’t prevent labour exploitation. Now the demand is also being set through the market itself,
as products that are not made in an environment that is governed by proper labour rights are boycotted. There is a strict monitoring system in most export markets. It has to evolve within countries through regulatory frameworks and via the countries that import the products. Exploitation continues in many fields, such as with migratory labour in the Middle East and other parts of the world, so they must be handled between countries.
Aisha Abubakar: There are certain laws, for example in Nigeria, where you have to make a pension contribution if you have more than five employees. It is a dicey issue because then you are passing on some cost to the employer. But there is some kind of protection and incentive if you employ a great number of people because job creation is one of the foremost challenges we are facing. We have the Nigeria Social Insurance Trust Fund or NSITF and the pension contribution tax which is paid on behalf of staff.
How keen are governments for the private sector to invest?
Sofyan: With tourism in Indonesia, we need to first develop the attractions and amenities such as hotels, restaurants, spas and other facilities. All of this has to be supplied by the private sector. This is why we are serious about encouraging the private sector to lead the development of the industry. The Government can support the provision of accessibility, so there can be a private and public partnership. One of the things that the Government can do to encourage the private sector to invest is to provide tax amnesties.
What is the private sector’s role in developing science and technology?
Research and development is a critical component for developing businesses and growth, but investment in R&D in developing countries, especially in the African and Asian regions, is very low. In terms of innovation and technological development, we are left far behind high-growth countries, where government investment in R&D has been high.
Scientific knowledge and R&D is something the private sector does much better. Private sector finds innovation and new technology because they have to be competitive. Governments all over the world are definitely supporting the private sector wherever they are willing to spend money on technology, and in some countries governments are subsidising private sector investments in technology.
Aisha Abubakar: Research and development is a very important area to have private sector investments in because it costs a lot of money, resources and energy. Governments, especially in the Third World, are enablers. We need the private sector to do what it does best, which is to make investments and profits. The best way to go is to have huge investments in R&D, including through prizes, scholarships and exchange programmes.
Sofyan: In the tourism industry, R&D is one of the most important things that we have to do, but industry players have to collaborate with the government. That is why the Ministry of Tourism has established the Institute of Tourism, Tourism Institutes, the Polytechnic of Tourism and the University of Tourism. In this way
we encourage research into the improvement of tourism products, especially how to serve travellers.
The private sector can play a significant role but this has to be facilitated by the government.
This report is based on a session from the 12th World Islamic Economic Forum.