Economic Diversification
The Road to Sustainable Development
A strong, growing, sustainable economy is the goal of every nation in the world. A sustainable economy enhances a nation’s standard of living by creating wealth and jobs, encouraging the development of new knowledge and technology, and helping to ensure a stable political climate. A diverse economy—that is, one based on a wide range of profitable sectors, not just a few—has long been thought to play a key role in sustainability.
Our recent research study confirms that this is indeed the case. There is a demonstrable link between economic diversity and sustainability, and diversification can reduce a nation’s economic volatility and increase its real activity performance.
This study grew out of our work helping Middle East governments, particularly those in the Gulf Cooperation Council (GCC), formulate their economic development strategies and agendas for transformation—their transitions from economies based on a single commodity to robust, well-diversified economies. These countries, rich in hydrocarbons and heavily invested in oil and gas, face a particularly daunting challenge in diversifying. It was important to determine just how critical economic diversity was to the creation of their sustainable economies.
Evaluating economic diversification
To make that determination, we broadened our focus beyond the Middle East region and scrutinized 19 countries with varying levels of economic maturity to assess their economic diversification, volatility, and health.
Our initial analysis of economic diversification involved the GCC; the Group of Seven (G7) nations (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States); and what we termed transformation economies, those that became industrialized nations in the latter half of the 20th century (Hong Kong, Ireland, New Zealand, Norway, Singapore, and South Korea). Three key findings emerged:
GDP should be distributed across economic sectors. We determined a “concentration ratio” and a “diversification quotient.” Concentration ratio measures a nation’s concentration in a given sector. The diversification quotient is the inverse of the concentration ratio, providing a metric that policymakers can use to gauge economic diversity. The lower the concentration ratio and the higher the diversification quotient, the more diversified a nation’s economy.
Concentration is not inevitable in hydrocarbon-rich economies. Abu Dhabi has a high concentration ratio: It drew 59 percent of its 2005 GDP from oil and gas, and growth in non-oil sectors continued to lag. However, other oil-rich countries have deliberately lowered their concentration ratio: Only 5 percent of Dubai’s GDP, for example, came from the oil and gas sector in 2005, and Canada’s oil and gas trade represents just 4 percent of its GDP.
Labor distribution should support growth. Employment distribution generally reflects and shapes GDP distribution across sectors. In the GCC, employment is distributed unevenly, compared to G7 and transformation economies. The oil and gas sector, producing 47 percent of GCC countries’ GDP, provides work for only 1 percent of the employed population. Government services constitute around 20 percent of total GCC employment. A majority of workers are laboring in sectors that support other economic sectors, rather than driving growth.
Evaluating economic sustainability
Through further analysis of productivity; competitiveness; and the relationship of economic volatility to concentration, employment, and economic performance, we determined that there was a statistically significant relationship between economic diversification and sustainability. Specifically, we found that:
Poor economic diversity is linked to low productivity and competitiveness.
High economic concentration leads to volatile growth and fluctuating economic cycles.
Volatility in concentrated economies may spawn structural unemployment issues and engender systemic risks.
External trade (exports of goods and services) helps reduce economic volatility.
Recommendations for policymakers
Economic diversification is measurable, monitorable, and now known to be a critical component of a sustainable economy. But policymakers who decide to increase diversification have their work cut out for them. They must keep economic diversification front and center when creating development agendas, and must rigorously measure and monitor economic diversity in evaluating the success of their policies. Policymakers should:
Diversify economic bases’ output and input distributions. Stakeholders should encourage the movement of labor and capital into productive economic sectors, as well as the development of new knowledge and technology.
Foster the growth of the external sector by exporting a wide range of high-value-added goods and services internationally.
Enhance the productivity and competitive levels of the economic base through resources and strategic investments, including enhancing human and financial capital, technology, and knowledge to entrench innovation. Innovation allows economies to create economic value from scratch.
Use the metrics of economic concentration and diversification, as well as economic sustainability and uncertainty, as targets when determining policy.
Create clear diversification strategies and mechanisms to mitigate economic volatility and spillover effects, uncertainty, and perturbed business cycle transitions.
Our findings provide a firm reminder to policymakers worldwide that a key to building a strong, sustainable economy is building a diversified economy—one that is not overly dependent on a single commodity and that has a strong external as well as internal focus.
Taking the steps outlined in this study will help policymakers create long-term, sustainable growth. In so doing, they will ensure stability and a high standard of living for their nations.
Copyright 2008 Booz Allen Hamilton Inc. All rights reserved.
"Booz & Company" and "booz&co." are service marks of Booz Allen Hamilton Inc.
Thursday, February 28, 2008
Wednesday, February 27, 2008
Skills development, private-public partnership vital for Brunei ICT growth
Skills development, private-public partnership vital for Brunei ICT growth
SOBRINA ROSLI
BANDAR SERI BEGAWAN
Wednesday, February 27, 2008
BRUNEI's ICT industry is foreseen to grow further during the next few years, subject to proper collaboration efforts, local companies initiative to expand and the nurturing of local ICT skills and expertise.
At a dialogue session between the Prime Minister's Office and the local ICT industry held yesterday,
Pengiran DP Ismail Mohamed, permanent secretary of the Prime Minister's Office told The Brunei Times that though local ICT companies could build upon opportunities offered through the E-government initiative, companies need to also play a role and be more proactive in achieving growth through other areas.
"The prospect of Brunei's ICT industry looks good for the next 3 to 5 years...however the companies must not only look for projects on the government sector alone.They must also be proactive in terms of positioning themselves outside the government industry as well as outside Brunei," he said.
By going regional or even international, they would enrich their experiences and knowledge.
"Companies which are proactive can position themselves in any environment in the competitive world...what is important is the self-motivation and an urge to grow and prosper," he added.
He highlighted government initiative to support local ICT companies such as through the Ministry of Industry, Primary and Resources (MIPR) and the i-Centre of the Brunei Economic Development Board but reminded that such services only provide basic fundamentals and knowledge and that ICT is up to the companies to strive.
Human resources in the field of ICT is also an area of concern for Brunei and efforts are being made to address the issue.
Pengiran Mohammad Pg Kamaluddin, chairman of InfoCom Federation Brunei(IFB) said that non-profit organisation can have a role in developing human resources.
"The main challenge is how they want to implement ICT infrastructure and the human resources development, human resource development covers many areas from specialised skills set to end users at a globally accepted scale...because there is quite a large number to cover, IFB can only play a role in development of specialised ICT skills as well as general ICT end users" he said.
Haslina Taib, the chief financial officer at BAG Networks stressed the need for the continuous training of Brunei's graduates within and outside the country.
"They can be exposed to other management skills and business processes in a different environment, you do need to keep educating and training these human resources," she said.
She said dialogues sessions between relevant agencies and the local ICT industry are very important.
The Brunei Times
SOBRINA ROSLI
BANDAR SERI BEGAWAN
Wednesday, February 27, 2008
BRUNEI's ICT industry is foreseen to grow further during the next few years, subject to proper collaboration efforts, local companies initiative to expand and the nurturing of local ICT skills and expertise.
At a dialogue session between the Prime Minister's Office and the local ICT industry held yesterday,
Pengiran DP Ismail Mohamed, permanent secretary of the Prime Minister's Office told The Brunei Times that though local ICT companies could build upon opportunities offered through the E-government initiative, companies need to also play a role and be more proactive in achieving growth through other areas.
"The prospect of Brunei's ICT industry looks good for the next 3 to 5 years...however the companies must not only look for projects on the government sector alone.They must also be proactive in terms of positioning themselves outside the government industry as well as outside Brunei," he said.
By going regional or even international, they would enrich their experiences and knowledge.
"Companies which are proactive can position themselves in any environment in the competitive world...what is important is the self-motivation and an urge to grow and prosper," he added.
He highlighted government initiative to support local ICT companies such as through the Ministry of Industry, Primary and Resources (MIPR) and the i-Centre of the Brunei Economic Development Board but reminded that such services only provide basic fundamentals and knowledge and that ICT is up to the companies to strive.
Human resources in the field of ICT is also an area of concern for Brunei and efforts are being made to address the issue.
Pengiran Mohammad Pg Kamaluddin, chairman of InfoCom Federation Brunei(IFB) said that non-profit organisation can have a role in developing human resources.
"The main challenge is how they want to implement ICT infrastructure and the human resources development, human resource development covers many areas from specialised skills set to end users at a globally accepted scale...because there is quite a large number to cover, IFB can only play a role in development of specialised ICT skills as well as general ICT end users" he said.
Haslina Taib, the chief financial officer at BAG Networks stressed the need for the continuous training of Brunei's graduates within and outside the country.
"They can be exposed to other management skills and business processes in a different environment, you do need to keep educating and training these human resources," she said.
She said dialogues sessions between relevant agencies and the local ICT industry are very important.
The Brunei Times
Wednesday, February 13, 2008
Food security, safety gains importance
Food security, safety gains importance
HADTHIAH PD HAZAIR
BRUNEI-MUARA
Wednesday, February 13, 2008
THE newly approved national development plan (NDP) 2007-2012, which has allocated $101 million for the agriculture department, will ensure increased efforts for Brunei to remain relatively unfazed should there interruptions to its food supply chain.
According to a statement released by the department, its plan includes concentrated efforts on the nation's food security programme and food safety. Stringent food safety measures will ensure that Brunei lives up to international standards and increase its export capabilities.
"By increasing our food security level, we are ensuring that food will remain available, edible and accessible to the citizens of Brunei," an official from the department explained to The Brunei Times.
"The agriculture department has already started its food security programme since the last decade," the statement reported.
Since then, Brunei has managed to attain 100 per cent food self-sufficiency in eggs and broilers.
However, according to a representative from the department, "it is not viable for Brunei to be self-sufficient in all commodities for reasons such as cost of producing and geographical aspects".
Statistics for the first quarter last year show that rice production too has increased. Other commodities that are being looked into in the food security programme are cattle, vegetables and processed foods.
In 2006, the agriculture sector contributed $58.4 million to the nation's gross domestic products (GDP), with a total production output of almost $172 million. By the first quarter last year, the sultanate recorded an 85 per cent self-sufficiency in local vegetables, and 33 per cent in tropical fruits.
With the extra emphasis on food security in the NDP 2007-2012, it is hoped that this sector would not only increase food self-sufficiency, but also cash in a lot more towards Brunei's GDP.
At the same time, the agriculture department will be undertaking food safety programmes. Projects will include the establishment of the Brunei Agricultural Laboratory Centre for livestock and crops
This will ensure that local produce remain safe for consumption. "Laboratory examinations on the health of farm animals and the safety of local crops and vegetables will be observed," the statement highlighted. The objective is to gain international standards and boost the sultanate's export potential.The Brunei Times
HADTHIAH PD HAZAIR
BRUNEI-MUARA
Wednesday, February 13, 2008
THE newly approved national development plan (NDP) 2007-2012, which has allocated $101 million for the agriculture department, will ensure increased efforts for Brunei to remain relatively unfazed should there interruptions to its food supply chain.
According to a statement released by the department, its plan includes concentrated efforts on the nation's food security programme and food safety. Stringent food safety measures will ensure that Brunei lives up to international standards and increase its export capabilities.
"By increasing our food security level, we are ensuring that food will remain available, edible and accessible to the citizens of Brunei," an official from the department explained to The Brunei Times.
"The agriculture department has already started its food security programme since the last decade," the statement reported.
Since then, Brunei has managed to attain 100 per cent food self-sufficiency in eggs and broilers.
However, according to a representative from the department, "it is not viable for Brunei to be self-sufficient in all commodities for reasons such as cost of producing and geographical aspects".
Statistics for the first quarter last year show that rice production too has increased. Other commodities that are being looked into in the food security programme are cattle, vegetables and processed foods.
In 2006, the agriculture sector contributed $58.4 million to the nation's gross domestic products (GDP), with a total production output of almost $172 million. By the first quarter last year, the sultanate recorded an 85 per cent self-sufficiency in local vegetables, and 33 per cent in tropical fruits.
With the extra emphasis on food security in the NDP 2007-2012, it is hoped that this sector would not only increase food self-sufficiency, but also cash in a lot more towards Brunei's GDP.
At the same time, the agriculture department will be undertaking food safety programmes. Projects will include the establishment of the Brunei Agricultural Laboratory Centre for livestock and crops
This will ensure that local produce remain safe for consumption. "Laboratory examinations on the health of farm animals and the safety of local crops and vegetables will be observed," the statement highlighted. The objective is to gain international standards and boost the sultanate's export potential.The Brunei Times
Sunday, February 3, 2008
Many Bruneians continue to live in debt
Many Bruneians continue to live in debt
Spending spree: Financial experts have stated that most loans taken out by Bruneians are used to finance consumption activities rather than productive investments. Picture: Bt file photo
DEBBIE TOO
BRUNEI-MUARA
Sunday, February 3, 2008
AFTER the personal loan capping directive, personal loan applications are decreasing. Of the total loans, around 61 per cent were under the category of personal loans, which indicates that most of the loans (close to $6 billion by end of 2005) were used to finance consumption activities rather than going into productive investments. The amount of loans increased by $2 billion from 2001 to close to $6 billion.
On May 16, 2005, the Ministry of Finance issued a personal loan capping directive to the Brunei Association of Banks (BAB).
The objectives of the directives is to reduce the level of personal debts, to promote savings culture and to boost financing to the private sector.
"Before the loan capping directive, it was very easy to apply for a loan, they could loan up to 36 times their salary and the repayment period could go on till their retirement age, but now after the capping, they could only loan up to 12 times their salary and they have a repayment period of not more than six years," said Siti Mas Haji Matasim, a personal banker from HSBC.
She added that the capping directive limited the amount of the loans applied did affect the number of applications.
"Now we get only about two to three loan applications per month," she said.
However, she added that there is no specific age group that applies for loans more than others.
"There will always be people applying for loans, from different generations, you have the fresh graduates, newlyweds, and for the older generation, they would apply for a personal loan for maybe their children's studies, and so on," she said.
"We do not ask them specifically what they apply the loan for, as it is not necessary," she went on to explain.
Baiduri Bank's personal financial planner, Norasfarina Kamarudin said that from Baiduri Bank, there are more locals that apply for personal loans than foreigners.
She added that the criteria for foreigners and locals are different where the foreigners are offered to loan up to four times their salary as compared to locals, who can loan up to 12 times their salary.
When asked whether the personal loans are used for business purposes or to help finance their consumption activities, she replied that there were a number of personal reasons that people took personal loans for.
"Some use it pay off their credit cards, some of the use it for weddings, home renovations, but most of it are more for consumption activities," she said.
She added that some customers have applied for loans from other banks as well.
"One of the criteria from the new directive is that the customer's salary has to be banked into the bank that he or she is applying a personal loan from, but some people move their salary to other banks to apply for loans there as well," she said.
Both personal bankers added that whether it is credit cards or home loans or personal loans, most of the banking clients are still in debt to the bank.
The Brunei Times
Spending spree: Financial experts have stated that most loans taken out by Bruneians are used to finance consumption activities rather than productive investments. Picture: Bt file photo
DEBBIE TOO
BRUNEI-MUARA
Sunday, February 3, 2008
AFTER the personal loan capping directive, personal loan applications are decreasing. Of the total loans, around 61 per cent were under the category of personal loans, which indicates that most of the loans (close to $6 billion by end of 2005) were used to finance consumption activities rather than going into productive investments. The amount of loans increased by $2 billion from 2001 to close to $6 billion.
On May 16, 2005, the Ministry of Finance issued a personal loan capping directive to the Brunei Association of Banks (BAB).
The objectives of the directives is to reduce the level of personal debts, to promote savings culture and to boost financing to the private sector.
"Before the loan capping directive, it was very easy to apply for a loan, they could loan up to 36 times their salary and the repayment period could go on till their retirement age, but now after the capping, they could only loan up to 12 times their salary and they have a repayment period of not more than six years," said Siti Mas Haji Matasim, a personal banker from HSBC.
She added that the capping directive limited the amount of the loans applied did affect the number of applications.
"Now we get only about two to three loan applications per month," she said.
However, she added that there is no specific age group that applies for loans more than others.
"There will always be people applying for loans, from different generations, you have the fresh graduates, newlyweds, and for the older generation, they would apply for a personal loan for maybe their children's studies, and so on," she said.
"We do not ask them specifically what they apply the loan for, as it is not necessary," she went on to explain.
Baiduri Bank's personal financial planner, Norasfarina Kamarudin said that from Baiduri Bank, there are more locals that apply for personal loans than foreigners.
She added that the criteria for foreigners and locals are different where the foreigners are offered to loan up to four times their salary as compared to locals, who can loan up to 12 times their salary.
When asked whether the personal loans are used for business purposes or to help finance their consumption activities, she replied that there were a number of personal reasons that people took personal loans for.
"Some use it pay off their credit cards, some of the use it for weddings, home renovations, but most of it are more for consumption activities," she said.
She added that some customers have applied for loans from other banks as well.
"One of the criteria from the new directive is that the customer's salary has to be banked into the bank that he or she is applying a personal loan from, but some people move their salary to other banks to apply for loans there as well," she said.
Both personal bankers added that whether it is credit cards or home loans or personal loans, most of the banking clients are still in debt to the bank.
The Brunei Times
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