September 9, 2010 5:37 pm

Smaller enterprises are key for regional growth strategy

Last month, at Beppu – the Japanese city famous for its hot springs – the Asia Pacific Economic Co-operation (Apec) forum met to formulate a comprehensive growth strategy for the region.

Although individual Asian economies have always drawn up medium- and long-term economic plans, this was the first time that all members of Apec had jointly addressed these issues.

Given the ever-increasing interdependence between the east and the west – especially Asia’s comprehensive export relationships with the US and Europe – the global financial crisis had a serious impact on Asian economies. However, the liberalisation of trade should continue to be – as it has been to date – a major contributor to Asia’s rapid economic growth.

That is why Apec, which has placed a special emphasis on regional economic integration, is pursuing a strategy towards common growth that it describes as “balanced, inclusive, sustainable, innovative and secure”.

For balanced growth, we need a solid base of stronger private consumption in surplus economies, whose savings can then be recycled into investment more efficiently. Progress in preventing financial bubbles and in reducing fiscal deficits in the medium term will also be necessary.

To bring about inclusive growth, in which all citizens have the chance to thrive in the global market economy, we have to promote job creation, foster the development of small and medium-sized enterprises, expand opportunities for women and improve access to finance.

Better energy efficiency and a shift to low-carbon energies are required to achieve sustainable growth. Apec aims to improve access for environmental goods and services and to promote energy conservation through “green” communications technologies.

Conditions conducive to research and development are essential for nurturing innovative growth, as are workforce mobility and the protection of intellectual property rights.

Human security issues must also be considered, including the region’s readiness to cope with natural disasters and pandemics, counter-terrorism measures, and food security; all are key to Apec’s growth strategy.

To achieve regional growth there must be a particular focus on smaller enterprises, the general business environment, demographics and structural reform.

SMEs account for most of the business across the Asia-Pacific region. They typically provide goods and services to meet local demand, while often creating jobs for women and older people. If they can become more active in economic integration and improving energy efficiency, this will both lower costs and strengthen R&D incentives and demand for investment.

However, they may not be sufficiently equipped or informed to make business improvements alone. Therefore, Apec leaders resolved at Beppu that the forum would increase medium-sized enterprises’ access to global markets, technology and finance, and improve SMEs’ crisis-management capabilities.

Last year, Apec launched a project designed to make trading easier, faster and cheaper, centred on starting a business; accessing credit; trading across borders; enforcing contracts; and dealing with permits. In each area, “champion economies” share their experiences voluntarily and advise other economies that wish to improve. Progress is monitored by annual indicators provided by the World Bank.

The shifting demographic is another factor that may affect growth. In Japan, the population dependency ratio (of those of working age typically not in the labour force versus those working) was at its lowest in the 1990s – indicating a high number of tax-paying citizens. Singapore and China, both growing rapidly, are likely to hit their lowest ratios this year, as South Korea will in the near future.

Therefore this so-called “population bonus period” may soon end in certain Asian economies, indicating a pressing need for human resource development, and for greater participation in the labour market by women and older workers.

An ageing population may also weaken consumption demand in the absence of a good social safety net.

Finally, the benefits of border liberalisation cannot be fully exploited if there remain “behind-the-border” barriers.

That is why, in the past five years, Apec has promoted an ambitious work programme called the Leaders’ Agenda to Implement Structural Reform 2010. It takes in five areas: regulation; competition policy; corporate governance; public sector governance; and strengthening the economic and legal infrastructure.

Progress has been made in each of these areas, and in every economy within Apec, with the knowledge that sustainable growth comes from higher productivity, which requires sound incentives and a competitive business environment for all, including smaller enterprises.

As the LAISR initiative will be wound up at the end of this year, it has been proposed that Apec’s activities around structural reform should now be expanded to cover sector-specific topics, such as the labour market or social safety nets.

Thus, leaders will agree on a new agenda that is likely to include the sector-specific, alongside a comprehensive growth strategy for the region. Such a combination will enable the Asia-Pacific region to remain a major growth centre of the world.

The writer is the chairman of Apec’s economic committee

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