LESSONS FROM THE PENANG GROWTH POLE IN MALAYSIA MOZAMBIQUE: INCLUSIVE GROWTH SEMINAR MAPUTO FEBRUARY 10, 2011 FINANCE AND PRIVATE SECTOR DEVELOPMENT

Where is Penang? Hong Kong Taipei Medan Singapore Jakarta KEDAH NEW TOWNSHIP INDUSTRIAL PARK CITIES/TOWNS EXISTING ROAD RAILWAY KEDAH Beach Resorts PENANG ISLAND PORT Penang International Airport Bayan Lepas Industrial Park Batu Kawan Bukit Minyak PRAI Kulim High-Tech Park Bangkok Medan KL Singapore Jakarta Where is Penang?

The Penang Growth Story Trading 1786-1969 Entrepot Loss of free port status Declining trade Manufacturing 1970-2000 Global manufacturing hub and tourism destination Services Hub 2001-current Innovation economy and business and services hub

Penang’s Economic Transformation GDP by sector (1970) GDP by sector (2010) US$500 million US$10,000 million

Success of the Growth Pole Strategy 1970 2010 Population (‘000) 0.78 1.61 Per capita income (US$) 400 5600 Unemployment rate (%) 16 3 Poverty rate (%) 32.3 0.3 Infant Mortality Rate (%) 38 0.4

Value Roadmap – Industrial Transformation Value Add Version 1 Version 2 Version 3 ? Business Management Outsourcing Service Contract R&D Software Global Hub Alternative sale R&D Sub-con Support Centres MNCs Operational HQ Logistics / Distribution Centres BPO / SSO Design & Development Centres Quality & Automation Semicon process Test system development Supply chain management Disk drives Base Software Design Companies Contract Manufacturing Semiconductor Manufacturing Consumer Electronics Automation TQC Global Competition Investment in high- tech machine shops Drive components production Test auto handlers PCB assembly automation Manufacturing sub-con General Manufacturing machinery Local Companies OEM to ODM Market Outreach beyond Malaysia / MNCs Growth of Design / R&D Companies MNC Low Value Added Exports Textile / Garments Labour Intensive Electronic Component Assembly Test Tool & die Machine Integration Plastic Moulding Custom Services Improvement Projects Machine Shop Service General Maintenance Trade SMI Basic Industries Agriculture 60s 70s 80s 90s 00s & beyond Adapted from “Technology Roadmap for the Electrical and Electronic Industry of Penang”

Why is the Penang story relevant? Penang , Malaysia (1970) Nacala, Mozambique (2011) Population: 0.8 million Area: 1,030 sq. km Income per cap: $400 Population: 0.3 million Area: 1,300 sq.km Income per cap: $440 * Similar Development Challenges Post conflict: stability and equitable growth High unemployment : attract investments Optimize potential of port facilities Enhance manufacturing competitiveness Develop tourism potential and protect assets Improve connectivity : infrastructure Strengthen National – Provincial partnership * GNI per capita ATLAS method, WDI 2010

Penang Growth Pole Strategy Period National Plan State Plan Outcomes 1964 - 1970 1st Malaysia Plan Munro Report Agriculture, health and education focus 1970 - 1990 2nd Malaysia Plan to 5th Malaysia Plan; New Economic Policy Penang Master Plan Export-led manufacturing; Global orientation 1990 - 2000 6th Malaysia Plan and 7th Malaysia Plan First Penang Strategic Development Plan Solid GDP and FDI growth but few local linkages 2000 - 2010 8th Malaysia Plan and 9th Malaysia Plan Second Penang Strategic Development Plan Faltering growth and competitiveness; middle income trap 2007 - 2025 10th Malaysia Plan (current) onwards Northern Corridor Economic Region Blueprint World class economic region: innovation and talent

Penang Growth Pole Strategy Investments Infrastructure and Incentives Ingenuity and Institutions

INGENUITY Penang Master Plan (1971) set out the long-term growth strategy, in a market economy setting, utilizing available resources for export-led manufacturing and tourism (global orientation) Penang Strategic Development Plans 1 and 2 built on this strategy National 5 Year Plans provided overall policy framework and resource envelope for public expenditure KEY LESSONS Develop a long term shared vision based on challenges and opportunities Target strategic sectors but remain flexible to new prospects

Lessons from the Penang Strategy Lead implementation agency: coordination and One Stop Shop roles Sector growth strategies: manufacturing, tourism Integrated spatial planning: SEZs, new growth centers, housing, urban renewal and land banks Infrastructure investment planning: logistics, utilities Skills development: incentives and PPPs

INSTITUTIONAL REFORMS Penang Development Corporation Enactment (1971) to spearhead socio-economic development, poverty reduction, job creation and improvement of quality of life. Federal Industrial Development Authority Act (1965) for investment promotion and facilitation Free Trade Zone Act (1971) Promotion of Investment Act (1986) for incentives KEY LESSONS A capable lead agency for effective implementation Federal-State-private sector communication and trust is critical

Enabling Role of the Lead Agency Focal point for strategy, planning, communications, intra-agency coordination and consensus building First point of contact for investors: information is key Business facilitation: from start up to closing (coordination and follow through role) Regular dialogue with investors: address concerns related to infrastructure, regulations, permits, approvals, Customs, Immigration, security and Municipal services Investment promotion and business matchmaking

SYNERGY FOR GLOBAL COMPETITION: THE PENANG MODEL Institutions Incentives Infrastructure Federal Government MITI / MIDA, MOF SEZs Business Services Skills Penang Development Corporation (PDC) Foreign Investors Local Investors Initiative Ingenuity Capital, Technology GLOBAL /REGIONAL MARKETS

INFRASTRUCTURE AND INCENTIVES Demarcation of roles and responsibilities for infrastructure development and maintenance: Federal, State, Local Authority and Development Agency Free Trade Zone Act (1971) for free zone incentives Promotion of Investment Act (1986) for sector/location-based incentives Business environment is more important than financial incentives : transparent and predictable processes KEY LESSONS Investment plan with accountability for delivery Software is more important than hardware

Good Hearing and a Light Touch # Innovative local economies are built one conversation at a time : need people close to the action who have good hearing, patience and a light touch Good governance pays in the long run Attract and retain the best and brightest talent Work with what you have: learn, copy, experiment and innovate - second-best solutions do work! Sustainable Growth = Competitive Edge # F. Hutchinson, Penang Economic Monthly, July 2010