Heads of States and Governments, Ministers, Excellencies and distinguished guests,
I am delighted to join you for the 2019 ASEAN Business and Investment Summit. Amid growing global trade tensions and uncertainties, that are directly impacting this region, the time is right for this discussion.
Global value chains (GVCs) and digital technologies are an essential feature of our globalised, interconnected world, and they remain a key lever to improve it.
GVC participation has in many instances been beneficial for ASEAN economies. The OECD 2020 Economic Outlook for Southeast Asia, China and India, released today, estimates that ASEAN countries will grow at a rate of 4.9% over the next five years.
[Let me take this opportunity to thank those among you that made this Outlook possible, the governments of Korea, Japan, Switzerland and more recently the European Commission.]
We are increasingly referring not only to “Factory Asia” but also “Market Asia”, as consumption is booming from a growing middle class.
GVC integration is a part of this success story. Jobs linked to GVC participation have grown over three times faster than total employment, and firms integrated into GVCs are more productive than other domestic counterparts.
However, global integration through GVCs has also brought downsides, and these must be addressed. Growth cannot come at the expense of people or the planet. We have to ensure that companies and state actors play by the rules and uphold the highest standards.
These include the various OECD due diligence guidance tools and the OECD Guidelines for Multinational Enterprises, which are critical to ensure GVC-related operations deliver safe conditions and quality jobs with adequate wages, social protections and job certainty.
In the digital age, we also have to be more mindful about the level playing field. Trade that works for all means ensuring that firms participating in GVCs are not only the highly innovative “born global” firms, but also local firms and SMEs.
However, the Fourth Industrial Revolution is also bringing challenges. Automation has the capacity to transform global value chains; removing many of the midstream activities, such as parts assembly, that have provided jobs, skills and growing incomes to low- and mid-skilled workers.
The OECD estimates that around 14% of jobs in OECD countries are at high risk of automation and a further third will change significantly in how they are carried out.
It is likely that southeast Asia will be particularly affected. The ILO estimates that almost half of existing jobs in Southeast Asia are at risk from automation.
To benefit from GVC participation in an age of the Fourth Industrial Revolution, policymakers must be forward-thinking and proactive, and they must put people first.
I would like to present three priorities for action.
First, skills development is key, and this is why the Economic Outlook for Southeast Asia, China and India focuses on human capital development.
Currently in the OECD, 15% of adults lack basic digital skills, and 13% lack basic digital, numeracy and problem-solving skills.
Digital skills, as well as creativity, adaptability, judgment and communication skills, will have to be embedded from primary education onwards, along with measures to boost STEM, especially for girls.
The OECD is developing new tools like the PISA Global Competence Framework, but as we build these new approaches and curricula, dialogue between policymakers and the private sector on shifting skills demand will become increasingly important.
So will co-operation around the design of lifelong learning and workplace training. OECD countries are exploring incentive schemes that can help shoulder training costs for employers, as well as initiatives to boost workforce skills in recipient FDI countries.
One example is the Sino-German Automotive Vocational Education (SGAVE), which is a partnership between GIZ, German car companies, and pilot schools based in China to foster a local talent pipeline, particularly in engineering and IT.
The second priority I want to emphasis for harnessing GVCs in the digital age is make them work for SMEs. SMEs account for 95%–99% of businesses and more than half of the total employment in all ASEAN Member States.[i] And yet they only accunt for 10% to 30% of exports. This gap indicates huge potential, but harnessing digital technologies will be key.
Yet, a recent study found that only 10% of micro, small and medium sized enterprsises (MSMEs), used advanced digital tools.[ii]
We need to do better at diffusing technology across the economy. This requires measures to address limited competition, rigid labour markets, barriers to entry and growth for successful firms, as well as restrictions on trade and investment, and a burdensome regulatory environment, all of which may hinder technology diffusion for SMEs, and favour larger firms.
The OECD has a wide range of tools to support SMEs, from fostering productivity to accessing finance and promoting inclusive entrepreneurship. Working closely with Business at OECD (BIAC), we have also just launched the OECD Digital for SMEs Global Initiative, to promote knowledge sharing for all stakeholders supporting SME digitalisation.
OECD countries have interesting examples to share, such as the national campaign “Made Smarter” in the UK, the “Small Business Digital Champions” in Australia, or the “SME: Digital” strategy in Denmark, all of which have worked in parternship with the private sector.
And last but not least, my third priority, a well functioning digital eco-system. ASEAN countries are making good progress. We have seen a rapid rise in mobile broadband coverage. The mobile broadband penetration rates (per 100 people) in Singapore and Brunei Darussalam were at over 100% in 2016 and 2018 respectively, and those of Malaysia and Thailand were close to 100%. Meanwhile, Cambodia, Indonesia, the Philippines, Viet Nam, Myanmar, and Lao PDR are fast approaching 50%.[iii]
But more efforts are needed to deliver comprehensive, reliable, safe and affordable high bandwidth telecommunications infrastructure.
This requires regulations and policies that are based on consistent,
clear and transparent principles, and that therefore foster competition in telecom
Our recent report, Southeast Asia Going Digital: Connecting SMEs, suggests that more could be done to strengthen market competition in a number of Southeast Asian countries.
Of course it’s not just about facilitating data flows at all costs. Big data solutions and AI bring vast economic and social potential, but we are the creators of these technologies and we have to shape them for good uses. We need robust rules and structures to safeguard data privacy and security and protect citizens from the risk of data theft and misuse.
Ladies and gentlemen
The message is clear: the opportunities brought by global trade and digital technologies are vast.
However, trade integration, like economic growth and like technological progress, are not ends in themselves, but a means to improving people’s lives and opportunities.
This is the lens through which all countries, including ASEAN countries, must focus their policy efforts to harness GVS in the digital age. Count on the OECD.
[i] Study on MSMEs Participation in the Digital Economy in ASEAN, October 2019, https://asean.org/storage/2012/05/Study-on-MSME-Participation-in-the-Digital-Economy-in-ASEAN.pdf, p2
[ii] Study on MSMEs Participation in the Digital Economy in ASEAN, October 2019, https://asean.org/storage/2012/05/ASEAN-MSME-Full-Report-Final.pdf, p4
[iii] Study on MSMEs Participation in the Digital Economy in ASEAN, October 2019, https://asean.org/storage/2012/05/Study-on-MSME-Participation-in-the-Digital-Economy-in-ASEAN.pdf, p1