LESSONS FROM THE PENANG GROWTH POLE IN MALAYSIA

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

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

3. The Penang Growth Story

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

5. Success of the Growth Pole Strategy

6. Quality & Automation R&D Sub-con Support Centres Global Competition MNC SMI Value Roadmap – Industrial Transformation Version 1 Version 2 Version 3 ? Value Add • Business Management • Outsourcing • Service Contract • R&D • Software • Global Hub • Alternative sale • MNCs • Operational HQ • Logistics / Distribution Centres • BPO / SSO • Design & Development Centres • Semicon process • Test system • development • Supply chain • management • Disk drives • Base Software • Design Companies • Contract • Manufacturing • Semiconductor • Manufacturing • Consumer Electronics • Automation • TQC • 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 • 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 Basic Industries Agriculture 60s 70s 80s 90s 00s & beyond Adapted from “Technology Roadmap for the Electrical and Electronic Industry of Penang”

7. Why is the Penang story relevant? Penang , Malaysia (1970) Nacala, Mozambique (2011) Population: 0.3 million Area: 1,300 sq.km Income per cap: $440 * • Population: 0.8 million • Area: 1,030 sq. km • Income per cap: $400 • 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

8. Penang Growth Pole Strategy

9. Penang Growth Pole Strategy

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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