Gearing Up for a Multi-Polar World

ETHOS Issue 08, Aug 2010

PARTICIPANTS:

Hon. Ike Chinwo, Member, House of Representatives, National Assembly, Federal Republic of Nigeria

Mr Hau Do Suan, Deputy Director General, Political Department, Ministry of Foreign Affairs, Union of Myanmar

Dr Adel A. Al-Wugayan, Secretary-General, Supreme Council for Planning and Development, Kuwait

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ON THE RISE OF CHINA AND INDIA, AND THE EASTWARD SHIFT IN GLOBAL ECONOMIC INFLUENCE

HAU: I see the rise of the new powers as a good sign: it indicates the breakdown of ideological divides and a growing trend towards international cooperation and trade. Myanmar is situated right between India and China. There is tremendous opportunity, because ASEAN and Asia have become engines of growth, particularly with the free trade agreement between China and ASEAN. We don't need to look to the US or EU for our trade or investment; China's Yunnan province, along with India's north-eastern regions such as Assam and Bangladesh, can serve as our hinterland, and take whatever we can export at competitive prices. They are our neighbours and traditional economic partners, and we have always maintained friendly relations with them; security is not an issue. Of course, on the other hand, there are issues associated with such close proximity, such as trans-boundary crime, terrorism, pandemics and so on. But it also means we have a greater motivation to cooperate closely with one another. On balance, the benefits and opportunities outweigh the disadvantages.

CHINWO: Africa is rich in natural resources, but that alone is not enough to attract investors; who would continue to do business in an environment that is perceived to be hostile, unstable or simply unfriendly to business? Money does not wait for anybody. Companies started going to China because they saw an advantage in terms of cheap labour and infrastructure, although some have now run into hidden costs that may discourage them from doing further business there. We've seen this in the Google China incident, Rio Tinto and so on. So in order to compete with the new economic powers, Africa will need to develop democracy and transparency, the rule of law, pragmatic policies, and a robust infrastructure to support business in addition to its natural resources and a relatively cheaper cost of labour. Governments of African countries should begin to address these issues very seriously, before they are overtaken by the competition. I am optimistic for Nigeria, because democracy is stabilising especially over the past five years, and a lot of effort has been made towards policies that can encourage the inflow of foreign direct investment.

ADEL: The growth of China's and India's economies is expected to lead to higher demand on oil and its derivatives, hence major decline in demand in the energy market is unlikely in the next few years. However, it's dangerous to omit the possibility that new major scientific breakthrough may render oil obsolete as an energy source as was the fate of coal almost a century ago. Hence for Kuwaitis, developing new national sources of income are a national priority.

In my opinion, the real national concern for Kuwaitis is to radically improve market competitiveness for the future. Kuwait is striving to become a regional financial centre, and we are trying to gain a foothold. Kuwait hosts several successful banks and we can capitalise on our strengths in the finance and investment sector to diversify our income sources. Although our regional counterparts such as Dubai, Bahrain and Qatar have a head start in this area, we can still find a niche of our own.

Before there was oil, Kuwait had historically been an intermediary between neighbouring production-based countries and their consumer markets. Although we have now become reliant on oil, we can revive our capabilities in this direction. Some of our major economic diversification initiatives include establishing Bubiyan Island as a hub port in a regional free trade area, commercial centres such as Madinat Al-Hareer ("City of Silk") and transport networks reaching into the landlocked areas of Central Asia.

Although Kuwait is stable internally, it is situated in a very politically unstable region. The conflict and unwanted international attention create an unstable platform, unlike East Asia which is much more stable, so that is an issue. But this challenge could be transformed into an opportunity. We can present Kuwait as an oasis of stability and a safe haven for international companies to be based in the region.

ON THE KEY CHALLENGES FOR GOVERNANCE AND LEADERSHIP IN AN UNCERTAIN WORLD

HAU: There's no doubt that a strong, honest, competent and educated public service remains important. But its effectiveness can sometimes depend on other factors such as a country's political situation or cultural background, and so on. Nevertheless, as a consequence of globalisation and rapid advances in technology, we can no longer isolate ourselves. Transparency is a given — if you do something, everyone knows. Domestically, this also means the population is more savvy, more knowledgeable, more connected, and has greater expectations of the public service. If you do not deliver or if you do not satisfy the public, it's a sign of danger for the future. Therefore, the government and civil service have a responsibility to foresee and prepare for the future, making the necessary preparations, adjustments and corrections ahead of time. But you cannot set a rigid 5-, 10- or 15-year timeframe, which can sometimes become an excuse for inertia. If you have to take action now, then the time to do it is now.

CHINWO: One of the principles of good governance is to be ready at all times to implement necessary changes. Take the concept of scenario planning, for example. What it does is to present the possibility of change in circumstances, and then pose the question to leaders: What should your policy reaction be? How will your policies hold up to these changes? It's about thinking across time and across possibilities, which you can only do if the government is dynamic, pragmatic and willing as well as able to adapt to change.

Any government, whether in a developed or developing country, that wants to stay relevant and stay in power, ought to periodically review and renew itself. But when governments become complacent and fail to think ahead or prepare for the future, they are more likely to face political and social pressures; they then make mistakes because they have not had time to think through programmes fully. I think that is a problem with many governments in Africa. No matter how good a policy is, it means nothing if it is not well implemented. Therefore, a civil service must have the capacity to deliver, and the system should be fair, transparent and based on merit and results. I believe processes are key, because if you get your processes right, you enable growth. For instance, I believe the world has moved beyond simple welfarism. People want to work to earn a living and the government is not the best employer of labour, but it can nurture an environment that is conducive or private investment to flourish. That is the only way in which the creation of wealth can translate into individual well-being.

ADEL: We have seen how local disturbances in a developed country can become global crises with contagion effects of significant magnitude on other economies. This is a sharp contrast to the past where negative impact of events tended to be localised. In the 1997 Asian financial crisis and the present economic storm, we have seen a tremendous knock-on impact on oil prices, which has affected our fiscal policy in Kuwait in ways that were very far from our minds when we were planning. Alternative scenario building and sensitivity analysis in economic forecasting become more necessary to deal with sudden changes.

Currently, Kuwait is reliant on a single commodity, which is oil. Our forefathers were wise in setting up the Kuwait Investment Authority, which takes specified portion of oil revenues and locks it away in a sovereign fund to be invested elsewhere, so it can become an alternative source of income for our future generations. But we face increasing pressures from a growing population (with a native fertility rate of 3.3). Kuwait is a society that has no taxes and generous social provisions in healthcare, education and so on — the proportion of fiscal resources being spent on public subsidies is set to grow, and it will eventually eat into what we have set aside for investment. So a long-term challenge for us is the diversification of the Kuwaiti economy. To do so, we will need to have markets in which we can engage, assets upon which we can rely, and a competitive advantage that we can use.

Another challenge we face relates to our human capital. From a period of illiteracy before independence, we have evolved to become a modern society with a vibrant Parliament and media scene, supported by highly educated immigrants from developed countries who have come because of economic opportunities. However, although education is available for everyone, it has not translated into higher productivity in the marketplace — likely because people with know-how go into the government sector which employs 93% of Kuwaitis, and where they do not reach their full potential. This is a waste of resources and talent which could go into developing the private sector.

One important approach would be to stop the crowding-out effect of the public sector in the Kuwaiti economy; allow the private sector to flourish, let people have a choice of jobs that are more challenging but with potentially higher pay or more satisfying opportunities for growth, where people can contribute in areas they really want to. The government may have to intervene and create a safety net with which you can convince people that the private sector is the prime employment choice.

We will need to convert our current competitive advantage, which is oil, into one that is based on our infrastructure and good governance in our institutions, be they state-owned or commercially owned. The way we do this is by creating a very strong educational system with high standards, so that we can nurture our own human capital to apply knowledge to new products and services, solve problems, pinpoint opportunities and stay ahead of the market. This will require deep changes in the education system. The universities will be the driver for change, but we will have to wait at least 12 years to see the first batch of these new leaders.

I don't think all this will happen quickly. You cannot intervene with drastic policies overnight; you must win the hearts of the people with step-by-step measures. But we have an awareness in Kuwaiti society that this diversification away from our dependence on petrodollars needs to happen, for the sake of Kuwaitis 40, 50 years down the road. We must do so before current fossil-based energy sources become irrelevant, which was what happened to coal at the beginning of the 20th century.

OBSERVATIONS IN SINGAPORE

ADEL: I look at Singapore as a good example: You take the anxiety of being small, diverse and limited in resources and employ it in a constructive direction. Your success, instead of breeding conceit and complacency, generates even more uncertainty — what's going to come next? We are already doing well, how can we become better?

I am impressed by your operating principle that everybody is equal. You don't care where they come from or what ethnic group they are, whether they are male or female. You treat them all the same under the law as long as they have something to contribute in terms of skills or knowledge from elsewhere. You attract global interests to Singapore and that helps to secure your future.

One challenge you may face is that your population may not be enough to sustain future growth. You have had to rely on immigrants, but the problem with immigrants is that you may not have the same strong alignment of core social values and shared goals. In the past, when skilled people worked in very small shops, they were both the manager and the owner of their business — there was no conflict of interest. Now with the modern corporation, managers and owners have different sets of objectives. This is the dilemma behind Agency Theory, and it is the same with skilled immigrants. National strategies may be going one way but the values and priorities of immigrants may differ, and you have to find a way to align the two. There will always be some gaps, but I have been impressed by the cohesion among people here, in practice.

HAU: What interested me the most is the way all the public agencies are integrated in implementing the country's policies. We have been to different departments and sites and they are all independent in operation. Yet there is coherence and coordination between agencies; the policy guidelines are given from the top, and the implementation details are executed by the individual agencies. These agencies are empowered with the authority to carry out policies and projects, and are staffed by professional, effective, efficient civil servants and technocrats, who take their own initiative and use their skills and talents to carry out government policies to the utmost. That is most remarkable.

CHINWO: What I found striking apart from our classroom sessions were some of our site visits, where we could clearly see that the knowledge economy isn't just about ICT, science and technology. It is also about applying know-how to transform a harsh environment into a beautiful and enjoyable one. The Urban Redevelopment Authority has a master plan for Singapore where you can project future developments and ensure that growth follows a sustainable pattern, green spaces are protected and so on. You have your ERP to limit car use but also an efficient public transport system as a realistic alternative. And you have the Marina Barrage, which is able to control floods and also serves as a reservoir of water for industry, recreation and also drinking. Coming from a city that has similar topography, by the sea, this is something we can think about back home.

Strategically speaking, Singapore is located among bigger countries and bound by the seas. Given your position, I think that it is important at all times to make sure that your citizens understand the basis of your society's existence, and to keep that in focus so that no matter who comes into power tomorrow, that fundamental understanding will not be lost. If you lose this understanding, the foundation for your success, that has been so beautifully laid and built upon, will disappear.

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The ETHOS Roundtable was conducted by ETHOS Editor Alvin Pang in March 2010. Mr Chinwo, Mr Hau and Dr Adel were participants in the 3rd Leaders in Governance Programme (LGP) organised by the Singapore Civil Service College from 22 to 30 March 2010. Drawing from Singapore's development experience, the LGP offered practical insights into the fundamentals of good governance and effective policy implementation for sustainable economic development and social cohesion. Over the eight-day Programme, participants interacted with senior government officials and thought leaders, and visited key government agencies to understand their operating philosophies and values.