Economic Impact on ICT

Economic Impact on ICT

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Description: To assess and address challenges faced in the ITC sector emerged from the impact of the global financial crisis; Proactive mitigation is needed to coordinate and foster cooperation across all parties including industries and stakeholder groups. The ITC industry is founded on innovation, and while the economic turmoil may challenge some, it can also overturn the established order and stimulate the emergence of new entrants with new technologies.

 
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Domain:  High Tech Category: Business Subcategory: Economics 
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Contents:
ICT POLICY DIVISION
ICT POLICY DIVISION

Mesyuarat Pasukan Petugas
Pemantauan Impak Ekonomi
Global Ke Atas Sektor ICT
24 Februari 2009

AGENDA

1

OPENING REMARKS

2

BACKGROUND

3

PROPOSED FRAMEWORK

4

OTHER MATTERS

5

CONCLUSION

OPENING REMARKS

CABINET’S DECISION dated 4 February 2009

The current economic indicators point to a weakening
The current economic indicators point to a weakening
economic situation in 2009 where the performance of some
economic situation in 2009 where the performance of some
selected sectors, including ICT is expected to deteriorate
selected sectors, including ICT is expected to deteriorate
significantly. Hence, monitoring of the performance of
significantly. Hence, monitoring of the performance of
those affected sectors is vital to assess the impact of the
those affected sectors is vital to assess the impact of the
global economic downturn on the economy.
global economic downturn on the economy.

Feedback on the performance of the selected sectors will
be used as input for the preparation of the Cabinet Paper
which is expected to be tabled in early March 2009.

OPENING REMARKS

To assess and address challenges faced in ICT
sector emerged from the impact of the global
financial crisis; Proactive mitigation is needed to
coordinate and foster cooperation across all
parties including industries and stakeholder
groups.

BACKGROUND
Report from the
Report from the
World
Economic
World
Economic
Forum in 2008 on
Forum in 2008 on
Global Risks has
Global Risks has
identified
identified
Technological risk
Technological risk
as one of the 5 risks
as one of the 5 risks
that need to be
that need to be
assessed.
assessed.

The Core Global Risks: Likelihood with Severity by Economic Loss

50-250 billion 250b -1 trillion

Retrenchment from
globalisation (developed)

Asset price collapse

10-50 billion

Slowing Chinese Economy(6%)
Oil and Gas Price Spike
Infectious disease,
Pandemic
developing world
Chronic disease,
developed world
Transnational crime CII breakdown
& corruption
Middle East instability
NatCat: Cyclone
Heatwaves & droughts
Liability regimes
Major fall in US$
NatCat:
Earthquake
Interstate & civil
wars
Retrenchment from globalisation
Fiscal crises in
(emerging)
advanced economies
Food insecurity
NatCat:
Emergence of
Extreme climate change related weather
nanotechnology risks
Extreme
Failed & falling states
inland
flooding
International terrorism
Loss of freshwater
Data Fraud / Loss
Collapse of NPT

2-10 billion

Severity in US$

> 1 trillion

(Source: Global Risks 2008: A Global Risk Network Report)

Below 1%

1- 5%

5- 10%

Likelihood

10- 20%

Above 20%

(Source: Global Risks 2008: A Global Risk Network Report)

Global Trends
Increasingly integrated
global financial
systems

Increasing pressure on
physical infrastructure
Reconfiguration of
global power

Related Risks

Implications for Business Growth

Contagion of financial
markets instability to the
real economy

• Increased cost of capital
• Slowdown in growth of business to business and consumer sales in some
sectors
• Increased barriers to entry and to trade among countries
• Higher duties and compliance costs
Rise in protectionism
• Difficulties in entering joint ventures or seeking mergers and acquisitions
across borders
• Barriers to accessing certain capital markets
Disparities in underlying
• Assuming high legal and compliance costs across differing regulatory
approach to financial
regimes
regulation
• Greater due diligence required for deals
Lack of capital/insufficient • Choice of and competition for well-serviced locations intensifies
• In extreme cases, companies have to bear the costs of assuring critical
funding for existing and
infrastructure (local generators, water, sanitation, etc.)
new infrastructure
• Increased insurance and potentially liability costs
• Lack of transparency and certainty regulation, e.g. future emissions and
Difficulty in reaching
consensus on global issues environmental standards
and prolonged delays in the • Higher compliance costs
• Time lost in obtaining clear guidelines on standards

process

Global integration
outpacing global
governance

Corruption and
Transnational crime

Decreasing air quality

Spread of liability regimes

Increasingly
Increasing dependency on
large-scale data storage
interdependent critical
information infrastructure and security

• Lack of rule of law and corrupt environments expose companies to political
and reputational risk
• Poor or unsupported IP regimes render protecting IP and combating piracy
difficult and costly
• Lack of clarity about local procedures and rules adds time and costs to
projects
• Poor air quality leads to increased incidence of acute respiratory
conditions, and related loss of productivity and increased health costs
• Poor environmental conditions make it harder to attract talent and entail
higher premiums
• US liability-type regimes spread to other countries increasing the cost of
insurance of operations, and directors and officers
• Potential losses from business disruption
• Major accidental loss of data or case of fraud inflicts financial and
reputational damage

BACKGROUND

Worldwide unemployment to increase dramatically
due to global economic crisis
GENEVA (ILO News) – The global economic crisis is
expected to lead to a dramatic increase in the number
of people joining the ranks of the unemployed, working
poor and those in vulnerable employment, the
International Labor Office (ILO) says in its annual
Global Employment Trends report (GET).
Based on new developments in the labor market and
depending on the timeliness and effectiveness of
recovery efforts, the report says global unemployment
in 2009 could increase over 2007 by a range of 18
million to 30 million workers, and more than 50 million if
the situation continues to deteriorate.
The ILO report also said that in this last scenario some
200 million workers, mostly in developing economies,
could be pushed into extreme poverty.
“The ILO message is realistic, not alarmist. We are
now facing a global jobs crisis. Many governments are
aware and acting, but more decisive and coordinated
international action is needed to avert a global social
recession. Progress in poverty reduction is unravelling
and middle classes worldwide are weakening. The
political and security implications are daunting”, said
ILO Director-General Juan Somavia.
Source: International Labour Organisation

Source: http://news.bbc.co.uk/2/hi/business/7887659.stm

BACKGROUND

A quick guide to the origins of the global financial crisis.
FINANCIAL CRISIS: HOW IT HAPPENED

Economies around the world are affected by the credit crunch. Governments move to
nationalise banks from Iceland to France. Central banks in the US, Canada and some parts of
Europe take the unprecedented step of co-ordinating a half-point percent cut in interest rates in
an effort to ease the crisis.

REPORTS
A report from ITU* - Confronting the Crisis: Its Impact on the
ICT industry (16 February 2009) highlights the following...

“...as a high-growth sector in its own right, ICTs can now power economic
recovery across all sectors. Along with stimulus packages put together by
governments, the ICT industry must continue to invest in infrastructure and the
roll out of cost-effective services, such as next-generation networks (NGN)."

“...The ICT industry is founded on innovation, and while the
economic turmoil may challenge some, it can also overturn
the established order and stimulate the emergence of new
entrants with new technologies.”
Detail Report

The Report is available for download:
www.itu.int/crisis2009/.

* International Telecommunication Union

REPORTS

Key findings:
1. Funding issues are unlikely to be resolved until the banking sector is recapitalized.
The financial difficulties faced by the private sector could add to pressure for
government intervention in the financing of national backbone infrastructure;

2. Unproven business models are unlikely to get financing, especially high-cost and highrisk startups. For venture capital, sound business models with proven demand and
early cashflows are needed. Higher-priced services needing large investments will
become more difficult to justify;

3. Economic turmoil may however present opportunities for disruptive technologies
and/or business plans to emerge, which are unlikely to come from traditional players;

4. Mobile operators are better-placed than fixed operators to weather the economic
storm, due to greater flexibility in their cost structure and capex and fixed-mobile
substitution;

5. Telecom services are likely to come under further price pressure, as operators will
fight for a more cost-focused customer, resulting in further erosion of margins.

6. Operators will take a more rigorous approach to cost control and search for further
improvements in internal efficiency including reductions in headcount and
infrastructure-sharing.

REPORTS

Credit Crunch
-- Economic Impact Assessment -By Frost and Sullivan

Input From MDeC

Current Status:
• The number MSC status companies in operation is 1,797 (from total of
2,248);
• MNCs: few MNCs will reduce investment or terminate selected
projects;
• Local MSC companies: more focus on local market involving public and
private sectors;
Mitigation:
• Re-skilling of unemployed workers from ICT and manufacturing sectors
and graduates through Knowledge Development Initiatives.
• 50 retrenched & unemployed workers to undergo training through
Training of HSBC Electronic Data Processing at Cyberjaya;
The current Economic Crisis situation has not severely affected the ICT
sector in Malaysia.

Next Steps

PROPOSED FRAMEWORK
GOVERNMENT / /STAKEHOLDERS / /PUBLIC
GOVERNMENT STAKEHOLDERS PUBLIC

ICT MONITORING
TASK FORCE

Monthly Report
Monthly Report
SECRETARIATE

SUB-COMMITTEE 1
SUB-COMMITTEE 2
SUB-COMMITTEE 3

1. Impact and trend analysis report
1. Impact and trend analysis report
2. Performance Indicators
2. Performance Indicators
3. Current Issues and challenges
3. Current Issues and challenges
4. Strategies and measures
4. Strategies and measures

1.

Set up Task Force to Monitor Performance of ICT Industries Sector;

2.

Appoint secretariat for task force;

3.

Set up 2-3 sub-committees for grouped areas;

4.

Conduct monthly task force meeting to assess reports submitted by sub-committees;

5.

Table Report on impact and trend related to ICT to stakeholders/cabinet/public etc.

TASK FORCE SET-UP
ICT MONITORING
TASK FORCE

SUB-COMMITTEE 1

SUB-COMMITTEE 2

SUB-COMMITTEE 3

TERMS OF REFERENCE

1. Monitor and assess scenarios depicting future trends and
the impacts on areas affecting ICT industry sector;
2. Track changes in key indicators;
3. Monitor global development in ICT and assess global and
local competitiveness;
4. Identify and propose the necessary measures/
strategies/adjustments/adoption for implementation;
5. Collect and disseminate data and information to key
parties and stakeholders;
6. Propose strategic direction and prepare reports for
further direction;

1. Impact and trend analysis report
1. Impact and trend analysis report
2. Performance Indicators
2. Performance Indicators
3. Current Issues and challenges
3. Current Issues and challenges
4. Strategies and measures
4. Strategies and measures

TASK FORCE MEMBERS
Proposed Members

Focus Areas

1. PIKOM

Computer & Multimedia Industries

2. Federation of Malaysian Manufacturers (FMM)

Manufacturing of ICT industries

3. Multimedia Development Corporation

MSC Companies

4. MIMOS

Technology development and
acquisition

5. CyberSecurity Malaysia

Cyber Security

6. .my Domain Registry

Internet Domain registration

7. Malaysian Communications and Multimedia
Commission

Communications and
Telecommunication

8. Ministry of International Trade and Industry

Manufacturing, electrical, and
electronic sector

9. Ministry of Human Resource

Human resource in ICT sector

10. Ministry of Energy, Water and Communications

Communications and
Telecommunication

11. Economic Planning Unit (EPU)

Overall economic impact and
services sector

12. Malaysian Administrative Modernisation and
Management Planning Unit (MAMPU)

Affected Government ICT projects

TASK FORCE MEMBERS

Proposed Members
13. Department of Statistics
14. Ministry of Science, Technology and Innovation

Focus Areas
ICT-related Statistics
Technology R&D

SCHEDULE / MILESTONES

ACTIVITIES /
DOCUMENTS
Task Force Meeting
Sub-Committee
Reports
Monthly Consolidated
Report
Cabinet Paper

FEB

MAC

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

Propose
Half Day High Level Forum on Confronting the
CRISIS
Its Impact on the ICT Industry
Date: 12th March
Venue: Sri Pacific Hotel
Partners: tbc
Sponsors:tbc
Participants by Invitation Only (100 pax)

Forum Focus
• The Forum aims to:
– Discuss how the financial crisis may impact the ICT industry
– Provide a forum for informal debate and the exchange of
experiences and view by all stakeholders on confronting the
crisis.
– Help foster new strategies, which will ultimately help the
industries and communities confronting the crisis.

• Key Questions:
– Is This Crisis Any Different?
– Will ICT-Producing Economies be Spared from the Economic
Downturn?
– What’s are the Impact of the Crisis on Foreign Investment (FDI) and
Domestic Direct Investment (DDI) in ICT & Telecommunications

Proposed Program
08:30-08:45

Arrival and Registration

09.00

Opening Session:
Welcoming remarks by Minister of Science, Technology and Innovation of Malaysia

09:15-10:45

Plenary Session 1
Crises and Creative Destruction
Moderator
Datuk Dr. Tengku Mohd Azzman Shariffadeen
Panelists
Tan Sri Mohamed Jawhar Hassan, Chairman and Chief Executive Officer, ISIS Malaysia
Alternate: Prof. Dr. Mahani Zainal Abidin, Director-General, ISIS Malaysia
Y.Bhg. Tan Sri Dato’ Ir Muhammad Radzi Mansor, Chairman, Telekom Malaysia Berhad
Alternate: YBhg. Dato’ Zamzamzairani Mohd Isa, Group CEO, Telekom Malaysia Berhad
Y.Bhg. Datuk Bridget Anne Lai Hung Yee, CEO, Alliance Financial Group
Context Setting/Key Questions
For the ICT industry, experience of previous crises shows that, overall, there is little need to fear the
impact financial crises may have, and there are even some reasons to be optimistic. The Asian financial
crisis of the late 1990s laid the groundwork for the early development of broadband in that region, while
the bursting of the dot.com bubble gave telcos the opportunity to embrace the Internet and to reclaim
some of the ground they had lost to new market entrants. Economic crises create openings for disruptive
technologies and, here, small start-ups can prove the most agile in exploiting new opportunities.
Economic crises come and go, but the basic human need to communicate continues unchanged.

10:45-11:00

Question and Answer Session

Proposed Program
11:00-12:30

Plenary Session 2
The Impact of Crisis to FDI and DDI in ICT
Moderator
Dato Dr Arif Nun
Panelists
YBhg. Datuk Jalilah Baba, Director General, Malaysian Industrial Development Authority
(MIDA)
David Wong, President, PIKOM
Dato’ Badlisham Ghazali, CEO, MDEC
Dato’ Praba Thiagarajah, CEO Basis Bay Capital Management Sdn Bhd
Frost and Sullivan
American Chambers
Context Setting/Key Questions
The past twelve months have seen important developments in the wider communications market. A range of new and
innovative services in the market have increased in popularity: e.g., mobile broadband, allowing people to access the
Internet on the move. Digital switchover has started in the Malaysia and the convergence of new and traditional media

and business models is now upon us. At the same time, we now face significant economic pressures on a
global scale, from which the ICT and communication sector is not immune. The uncertainty and
volatility of the current climate means that we need to be prepared to act quickly and firmly if any
consumer harm arises as a result.
12:30-1.00

Q&A Session

1:00

Wrap Up by Deputy Minister Science, Technology and Innovation

Next Step
• To form organising committee
• To identify the specific topic and speakers
• To identify Target participants (100 pax):





NITC members
GLC’s Captains
Key Government Ministries Head
Industries Players
• Computers, Telecommunications & Multimedia Industry
Associations
• MSC Status Companies

Other Matters
&
Conclusion

THANK YOU

Input From MDeC

Global Risks
1.
2.
3.
4.
5.

Economic risks
Geopolitical risks
Environmental risks
Societal risks
Technological risks
- Attack or system failure in critical information infrastructure (CII)
creates a domino effect, shutting down IT-dependent applications in
power, water, transport, banking and finance, and emergency
management;
- Studies reveal health impairment due to exposure to widely used
nanoparticles (paint, cosmetics, healthcare). Primary impact on public
health and secondary impact on investment in a range of
nanotechnologies.

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