Developing Asia’s productivity growth is slowing, IMF warns

Asia has become a digital and innovation powerhouse, IMF deputy managing director Antoinette Sayeh said on Friday.

Half of the world's patents are issued in Asia, so there is no doubt that Asia is at the forefront of innovation and technological development, she told a seminar in Bangkok at which the IMF report "Accelerating Innovation and Digitalization in Asia to Boost Productivity" was released.

The seminar was co-hosted by Thailand's National Economic and Social Development Council.

Still, even though Asia is a growth engine, its productivity growth is slowing, according to the IMF report, which says this is a result of a failure to digitise quickly enough.

Sayeh said two factors are missing from the region's development.

"There is no question that Asia leads in innovation, but there is a difference in the quality level of patents ... Not all patents are the same. Not all patents are equal and … contribute to productivity growth," she said.

The lack of technological diffusion is the second factor constraining growth, she said.

Antoinette Sayeh

"The second [factor], which is probably more relevant to a country like Thailand, is that technological diffusion has been very limited. So, the technology has vanished and is only available to a small proportion of the economy's firms," she explained.

Eteri Kvintradze, director of the IMF Capacity Development Office in Thailand, said the concentration of research and development (R&D) in a smaller number of companies deters the progress of innovation and productivity in Asia.

According to the IMF report, nearly half of small- and mid-sized enterprises and one-third of large firms in emerging and developing Asia identified obtaining financing as the most significant barrier to adopting technology.

Restrictive trade and regulations on foreign direct investment impede technology diffusion, the report says, adding that innovation has not translated into broad-based productivity growth in Asia.

"The concentration in R&D, digital, managerial, funds, and skilled talent widened Asia's productivity gaps," Kvintradze said. "However, digitisation and global exposure can assist in closing productivity gaps."

Asia should foster innovation by providing R&D tax credits, increasing public spending on basic research, supporting intellectual property rights, and rewarding disruptive innovation, the IMF report advises.

Asian governments should also ensure a level playing field and a simplified and efficient insolvency framework to facilitate resource reallocation, the report says.

"Asian nations should really lower trade barriers and streamline FDI regulations, facilitate knowledge sharing between foreign and domestic firms, improve business-university R&D collaboration while upgrading labour skills, close digital divides, and improve digital infrastructure and the legal environment," Kvintradze said.

Suriyon Thunkijanukij, the National Economic and Social Development Council's senior advisor on policy and planning, said the innovation-aggregated productivity link isn't working well in Thailand because the country lacks serious consistency in implementation.

"We've already set the right target, direction, and structural system. However, no actions are properly taken. We also need a monitoring mechanism to ensure that our policies are implemented," Suriyon said.

Thailand should focus on increasing the capacity of youths to accelerate change in the next decade, he said.

Suriyon suggested that the government should provide access to reproductive health and childcare services, offer inclusive maternity support, promote universal child benefit policies, improve education quality and accessibility, and propose legislation that legally allows different types of families to have children.

However, he pointed out that these policies cannot be implemented unless people also formalise their participation in the system.

Meanwhile, Atip Asavanundd, executive director of the Digital Council of Thailand, and Kiatipong Ariyapruchaya, senior country economist at the World Bank, agreed that Thailand urgently requires education reform.

Thailand, according to Atip, has everything except well-educated people.

All Thai students should have access to digital devices and proper English language education, Atip said. Furthermore, students should be encouraged to study mathematics and science until they complete high school.

"Our educators must focus on pattern quality rather than pattern quantity," he said.

Kiatipong added that basic education for all was essential, and that the country must adopt a more resilient and agile growth mindset.

Meanwhile, he advised Thailand to improve its government data system in order to boost the country's competitiveness and overall service quality.

Pan-Arj Chairatana, director of the National Innovation Agency, said Thailand requires both innovative entrepreneurs and innovative politics.

"We need to put innovation on the national agenda. We already have science, technology, and innovation policies in place. We have a variety of mechanisms. We have a lot of incentives. However, it is not comprehensive enough to be called a national agenda," he said.

Thailand needs to change its perception of innovation to move forward, Pan-Arj said.