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Credit Suisse says Malaysia among best-positioned to become developed market in the next decade

Financial services group Credit Suisse has identified Malaysia as one of just two large APAC countries with the best prospects of progressing towards developed market status over the next decade, due to factors such as quality of human capital, ease of doing business and demographics.

In a report studying global emerging markets entitled ‘Why some countries succeed and others fail?’, Credit Suisse analyst Viktor Shvets said: "We identify five key factors that, in our view, enhance the chances of success. We believe that it is the interaction between the quality of human capital, innovation, physical infrastructure, business climate and demographics that tends to drive ‘graduates’, whether the US in the 19th century of Japan and Korea in the 20th.

"Perhaps the most important lesson is consistency. Progress depends on productivity growth at 4%-plus per annum for at least 30 years."

The report, which named China as the other large APAC economy best-positioned to emerge as a developed market in the next ten years, also highlighted that Malaysia has already completed the first step in ensuring the quality of human capital by achieving primary-to-secondary education progression of 100%.

With the quality of human capital acting as a key driver of productivity gains, Malaysia also benefits from a high proportion of science and engineering graduates. "Generally, a higher percentage of engineering graduates tend to provide an emerging market with a greater skill base to develop and extend manufacturing and other middle-range value-added services," said Shvets in the report.

Malaysia has also recorded significant progress in improving the ease of doing business in the country, as indicated by its 12th rank in the World Bank’s Doing Business Report 2013. Credit Suisse cautioned however, of countries such as Malaysia and Thailand remaining stagnant in their efforts to improve the ease of doing business.

Nonetheless, it noted that "both countries are within striking distance of developed markets, in offering one of the most transparent and efficient business climates within the emerging market universe".

Additionally, Malaysia scored well in what Credit Suisse has termed as a make it or break it factor in achieving developed market status: Demographics. "There is no historical precedence of a country progressing to developed market status while having highly elevated old age dependency ratios," Shvets wrote.

With its old age dependency ratio of just below 8% in 2011, Malaysia is therefore among countries best-positioned to take advantage of this "demographic dividend".

Credit Suisse's report also addressed some shortcomings which challenge Malaysia's progress towards developed market status, noting the country's limited efforts in innovation and research and development.

Overall however, due to its achievements in the areas of human capital and ease of doing business, coupled with the country's young demographics, Malaysia remains well-placed to transition into a developed market, leading other emerging markets.

“It is far too early to judge whether India will ultimately make this transition. Neither the Philippines, Thailand nor Indonesia is likely to accelerate at a sufficiently robust rate to transit towards the developed market status anytime over the next decade,” noted Shvets in the report. The same also applied to Sub-Saharan Africa including South Africa, the Middle East including Egypt and Turkey but excluding small resource-based economies, non-EU Eastern Europe including Russia; and Latin America.

Credit Suisse's report also addressed some shortcomings which challenge Malaysia's progress towards developed market status, noting that the country's efforts in innovation and research and development remain at a nascent stage.

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