Perhaps the best example of a city’s nimbleness in transforming its economy to achieve global competitiveness can be seen in London. The quintessential port city, it has been a trading hub since Roman times, becoming the world’s busiest port in the 18th and 19th century.
It was also known as a manufacturing powerhouse, famous for its flour mills, sauce factories, sugar refineries, clothing industry, and auto industry.
However, after the Second World War, a combination of a lack of investment, complacency and monetarist policies from Margaret Thatcher struck a decisive blow to British manufacturing, which dwindled in comparison to its European neighbours.
Subsequently, London began to prioritise its financial services. The city took advantage of the New York slowdown caused by the Sarbanes-Oxley Act in 2002, driving many foreign companies to list their stocks in London. By 2016, London traded twice as much foreign currency daily as New York, its nearest rival, at an average of US$2.42 billion daily.
In Asia, many cities have been competing to become the next London. Shanghai, also a strategic port city and industrial economy from the mid-19th century, suffered during the Second World War, becoming isolated from the global economy for many decades.
Embracing a market-driven economy from the 1990s, the “City by the Sea” came roaring back to life with the birth of its own financial district of Pudong. Shanghai’s rigorous city planning followed in the early 2000s and the skyline metamorphosed rapidly.
The IMF declared the renminbi one of the world’s main currencies in 2015, and the government has also announced plans to ease limits on foreign ownership of its financial services groups. All this will further enhance Shanghai’s well-earned new reputation as a global financial centre.
Kuala Lumpur has embraced a similar approach; once known for manufacturing prowess in the rubber, tin, electrical and electronic, and textile sectors, it is today attracting investors into its financial services, as well as hospitality, legal, education and information technology.
This progress came through careful planning. The collapse of global rubber and tin prices in the 1980s alongside the continued decline of commodity prices in general prompted diversification into export-driven growth and services.
Around 55% of the Malaysian economy is made up of service sectors, which have increasing weightage as economic drivers, as manufacturing retreats as the main growth factor.
Crucially, the Malaysian government is supporting this services development, especially for high end services, placing a focus on financial services as part of its Economic Transformation Plan. One of its most oft-touted success stories is in Islamic Finance, where Kuala Lumpur is an acknowledged pioneer in the growing global Islamic finance presence.
In its latest report out March 2018, Moody’s Investor Service has noted that the Islamic finance sector’s global growth will continue to outstrip growth seen in conventional financial services, as demand for Shariah-compliant financial instruments rises.
“Islamic finance is under-represented in the global financial system, and will benefit from government objectives to grow the sector,” the report says.
In 2017, global sukuk issuance rose by 17% to a market of US$100 billion. KL is currently the world’s largest sukuk issuer, with more than half outstanding global sukuk (as of January 2018), ahead of nations such as Saudi Arabia, United Arab Emirates and Indonesia. According to Malaysia International Islamic Finance Centre (MIFC) estimates, Malaysia also has the largest assets under management (AUM) for Islamic funds by domicile in the world, at 37.2%.
Photo Credit : Shanghai World Financial Center