March 11, 2019

Hurdling the Middle Income Trap through Innovation: Indonesia & Malaysia


As innovative progress shows no signs of slowing, countries are keen to harness the benefits of IP. Those at the forefront of the innovation race continue to re-define possibility and set the standard for all who follow. Prioritizing IP has the power to transform economies. For countries like Malaysia and Indonesia who must soon hurdle the middle income trap, this message could not be more pertinent – the time to harness the benefits of IP as an economic driver is now.

Malaysia

Ever since the Asian financial crisis in the late 1990’s, Malaysia’s economy has flourished, averaging 5.8% growth over the past 20 years. While this accelerated growth rate is positive, Malaysia risks falling into the middle income trap, or the point at which economic growth stagnates and prohibits a country from achieving high-income status. The World Bank estimated that out of 101 middle-income economies in 1950, only 13 became high-income by the early 2000’s. The difference between the many and the few: innovation. The benefits of an IP-focused economy could prevent this stagnation – for instance, according to the 2019 International IP Index, countries that prioritize IP are 26% more competitive and 55% more likely to transform their economies using sophisticated, state-of-the-art technology. Prioritizing policies that bolster IP could allow Malaysia to continue its upward trajectory, make additional headway in its transformation into a knowledge-based economy, and assert leadership amongst its ASEAN peer economies.

Making notable progress in the 2019 IP Index, Malaysia’s national IP environment ranked 24th out of the 50 economies analyzed. For instance, over the past year Malaysia made an effort to prohibit infringing goods from passing over its borders as the result of a Malaysian High Court case which sets the precedent that the Royal Malaysian Customs Department (RMC) can seize suspected counterfeit goods in transit. Additionally, Malaysia provides a number of different tax incentives for innovators and creators to invest in IP, including an Investment Tax Allowance and R&D super deductions. In a press release, GIPC’s international policy executive director Ellen Szymanski noted Malaysia’s progress over the past year: “Malaysia’s score illustrates how the country has taken some positive steps to bring its IP framework more closely in line with its Southeast Asian economy peers […]” Given how much progress Malaysia has made in improving its IP framework in the seven editions of the Index, it is critical that the government rejects further attempts to weaken the IP framework through the use of compulsory licenses.”

Indonesia

Like Malaysia, Indonesia has experienced unprecedented economic growth since the Asian financial crisis of the 1990’s – the per capita GDP rose from $857 in 2000 to $3,847 in 2017. As the 16th largest economy in the world, Indonesia stands to benefit from robust IP protections. For instance, more than 100 million residents own smartphones, creating opportunity for the further development of telecommunications innovations. President Joko Widodo has expressed high expectations for Indonesia and its uncharted growth, and hopes to add 58 million skilled workers by 2030 which would make Indonesia the world’s 7th largest economy. The Index illustrates how prioritizing IP could aid President Widodo in achieving his goal; economies that do so are likely to see a 78% increase in the competitiveness of human capital. With Indonesia’s working population projected to reach 195 million by 2040, choosing to capitalize upon this resource could solidify Indonesia’s position as a top-10 global economy. However, in order to avoid the middle-income trap, achieve these growth goals, and provide innovators and creators the resources they need to flourish, Indonesia must make additional headway in the innovation policy space.

Ranking 45th in the U.S. Chamber 2019 International IP Index, Indonesia has taken positive steps to improve its national IP environment to achieve regional alignment with its Southeast Asian peers. The Index findings show that while the 2016 Patent Act had many troubling provisions, the 2018 Patent Regulations provided relief from the general technology transfer and localization requirements. Additionally, the Indonesian IP Office has several initiatives in place to help small and medium-sized enterprises (SMEs) utilize and leverage IP assets. John Goyer, executive director of the Southeast Asia division of the U.S. Chamber of Commerce said: “With a growing population, demographic advantages, and a dynamic economy, Indonesia is a country on the move.  Indonesia can harness the power of IP to escape the middle-income trap.” Acknowledging the government’s effort to coordinate with stakeholders in order to strengthen IP enforcement, Goyer warned: “[…] if Indonesia wants to continue to attract foreign investment, create high-value jobs, and become a true knowledge-based economy, the government must continue to invest in IP reforms.”

The importance of innovation to Indonesia and Malaysia cannot be understated; as both economies tow the line between exponential growth and perpetual stagnation, the time to harness the benefits of IP as an economic driver is now. The 2019 U.S. Chamber International IP Index reveals the vast benefits of an IP-driven economy, benefits that could propel Indonesia and Malaysia to the forefront of global IP leadership. The full Index can be viewed here.

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