between them. the internet, social media, cloud computing and big data analysis are affecting competition by altering relative prices and market shares between, for example, small and large firms. but the overall impact of digitalisation on productivity and potential growth does not depend solely on innovation and the creation of new technology. for new technology to truly achieve its full effect, it has to spread from its creator to other businesses in the economy. 1 / 4 bis central bankers'speeches yet at present, firm - level productivity appears to be becoming more dispersed, as firms rich in intangible assets are scaling up investment much more than firms that are lagging behind. this divergence seems to be related to inefficiencies in the reallocation of resources from the least to the most productive firms within each sector, rather than inefficient allocation between sectors. factors that drive such capital misallocation5 appear to be partly related to market rigidities, poor policy reactions and banks ’ reluctance to address their non - performing loans. there are three main avenues for policymakers to harness the benefits of technological progress and drive an improvement in living standards. the first is to encourage education policies that mitigate the impact of technology on some workers. the second is to bolster competition to provide businesses with incentives to invest in technology. and the third is to ensure we have a financial sector that is capable of supporting innovation and growth. digitalisation and demand for skills introducing new technologies appears to reduce the demand for low and medium - skilled workers. 6 at the same time, it creates new jobs which require highly skilled workers and provides opportunities for further. 7 these changes already appear to be having repercussions for wage distribution and working conditions. these challenges come at a time when labour ’ s relative contribution to potential growth is diminishing in the context of an ageing population. all else being equal, unfavourable demographics increase the relative importance of capital deepening for underpinning potential growth. 8 education and infrastructure policies promoting entrepreneurship could smooth the transition and mitigate adverse effects on low - skilled workers. these include retraining and lifelong learning opportunities. we have witnessed a sharp increase in the participation rate of older workers during the past decade. continuing this trend by providing opportunities for this part of the population to reskill and remain connected to the labour market would help mitigate the impact of ageing on growth. policies to support competitiveness policies to boost competitiveness and attract investment in europe are an

supervision. experiences across the region and especially developing countries indicate that most countries are still at the stage of sensitization and trying to incorporate market risk under basel i. as we progress towards the implementation of this new capital framework, success will require that bank regulators, the banking industry and other relevant parties engage in a continuous and frank dialogue on its costs and benefits. as you are aware basel ii is one the activities, which is being reviewed at regional level under the auspicious of the monetary affairs committee. our proposed implementation target date is 2010. bank of uganda in this direction recently circulated a basel ii impact assessment questionnaire to all supervised banks and credit institutions. i am happy to report that varied responses have been received from the banks and credit institutions and are still being analyzed so as to come up with a basel ii activity plan. impact on financial services basel ii is a comprehensive framework for improving bank safety and soundness for three reasons. 1. it closely links the regulatory capital requirements with the bank ’ s risk profile. 2. it improves the ability of supervisors and financial markets to assess capital adequacy 3. it gives banking organizations stronger incentives to improve risk measurement and management. the impact of basel ii on financial services can best be reviewed by looking at its three elements or pillars. pillar 1 - the minimum capital requirements or risk focused regulatory capital requirements pillar 2 - the supervisory review process pillar 3 - market discipline under pillar 1 : the treatment of credit risk reflects more accurately the risk reducing effects of guarantees, derivatives and other risk “ mitigants ” through substitution and on balance sheet netting due to application of different risk buckets depending on risk category of the borrower. this will give incentives for banks to hedge credit portfolio risks. the incorporation of operational risk under pillar 1 is also a significant step, which recognizes operational failures that banks should seek to minimize. in addition, strong capital helps banks to absorb unexpected shocks and the minimum regulatory capital that accurately reflects the bank ’ s risk profile provides more effective triggers for prompt corrective actions. under pillar 2 : banks will be required to maintain a capital cushion above the regulatory minimums to capture the full set of risks to which the bank is exposed. these include liquidity risk, interest rate risk, concentration risk and other risks which are not captured under pillar 1. the expanded information will improve the quality of both the supervisors ‘ and individual banks ’ assessment of capital adequacy. under pillar 3 : banks will be required to disclose to the public the