Malaysia - Towards A High-Income Economy
In the latest Budget, the Prime Minister stated the goal for Malaysia to become a high-income economy. What do you think are essential ingredients for Malaysia to achieve high-income status?
“…This is about far more than the economic goals of our nation. This is about the life chances open to future generations…It is about placing Malaysia at the forefront of a high-income economy…”
Above is an excerpt from the conclusion of Datuk Seri Najib Tun Razak’s speech at the Invest Malaysia 2010 event. It is also at this occasion that The Right Honourable Prime Minister declared the goal for Malaysia towards a high-income economy. Of course, there were some parties which have already voiced their skepticism against this ambitious aim. Would Malaysia ever be able to achieve such a goal, or would it remain a dream?
The discussion that follows will analyse the current situation, looking at the gaps and obstacles towards achieving a high-income economy, and the main challenges ahead. These would then be followed by discussing the main substances to achieve the target. The New Economic Model and the 10th Malaysian Plan shall frequently accompany this discussion.
The Prime Minister has set the target to achieve per capita income of RM38, 850 (US$12,140) by 2015. With income per capita of such, we would be able to stand side-by-side with many developed countries. For example South Korea’s Gross Domestic Product (GDP) per capita in 2009 was US$17,704. Although this figure is still far lower than the GDP per capita of countries such as the United States (US$46.381), the United Kingdom (US$35,334) and Japan (US$39,731), it is set based on the economic nature of our economy, hence it would not necessarily mean we need to benchmark our target based on the countries mentioned.
The key challenge would be to stimulate greater private sector led investments. Trade liberalisation shall be a vital policy for this. Privatisation of government assets especially in non-core industries should be continually implemented to allow more space in the market for private investors.
It is also encouraging to note that the Government has tabled the Competition Bill 2010 and Competition Commission Bill 2010 in the Parliament. Once they become an Act of Parliament, these two legislations will be the impetus to encourage healthy competition to boost efficiency. Monopolies action in the market will also be controlled, giving greater protection to consumer sovereignty.
The extent of effectiveness of these two legislations is still unclear as they are yet to be enforced, however it is hoped that they can be as successful as shown by the Competition Commission of the United Kingdom and the landmark case in the United States where Microsoft Corporation was ordered by the Federal Court to be separated into smaller entities to reduce its monopoly powers. However, certain natural monopolies such as Tenaga Nasional Berhad should be allowed to remain as a monopoly to avoid wasteful duplication of resources. For example, having another competitor building another Bakun Dam has more social costs than social benefits.
To encourage competition, it is also important to make the market a contestable market, where there is relaxation of barriers to entry and exit or deregulation, in industries such as electric and electronic, information technology, tourism and private healthcare. AirAsia have proven the huge benefits of competition in the airline service. Not only do the consumers benefit, especially from much lower airfares but Malaysia Airlines System (MAS) also faced tough competition and now is managed more efficiently.
Small and medium enterprises should be given proper and adequate assistance as they will encourage competition with large established firms. The writer suggests easier loan approvals by the SME Bank to the SMEs. Although individually SMEs are employing few workers but collectively, they employ a huge sum of workers. SMEs would be very suitable to boost income in the rural areas, where rural citizens can add value to their farmed goods, such as selling keropok. The project by the Ministry of Rural and Regional Development of 1 District, 1 Product inspired from Thailand is a good way of using the niche areas of rural activities to increase the rural citizens’ income. However, the implementation needs further improvisation and the results are still far away from the success of Thailand’s.
As many rural citizens are still in the primary economy sector such as fishing and farming, they would need to add value to their products to increase their income. For example, their surplus products should not be sold in the market as it will be sold at a lower price hence there would be only little increase in revenue. Instead, they should add value such as making fish keropok, and making pulut from durians.
It would not be sufficient for us to depend on domestic investments only. In the globalised world economy today, if we do not take advantage of the vast available foreign investment then we would definitely be left behind. There should be more concerted efforts to attract foreign direct investments (FDIs) from abroad. Currently, it can be seen that we are not “business-friendly” enough with various barriers of entry to foreign investors and bureaucracy on the government side.
The Prime Minister has voiced his concern after his official visit to China that many foreign investors are interested to invest in Malaysia but are unable to find suitable avenues. The relevant authorities must facilitate the smooth inflow of FDIs into the five economic regions namely, Northern Corridor Economic Region, Iskandar Development Region, East Coast Economic Region, Sabah Development Corridor, and Sarawak Corridor of Renewable Energy. Malaysian Investment Development Authority (MIDA) which is seen to be very much highlighted in both the NEM and 10th Malaysian Plan must also play a more vital role in attracting FDIs.
Free trade must also be a priority by reducing or abolishing altogether protectionist policies, such as tariffs, quotas, embargoes, and non-tariff controls. In the region of Asia or even South East Asia, there is still no one organisation which is as strong as the European Union, which is now an economic union with its member countries deriving benefits from the introduction of single currency and free movement of factors of production. However, Malaysia would not be able to derive as much benefit as possible if some absurd protectionist policies are still imposed. Only minimum relevant barriers should be imposed to safeguard strategic industries for the benefit of our economy. For example, tariff on exported cars. However, there should come a time for Proton to compete independently without the Government’s assistance since competition would lead to greater efficiency.
Although we are moving forward to place greater emphasis on private sector investments, this does not mean that the governments sector can be at a standstill. In fact, the public sector should also reform itself as a competitive corporation to increase productivity and efficiency to facilitate the process towards a high-income economy.
The Government should reduce obstacles and increase efficiency in Government delivery and procedures. The Performance Management & Delivery Unit (PEMANDU) and Special Taskforce to Facilitate Business (PEMUDAH) should continue to take initiatives and measures that will lead to easiness in business-government dealings. There have already been commendable efforts such as beginning 1 April 2010, business registration is implemented within three days from the previous period of 11 days. However, there is still much room for improvements. For example, more coordinated and unified system and reduction of unnecessary processes in business-government dealings.
The Prime Minister has made a firm stand in 2009 in rejecting the Congress of Unions of Employees in the Public and Civil Services (CUPEACS) demand for bonuses and stated that only if the public sector increases productivity, then government servants would be rewarded. In early 2010, Tan Sri Mohd Sidek Hassan, the Chief Secretary to the Government declared that the public sector should not be seen anymore as the last career option, noting that the government expects only the best in the service. In recent developments, the Public Service Department has taken strict actions to improve the services of the sector such as by sacking those who submit fake medical certificates.
All these measures seem to imply that there is an ongoing transformation of the public sector. It is a very much welcomed step; however it is more reflected by top leaders and not by the public sector workers. It is an undeniable fact that many government offices have now been given modern and sophisticated image, but the quality of work of government officers has not improve much. The change of attitude must continue to be an important agenda in reforming the public sector to achieve the aim of high-income economy.
All the above discussion has been from the perspective of demand-side economics. The following part of this discussion shall focus on the supply-side economics which has been an integral thrust of our sixth Prime Minister’s policies, including the NEM and 10MP.
To accomplish high income economy status, we must be able to achieve continuous economic growth through the increase of the potential output which can be shown by the outward shift on the production possibility frontier. This can be attained by the improvement in the quality and quantity of resources and advancement in technology. The 10th Malaysian Plan aims for 7% increase per annum in economic growth per year until 2015.
Labour is undoubtedly the most important resource of any nation in the world. The first issue of labour which our country needs to deal with would be regarding foreign labour. Currently there are 6.7 million foreign workers in Malaysia, compared to the labour force of domestic workers 11.6 million. Of these 11.6 million in the labour force, 3.6% are unemployed.
Malaysia should be less dependent towards foreign labour especially non-skilled workers. The action of the Indonesian government in 2009 to freeze temporarily maids supply into Malaysia unless there is increase in the minimum wage of Indonesian maids should be a wake up call to Malaysians. We rely too much on Indonesian maids that we have to give in to their requests of minimum wage up to RM600 per month. Ironically, there were statements from Indonesian employers that a wage of RM400 would be more than enough to provide a decent life for the Indonesian workers.
We should focus on attracting more high-skilled labour that can contribute to profitable industries. This can be approached in two directions. Firstly, attract foreign labour with such skills. Secondly, tackle the problem of brain drain from our country. To attract high-skilled labour, the writer suggests taxing low income tax for Malaysians graduates who have just started working for a period of five years, offering permanent residents (PRs) status to foreign high-skilled labour, and offering of tuition grants at public universities for high demand courses and bonding the recipients to work for a certain period in Malaysia. It is rather a paradox situation as we would like to head towards high-income economy, we need these highly-skilled labour who also take wages as their main consideration. As our wage rate is of no match to other more developed countries, we should focus on other factors which can contribute to higher quality of living such as better public transportation and lower crime rates to attract this better human capital.
Education is an important factor to improve the quality of our labour. The Government in the 10th Malaysian Plan has lowered the entry age of schooling to five-year-old in line with many developed countries. In the long term, labour force will increase. However, the quality of education should also be enhanced. Teachers must receive sufficient and continuous training and must learn to adapt new teaching methods moving away from the ‘chalk and talk’ method. Our education system must also move towards self-discovery learning that promotes creativity and innovation moving away from our current system which is too exam-orientated.
We are all looking forward to achieve this goal to place our country in an outstanding position in the international arena besides elevating our per capita income. However, we must ensure that we have a sustainable development, or as of The Limits to Growth by the Club of Rome’s definition: “a steady state economy.” This means we employ our finite resources in the best possible manner, productively and allocatively so that we not only fulfill our present needs but also preserve the resources for the future generations. Hence, we must plan not only towards 2020 but beyond 2020. Many may have forgotten about Tun Abdullah Ahmand Badawi’s notion of Vision 2057, however, I believe that we should look forward to Vision 2057 after Vision 2020 for us to have a clear direction after 2020.
In conclusion, the target has been set, the framework has been laid out, it is now up to us, all Malaysians, regardless of race to boost our country for the benefit of our nation. Together as one, it shall not be impossible.
References
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