Rebooting Malaysia

By Lee Heng Guie

AS the country emerges cautiously from the Covid-19 pandemic and moving on to the recovery and revitalisation stage, it is an opportune time and incumbent on the government to review the sustainability of our economic and social systems and environment as we step up efforts to restore the economic and business normality. Political stability is key to macroeconomic stability and growth.

A post-pandemic “new normal”, lingering concerns about trade tensions, major advanced economies’ policy uncertainties and fluctuations in commodity prices highlight the challenging nature and complexity of coming to grips with it. In the immediate term, there is the pressure to reduce unemployment, revive consumer spending and stimulate economic growth after the economic crisis.

In every economic crisis, there are bound to be some structural damages and weaknesses that require remedies and quick reforms so as to put the country’s economy back on the right track and to grow sustainably. Financial and economic resilience must be enhanced to ensure an entrenched recovery and sustainable economic expansion after emerging from either a major financial or economic crisis.

If the Covid-19 pandemic were to lead to new fiscal, economic and reform priorities, there are lack of signals thus far regarding the likely direction of change. It is expected that defining strategic economic and industrial policies will be formulated in the economic recovery plan and the 12th Malaysia Plan.

The current pandemic-inflicted economic crisis serves as a catalyst for rebooting the Malaysian economy by retooling towards a balancing of socioeconomic, capitalistic and technology-driven nation.

Good sense and strong political will must prevail to reset our national development agenda based on needs, irrespective of race, while priority must be given to protect the most vulnerable groups.

Attempts at reforming are often stymied by the ubiquitous “vested interests”. If it is the case that only a crisis will stimulate reform, then now would be the time to expect and do something different with no conflicting vested interests embedded.

We must acknowledge that the world is increasingly globalised, with an ever-increasing level of global connectivity and interdependence powered by technology and digitalisation.

We must look at opportunities that capitalise on Malaysia’s strengths and comparative advantages in resource-based and non-resource-based industries. Our regional competitors are fast catching up and climbing up the ladder of competition in terms of products and services offering, market share, participation in global supply chains, financial flows, foreign long-term capital and labour mobility.

Here are the six issues that require our attention and policy commitment:

First: The government must plug leakages in affirmative action policy to ensure that the most vulnerable ones (those who are left behind), regardless of race, will be given priority in terms of a new approach towards social safety protection system, which integrates a mixture of mandates and incentives, thereby helping households to invest in human capital. One can consider to experiment the Universal Basic Income programme for communities that are considered economically disadvantaged. Subsidies and financial assistance programmes need to be well targeted.

Second: How can we reboot and realise the potential of our human capital? The advent of digital and disruptive technologies had and would continue to change the nature and skillsets of work; this disruption requires skills transformation that is central to our current and future development progress. Skilled labour currently makes up 27.9% of total employment in 1Q20, as against the 11th Malaysia Plan’s target of at least 35%.

Malaysia’s human capital must be effectively nurtured and developed to raise productivity and become more productive and agile through reskilling and upskilling as well as industry training, placing premium on cognitive skills, creative and innovative capabilities. We need at least 60% of students to get into STEM (Science, Technology, Engineering and Mathematics) compared to 44% currently. Technical and vocational education and training (TVET) must be revamped to be digitally viable and given the same importance as mainstream education as well as be integrated with STEM because of its focus on innovation and problem solving.

Third: The government and industries need to be more committed to address both documented and undocumented foreign workers, estimated at 5 million to 7 million, which have been undermining our industrial restructuring and skills transformation. We need to seriously relook and come up with better solutions towards a phased reduction of foreign workers, encouraging automation and going digital.

Fourth: The challenge to ramp up digital infrastructure and fix the technology gap as well as cybersecurity. Digital experience needs to be enhanced in terms of speed, reliability and coverage to narrow the urban-rural digital divides.

The government’s leadership is needed to ramp up a full-fledged e-government as well as to coordinate a public-private partnership to win the public’s trust in using technology tools to increase process efficiency, lower cost and boost productivity. The E–Government Development Index (EGDI), which measures national institutions’ readiness and capacity to use ICTs to deliver public services, showed that Malaysia was ranked 48th, markedly behind Singapore (7th) and Japan (10th).

The current e-government system is probably at 30%-40%, meaning that the process of digitalising public delivery services must be more comprehensive and accelerated. With the government leading the e-curve, businesses and people will adjust to adapt and adopt it accordingly, to accelerate towards a cashless economy.

Fifth: Malaysia needs to enhance its global as well as regional collaboration and linkages in trade, services, investment, technology as well as financial and capital aspects.

Protracted weak private investment prior to Covid-19 was a major concerning factor. Dampened by uneven global growth and weak domestic environment, private investment growth had slowed at a discernible pace in 2015, with the growth rate pulling back sharply to 4.3% in 2018 and 1.6% in 2019 respectively from a strong double-digit growth of 13.6% per year in 2011-2014. The unprecedented transition in the federal government, which had led to policy uncertainties, also partly undermined investment momentum.

The trade tensions and Covid-19 pandemic have spurred a diversification of global manufacturing and supply chains concentration in China, and are likely to mean that Southeast Asia would benefit first. The business risk management strategy will expedite the pre-existing trend for on-shoring – moving production closer to markets.

Malaysia must provide assurance to prospective investors that the government will honour the sanctity of contracts and agreements so as to ensure that stakeholders’ interests are protected. The government needs to make sure that the right people are empowered to make the right decisions.

An important priority is to foster competitiveness through developing specific skillset, relevant technologies and markets, and promoting public-private partnerships to generate quality investment and derive synergies for upgrading investment, innovation, and diversified domestic production structures.

There is also a need to invest in “new smart infrastructure” used for high-tech, digitalisation and sustainable purposes (healthcare, renewable energy, climate change, eco-green, clean energy technologies, extractive industries, maritime, aerospace, agriculture and security food).

Sixth: There is clearly still room for Malaysia to improve the World Bank’s ease of doing business ranking (12th in 2020). We need to revisit to further streamline the impediments to investment in Malaysia.

These include:

(a) Starting a business: Local entrepreneurs continue to face cumbersome procedures to start and operate a business. Malaysia ranks 126th on this indicator, taking 8.5 procedures and 17.5 days.

(b) Paying taxes: Malaysia ranks 80th on this indicator as domestic companies spend an average of 174 hours annually to comply with fiscal obligations, slightly more than the OECD high-income average of 159 hours.

(c) Legal rights and enforcing contracts: There have been no reforms in these areas over last five years and hence, it is crucial to enhance regulations that protect the rights of lenders and borrowers, and improve the efficiency of the judicial system. For instance, the time needed to enforce a contract in Malaysia is 425 days compared to Thailand (reduced from 440 to 420 days in Thailand), and Indonesia (from 471 days to 403 days). – July 3, 2020

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