LETTER: A panel of experts has proposed a short and long term solutions to the economic challenges and policies faced by Malaysia during a virtual Roundtable on "Expanding Malaysia's Economic Pie — Where, What and How?", organised by The Economic Club of Kuala Lumpur (ECKL) and the KSI Strategic Institute for Asia Pacific (KSI), last Tuesday, February 23rd.
The panel comprised Tan Sri Andrew Sheng (Distinguished Fellow at Asia Global Institute of the University of Hong Kong), Tan Sri Abdul Wahid Omar (Chairman, Bursa Malaysia and Chairman, ECKL International Advisory Council) and Datuk Dr Madeline Berma (Commissioner, Human Rights Commission of Malaysia).
The session was moderated by Tan Sri Yong Poh Kon (Chairman, Royal Selangor International Sdn Bhd). The panel discussed Malaysia's economic challenges and proposed various recommendations for policymakers.
The panel agrees Malaysia is badly affected by the Covid-19 pandemic. Malaysia's economy has contracted by 5.6 per cent Gross Domestic Product (GDP), making it the worst contraction since the 1998 Asian Financial Crisis.
Consequently, Malaysia's Gross National Income (GNI) per capita has declined from RM45,212 in 2019 to RM42,531 in 2020. According to a recent United Nations Conference on Trade and Development report, Malaysia's foreign direct investment (FDI) has dropped by more than two-third to RM10.1 billion in 2020, making it the worst drop in the region.
Malaysia's FDI has remained stagnant relative to its neighbours such as Singapore and Vietnam. While the fiscal deficit has expectedly widened to 6 per cent GDP, the current account in Malaysia's balance of payments recorded a surplus of RM62.1 billion in 2020, making it the highest surplus since 2011.
The panel agrees with what many economists have described as a "K-shaped recovery" with a widening gap between the high-income group and the middle- and low-income groups. Such issues are compounded due to the various layers of homogeneity in Malaysian society.
Income inequalities also exist between Malaysian states and territories, where median income can range from RM3,563 in Kelantan, RM5,873 in Sarawak, to RM10,549 in Kuala Lumpur (statistics 2019).
While Malaysia's Gini coefficient has improved from 0.399 in 2016 to 0.407 in 2019, there are still pockets of poverty which have proven difficult to resolve, particularly in rural and interior areas which are more difficult and costlier to access.
Between 2016-2019, median income has only increased by 1.8 per cent for the B40, 4.1 per cent for the M40, and 4.5 per cent for the T20. Therefore, policies meant to address inequality have not brought about the desired outcome.
Covid-19 risks worsening inequalities for the B40 and M40, especially with regular sources of employment and income generation being disrupted. The pandemic has created a "new poor", where those who were not poor before the outbreak (and may have even been in the T20 and M40 as well as the higher end of the B40) have fallen behind the poverty income line.
Many small and medium and enterprises have already wound down, and the unemployment rate are increasing further including poverty rate and the debt-to-gross According to the Statistics Department of Malaysia (DoSM) 2020 data, the incidence of absolute poverty decreased from 7.6 per cent in 2016 to 5.6 per cent in 2019, but the incidence of relative poverty increased from 15.9 per cent (2016) to 16.9 per cent (2019).
Despite Malaysia's dominant economic position in Asean, its economic size has declined from third in 2010 to sixth position in 2020; Malaysia has been overtaken by the Philippines, Indonesia and Vietnam.
While the pandemic has exacerbated the structural challenges of the economy, these issues have persisted prior to the pandemic. A key stumbling block is Malaysia's young but rapidly ageing population coupled with declining productivity rates. One of the major reasons for the slowing labour productivity is that that Malaysia has not invested enough in our youth.
It is hope that IR4.0 can reverse the declining productivity growth. This decline in productivity growth if not reversed will have an adverse effect on expanding the economic pie to have inclusivity. The panel also suggested that perhaps a new social compact be drawn up to move the country forward for sustained economic, productivity and inclusive growth.
These are some of the issues that has prevented Malaysia from breaking through the middle-income trap, afflicting most neighbouring Asean countries.
The panel lauds the recent policies of the government such as the Malaysia Digital Economy Blueprint and the to be launched 12th Malaysia Plan. However, the execution of these policies is extremely important.
The panel are in consensus that Malaysia needs to grow the economic pie to ensure a fairer and more inclusive growth for all Malaysians. Additionally, the government needs to work closely with the private sector, civil society and academia to promote innovation in order to create opportunities and jobs of the future.
Moreover, predictability and certainty in government policy is necessary to attract and retain FDI back into the country. Therefore, Malaysia needs both 'whole-of-government' and 'whole-of-society' approaches to address challenges of the 21st century.
The panel has proposed short and long-term recommendations for the policymakers.
Short-term solutions include:
1. Focus on effective implementation of the existing policies and initiatives.
2. Further reopen the economy.
3. Address the grievances of the industry associations particularly shortage of labour in key sectors (e.g. manufacturing, plantation)
Long-term structural economic changes include:
1. Leverage Malaysia's true strength in social technology to attract and retain FDI. By acting as a nimble, agile and innovative country, Malaysia can compete in speed and scope. In addition, Malaysia should leverage its rich diversity to capitalise on the three largest markets — China, India and the Muslim world – to attract more investments.
For Malaysia to expand the economic pie, it is crucial to focus on attracting more investment to create more business and employment opportunities. Therefore, we must review economic policies to make Malaysia more competitive
2. Introduce a cradle-to-grave approach to Malaysia's human capital development policy. The planning should be done at the individual level from birth to primary education to secondary and TVET to tertiary education to entrepreneurship and employment.
However, the concept of cradle-to-grave employment is no longer valid these days. Today's society is more geared towards the gig economy, part-time and freelance work, etc. In developing human capital policies, this new trend must be taken into consideration as this growing labour trend has the potential to have real economic effects by addressing dysfunction in the labour market and providing transparency about jobs of the future.
3. Transform the civil service by developing international talent for organisational sustainability. In addition, civil servants should be exposed to the private sector through secondment and in turn, senior corporate figures should be appointed to the civil service.
4. Strengthen the mechanism for fair and equitable distribution across income groups, ethnicities, regions and supply chains. A needs-based Equitable Opportunity Act should be enacted so that any policies aimed at promoting fair and equitable distribution across diverse segments and backgrounds can be enforced across both the public and private sectors in an effective and equitable manner.
5. Embedding Environmental, Social and Governance (ESG) framework for all segments of society including corporations, government, civil society and individuals. In line with the 2030 Agenda for Sustainable Development, the Malaysian Digital.
THE ECONOMIC CLUB OF KUALA LUMPUR (ECKL)
KSI STRATEGIC INSTITUTE FOR ASIA PACIFIC (KSI)
The views expressed in this article are the author's own and do not necessarily reflect those of the New Straits Times