NEW ECONOMIC MODEL – CAN WE ACHIEVE VISION 2020
by Dr. Sivamoorthy
The NEM aims to lift Malaysia from a middle income economy that is heavily dependent on trade and commodities to developed nation status in 2020 through economic liberalization of the services sector enhancing Malaysia’s competitiveness; sparking private investments and growth and through bold transformation and economic reforms to modernise our economic model of the future.
At the onset, we need to identify the structural issues that was ailing the Malaysian economy for the last five decades. They can be summarised as follows :-
1. Malaysia is losing its long term growth momentum and its and its economic sustainability is at risk.
· World Bank Index “Ease of Doing Business 2010” ranked Malaysia 20 out of 183 countries. On the World Bank Knowledge Economy Index (KEI) was 6.07 in 2008 as against 9.41 of top 5 countries.
· In the last 7 years, entry of unskilled workers increased by 300% and they formed 30% of our workforce. Entry of skilled workers / professionals dwindled by 60% (85,000 in 2000 to 35,000 in 2007)
· Private sector participation as engine of growth has dwindled to below 10% pf GDP from 30% of GDP at its highest.
· Outflow of capital RM 117 billion in 2008 and RM 54 billion for the 6 months in 2009.
· The number of Researchers and Engineers per million population in 2000 and 2006 compared to various countries :-
o Japan 5,148 5,098
o Korea 4,162 2,317
o Singapore 5,713 4,140
o Taiwan 4,159 3,922
o Malaysia 367 276
· The gross Research & Development in GDP in 2006 compares as follows :-
o Japan 3.4% 2.9%
o Korea 3.23% 2.69%
o Singapore 2.39% 1.92%
o Taiwan 2.58% 1.96%
o Malaysia 0.64% 0.49%
· New Economic Policy framework of 1970 – 2009 is inconsistent with knowledge led growth as it focuses on redistribution of income and not enough on generation of income. Other negative elements of NEP are as follows :-
o Knowledge based economy requires meritocracy and institutionalized discrimination prevent full mobilization of human resourses.
o Ethnic quotas on ownership, bank loans, business licenses, government contracts and employment are anti growth and promotes corruption.
o Government Linked Companies (GLC’s) forming 36% of the market capitalization and owns seven of the top 10 listed companies through the Government. Both Senior GLC positions and management are largely bumiputeras had undergone through major transformation programmes to make them more profitable. As GLC’s State Corporations and government agencies like FELDA, FELCRA, RISDA, KADA, MADA, KEJORA and Approved Permits (APS) are conduits / channels for bumiputeras to participate in management and contracts, it created “leakages” through inflated contracts and other hidden costs.
o The Government had allocated RM 54 billion worth of shares given at par to bumiputeras but they only own RM 2 billion currently. Similarly the estimated federal operating development expenditure is mismanaged up to the tune of RM 28 billion a year. The real question is where has all the monies gone….overseas properties, overseas bank accounts and large foreign investments?
2. The need to shift into knowledge intensive industries to sustain future growth is a major national challenge Malaysia has to transform into high income economy through government measures to promote innovation, creativity and high value added activities by intensifying R&D; establishment of national innovation centre; rationalizing research funds and grants and incentives for green technology.
3. Fiscal deficit has worsened due to recent global economic crisis and has deepened from of surplus of 2.4% until 1997 to deficit of 7.6% in 2009. There us a prudent need to monitor the operating and development expenditure and government has to act as effective and efficient facilitator of growth spurring private investment. The government should also tap new sources of growth and revenue base to narrow the gap.
4. Vision 2020 – Development Goals
“Malaysia must be a nation that is fully developed along all the dimensions, economically, politically, socially, spiritually, psychologically and culturally”
YAB Tun Dato Seri Mahathir Mohd
The development goals of Vision 2020 is outlined as follows :-
· Doubling our Gross Domestic Product every ten years between 1990 and 2020
1990 - GDP RM 115 billion
2020 - GDP RM 920 billion / RM 1376 billion
· Average growth of about 7% annually over 30 years from 1990
· With 2.5% annual rate of population growth by 2020, Malaysians will be 4 times richer than 1990
· Establishment of competitive economy – diversified and balanced economy with increasingly technologically intensive and driven by brain power.
5. NEW ECONOMIC MODEL (NEM)
The development of NEM will be guided by three principles – high income, sustainability and inclusiveness. Malaysia is expected to make a leap from the current US$7000 (RM 23,100) per capita annual income to US15,000 (RM49,500) in 10 years. The government will continue to pursue a future based sustained growth and environment stewardship. The principle of inclusiveness would ensure that no one was left out in contributing to and sharing in the creation of wealth of the country.
To achieve this transformation, the PM announced eight strategic reform initiatives as follows :-
Ø Re-energise the private sector to lead growth;
Ø Develop a quality workforce and reducing dependency on foreign labor
Ø Creating a competitive domestic economy
Ø Strengthening public sector
Ø Putting in place transparent and market friendly affirmative action;
Ø Building knowledge based infrastructure
Ø Enhancing the sources of growth; and
Ø Ensuring sustainability of growth
It is heartening to note that race is not the main criteria in implementing the social and economic policies. It is commendable to note that PM stated that
“We can no longer tolerate practices that support behavior of rent seeking and patronage which has long tarnished the altruistic aims of NEP”Any form of affirmative action will be market friendly, merit based, transparent and needs based is most welcome.
Inorder to make the Bursa Saham more liquid and attractive to foreign funds, government need to divest more of state owned equity. The government should embark on more privatisation and “sell off” in Bursa Saham and raise fund to narrow the budget deficit.
It must be noted that several reform in NEM were already contained in the Budget 2010 proposals. The implementations of the reforms were hampered due to sluggish bureaucracy and resistance from pressure groups , employers of foreign labour, license holders and beneficiaries of subsidies etc.
Inorder to achieve Vision 2020, the government need a detailed road map with time frame and political will to lead the country towards high income sustainable and inclusive future.
Dr. S. Sivamoorthy
B.Econs(Hons) Univ of Malaya, MBA (AIM), Ph.D (CAL). MMIM. FTII
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