Can Malaysia Do Bold Economic Reforms?

 

Malaysia urgently needs to make bold changes and radical reforms. Why?  To compete with its Asean peers at the economic front ahead of joining the more advanced Asian nations. Countries like Vietnam, Indonesia, the Philippines and Thailand have been experiencing stronger economic growth over the last decade. But the impact of the Covid-19 pandemic saw Asean economic growth plunge in 2020.

Malaysia’s GDP fell by 5.6% to be the fourth worst performer after the Philippines, Thailand and Singapore.

In terms of GDP per capita, a measure which better reflects living standards and economic progress of a country, Malaysia needs to improve its ranking for it to compete with its Asean counterparts at the next level, according to economists. In 2019, Singapore and Brunei were ranked first and second respectively, followed by Malaysia in terms of having the highest GDP per capita in the region. However, Malaysia’s GDP per capita at US$12,487 pales in comparison with Brunei’s US$32,327 and Singapore’s US$58,830, based on World Bank’s most recent data in constant prices for 2019.

AmBank Group chief economist Anthony Dass told StarBiz (15 Feb 2021) that the country must address some of its structural issues and implement bold changes and radical reforms on many fronts if it wants to strengthen its economy in the region.

“The economy, to some degree, has been bogged down with structural issues over the years” said Dass. “This is reflected by a mere 3.6-fold increase in growth between 2000 and 2020 compared with Vietnam (10.9 times), Indonesia (6.6 times), the Philippines (4.4 times) and Thailand (4 times). This shows there is a lot of catching up to do for Malaysia.

 

For a start, Dass said there is a need for a radical transformation in education.

The mismatch between labour demand and supply, unemployment of youth and fresh graduates, the low percentage of skilled workforce and the high reliance on low-skilled foreign workers are classic scenarios signalling that the education sector needs bold and radical transformation.

 

“Skilled workers in Malaysia make up less than a third of the country’s working population, barely improving over the last 10 years” he noted.

Dass added that all these issues would impact the Malaysian economy’s ability to compete effectively regionally.

Red tape was another stumbling block. For example, in Malaysia, 17 days are needed to deal with procedures related to starting a business in comparison with only 1.5 days in Singapore and Hong Kong and eight days in South Korea.

”Another critical issue to address is the low technology adoption among firms, especially the small and medium enterprises.”

“Malaysia also needs to look at new markets, focus on sustainability and further raise the efficiency and quality of public services deliveries as well as governance.”

”All these measures will address the widening economic growth among our Asean peers. Therefore, there is an urgent need to reset the economy by addressing structural issues that have been there for many years and those triggered by the pandemic”Dass said.

Dr Yeah Kim Leng, Professor of Economics at Sunway University sees the need for upgrading of industrial needs – especially in advanced manufacturing, knowledge-intensive service, technology-based agriculture and renewable energy.

 

Government also needs to promote market-friendly policies, less race-centric focus for growth prospects to blossom. In addition, R&D in manufacturing, renewables, resource-based sectors have to be supported financially by the public sector.

 

Beyond growth is redistribution and this requires courage. Malaysia’s richest and poorest households by ethnicity is depicted below:

 

(Source: https://static.straitstimes.com.sg)

 

The bottom 30% (earning below RM4,000) need support to move up the income chain. Over 50 years of NEP has not solved the Bumiputra household income issue. Over 70% of the bottom 30% are still Bumiputra. A huge failure of a Malay-dominated Government since independence. And PN is unlikely to have any fresh ideas to resolve this. Malaysia needs a more progressive leadership to do bold economic reforms, perhaps after GE 15?

 

Reference:

Call for bold economic reform, Daljit Dhesi, The Star, 15 Feb 2021.