M’SIA’S  VISION 2020: WILL THE JOURNEY TO THE DESTINATION BE SMOOTH?

Of late, over the past two weeks or so, the subject of Malaysia pursuing the ambition of becoming a developed and high income nation by year 2020 has re-emerged in the fore news.  I can understand why………with the 13^th General Elections (GE) slated to take place very soon, positive news about the country will lend some weight to the chances of Barisan Nasional (National Front) in its pursuit to retain yet another term as the ruling central government.

The media have reported the government’s optimism of attaining the coveted status eight years from now. Some economic pundits have also expressed positive comments about the development programmes embarked by the government, albeit without explicitly pinpointing their views on the probability of the vision being achieved.

Prime Minister Datuk Seri Najib Abdul Razak very recently proclaimed his “dream” of Malaysia becoming the first Islamic country to attain the status of a fully developed nation; however he was quick to add that this could only be ensured if there is no change in the country’s leadership. In a live television speech to launch the Government Transformation Programme (GTP) and Economic Transformation Programme (ETP) annual reports held just slightly earlier, he was quoted by New Straits Times that the country needed a competent driver - needless to say he was referring to the Barisan Nasional which is now driving the projects and ideological initiatives listed for implementation under the New Economic Model (NEM), GTP and ETP.

Deputy International Trade & Industry Minister Datuk Mukhriz Mahathir said (around the same time) after launching a seminar that Malaysia was on the right path in the transformation toward a high income nation. Although acknowledging some analysts’ views that the going might be a bit tough in view of the crisis in the US and Europe and some parts of East Asia, he said the government was diversifying to other markets, like the Middle East, instead of being dependent on traditional ones.

Suddenly, attention seems to be shifting to “domestic demand, or “domestic consumption”, or “domestic spending” (which can be used interchangeably) as the new pivot for growth. Why? As some economists have pointed out, domestic demand would be expected to drive expansion because of a slew of goodies rolled out by the government, e.g. pay increases for 1.4 million civil servants this year between 7% and 13%, the minimum wage policy for 3.2 million workers in the private sector, the mega projects, other generous handouts etc. But all mentioned their cognizance of the precarious external risks involving the continuing global economic concerns that may pose as pullbacks with regard to the desired local growth trajectory in the next eight years. 

As Bank Negara (Central Bank) Governor Tan Sri Dr Zeti Akhtar Aziz put forth her frank views to the press corps on the release of the bank’s 2011 annual report on March 21, 2011:

“In our assessment, domestic demand has continued to remain strong. It has expanded by more than six per cent but the external environment remains challenging and this will affect our economy……….If these positive trends continue, then the growth will be at the upper end, but if it takes a turn for the worse, it will be at the lower end of the range.” She added that Malaysia had to deal with external developments to avoid any financial upsets.

Will Malaysia ultimately materialise the vision by 2020? How great a probability of success as we see it “from where we are……….with what we have……..by how we are ushered, now”?  Personally, I acknowledge the slew of initiatives under the NEM-GTP-ETP grand store will provide impetus to pep up economic activities essential for GDP growth, notwithstanding the costs involved and level of implementation efficacy. For example, the joint-venture projects (with foreign stake holders) in  Iskandar regional development area, if all implemented successfully, should add hype and buzz to the people in the state of Johor. But will such projects suffice to bolster efforts to hit the noble end in mind set for the nation? Second question is, can domestic demand suddenly take over to become the dominant scorer of goals?

I want to be objective in my presentation, which should be based on facts and not on other inclinations. Two pertinent facts – which I think you may agree with me – are:

Allow me to recapitulate the key growth factors outlined by NEM-GTP-ETP for attaining developed nation and high income status. They are:

The Edge reported a decline in Y-0-Y export growth from 9.9% in 2010 to 3.7% in 2011.  Meanwhile, Minister of International Trade & Industry Mustapha Mohamed was quoted to have said that export growth was expected to be around 5% - 6% in 2012, being underpinned by intra-Asian demand.  World Bank was slightly more optimistic - it anticipated exports to pick up from 3.7% last year to 6.6% this year and 9% next year. Whichever source of statistics we prefer to refer, apparently the targeted growth rate of 10.6% per annum may seem far to reach if the global economy at large continues to remain uncertain for a while longer. Perhaps, this explains why the Government now decides to rely more on “domestic demand” as the alternative to export growth?

Exports like commodities, oil & gas, palm oil, rubber, semi-conductor components etc. still contribute significantly to the economy. Exports represent a major component of GDP. The country could be adversely impacted either by a fall in commodity orders or a slowdown in global economic activities. The pertinent question is, can a push in domestic demand cover up the shortfall in exports versus the annual target growth should the prevailing global situation persist?

2011 did well in this area, with a score of 15% growth, thus surpassing the target. A total of RM94 billion was recorded, which was the highest in 5 years from 2007. Moving from 2012, the prospects may be different. Malaysian Industrial Development Authority (MIDA) in its portal anticipated private investment to grow 8.3% in 2012. Historically, private investment growth in the last decade (2000 – 2010) recorded an average rate of 6.7% per annum. Can the scores from 2013 onwards be spurred up in order to hit the annual target? Perhaps so, if investments from foreign private players continue to pour in, and more joint ventures could be successfully created in the next eight years. But if more global uncertainties set in, would foreign investments flow into the country be stalled? Again, I shall leave this question for your own ponder.

The Prime Minister said at the launch of the 2011 annual reports for GTP and ETP: “We are on the correct trajectory to reach per capital income of USD15,000 in 2020.” The New Straits Times reported that per capita income had arisen to US$9,700, from US$6,700 when the ETP was launched two years ago. The latest figures show the shoring-up efforts for per capita income are progressing in good order, and it may be the only growth factor likely to hit the target by 2020. The recent handouts, the increase in salaries of civil servants, the incoming minimum wage policy, the perks for FELDA settlers, the 1Malaysia incentives like 1Sara investment scheme for the lower income group, and so forth – all these add to the per capita income, which is in essence the total national income divided by the total population. However, the more important consideration is whether the monetary incentives would greatly help to propel productivity activities that elevate the chances for reaching developed nation status, and not just merely on per capita income measurement. 

On the subject of high income, I have recalled an in-depth article which was carried in The Edge Malaysia four months ago. The writers by the name of Nungsari Radhi and Nicolas Khaw (economists) shared that of the countries which were middle-income in 1960, very few crossed over to the high income level in 2009. Most either remained as middle-income or upper middle income at the most.

Let’s look at some excerpts extracted from this article:

Meanwhile, according to Frederico Gill Sander, the World Bank’s senior country economist for Malaysia, the country needs to create more “modern” jobs and modernise the labour markets in order to become a high income economy. Firms need to derive their competitiveness by the productivity of their workers and must be willing to pay for talent. He said Malaysia could complement its talent base by recruiting scarce skills from abroad until it gets it structural changes in place.

So, will Malaysia achieve the noble end in mind in year 2020, i.e. full developed nation and high income nation (both together)?  I have rendered some concrete facts (above) for you to reflect upon and then form your own opinion. 

Yes, I hear you………I should express my own opinion on the subject as the scribe of this article. Well, objectively, I must recognise the Government for implementing multiple initiatives under the big NEM-GTP-ETP store in line with the vision. I must acknowledge our Prime Minister and team are trying what they feel could and should be implemented. I would anticipate Barisan Nasional retaining another term as the elected central government in the 13^th GE and thus follow through the programmes. Apart from the level of effectiveness of the programmes, I guess Lady Luck also has a role to play in the next eight years. Let us hope the world economy would not drag on with bearish sentiments for long but return to bullish mode soonest possible. 

Best Regards.