New Economic Model for Malaysia – The Concluding Part

By Friday December 3rd, 2010 No Comments

1. Many of you will recall that I launched Part 1 of the New Economic Model report on the 30th of March this year. In this first part of the NEM, I laid out a new course that Malaysia is now taking, based on inputs from the NEAC and others, which will allow us to achieve our aspiration of becoming a high-income nation with an economy that is both inclusive and sustainable by the year 2020.

2. I am pleased to report that the broad direction for economic policy from the NEM has by and large been incorporated into government policy under the 10th Malaysia Plan, and implementation has begun through the Economic Transformation Programme. Today’s launch of the Concluding Part of the NEM report represents a significant milestone, as it completes the roadmap of the Economic Transformation Programme.

3. Launched last month, the Economic Transformation Programme was designed as a two-component approach to achieving the economic growth targets of the New Economic Model. The first component, the National Key Economic Areas, an effort to identify, prioritise and align support for the key sectors and major projects that will drive quantifiable economic growth is already moving forward. The second component, a set of Strategic Reform Initiatives (SRIs) designed to remove blockages to growth, is what I am here to discuss today.

Ladies and gentlemen,

4. In this journey to become an advanced nation, the ETP’s growth drivers, if I may use as an anology, are the cars while the NEM is the highway which is free from impediments. One cannot succeed without the other.

5. I would like to take this opportunity to congratulate the NEAC on completing this arduous task that I mandated a year and a half ago. By setting up the NEAC, staffed by eminent economists in their personal capacities, the independence of their assessment of the nation’s economy has been assured. I thank them, again, for the candid assessment shared in their first report.

6. The NEAC’s economic assessment has identified many areas where improvements must be made if Malaysia is to escape the middle income trap. Most of these issues are known to the government. Piecemeal attempts to address them have proven ineffective; hence the need for a concerted, holistic effort as represented by the Government Transformation Programme (GTP) and the Economic Transformation Programme (ETP).

7. The frank economic assessment by the NEAC has highlighted improvements required for this nation to make a quantum leap into the future. Their report clearly lays out a case for a burning platform, in spite of the fact that everything on the surface may seem fine. For example, consider these nine areas of concern:

· Malaysia’s economic growth engine has gradually been slowing, even before the global economic crisis in 2008.

· The growth in private investment has slowed over the last decade.

· Our outdated business regulations and rules have not created an environment conducive to attracting investment.

· Many of our manufacturing businesses remain inward-looking and are using the low-cost business model that Malaysia had been known for in the past, and there is a distinct lack of drive and incentives to move up the technological ladder.

· The dismal level of investment in innovation and R&D falls far short of the amount required for a country aspiring to become an advanced nation.

In the area of human capital:

· Management practices related to human resources are outdated, which has led to issues in developing and retaining talent.

· Our labour market is not functioning very well, which is impeding productivity growth. As a result, many people are stuck in low-skill jobs that pay low wages.

Two additional factors:

· Controlled pricing systems and subsidies have led to misallocation of resources and inefficiencies that have resulted in unwarranted wastages, and

· Our distribution policies, although successful in lifting many out of poverty, have created implementation issues in the form of rent-seekers.

Ladies and gentlemen,

8. The list goes on. The NEAC’s report reminds us that we have our work cut out for us on our journey to become an advanced nation.

9. Fortunately, in spite of the recent global crisis, our economy remains robust and resilient. I am heartened that the economy has rebounded, achieving 8.1 per cent growth in the first three quarters of the year. For the full year, we expect to exceed our 6 per cent annual growth target.

10. I have been cautioned, however, that growth of 6 per cent is the bare minimum average required to meet our goal to become a high-income nation. Unfortunately, there is much uncertainty in the global economic recovery, and that is bound to affect a small, open and trade-reliant country like Malaysia.

Ladies and gentlemen,

11. We also note that the pace of growth is slowing once again, as signs of weakening are emerging in external conditions. The economy grew 10.1 per cent in the first quarter and 8.9 per cent in the second quarter, but only 5.3 per cent in the third quarter.

12. We need to be in a position to counter the cyclical performance of world markets. To do this, we must maintain growth levels in excess of 6 per cent, so we can build up reserves to buffer the inevitable underperforming years.

13. It will take quite some time before the advanced economies, many of which are the main destinations for Malaysia’s exports, can once again achieve the growth rates they had before the crisis.

14. Clearly, the advanced economies are being challenged by economic conditions, so they will grow at a slower rate in the near future. It would be naïve of us to think otherwise. Going forward, competition for trade and investments will only get more intense regionally and among developing countries around the world. Most, if not all, countries are revisiting their growth strategies and are getting their economic houses in order, just as we are doing with the GTP and ETP.

15. We must be prepared to face this increasingly competitive environment head-on. Competition, as the adage goes, is both about threats and opportunities. The importance of economic restructuring, as advocated by the NEM, cannot be stressed enough – as it will chart a new era of economic advancement.

Ladies and gentlemen,

16. The NEM will help us create a high-income nation that is sustainable and inclusive. Put more simply, our goal is to make Malaysia a prosperous country, that benefits everyone, now and for future generations.

17. The NEM won’t be an overnight panacea that can solve all issues, however. It represents a journey that all of us – the Government, the private sector and the Rakyat – must undertake together. This is a national agenda and, as such, there is a role for each of us to play. To opt out would only result in this nation languishing and falling behind our regional counterparts. We must all focus on the goal of becoming the high-income, sustainable and inclusive nation that we aspire to be.

18. The NEM is very clear about what we need to do. It spells out the key policy areas we must address in the form of eight Strategic Reform Initiatives, or SRIs. They will help us remove impediments and barriers that hold the economy back from reaching its full potential.

19. It is important to note that the Strategic Reform Initiatives are cross-cutting in nature, so their impact will be felt across all economic sectors. The Strategic Reform Initiatives deal with foundational economic issues that must be addressed to drive economic growth and transformation. As such, they must be implemented consistently and holistically to ensure the results envisioned in the 10th Malaysia Plan and the NKEAs are achievable. Earlier, I made the analogy of being able to drive at full speed toward our destination when the highway is free of impediments and barriers.

Ladies and Gentlemen,

20. The required economic transformation is premised on a simple strategic framework that must address both growth and inclusiveness. There are four key thrusts. The first three deal with the need to accelerate growth while the fourth focuses on inclusiveness and social cohesion. Let me talk about each in turn.

21. The first NEM thrust involves the creation of a competitive, sustainable and innovative environment that will reinvigorate private investment. The related policy measures recommended by the NEAC address the following:

· The importance of continuing a managed liberalization programme. This will help attract inbound investment and encourage domestic firms to compete on an international basis.

· The need for Malaysian companies to penetrate global markets and adopt international standards and best practices in terms of quality and sustainability to ensure they are competitive internationally. For a start, these standards should be made applicable to goods and services in the domestic market.

· The need to create an innovative and creative culture. This requires strengthening the ecosystem to foster entrepreneurship and risk-taking, which necessitates a revamp of our current insolvency laws to be more accommodative. There must also be a concerted effort by the Government, GLC’s and the private sector to support homegrown products and services that are innovative.

22. The second NEM thrust addresses the need to develop a conducive workplace and quality workforce. Policies relating to creating a workplace conducive to development entail the following elements:

· Setting up an expert group to modernize and align labour legislation and regulation, so they are consistent with international standards and best practices. They have the dual objectives of reducing costs of labour management for businesses and increasing the effectiveness of worker protections.

· Strengthening strategic human resources management, especially for SMEs, by establishing a Strategic Human Capital Management Centre. In this way, the Government can assist SMEs with their much needed HR requirements.

· Enhancing the safety net for employees through the introduction of unemployment insurance.

· Establishing a National Wage Consultative Council to monitor and report on wage trends.

It also includes policies and strategies that will help us create a high-quality workforce. This will be done by:

· Undertaking a labour market forecast that will assess future demand for skills, and

· Up-skilling and upgrading the current workforce through standardization and certification of semi-skilled workers.

23. The third NEM thrust deals with the imperative to transform government. Where the GTP deals more with socio-economic issues, the Strategic Reform Initiatives that focus on “Transforming Government” deal primarily with the economic aspects of the public service delivery system, as it forms the lynchpin needed for the economy to advance. Among the recommendations of the NEAC are these three:

· Undertake bureaucratic reforms to strengthen the government’s facilitative role in support of business;

· Improve the quality of human resources in the civil service by reforming the Public Service Commission and define strategic human resource policy and management processes in the public sector; and

· Undertake reforms to instill fiscal discipline and better financial management

24. The fourth NEM thrust deals with inclusiveness and the need to reduce disparity, so all citizens can enjoy the benefits of growth and prosperity. Central to this is the fact that social cohesion, harmony and stability must exist for growth to occur. For without growth, there can be no distribution. They go hand in hand. The policy recommendations of the NEAC focus on:

· Offering additional social assistance programmes for transportation and housing, which will alleviate the bulk of household expenditure for the bottom 40 per cent of households

· Enabling the bottom 40 per cent to break the cycle of poverty through education. One way will be by offering incentives for teachers to increase the number willing to serve in rural areas and, where necessary, providing financial assistance to rural parents to keep their children in school.

· Providing capacity building programmes for SMEs in the Bumiputera Commercial and Industrial Community (BCIC); and

· Offering ongoing support to successful Bumiputera firms to grow through partnerships with the business community, including the GLC’s, with a view to raise the performance of the entire Bumiputera Commercial and Industrial Community.

Ladies and gentlemen,

25. Let me remind you that the policy recommendations in these four thrusts are not exhaustive, but they represent the major, high-impact policies involved. Our goal is to reach a critical mass through cohesive and synchronised implementation of these policy measures. They can help generate the momentum that will transform the economy in a profound and lasting manner and create positive benefits for all Malaysians.

26. The NEM has provided a fresh perspective on economic areas that require improvement and has reaffirmed the benefits of policies currently in place. It is serving as a catalyst for broad-based economic reform.

27. Since its launch in March, most if not all of NEM’s growth framework has been incorporated into the 10th Malaysia Plan and, no doubt, it will be reflected in the 11th Malaysia Plan as well. Positive actions have been in line with its recommendations. I can assure you that this government is, as they say, walking the talk.

28. Let me also review a few related initiatives:

· In line with the NEM’s call to cultivate risk-taking and an entrepreneurial spirit, the government intends to reform insolvency laws, including relief provisions for companies and individuals with financial problems. So this was included in the recent budget. How else can we hope to become an innovative and creative economy and society, if failure is punished by archaic insolvency laws?

We constantly preach to ourselves and to our children to persevere, improve and not let failure be a barrier to striving again, until successful. Our legislative framework must be amended to reflect these values.

· We have learned from the experience of successful economies that vocational training is critical to future development, so it must be addressed and improved in Malaysia. So the government has budgeted RM474 million in the next year to enhance the technical skills of non-graduates. We especially want to target school leavers and the young people who will form the backbone of the skilled workforce for our industries in the future.

Such training is important because there is high demand for a skilled workforce in technical fields. In addition, continuous improvement and training will be beneficial for workers who may be displaced from low value-added jobs.

As with a rolling budget adopted by the government to improve financial management, ongoing allocations for vocational training will be provided in coming years, along with more effective monitoring and a management framework to stem wastages.

· On the issue of “Rationalising Government’s Participation in Business” as advocated by the NEM, a divestment strategy is underway. It will be implemented on a gradual basis, taking into account the price-sensitive nature of such an exercise.

In addition, Initial Public Offerings of two Petronas subsidiaries have been successfully concluded as I had predicted earlier at the launch of the NEM in March.

Ladies and gentlemen,

29. Earlier I mentioned the need for greater momentum in making policy reforms. This may not necessarily mean that all policy recommendations will be implemented in one go, as this won’t be the case.

30. Different policies require different resources and involve varying degrees of difficulty. The very nature of SRIs being cross-cutting in nature points to the importance of sequencing policy measures in order to achieve optimal results. What is important to note here is that this is a continuous process.

31. For policies that can be immediately implemented, the early wins as I call them, they will be implemented post-haste. One such policy was the requirement for medical insurance for foreign workers. This issue has long strained the capacity of our national welfare system.

Ladies and gentlemen,

32. One of the NEM’s goals for the private sector is to strengthen the capacity of Malaysian firms, so they can be competitive internationally and succeed independently. Their viability depends solely on market terms, without subsidy, and with the adherence to international standards and best practices. Without a doubt, companies will have to restructure their operations and business models accordingly.

33. We recognize that transitions of this nature will result in some workers being displaced, hence the need for reforms to provide safety nets to assist them financially and retrain them for gainful employment. For the nation to achieve its targeted growth targets, the labour force must be at full employment which will contribute positively to economic growth.

34. In addition, in less developed regions, we are committed to improving social services, such as education and healthcare, so the rakyat in those areas can benefit from national growth too.

Ladies and gentlemen,

35. Ten years is a short time. The planning stage of the roadmap is now complete, with today’s launch of the NEM report. Implementation will follow and must be executed effectively if this nation is to progress. At the same time, we must not lose sight of our policy objectives and the guiding thrusts of the NEM.

36. Of course, there are always skeptics and detractors. But action and results are the best way to sway them. We have already begun the journey, and I want to reaffirm the government’s resolute commitment to see through the transformation of Malaysia in order to become an advanced nation.

37. In coming months, the government will expedite the implementation of the ETP. The Performance Management and Delivery Unit, PEMANDU, will serve as a coordinating and monitoring agency. It will keep implementation on track, as undertaken by various ministries and agencies.

Ladies and gentlemen,

38. The nation’s future will not be determined solely by those who govern it but also by the very fabric of society and our culture. Our individual actions, the choices we make, what we do and choose will collectively shape the nation for the future. We all have a role to play, as we are all stakeholders in achieving the NEM goals of becoming a high income nation known for inclusiveness and sustainability.Just as we have high expectations for governance, we should also raise the bar for every citizen and business in this country.

39. The transformational journey that has begun will profoundly affect all sectors, corporate players and participants in the Malaysian economy. In the short term, major adjustments will bring about losses to some. But in the long run, the benefits that materialise will benefit all, and we will be stronger for it.

40. The government is working to facilitate an enabling environment and to cushion the impact of change, where possible. We want to see individuals and businesses taking the initiative to work together to move the nation forward. We must look past what sets us all apart and instead focus on our common interests and goals in order to drive this transformation for our collective prosperity.

41. It is the same spirit of dynamism and cooperation that facilitated national development over the past five decades which brought us to where we are today. Under the umbrella of 1Malaysia, let us rekindle that same spirit of united dynamism and cooperation to achieve our aspiration of becoming an advanced nation and an inclusive, sustainable and high income country.

Thank you.

Wabillahitaufik Walhidayah Wassalam mualaikum Warahmatullahi Wabarakatuh.

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