19 May 2024
By Tan E Hun
The first part of this article highlighted the importance of fiscal space and labour market reform, as key elements to build Malaysia’s capacity for long-term economic growth. But these two elements are not sufficient by themselves. Using our natural resources as a buffer, we must urgently enhance our green infrastructure, improve social wellbeing and strengthen our institutions to nurture sustainable economic development.
Climate change and Green agenda
Addressing climate change is the biggest mission of our time. This existential challenge should permeate every single policy proposal and shape the nation’s economic growth plan. Other countries and trade blocs are moving ahead with far-reaching climate regulations. As a net exporter country, failure to respond to these regulations impacts our competitiveness overseas. Conversely, to orient our economic growth accordingly, we need policies, resources and incentives to provide the infrastructure, capital and mechanics for entire industries to transform together. While large corporations and GLCs are moving along, SMEs are at risk of being left behind. They contend with a lack of knowledge and a lack offunds for the adoption of green technology and processes. The increasing burden of international reporting standards and requirements puts a further strain on SMEs. The government has an important role to play in finding ways to harmonise the various regulatory requirements, to simplify the adoption process for small businesses. Moreover, providing the right incentives and practical assistance training are indispensable.
On a broader scale, the state should proactively invest in infrastructure and policies to improve Malaysia’s capacity to cope with climate change. Investments in green infrastructure through energy transition programmes, decarbonisation innovations or the development of an ecosystem for electric vehicle manufacturing not only plays a major role in the nation’s climate change mitigation and adaptation efforts. They can also jumpstart new sustainable economic development, and encourage the creation of higher paying jobs in green industries.
Such investments should not be seen as lofty resolutions for a far away future. The effects of climate change are already upon us, and the only realistic response in the short term is to adapt. This requires urgently investing in flood mitigation solutions and disaster response plans, while putting climate adaptation and resilience front and centre in urban development. Encouraging low carbon, climate friendly energy alternatives such as solar panels and green transportation systems also must be actioned today.
Social wellbeing
Individual and social wellbeing are the cornerstone of a well-functioning society. There is little point in discussing turbocharging the economy without ensuring a society that is inclusive and supportive. The key to increasing individual wellbeing is to lessen the feelings of economic precariousness and increase predictability in people’s lives. Two main topics must be addressed – that of wage growth, to be addressed as part of labour market reform; and increasing the provision of public services that help with reducing the cost of living.
The pandemic and subsequent rising cost of living has thrown many back into poverty and increased economic insecurity. At the end of 2022, 51.5% of EPF members under 55 yrs old (6.6 million people) have less than RM10,000 savings. The introduction of EPF Account 3 as a way to access funds during emergency scenarios has triggered spirited debate, yet the larger question that remains is how to reduce economic insecurity for many, increase overall household income even before considering retirement.
Adversity, whether illness or job loss, can befall anyone, but as a society we must ensure that no one falls through the cracks and stays mired in poverty. A comprehensive social security system would prevent the vulnerability, social exclusion and inequality that are often the result of adversity today, and would contribute to overall poverty reduction. What welfare measures are in place today should be expanded in coverage and impact to build strong social protections for vulnerable and low-income households. Existing policies must be constantly reviewed to include appropriate targeted assistance, for example for gig workers, single mothers and other vulnerable groups.
One of the key factors affecting disposable household income is the cost of housing. Our housing provision must be sufficient, humane and dignified to shelter all. For far too long the nation has been obsessed with house ownership to the extent that it has placed undue pressure on the financial capability of ordinary Malaysians. Housing financialisation, or the increased dominance of the financial markets in the housing sector, keeps increasing. This extends even to public housing where schemes to own PPR flats are frequently seen as attractive investments, even though this often turns out not to be the case.
Due to various complex factors such as insufficient funds, dilapidated facilities or poor management, more often than not home ownersare saddled with an even bigger financial burden and a depreciating “asset”. A financially sustainable rental model or the introduction of built to rent options through public-private partnerships led by the government can be alternative avenues for many to have a shelter.
Governance
Radical reforms require careful planning and strong political will. But equally important is good governance. Amidst encouraging feedback from investors, we need to double down on improving the efficiency of our public service delivery, and of course use public money in the smartest way at the same time. Malaysia can certainly improve the effectiveness of governance on multiple fronts, from how cross-ministries programmes are coordinated, to how public resources are being funded, monitored and spent. Tracking these deliverables and outputs ensures accountability from all parties involved in public spending, and will serve to reduce wastage and leakage.
For the future direction of the economy, the mission-oriented approaches introduced in the New Industrial Master Plan 2030 (NIMP 2030) offer a holistic way to tackle large complex challenges, providing strategic direction to both public and private sector. The right missions act as triggers for innovation with spillover effects for the overall economy. We already see shifting market interest and targeted private investments towards certain missions identified in the NIMP 2030, most notably encouraging industries like the semiconductor players to innovate and move up the value chain.
Naysayers notwithstanding, Malaysia’s second take-off is already underway. But to fully ride on the momentum, reforms are urgently needed. With opportunities knocking at the door, the question becomes whether Malaysia will move fast enough to seize them.
Published in Forum, The Edge Malaysia Weekly on 12 June 2024
Building Malaysia’s long term economic strength (Part II) – Green, Social Wellbeing and Governance
19 May 2024
By Tan E Hun
The first part of this article highlighted the importance of fiscal space and labour market reform, as key elements to build Malaysia’s capacity for long-term economic growth. But these two elements are not sufficient by themselves. Using our natural resources as a buffer, we must urgently enhance our green infrastructure, improve social wellbeing and strengthen our institutions to nurture sustainable economic development.
Climate change and Green agenda
Addressing climate change is the biggest mission of our time. This existential challenge should permeate every single policy proposal and shape the nation’s economic growth plan. Other countries and trade blocs are moving ahead with far-reaching climate regulations. As a net exporter country, failure to respond to these regulations impacts our competitiveness overseas. Conversely, to orient our economic growth accordingly, we need policies, resources and incentives to provide the infrastructure, capital and mechanics for entire industries to transform together. While large corporations and GLCs are moving along, SMEs are at risk of being left behind. They contend with a lack of knowledge and a lack offunds for the adoption of green technology and processes. The increasing burden of international reporting standards and requirements puts a further strain on SMEs. The government has an important role to play in finding ways to harmonise the various regulatory requirements, to simplify the adoption process for small businesses. Moreover, providing the right incentives and practical assistance training are indispensable.
On a broader scale, the state should proactively invest in infrastructure and policies to improve Malaysia’s capacity to cope with climate change. Investments in green infrastructure through energy transition programmes, decarbonisation innovations or the development of an ecosystem for electric vehicle manufacturing not only plays a major role in the nation’s climate change mitigation and adaptation efforts. They can also jumpstart new sustainable economic development, and encourage the creation of higher paying jobs in green industries.
Such investments should not be seen as lofty resolutions for a far away future. The effects of climate change are already upon us, and the only realistic response in the short term is to adapt. This requires urgently investing in flood mitigation solutions and disaster response plans, while putting climate adaptation and resilience front and centre in urban development. Encouraging low carbon, climate friendly energy alternatives such as solar panels and green transportation systems also must be actioned today.
Social wellbeing
Individual and social wellbeing are the cornerstone of a well-functioning society. There is little point in discussing turbocharging the economy without ensuring a society that is inclusive and supportive. The key to increasing individual wellbeing is to lessen the feelings of economic precariousness and increase predictability in people’s lives. Two main topics must be addressed – that of wage growth, to be addressed as part of labour market reform; and increasing the provision of public services that help with reducing the cost of living.
The pandemic and subsequent rising cost of living has thrown many back into poverty and increased economic insecurity. At the end of 2022, 51.5% of EPF members under 55 yrs old (6.6 million people) have less than RM10,000 savings. The introduction of EPF Account 3 as a way to access funds during emergency scenarios has triggered spirited debate, yet the larger question that remains is how to reduce economic insecurity for many, increase overall household income even before considering retirement.
Adversity, whether illness or job loss, can befall anyone, but as a society we must ensure that no one falls through the cracks and stays mired in poverty. A comprehensive social security system would prevent the vulnerability, social exclusion and inequality that are often the result of adversity today, and would contribute to overall poverty reduction. What welfare measures are in place today should be expanded in coverage and impact to build strong social protections for vulnerable and low-income households. Existing policies must be constantly reviewed to include appropriate targeted assistance, for example for gig workers, single mothers and other vulnerable groups.
One of the key factors affecting disposable household income is the cost of housing. Our housing provision must be sufficient, humane and dignified to shelter all. For far too long the nation has been obsessed with house ownership to the extent that it has placed undue pressure on the financial capability of ordinary Malaysians. Housing financialisation, or the increased dominance of the financial markets in the housing sector, keeps increasing. This extends even to public housing where schemes to own PPR flats are frequently seen as attractive investments, even though this often turns out not to be the case.
Due to various complex factors such as insufficient funds, dilapidated facilities or poor management, more often than not home ownersare saddled with an even bigger financial burden and a depreciating “asset”. A financially sustainable rental model or the introduction of built to rent options through public-private partnerships led by the government can be alternative avenues for many to have a shelter.
Governance
Radical reforms require careful planning and strong political will. But equally important is good governance. Amidst encouraging feedback from investors, we need to double down on improving the efficiency of our public service delivery, and of course use public money in the smartest way at the same time. Malaysia can certainly improve the effectiveness of governance on multiple fronts, from how cross-ministries programmes are coordinated, to how public resources are being funded, monitored and spent. Tracking these deliverables and outputs ensures accountability from all parties involved in public spending, and will serve to reduce wastage and leakage.
For the future direction of the economy, the mission-oriented approaches introduced in the New Industrial Master Plan 2030 (NIMP 2030) offer a holistic way to tackle large complex challenges, providing strategic direction to both public and private sector. The right missions act as triggers for innovation with spillover effects for the overall economy. We already see shifting market interest and targeted private investments towards certain missions identified in the NIMP 2030, most notably encouraging industries like the semiconductor players to innovate and move up the value chain.
Naysayers notwithstanding, Malaysia’s second take-off is already underway. But to fully ride on the momentum, reforms are urgently needed. With opportunities knocking at the door, the question becomes whether Malaysia will move fast enough to seize them.
Published in Forum, The Edge Malaysia Weekly on 12 June 2024
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