By Dr Ong Kian Ming, Frederik Paulus and Jaideep Singh
Without exaggeration, the next month will be era-defining for the Malaysian economy. Monday, September 27th sees the presentation of the 12th Malaysia Plan (12MP) in Parliament while Budget 2022 will be introduced on October 29th.
The stakes could not be higher. The response to the pandemic has inflicted significant, economic scarring and impacted livelihoods in the form of business closures, job losses and reduced incomes. It has also exposed longstanding structural shortcomings in our socio-economic fabric. These shortcomings dampen growth, reduce our economy’s resilience, and, if left unaddressed, will hamper a return to a dynamic economy in the aftermath of the crisis and will leave a long-lasting negative impact on the country for many years to come.
To achieve this, we looked at 8 areas of importance to address:
1. Build Malaysia Back Better Post-COVID-19. New and smart policies need to be designed by the relevant stakeholders. Any additional regulations vis a vis COVID-19 must not put too much financial burden on businesses but instead allow for innovation and creative solutions to be proposed and put in place for each industry.
2. The issue of foreign labour must be addressed. We need a clear roadmap. This includes implementing smoother and more transparent processing of applications for foreign workers, the recruitment of foreign workers based on internationally agreed upon standards, and properly evaluating the number of foreign workers needed by each sector of the economy. At the same time, policies must focus on providing generous incentives, training, and advice for automation, starting with the sectors most dependent on foreign labour. The goal is eventually to equalise the cost of foreign and Malaysian workers, and increase productivity significantly so that individual wages can rise, in particular for low-paid positions—all without increasing the unit cost of the product or service being produced.
3. Trigger cleaner and higher growth through a mission-oriented industrial policy. In order to pull Malaysia out of the “middle-income trap”, it is necessary to kickstart new sectors, with higher scope for growth and for productivity improvement. The overarching goal should be to attract global corporations, not just by competing on financial incentives, but also to offer a compelling choice thanks to the depth of skill and expertise that we will have developed in a given area.
To do so, REFSA advocates for a broader industrial policy that builds on the concept of missions, where government convenes all stakeholders in a particular problem to formulate a specific challenge; and by providing “patient-finance” which doesn’t expect short-term return but instead, eye for emergence of economically viable solutions that can then lead to the development of new sectors and unlock economic growth, through the presence of spillover effects.
4. Reduce inequality through higher wages and a comprehensive social safety net. REFSA stresses the urgent need to have a comprehensive review of the social safety net in Malaysia. This includes streamlining cash support programmes so that handouts are adapted to recipients’ conditions, expanding unemployment schemes to cover a larger segment of the population, and implementing fair tax burdens.
5. Institutional reforms and decentralisation. The pandemic has highlighted that an all-powerful federal government risks running behind the facts with asymmetric policy responses. For instance, measures intended to stop the spread of COVID-19 were usually calibrated to the situation in Selangor and Kuala Lumpur, burdening less affected states with stringent lockdowns, and vice-versa. The federal government should devolve significant authority to the state and local level and empower local government representatives to implement local policies calibrated to their specific conditions, for example to decide on how disbursed grants should be spent.
6. Reshape and reorganise the healthcare system. Healthcare policies must enable and strengthen collaboration between existing private healthcare sector players and the government. Additionally, the 12MP should outline ways to increase the provision of resources for mental health professionals and the treatment of mental illnesses, which have increased markedly because of the pandemic.
7. All ministries must embrace digitalisation. A clear roadmap must be presented in the 12MP where all Ministries are involved in digitalisation and Industry 4.0-related initiatives. This means embracing and adopting big data analytics (BDA), the internet of things (IoT) and artificial intelligence (AI) in the government’s overall growth strategy.
8. Identify new areas of economic growth. The 12MP should be more forward thinking in discussing key megatrends or themes for Malaysia and the region moving forward, such as geopolitics, digitalisation and an aging population, and how the country intends to prepare for these developments. Ultimately, REFSA believes that behavioural change is an important part of this concept, which requires the state to take the lead in driving innovation in line with the entrepreneurial state.
In summary, the 12MP must introduce a strategic roadmap for a five-year recovery plan which includes structural reforms in government as well as the private sector. The roadmap needs to address issues of low growth and low productivity, low wages, and an unreliable social safety net, just to name a few. This kind of policy restructuring and alignment needs to be extended to all Ministries and their agencies as well as GLICs and GLCs for the ultimate goal of sustainable and inclusive economic growth.
Read press release about this report HERE
About REFSA Notes
REFSA Notes is a collection of thoughts, reflections, and ideas from our research team. They aim to provide the groundwork for further discussions, commentary, research agendas, and policy recommendations.