Friday, October 01, 2010

Private Sector Confidence Key To ETP's Success

Unless the government is willing to implement bold changes that will lead towards further liberalisation, ease of doing business, reduced bureaucracy and greater transparency, the pessimism from the private sector will likely remain.

Last week, there were rumblings at the Putra World Trade Centre when thousands thronged the exhibition hall hoping to understand, and perhaps share the government's aspiration in charting the economic roadmap towards a better future.

Indeed, the spectacular scene at the Economic Transformation Programme (ETP) Open Day is unprecedented in Malaysia's 53-year history. Never has any previous administration shared its economic agenda by disclosing hard figures, projected growth, step-by-step strategy and sector-by-sector analysis through an open-day event fully attended by almost half the Cabinet led by the Prime Minister and accompanied by chief executive officers from both the private and public sectors. Many were pleased with the depth of information they got at the exhibition.

There is a general consensus that the government has succeeded in raising the public's fervor about economic reforms - now brewing almost at a boiling point - with the population eagerly waiting for the government to implement it quickly. Yet, the government knew well enough that no agenda, plans or programmes can succeed without two vital ingredients - meticulous planning and public's confidence. The government has scored full marks on both accounts and what remains now is probably the most challenging of them all - to ensure its effective implementation.

The cards are now laid on the table and what is at stake are investments worth over RM1.3 trillion with projects spread across 12 key economic areas, massive business opportunities and the creation of 3.3 million jobs - all within a span of 10 years.

The entire economic agenda appears ambitious, if not radical, from an economic perspective. The goal has been determined and the primary mission is to enable the private sector to spearhead the entire agenda.

Between 1990 and 1997, private investment was the key source of growth in Malaysia, accounting for about 30 per cent of gross domestic product (GDP). It currently stands at about 10 per cent. The huge savings-investment gaps over the years are evidence of ample domestic private resources available.

Indeed, the Malaysian-based companies' investments abroad, totalling RM36 billion in 2009, are a testimony of the sector's capability to churn out the RM1.271 trillion required by the government to pursue its economic programmes.

In return, the government has promised to relegate itself to the role of a "facilitator" while pledging its commitment to ensure that the country's engine of growth will be led by the private sector.

Unfortunately, the task of winning the private sector's confidence is no mean feat considering that only 30 per cent of Malaysian investments abroad were repatriated back to the country last year. Many private firms have openly expressed their concerns about the government's bureaucratic red tape, lack of business support services, and low level of innovation and productivity.

In response to these concerns, the government has initiated several efforts such as deregulating the Foreign Investment Committee guidelines, revamping several government-link corporations, re-branding as well as enhancing the role of several government agencies to facilitate private sector investments.

Yet, there is a clamour for the government to do more. Unless the government is willing to implement bold changes that will lead towards further liberalisation, ease of doing business, reduced bureaucracy and greater transparency in addition to addressing other structural weaknesses such as lack of knowledge workers and overly subsidised market economy - the pessimism from the private sector will likely remain.

The government has also announced that 27 per cent of the total amount of investments earmarked for the National Key Economic Areas projects, or RM378 billion, will be sourced from foreign direct investments.

Foreign investors, according to the new economic agenda, are expected to invest an average of RM37.8 billion annually over the next 10 years. On analysis, most of these investments have been marked for the electrical and electronics sector where the target is to increase the gross national income to RM90 billion while generating 157,000 jobs.

The government is adamant to maintain its global share in the semiconductor and LED industry despite past volatility in the global market.

While setting targets on the electrical and electronics sector should be welcomed because it opens massive employment opportunities, there are many factors that need to be considered, like the availability of skilled and professionals workers among its workforce. To engage in high-value added technology entails an educated workforce that embraces innovation, technology and life-long learning embedded in a well-developed educational system. If such talent is lacking from within, the best route is to attract from the global market, which effectively requires Malaysia to compete with other countries like Australia, New Zealand, the US, Singapore and Canada. Unfortunately, the present immigration policy on attracting foreign talent is a far cry from other developed economies and these need to be rectified immediately.

The slew of economic programmes - Government Transformation Programme, New Economic Model and 10th Malaysia Plan - will witness the transformation of Malaysia's entire economic landscape if implemented effectively.

While setting economic programmes demonstrate the government's commitment to transform the economy radically, they have to be carried out with pragmatism, combined with the will to eradicate obsolete policies that will only hinder its ambitious plan.

(Dr Hassan Ali is an associate professor at the Graduate School of Business, Universiti Sains Malaysia)

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