Monday, 15 September 2014

Happy Malaysia Day? Economic assessment by the Performance Management & Delivery (Pemandu)

Toll roads criss crossing the nation and subsidsed food and petrol are signs of the nation’s prosperity

IN the cacophony assailing many parts of the world today, and where ills, tensions, warring and strife dictate much of daily life, we are living a life of plenty.

Our political climate is stable. We are at full employment, and our poor have enough to eat. Our children go to school and our graduates have opportunities.

We are attracting investments to our shores and multinationals are setting up shop. We are recognised for our talents and reforms, and are progressing headlong into a high-income, knowledge-based economy by the end of the decade.

If we are to be dictated by commentaries on social media alone, we will be sucked into a vortex of doom and gloom where everything has gone south and we should be defeated.

Social media, being free and rife, opens up also spaces for people to air their grievances whether valid or otherwise. But I believe we are maturing as a society and can learn to differentiate hate speech from the truth of good people trying to do good work to make a real difference for our future.

There is a lot going for us. Our GDP this year beat forecast to grow at 6.3%, while investments continue to impress even the cynical with its 12.1% spike this second quarter at RM53.1bil compared with the same period last year.

As a minister in the Economic Council, I was happy with the World Economic Forum’s resounding recognition of Malaysia as one of the world’s top 20 most competitive nations in the Global Competitiveness Report 2014. They described Malaysia as the highest ranked among the developing Asian economies and highlighted strengths in financial market development, efficiency in goods and services market, and a government that was able to tackle corruption and red tape.

This wasn’t the case just six years ago. In fact it was a whole different scenario, crippling even the best.

The US subprime meltdown sucker-punched Asia squarely in the gut and Malaysia was not spared. We had barely recovered from the economic hit of the 1998 Asian Financial Crisis, weighed down in debt and struggling with a ballooning deficit.

Our Prime Minister stepped into leadership at a particularly chaotic and trying time. America and Europe had plunged into severe economic recession. Asia, skittishly reacting to plummeting demand for its products and services, suffered also a jittery, highly volatile and unpredictable capital market.

The world was mired with insecurities and some first world countries embarked on austerity measures that further slowed any hope for growth and momentum. It was a dark period, especially for a relatively small and open market like Malaysia, straining to see the light at the end of the tunnel.

Our Prime Minister recognised we cannot continue with business as usual. We cannot keep doing the same things and expect different results.

We had to act fast, and to take bold, radical steps to arrest slowdown, strengthen economic fundamentals and escalate efforts to grow our sectors to successfully compete with global players.

There was no room for complacency and half-measures.

The New Economic Model

Enter the New Economic Model. In 2009, a panel was convened to diagnose the nation’s economic health and to come up with a plan to transform government and the economy.

What really impressed me about the NEM was its mandate to pursue the high-income agenda, while keeping equally focused on inclusivity and sustainability.

I have often said that achieving high-income as a result of increasing GNI is easy enough. Do a few things right and we will get there.

But it is not enough. As a responsible government, we must make sure everyone benefits from prosperity. This wealth and wellbeing must be sustained so that our children and their children will live in a safe, progressive and prosperous nation.

Even developed countries struggle with the challenge of inclusivity. It is always missing in many international economic models resulting in unequal development – a combustible cocktail that has led to uprising and social dysfunctions as evident in the London riots, the Occupy movement and the Arab Spring.

Which brings me to this critical point that keeps governments awake at night – creating jobs for its people. There is no shortcut to this. It is the basis to secure stability and progress for any country, and allows people to feel confident and hopeful of their future.

The most sustainable way to create high value and quality jobs is through private investments. It is as simple and as complicated as that.

Investments

The domino effect of investment is obvious. Investments create jobs. The more people are gainfully employed, the more revenue a government will receive through tax and consumption. The more revenue we secure, the more government can spend on its people especially the poor and marginalised.

This is the “circle of life”, and private investment is the cog that will turn the wheel.

Under the ETP, private investment grew five times to 15.3% (CAGR 2010-2013) compared to 3.1% (CAGR 2007-2010). These are realised numbers and not merely committed so you can understand why I am very confident our economy is on track. (Chart 1)


Mida’s pipeline of approved investments in the last three years breezed past the goalpost of the 10th Malaysia Plan’s RM148bil annual target. In 2011, we recorded RM154.6bil, 2012 RM167.8bil and just last year, we chalked a whopping RM216.5bil. (Chart 2)

 

The ETP

Under the ETP, we deliberately chose the top 12 sectors which are strong revenue drivers and where we have the confidence to compete. These sectors alone will create 3.3 million high value, high income jobs by 2020.

In fact in 2010-2013, we logged 1.3 million employment in the NKEA universe, putting us on a sure footing.

In an advanced economy, workers will be paid higher wages, and this will lead to higher costs of production. In turn, we will experience a rise in the cost of living.

This is the flipside to being a high-income economy. You cannot have your cake and eat it too.

As long as the rise in income is higher than cost of living people will enjoy higher disposable income.

Today we are already seeing and feeling its effects. With the enforcement of the Minimum Wage Gazette 2013, it is unacceptable for Malaysians to earn less than the Poverty Index Line at RM900 per month (For Sabah and Sarawak, it is at RM800 per month).

Many employers were worried their production costs will escalate and their businesses will shut down. But as evident in many countries applying the same principles, what we will see in due time is efficient use of labour and resources, adoption of technology and overall greater productivity.

Managing finances

The common gripe I hear from some quarters is that they don’t feel the nation’s growing prosperity affecting them in any tangible or meaningful way.

I don’t know whether to laugh or cry. We are one of the most heavily subsidised nations in the world where our annual subsidy ticket in recent times rose to a massive RM40bil a year, of which half is used for fuel.

So it is fair to say, each time you fill up the tank in your vehicle, you are feeling the country’s prosperity.

I could draw up a list. Toll roads that crisscross the nation; public hospitals for consultancy and medication capped at RM1 since 1982; billions spent to keep electricity tariffs artificially low; and subsidised food items across the smorgasbord of gas, cooking oil and rice.

There are four ways to fix our problems:

1. Reduce expenses

We are carrying a debt burden of RM568.9bil since the 1998 crisis. The government has over the years, borrowed money for development as a result of channelling revenue to subsidies.

This is untenable and unsustainable with the ballooning subsidy bill.

It is easy to keep dolling out the feel-good factors of more and more subsidies. But living this fantasy will only plunge our next generation into a quagmire of liabilities and the slow debilitation of a society in regress.

We have to gradually reduce our subsidies. This is the bullet we have to bite.

To give you a sense of possibilities, if we were to reduce fuel subsidies by 30% or 50% – and it is a reasonable expectation – that will release about RM15bil-RM20bil that can make tremendous headways in the lives of the country’s bottom 40%.

2. Increase revenue

GST will come into effect next year and will broaden our tax base. Currently only 1 million people pay tax for a nation of 29 million.

As a consumption tax, anybody buying will be contributing to the national revenue. Of course basic products and services will be exempted from GST to safeguard the interests of the vulnerable.

Even at 6%, it is estimated that we will be able to capture RM22bil in revenue annually whereas with the current sales and services tax we have been able to earn about RM15bil-RM16bil annually.

Once we are able to reach the international benchmark for GST, the upside potential in terms of revenue is tremendous. We can do a lot for infrastructure and people development, and improve our social safety nets.

3. Reduce deficit

In 2013, Malaysia for the first time moved into the fiscal Safe Zone matrix developed by the Boston Consulting Group.
 

The “safe zone” is for countries whose public debt is below 75% of GDP and deficit is at 4% of GDP or below. Public debt equals or above the GDP and deficit of 8% and above places a country in the “Danger Zone”.

With much resolve, we reduced fiscal deficit in the last three years from 6.6% in 2009 to 3.9% last year. We remain on track for this year’s 3.5% reduction, and by 2020, are confident of hitting budget neutral, as targeted. We are also steadfast in maintaining our debt below the 55% legislated ceiling. (Chart 3)

4. Proliferation of entrepreneurship and innovation

I am passionate about efforts to create conditions for people to become self-employed and run thriving businesses.

There is much room for growth amongst Malaysian SMEs. Local businesses are fighting for slivers of a domestic pie when in reality the world has opened up to us. We must let go of our comfort zones and learn to ride the waves.

Although Malaysia entered the industrial sector aggressively at about the same time as Taiwan and South Korea, we lag behind them in terms of innovation. Samsung is a great example of brand that has captured the imagination of a global audience and today takes on the likes of Apple.

Agencies such as Mida, SME Corp and Agensi Inovasi Malaysia (AIM) are here to support local companies so they are able to step up but companies themselves must develop a strong appetite for competition and become global champions.

It is inaccurate to say the government is doing very little to make things better for the rakyat today. To put it into perspective, you will feel the transformation if you are the segments we are reaching out to:

> 5.16 million students benefit from highly subsidised public education

> School students have not been left out. 1.2 million tertiary education students received RM250 book vouchers via the Baucar Buku 1Malaysia, whilst 5.2 million students received RM100 via the Back to School Assistance initiative

> The government also opened 6,843 pre-school classes and trained 20,138 pre-school teachers. Total enrolment of pre-schooling children increased to 81.7% or 793,269 with more children having better access to quality early childhood education and getting a head start before primary school

> More than 10 million people use public hospitals and clinics, benefitting from affordable health and care in 2012 alone

> 4.6 million out of 6.5 million households benefit from free and low electricity tariff

> 22 million registered cars and motorcycles in Malaysia with 13 million licensed drivers directly enjoying cheap fuel everyday

> 4 million people are using toll roads in Malaysia

> Commuters on public transportation benefit from the additional 38 new six car train sets on the KTM Komuter service. We also introduced 35 sets of new four car trains for the LRT Kelana Jaya line, created a new integrated transport terminal at Bandar Tasik Selatan and revamped Puduraya. They are now more spacious and convenient. Every single one of the 400,000 daily commuters feel the transformation.

> Tackling the bottom 40% enabled us to reach and improve the lives of 188,000 individuals who are now lifted out of poverty, of which 89% recorded increased income levels

> We worked on 54,000 hard core poor families and gave them cash every day in order to ensure they had enough to feed their children and put a roof over their heads

> In ‘teaching them how to fish’, these individuals were required to choose one of the 1AZAM programmes under the GTP so they could start their own small business and become self-sustainable

> Over 5,300 women entrepreneurs profited from training and reskilling to improve their economic value via micro credit assistance

> We have built over 4000 km of rural roads that is comparable to driving from Johor Baru to Dhaka, Bangladesh. About 2.1 million people have gained, allowing rural communities to trade and access goods and services

> 61,062 houses have been built and restored for the rural poor, benefiting 305,300 people

> Overall, a total of 5.1 million people have benefited from basic infrastructure such as new roads, and access to clean water and electricity

> Over 6.8 million low income Malaysians received assistance via BR1M

> Malaysia is only one of few countries that regulate and control many food items and this means all Malaysians can enjoy low food prices every day. Our CPI has been kept under check and has been easing slowly in recent months as prices begin to moderate

Government innovation

In July this year, Pemandu was rated one of the top 20 Leading Government Innovation Teams Worldwide by Bloomberg Philanthropies and Nesta. The accolade testifies to the commitment and work from our Prime Minister, ministries, agencies and civil servants.

It is also a recognition of Pemandu’s 8-step transformation process. A systematic and structured approach incorporating diagnosis, planning, execution and feedback – securing transparency and accountability.

Besides tracking Ministerial KPIs and holding regular Steering Committee Meetings, the Problem Solving Methodology (also known as the Putrajaya Inquisition) is held twice a year with the Prime Minister and top government officials to identify problems, make decisions and move milestone projects forward.

Success in sight

In the long-term, our economic transformation will bear fruits so all Malaysians – including the middle-class – will meaningfully gain. Better incomes, quality education, efficient public infrastructure, cleaner and greener cities, higher-paying jobs for graduates, and transparency and governance. These are fair expectations to ask of a government.

It is every government’s mandate to prioritise its citizen’s needs and to put in place policies that will safeguard the public’s wellbeing for this and future generations. We are no different. Even as we battle to steer the country into the economic ‘safe zone’, we must continue to be in service of the rakyat so that no one is left behind.

As evident, all of us are already ‘feeling’ the benefits of government initiatives in small and big ways and our lives are better for it.

It is about time we give credit where credit is due i.e. to our Prime Minister, Deputy Prime Minister, Ministers, Chief Secretary and the civil servants.

Our Prime Minister has provided the right leadership to steer us in transforming towards achieving vision 2020. There is no doubting the results delivered so far since he became Prime Minister, although more needs to be done.

Having worked in his Cabinet for the last five years, I can say categorically that he works extremely hard and is totally committed to doing what is best for the country.

Given the various polarities of views and divergence of opinions amongst our multi religious and multi-ethnic society, he is taking us through a path of moderation.

I know a lot of people would prefer him to take their extreme position but as the leader of our country, it takes wisdom on his part to avoid knee-jerk reactions. Even if he is often provoked, he is patient enough to stay the course of moderation for the sake of our beloved country, Malaysia

I am a believer that Malaysia will stride on regardless of the bumps on the path to 2020. We must be patient even as we relentlessly pursue our goals.

As a Malaysian and Sarawakian, I wish each and everyone Happy Malaysia Day.

 By Idris Jala Transformation Unplugged The Star

Datuk Seri Idris Jala is CEO of Pemandu and Minister in the Prime Minister’s Department. Fair and reasonable comments are most welcome at idrisjala@pemandu.gov.my

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