By Nadirah H. Rodzi
SHAH ALAM, Aug 21 — With the state elections out of the way and the three key states remaining under the control of the ruling alliance of Pakatan Harapan (Harapan) and Barisan Nasional (BN), the Unity Government can now go full swing on reshaping the economy and achieving the goals under the Madani Economy framework.
Financial analysts said with the political stability prevailing until the next general election in four years, the government has sufficient “runway” to ensure the lift-off of Prime Minister Datuk Seri Anwar Ibrahim’s brainchild.
Focusing on inclusive growth, the Madani Economy aims to provide social protection and spread prosperity evenly, strengthening support from the populace.
According to Sunway University economics professor Dr Yeah Kim Leng, implementing the Madani Economy framework can boost job creation, increase people’s income and living standards, and enhance their resilience to inflation and other shocks such as a global recession or financial market turbulence.
“Besides promoting good values and investing in social capital that results in more cohesive societies and harmonious inter-ethnic relations, foreign investors’ confidence will rise further in the strengths and advantages of diversity in the country’s people, culture, resources and capabilities,” Yeah told Selangor Journal.
The Anwar-led Harapan is addressing socioeconomic concerns and has unveiled the Madani Economy Plan to transform Malaysia into one of the world’s top 30 economies in the next 10 years.
The plan seeks to establish a specialised financial zone in the Iskandar Malaysia area in Johor, review minimum wage standards, promote female participation in the workforce, stamp out corruption and reduce our dependence on foreign labour.
In state elections, the ruling coalition retained its strongholds in Selangor, Penang, and Negeri Sembilan. Still, the expansion of the right-wing alliance Perikatan Nasional is seen as a threat to Anwar’s multi-racial efforts.
Despite this, economic experts predict no changes to legislative policies.
“I don’t see the fuss about the election results. (So) go ahead with the plans; show that government can work. Policies can impact people’s lives, give hope, and show that the country can change its trajectory to a better one,” economist Dr Nungsari Ahmad Radhi told Selangor Journal.
Attracting investors
Economic experts are concerned about whether Malaysia is currently appealing to foreign investors.
The answer is yes, according to Universiti Tun Abdul Razak economist Dr Barjoyai Bardai, who said the recent announcement by German chip maker Infineon Technologies AG to increase their investment in Kedah by RM25 billion confirms this.
“Even though Kedah is an opposition state, they still decided to invest. Malaysia’s investor-friendly environment has attracted many foreign investors due to its positive aspects outweighing the negatives,” he told Selangor Journal.
“Malaysia’s strategic location in Asia positions it to benefit from the region’s projected growth. By 2030, China, India, and Indonesia will be the world’s fourth largest economy, accounting for over 50 per cent of the global market.
“Additionally, Malaysia has a history of fair treatment towards foreign investors. For example, about 50 years ago, a Penang chief minister invited a US company to set up a cheap manufacturing activity in the state, and they treated them well. Today, semiconductor is a massive industry in Malaysia,” he said, adding that Malaysia exports 7.5 per cent of the world market, worth more than RM25 billion annually.
Global companies like Tesla, Geely, and Micron have also increased their investments in technology, energy, and automobile sectors.
“Malaysia is also one of the world’s biggest solar panel producers. The recent announcement by Elon Musk to beef up the activity on the electric vehicle in Malaysia is also another important announcement. We overtake Indonesia in this,” said Barjoyai.
However, he said the lack of short-term investment in capital formation is a concern compared to neighbouring countries like Vietnam, Thailand, and Indonesia. This hinders Malaysia’s capacity to increase production and export, which has been reflected in the past two years.
“The reason is that Malaysian businesses, especially micro and small and medium businesses, need to catch up in adopting and migrating into the Industrial Revolution 4.0 (4IR) and 5.0,” he said.
The 4IR refers to the disruptive transformation of industries by applying emerging technology. Industry 5.0, the Fifth Industrial Revolution, is an emerging phase of industrialisation that sees humans working alongside advanced technology and AI-powered robots to enhance workplace processes.
Analysts in the past have said that Malaysia has been slow in adopting artificial intelligence, the Internet of Things (IoT – “things” embedded with sensors, software, and other technologies to connect and exchange data with other devices and systems over the Internet), robotic technology, 3D printer, and drone technology.
They stated that the country needs a wake-up call or incentive to support the SME industry, accounting for over 50 per cent of employment and 35 per cent of its gross domestic product (GDP).
If the government promotes capital formation in the industry migrating to 4IR, they said, it will have a chain effect, creating employment opportunities and skill development.
“We have over 9.5 million unskilled workers that need to be upskilled. So, this needs to follow, and there will be an increasing income of households and an increase in house household purchasing power. And that will have a sequential effect on the growth in the GDP,” Barjoyai said.
Boosting growth
Although the Madani Economy is just a brand name, Barjoyai believed that there are two essential prompts: to improve the citizens’ well-being and another is to increase economic growth so that it can cope.
“We aim to improve our overall competitive index and become one of the top 15 economies globally. Currently, we rank 27th and aspire to reach 12th position. With the right ingredients, we can achieve this ambitious target and become the 30th-largest economy in the world. At present, we stand at 32nd,” Barjoyai said.
“We only need to improve two positions. Still, neighbouring countries will also have developing economies like India, Indonesia, Vietnam, Thailand… they have more populations. They will bring along via their household when they progress even slower than Malaysia,” he added.
When the household improves its position from the lower-income group to the middle-income group to the higher middle-income group, Barjoyai said its income would increase, bumping its purchasing power and, subsequently, the GDP.
Separately, Malaysia’s labour income share dropped to 32.4 per cent in 2022, a sharp decrease from 35.2 per cent in 2017. The country aims to increase it to 45 per cent within five years.
Despite being a tall order for employers, Barjoyai said it could be achieved if productivity is enhanced by the increase in the skilled workers’ composition in our employment group.
Over the last 10 years, fellow economists have criticised the economic system for its lack of long-term insight.
While Malaysia’s economy has developed rapidly, making it the third-best economy in the world regarding economic growth, the model needs updating, as it has solved one growth problem but created vast income and wealth distribution gaps.
Economists are urging a shift away from relying solely on foreign direct investment as the primary driver of economic growth and instead considering the other factors of production.
With over 16.5 million potential human resources pool, production, income, and overall GDP can be boosted by increasing productivity.
“We have some natural resources that should be developed more carefully more systematically so that they can be enjoyed by everyone in the economy, creating better wealth distribution. These are the new perspective that should be included in the modern economy to make it apparent that it is being addressed,” said Barjoyai.
