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Monday May 7, 2012

Malaysia got what it takes to be developed nation

KUALA LUMPUR: Malaysia is marching towards developed market status, according to Credit Suisse managing director and head of thematic equity research in Asia-Pacific Viktor Shvets

“Malaysia has all the right ingredients to become a developed nation. It doesn't need 30 years to 40 years to determine if it can become a developed nation because it is not starting from scratch, like how South Korea had to do after the Korean war. From my point of view, a lot of it is already there and results should be evident in a decade. However, a radical change will be needed to compound the country fast enough,” he said.

What Malaysia needs to do is to remove impediments such as some of the policies created in early years which are not so applicable at this present time that attempt to segregate people either racially or class-wise.

He also added that the country needed to alter its immigration system. Australia's immigration, for example, operates a very good point system. It is one that even Britan has replicated. This would help identify the skills that the country requires as it goes forward.

Shvets: ‘From my point of view, a lot of it is already there and results should be evident in a decade. However, a radical change will be needed to compound the country fast enough.’

Shvets said, “Malaysia needs to bring its capital investment back to a high level.” He added that Malaysia has a very large saving pool that would allow it to increase capital investment, but other countries like the Philippines and Turkey do not. Malaysia needs to find niches with the objective of finding a sufficient number of niches to boost productivity.

He said this in an interview with StarBiz when elaborating on his research note entitled “Why some countries succeed and others fail?”

“We tried to take a historical perspective to find out what actually differentiates countries which are winners and losers. The truth is that most countries fail. We tried to see what are the prerequisites that the successful countries had in order to get to a certain level, mainly a high-income level. The answer, we found is to grow labour productivity at least 4% to 5% per annum consistently for about 30 years to 40 years,” Shvets said.

He identified five key areas that drives labour productivity, namely human capital, innovation, physical infrastructure, business climate, and demographics.

The quality of human capital was the key in driving productivity gains, he said, adding that its focus areas were mainly education and skill base.

Malaysia's human capital level according to Shvets is not moving up. To be successful, it needs to be brought all the way to the top.

“The only way we can keep moving up the value chain is by creating complex products, and transactions. That's the only way the value can continue to be created. And to do that, you need a human capital that is capable of doing it,” he said.

According to his research, compared with China on a per capita basis, Malaysia has a higher rate of penetration of graduates, new graduates and a broader secondary school framework. However, the country has no scientists, publications, patents, and research and development initiatives.

Shvets also said Malaysia was faced with a brain drain situation. The next thing that was needed was investment. “Without, infrastructure you can't increase human capital and product. Historically, countries like the United States, Germany, and Japan had invested 20% to 25% of its gross domestic product (GDP) in gross capital formation (GCF) consistently every year,” he noted.

Countries that have succeeded has kept its its GCF high, of at least 20% to 25%, or more for a period of at least 30 years to 40 years.

To do this, a savings pool was needed to finance infrastructure which was also dependent on the country's propensity to save and openess of trade markets,” Shvets said.

In his research, he found that all business climate indicators correlate with GDP per capita levels. A good business climate is conducive, fair and transparent, he said, noting that both Malaysia and Thailand were almost on a cusp on becoming developed status.

Unlike China and Russia and to a lesser extent Thailand, Malaysia has very good demographics and has the potential to attract skilled migrants. Combining the right demographics with the right human capital would enhance Malaysia's growth rates dramatically,

In regards to the Economic Transformation Programme (ETP), Shvets opined that it was good that the Government was looking at areas where it could be more competitive, and help in achieving high-income nation status.

“My only concern is that it is a bit more top-driven rather than bottom-up. The country should create a system that allows people to decide how they want to build those businesses,” Shvets said.

On the minimum wage implementation, he said it might have some impact on some stocks and trading, but on the whole it gives countries the incentive to keep moving upwards.

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