Economist: M’sia needs to implement structural reforms

  • Economy
  • Saturday, 02 Nov 2019

World Bank senior economist Smita Kuriakose (pic) says it is imperative for Malaysia to implement structural reforms to improve the business environment and foster private investment and job creation - AZMAN GHANI / The Star file pic

GLOBAL trade and investment trends play a significant role in open economies like Malaysia.

A freer environment for trade, investments and for doing business in the world has tremendous power to drive prosperity across the globe.

Recent experience has shown that prolonged trade tensions between the United States and China, as well as a disorderly Brexit has been a factor in a softening global environment, with particularly significant consequences for trade and investment.

World Bank senior economist Smita Kuriakose (pic) says it is imperative for Malaysia to implement structural reforms to improve the business environment and foster private investment and job creation.

“These include strengthening infrastructure services such as increasing access to affordable and reliable electricity, improving transport and logistics services, and leveraging digital technologies including bridging the skills gap that could support productivity and crowd in private investments.

“To weather growing risks, the recent East Asia Pacific Update 2019 recommends that countries in the region with sufficient policy space use fiscal and/or monetary measures to help stimulate their economies, while guarding fiscal and debt sustainability, ” she says.The Malaysian economy grew moderately at 4.5% and 4.9% in the first two quarters of 2019.

This was on the back of softer-than-expected investment growth and weakening export demand, particularly in the export growth of electronics and electrical (E&E) products that is consistent with the cyclical slowdown in the global technology cycle.

Kuriakose notes that sharper than expected slowdowns in major economies, unresolved trade tensions and a maturing global technology cycle could weigh on Malaysia’s export demand in the near term.

The increased uncertainty could also lead to more subdued business sentiment and a moderation in private sector activity.

“Proposals to reform Malaysia’s investment incentives framework, focusing particularly on job creation and small and medium enterprises (SMEs) linkages as well as enhanced monitoring and evaluation, are an important step in the right direction, ” says Kuriakose.

Hence, in order to attract investments as Malaysia competes with its regional peers, Malaysia would need to attract knowledge intensive investments.

This would in turn require high skills and adequate infrastructure.

“Firms will be required to invest in skills, research and development as well as effectively embrace integrated technologies and solutions, to attract investments that would increase high quality jobs.

“At the same time, it would be important for Malaysia to clearly articulate a new set of ‘National Investment Aspirations’ that outlines its expectations from investments, such as high-quality job creation and increased economic complexity.

“Then, the investment ecosystem has to be calibrated to support the achievement of these goals, and any incentives offered are aligned with these aspirations, utilising objective and transparent eligibility criteria, ” Kuriakose elaborates.

Apart from that, structural reforms aimed at improving the business climate can boost growth prospects.

The recent reforms that have led to a steady increase in the ease of doing business in Malaysia, with Malaysia now ranked 12th globally, is reflective of the strong reforms implemented to this end.

New technologies associated with the 4th Industrial Revolution (IR4.0) are transforming production processes by reducing the importance of low wages in determining competitiveness.

To accelerate the adoption of IR4.0 in Malaysia, the government plays a crucial role.

In response to the IR4.0, the government has launched the Industry4WRD: National Policy on Industry 4.0 to drive digital transformation in various sectors in Malaysia and one of the initiatives is setting up an Industry Digitalisation Transformation Fund to encourage industries to utilise artificial intelligence.

Malaysia aims to be an IR4.0 hub in South-East Asia.

In order to achieve this ambition, firms especially SMEs would need to aggressively adopt new technologies and effectively participate in global value chains.

The emphasis in the recent Budget 2020 on measures to boost jobs and private investment, particularly by SMEs through increased digital adoption are an important step in this direction.

As the government restructures its priorities for Malaysia’s development to achieve high income status, the overarching vision and commitment is that of inclusive growth for shared prosperity with strong institutions, a robust education and health care system and strong social safety nets.

“In the medium to long run, structural reforms that build strong institutions, raise competitiveness, enhance trade and investment, and encourage innovation are needed to boost productivity and growth.

“Concurrently, well-designed social safety nets and active labour market policies are key to managing risks and protecting vulnerable groups, to ensure that everyone is a beneficiary of the proceeds from growth, ” says Kuriakose.

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