Trade and investment the key


CLICK TO ENLARGECLICK TO ENLARGE

PETALING JAYA: With Covid-19 cases on the uptrend in many countries and the emergence of a new potent variant, a stronger emphasis on the “building blocks” – trade, investment and sustainable supply chain – has increased.

Malaysia, as a trading nation, should not lose track of these areas if it intends to reinvigorate its economy in the long run and become a high-income nation, economists concurred.

The discovery of a new and potentially more transmissible coronavirus variant known as Omicron, has now been detected in Botswana, Hong Kong and Belgium. This has led to a number of countries banning travellers from several southern African countries.

Malaysians are also banned from visiting several African countries following the emergence of the new variant.

Additionally, the spike in cases in the United States, the United Kingdom, Germany and many other nations is creating fears of a new wave of the virus. Despite 98% of adult Malaysians being fully vaccinated, the numbers are beginning to rise again.

Malaysian Rating Corp Bhd chief economist Firdaos Rosli told StarBiz (pic below) that to restore the economy’s growth trajectory, Malaysia needs the right ecosystem to get public policy to evolve with the times.

As it stands, he said the country could still grow with the present set-up, but perhaps not at the growth rates enjoyed in the past. “Policymakers tend to push for higher demand to boost economic growth. While this strategy is evident amid the scarring effects of prolonged lockdowns, the government’s efforts in addressing supply-side issues are vague.

“For example, in 2007, a year prior to the global financial crisis, Malaysia’s net exports-to-gross domestic product (GDP) was 21.9% but it dropped to 7.2% in 2020. One explanation is that the country’s manufacturing value added (MVA) has been decreasing over the years.

“Our MVA was at the peak of 30.9% of GDP in 1999. However, in 2020, we recorded an MVA at 22.4% of GDP. We need more investments so that our ability to create a diverse range of high value-added products will become higher and increase economic complexity as well.

“In turn, the government will get to collect a higher tax income while the nation regains its competitive advantage over other countries,” he said.

Therefore, he noted that there is a need to improve on the supply side. The spillover effects of this development would benefit the labour market as high-value and specialised skills would become higher, he said, adding that it would pave a pathway towards achieving the high-income nation status.

On the trade side, Firdaos believes the government is aware of what is required to boost net exports, such as the ratifying mega trade agreements like the Regional Comprehensive Economic Partnership (RCEP), the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) and the approved National Investment Aspirations.

However, he said the details and progress of these initiatives were either scant or not readily available. Because of this, he said the private sector is likely to continue sitting on the bench while “waiting for the manager” to make the call.

Sunway University economics professor Yeah Kim Leng (pic below) said Malaysia’s successful industrialisation and transformation into an upper middle income country since the early 1990s was achieved on the back of global trade, investment and supply chain integration.

Sunway University economics professor Yeah Kim LengSunway University economics professor Yeah Kim Leng

However, he said this intertwined growth-structural change progression has slowed over the past two decades as many of its regional peers grew more quickly.

Leveraging on similar building blocks, he said countries such as Vietnam, Cambodia, Indonesia, Philippines, Laos and Myanmar, have sustained higher GDP growth rates than Malaysia.

The consolation for Malaysia is that its GDP per capita remains higher than these countries, but these countries would catch up soon if the growth differential continues in their favour.

Therefore, he said the country needs to address more urgently the various structural issues and impediments that have been identified in the 12th Malaysia Plan (12MP).

More importantly, it would need to implement more effectively the strategies, programmes and initiatives formulated therein, he noted.

Yeah said: “The investment thrust comprising both domestic and foreign direct investment (FDI) initiative needs to be given primacy.

“In terms of policy imperatives, the government at the minimum needs to ensure the continuation of market-friendly policies but preferably the establishment of investment policy regimes that are more attractive than its regional peers given the intensifying competition for global FDI flows.

“On the supply of skilled labour, the emphasis on science, technology, engineering and mathematics (STEM) education can never be overemphasised at the university and vocation levels.

“However, if there are specific skills shortages, we should be more welcoming of skilled labour import rather than the current predisposition to unskilled labour, that leads to an economic or production structure caught in a low skill equilibrium trap.”

He said the country has been consistently ranked above its regional peers in global competitiveness rankings. Yet its growth performance continues to lag over the past two decades, he noted.

This growth conundrum, he said, perhaps could be linked to the deterioration in the quality of its institutions. This is reflected by the plethora of wastages, leakages and corruption scandals that could have slowly but steadily eroded domestic and foreign investor sentiments, Yeah said.

He added stemming this erosion would be critical to returning the country’s growth trajectory to be among the region’s top performers.

AmBank Group chief economist and member of the Economic Action Council Secretariat Anthony Dass (pic below) said the building blocks would reduce the likelihood of future shocks and improve the country’s resilience to those shocks, whether from disease or environmental degradation.

AmBank Group chief economist and member of the Economic Action Council Secretariat Anthony DassAmBank Group chief economist and member of the Economic Action Council Secretariat Anthony Dass

He said serious consideration should be given to address structural changes. Only then he said solid building blocks on trade, investment and supply chain sustainability could be built.

The country’s commitment towards low carbon emission where 70% of its exports are going to countries committed to low carbon would be a boon to the nation’s trade.

In this respect, it is vital to strengthen our trade facilitation, logistics, standards conformance, market access, sustainability, digitalisation and technology, investment and branding.

“Although foreign direct investment (FDI) has long been a mainstay of our economy, concerns are whether it can be sustained or decline. In terms of investment value, FDI’s contribution to our economy does not seem impressive enough. And our GDP growth has outstripped FDI growth.

“If this is the case, the multiplier effect cannot be strongly emphasised. And it suggests that FDI into Malaysia has stagnated (or “stabilised”).

“There is a need for us to increase the quantum of FDI value. Towards this end, we need to ensure that FDI flows not only into the downstream of manufacturing activities (as the primary sector) but also the mid and upstreams.

“And we need to encourage FDI into regions outside the Klang Valley, Penang and Iskandar Malaysia. Regions like East Malaysia are well-poised to receive FDI in green and renewable energy with e.g. the establishment of the Sarawak Corridor of Renewable Energy,” Dass noted.

He said the scope of FDI should be expanded to focus on the green economy. This includes FDIs in ecotourism infrastructure, of which Sabah has great potential as a premier hub.

On the supply chain, he said there is a need to raise the level of efficiency and reskilling the supply chain workers would be top priorities in the next three years. It is to help in cost-optimisation in the supply chain, even in the face of building out additional resiliency, he said.

“With the need for increased visibility, we must shift from linear supply chains to more integrated networks connecting many players. This is where digitalisation, automation and advancement of technology plays a key role.

“Hence the government and businesses must urgently redesign their supply chain policy and strategy that would fit the new digital focused era, Dass said.

Meanwhile, Centre for Market Education CEO and Institute for Democracy and Economic Affairs (Ideas) senior fellow Carmelo Ferlito said Malaysia has some strength in terms of trade, but uncertainties remain on investment, supply chains and inflation.

In order to attract domestic and international investments he said the key word is “confidence”.

He said many investors are adopting a wait and see approach as it is not yet clear if the government would surf a new wave of Covid-19 infection without recurring measures like lockdowns.

“On the same point, the government must ease the conditions for business travels, which are completely unattractive, and to start working hard on reopening borders.

“On the supply chain, there is a desperate need for workers and the government should reopen access to the international labour market. Commercial corridors should be open for increasing the supply of items that are in short supply in Malaysia and which needs to be imported.

“As for inflation, a serious programme of gradual spending cuts should be developed and implemented. This is to reduce money supply without adjusting interest rates, which cannot be raised at the moment due to the supply chain issues,” he said.

Commenting on the building blocks to put the economy on a growth trajectory, OCBC Bank economist, Wellian Wiranto said they are instrumental in powering the Malaysian economic recovery.

“Even though domestic consumption has become an increasingly feature of the economy, commanding more than 55% of the total GDP, the external-linked sectors involving direct trade and investments remain important, but also in terms of how they contribute to employment and wage growth that feed into household consumption.

“At this juncture when domestic consumption recovery may be subpar, due to how households will take some time to rebuild their nest eggs after repeated rounds of EPF drawdowns, these other growth engines (Building blocks) will be especially important,” he said.

End.

Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 46
Cxense type: free
User access status: 3
Join our Telegram channel to get our Evening Alerts and breaking news highlights

Trade , investment , supply chain , Malaysia ,

   

Next In Business News

Nasdaq futures slump 2% as rising yields spark tech rout
UK employers add record number of jobs, unemployment falls
Starbucks ties up with Meituan to bolster presence in crucial China market
Australian shares slip as healthcare, banking stocks drag
China has plenty policy tools in reserve to cope with slowing economy - state planner
BOJ raises inflation forecasts, maintains ultra-easy policy
US yields up along the curve as traders brace for hawkish Fed
Oil rises to more than 7-year high on Mideast tensions
China Merchants Bank-backed SPAC files first application under new Hong Kong rules
Asia shares tick higher as spotlight stays on Fed

Others Also Read


Vouchers