Dato' Dr_ Mahani

7/30/2019 Dato' Dr_ Mahani

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Driving Towards High IncomeDriving Towards High Income

EconomyEconomy

Dato Dr Mahani Zainal AbidinInstitute of Strategic and International Studies

30 November 2010

Conference for Competitiveness: Driving Innovation for Competitiveness

Malaysia Productivity Council


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ContentsContents

Targets for high income economyTargets for high income economy

The New Economic ModelThe New Economic Model

Strategies to achieve high incomeStrategies to achieve high income

Expansion of the economyExpansion of the economyConclusionConclusion

2


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GDP mustGDP mustgrow atgrow atleast 6% perleast 6% per

annum toannum toachieveachievehighhighincomeincomeeconomyeconomy


ECONOMICGROWTHRATE

TEXT TEXT

WAGE INCREASE INCOMEDISTRIBUTION PRODUCTIVITY GROWTH

3

GNI perGNI per

capita tocapita toreachreachRM48,000 byRM48,000 by20202020

GDP/GNI PER CAPITA

GiniGini

coefficientcoefficientto reduceto reducefurther tofurther to0.420 in 20150.420 in 2015

Real wageReal wage

growth togrowth tomatch prematch pre--crisis ratescrisis rates

ContributionContributionof TFP toof TFP to

GDP toGDP toincrease toincrease to38.5% in38.5% in20152015


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Economic growth rate to grow at least 6%Economic growth rate to grow at least 6%

per annumper annum

CurrentIncome

EnhancedGrowth of

6%

2020

ExpectedGrowth of

4.5%as is

basis

2010

~$13,500

~$7,000

Per Capita

Income

USD

Effic

ien

cy

Effic

ien

cy

8 Strategic Reforms Initiatives8 Strategic Reforms Initiatives

Value Drivers

Enhancing

Growth

Gradient Middle and lowerMiddle and lowerIncome economiesIncome economies

High IncomeHigh Incomeeconomieseconomies

Low range end

Labo

ur

Labou

rInv

estm

ent

Investm

ent

~$15,000

4


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GDP and GNI per capita to increase toGDP and GNI per capita to increase to

USD15,000 by 2020USD15,000 by 2020

Source:

Source: 10th Malaysia Plan,EPU

5


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Real wages must increase and recover theReal wages must increase and recover the

growth rates pregrowth rates pre--Asian Financial CrisisAsian Financial Crisis

6

Source: Malaysia EconomicMonitor,2010The growth in real wages has been

significantly reduced post AsianFinancial Crisis

1.85.9Total Manufacturing

0.65.9Non-metallic mineral products,basic metal and fabricatedmetal

1.26.8Food, beverages and tobacco

2.57.9Transport Equipment andother manufactures

1.46.8Average Increase for DOIDomestic-OrientedIndustries(DOI)

1.42.8Wood products, furniture,paper products, printing andpublishing

-1.35.8Textiles, wearing apparel and

leather products

1.56.0Petroleum, chemical, rubber,plastic products and realestate

2.56.2Electrical and Electronics

1.95.6Average Increase for EOIExport-OrientedIndustries(EOI)

Source: Reshaping Economic Geography Report in East

Increase in real wages per annum(%) Pre-crisis

94-97Post-crisis98-07


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Income inequality need to be reduced toIncome inequality need to be reduced to

achieve inclusivenessachieve inclusiveness

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Growth to be driven by productivity ratherGrowth to be driven by productivity rather

than higher capital andthan higher capital and labourlabour inputsinputs

100%

TFP

Labour

Capital

Achieved Target

29.0%

33.2%

37.8%

34.7%

30.8%

34.5%

38.5%

24.0%

37.5%

GDP% p.a.

GDP% p.a.

GDP% p.a.

4.7

1.5

1.4

1.8

4.2

1.5

1.3

1.4

6.0

2.3

1.4

2.3

+

+

=

++

++

==

2011-20152006-20102001-2005

Source: 10th Malaysia Plan

Ratio of Total Factor Productivity Growth toGDP Growth of selected OECD countries,2007

Source: OECD and 10th Malaysia Plan

Country

Switzerland

Germany

Japan

New Zealand

USA

Malaysia(2006-2010)

Country

Switzerland

Germany

Japan

New Zealand

USA

Malaysia(2006-2010)

Ratio

0.39

0.25

0.78

0.53

0.38

0.38

Ratio

0.39

0.25

0.78

0.53

0.38

0.38

GDP growth

3.6

2.4

2.3

3.0

2.1

4.2

GDP growth

3.6

2.4

2.3

3.0

2.1

4.2

TFP growth

1.4

0.6

1.8

1.6

0.8

1.5

TFP growth

1.4

0.6

1.8

1.6

0.8

1.5

8


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ContentsContents





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High Income is an element in NEMHigh Income is an element in NEM

RakyatQuality of Life

TargetsTargetsUSD15,000USD15,000 -- USD20,000USD20,000

per capita by 2020per capita by 2020

MeetsMeetspresent needspresent needs

withoutwithoutcompromisingcompromising

futurefuturegenerationsgenerations

Enables allEnables allcommunities tocommunities to

fully benefitfully benefitfrom the wealthfrom the wealthof the countryof the country

10

HIGH INCOMEGROWTH + WEALTH CREATION

SUSTAINABILITYFIXING THE FOUNDATIONAL

ISSUES

INCLUSIVENESSNARROWING DISPARITY


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8

1

2

3

4

5

6

7

The NEM consists of 8 Strategic Reform InitiativesThe NEM consists of 8 Strategic Reform Initiatives

(SRI) and 12 National Key Economic Areas (NKEA)(SRI) and 12 National Key Economic Areas (NKEA)

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NKEA provides immediately requiredNKEA provides immediately required

boost to the identified sectorsboost to the identified sectors

Immediate Growth

131 Entry PointProjects

(EPP)

60 BusinessOpportunities

(BO)

Boosting identified sectors/projects

KLInternational

FinancialDistrict(NKEA

FinancialServices)

KLInternational

FinancialDistrict(NKEA

FinancialServices)

IntegratedZone forAquacul ture

(NKEAAgricu lture)

Integrated

Zone forAquacul ture

(NKEAAgricul ture)

TUKARProgramme

(NKEAWholesale &

Retail)

TUKARProgramme

(NKEA

Wholesale &Retail)

Eco-nature

IntegratedResort in

Sabah(NKEA

Tourism)

Eco-nature

IntegratedResort inSabah(NKEA

Tourism)

Educity @Iskandar(NKEA

Education

Educity @Iskandar(NKEA

Education

MalaysiaTruly Asia

Centre(NKEA

Greater KL/KV)

MalaysiaTruly Asia

Centre(NKEAGreater KL

/KV)

Boost underNKEA

(examples)

Boost underNKEA

(examples)

1

2

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WithoutWithout SRIsSRIs, NKEA projects will not, NKEA projects will not

achieve their full potentialachieve their full potential

NKEAs involve Entry

Point Projects (EPP)and businessopportunities to raiseincome levels

NEM has StrategicReform Init iatives(SRIs) that are cross-cutting to removebarriers and structural

deficiencies

NKEAs

(Growth Drivers)

SRIs(Foundational

measures)

1

2

2009 NKEA 1 NKEA 2 NKEA 3 NKEA 4 NKEA 5 OTHERS 2020

Current

7,000

Target

15,000-17,000

GNI per capita (USD)

Re-energising the private sector

Developing quality workforce

Competit ive domestic economy

Strengthen the public sector

Transparent and Market-Friendly

Affirmative Action

Building knowledge base infrastructure

Ensuring sustainabili ty of growth

Enhancing sources of growth

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Looking closer atLooking closer at SRIsSRIs

THE INTERCONNECTEDNESS OF SRIs THE 8 SRIs

Investments , Competition & Innovation

The Bottom 40%& the BCIC

Bureaucratic Reforms &Quality of Civil Servants

Labour Market &Upskilling Workforce

SPURRING

GROWTHINCLUSIVEN

ESS

CREATING A COMPETITIVEINVESTMENT ENVIRONMENT

Re-energising the Private Sector

Creating a Competitive DomesticEconomy

Build ing the Knowledge BaseInfrastructure

Ensuring Sustainability of Growth

Enhancing the Sources of Growth -

NKEAs

DEVELOPING QUALITYWORKFORCE

Developing Quality Workforce andReducing Dependency on Foreign

Labour

TRANSFORMING GOVERNMENT

Strengthening of the Public Sector andFiscal Sustainability

NARROWING DISPARITY

Transparent and Market Friendly

CREATING A COMPETITIVEINVESTMENT ENVIRONMENT

Re-energising the Private Sector

Creating a Competitive DomesticEconomy

Building the Knowledge BaseInfrastructure

Ensuring Sustainability of Growth

Enhancing the Sources of Growth -

NKEAs

DEVELOPING QUALITYWORKFORCE

Developing Quality Workforce andReducing Dependency on Foreign

Labour

TRANSFORMING GOVERNMENT

Strengthening of the Public Sector andFiscal Sustainability

NARROWING DISPARITY

Transparent and Market FriendlyAff irmative Action



HighIncome

Inclusiveness

Sustainabiliy

NEM

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SRI seeks to address our deficiencies whichSRI seeks to address our deficiencies which

are preventing us from moving forwardare preventing us from moving forward

15

Controlled Pricing

SystemUndervaluation ofresourcesresults in grossmisallocations

Education Sector

Failing to deliverrequired

talent to the economy

Corruption

High level perception

Lower Income

Group(


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ContentsContents





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14

76

3

9

7

Investment need to return as engine ofInvestment need to return as engine of

growthgrowth

17

Private & Publ ic investment as share of GDP1989-2008;%

Average annual growth1991-2006; %

InvestmentGovernment

expenditure

Privateconsumption

Post-crisis2000-2006

Pre-crisis1991-1997


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High paying jobs need to be createdHigh paying jobs need to be created

18

1.7 mil lion new1.7 mil lion newjobs by 2020 injobs by 2020 in

Greater KL /Greater KL /KlangKlang ValleyValley

3.3 mill ion new3.3 mil lion newjobs by 2020jobs by 2020

under the ETP, ofunder the ETP, ofwhich:which:

63% wil l be in the63% will be in themiddle and highmiddle and high

income bracketincome bracket

79% require79% requirevocational/vocational/

certificate andcertificate and

aboveabove

One third requireOne third requiredegreedegree

qualification andqualification andaboveabove

Source:

43%43%

57%

63%63%

37%

Middle andHigh IncomeJobs

Low IncomeJobs

NKEA ini tiatives will createadditional 3.3 million jobs, ofwhich 63% will be in middle andhigh income segment compared tothe current 43%

2009 2020

100% 100%


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To fill in these jobs, more skilled workers inTo fill in these jobs, more skilled workers in

thethe labourlabour market is neededmarket is needed

19

350,000foreigntalent istargeted

undertalent

attractionin NKEA

Greater KL

2 Need to shift fromdependency on lowskilled foreign worker

to contribution byhigh skil led foreignworker

1.7 million new1.7 million newjobs by 2020 injobs by 2020 in

Greater KL /Greater KL /KlangKlang ValleyValley

3.3 mil lion new3.3 mil lion newjobs by 2020jobs by 2020

under the ETP,under the ETP,of which:of which:

63% will be in63% will be in

the middle andthe middle andhigh incomehigh income

bracketbracket

79% require79% require

vocational/vocational/certificate andcertificate and

aboveabove

One third requireOne third requiredegreedegree

qualification andqualification andaboveabove

1 New jobs require higher educatedworkforce

Source:PEMANDU

23.423.4

35.935.9

35.035.0

34.834.8

34.134.1

32.732.7

31.931.9

25.625.6

28.028.0

51.051.0

29.329.3

43.843.8

36.336.3

42.942.9

42.542.5

36.036.0

26.626.6

60.860.8

52.952.9

66.566.5

92.992.9

71.771.7

67.267.2

78.678.6

OECD Average =27.4 OECD Average =37.6 OECD Average =64.8

Country

Malaysia

(2009)

Singapore

Republic ofKorea

Finland

UnitedStatesAustralia

UnitedKingdom

Hong Kong

Labour force with

tertiary education,% 2007

Labour force withtertiary education,

% 2007

Skilled labour

force,% 2008

Skilled labourforce,

% 2008

Labour productivity

(US$ PPP 000 peremployee) 2009

Labour productivity(US$ PPP 000 peremployee) 2009

The quality of our labour force need to be at par withother high income countr ies

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The economy must be driven by technologyThe economy must be driven by technology

and innovationand innovation

20

0

15,000

30,000

45,000

60,000

75,000


No. of scientific & technical journal articles

50,000 210,00020,00010,0000

USA

UK

Sweden

Spain

Norway

Slovenia

Canada

Singapore

Australia

Malaysia

S. Korea

J apan

ItalyGermany

Denmark

Czech Republic

0

15,000

30,000

45,000

60,000

75,000

0 1,000 2,000 3,000 4,000 5,000 6,000


No. of researchers in R&D (per million people)

USA

UK

Sweden

Spain

Norway

Slovenia

Canada

Singapore

Australia

Malaysia

S. Korea

J apan

Italy

Germany

Denmark

Czech Republic

Number of researchers2006

R&D artic les2006


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High productivity will lead to high incomeHigh productivity will lead to high income

while remaining globally competitivewhile remaining globally competitive

21

1 At 2000 constant p rices

Source: 10th Malaysia Plan


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ContentsContents





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Expansion of the economy will come fromExpansion of the economy will come from

both existing and new sourcesboth existing and new sources

Existing Sectors /

Industries

New Sources ofGrowth

Expansion ofeconomicactivity

HighEconomicGrowth &HighIncome

23

NKEA industr ies areour sources of growth,

but we cannot just lookat projects withoutbuilding the underlyingcomparative/competitive advantage

Competition in

the global marketis no longerbased on pr icebut onproductivity,quality andservices

Expansion of

economic activity willcreate spi lloverswhich will further spurprivate consumptionand investment

Our target is toachieve minimum 6%GDP growth perannum for the next 9years

More exportsin terms ofvolume andvalue add


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UtiliseUtilise on trade agreements to increaseon trade agreements to increase

exportsexports

24

Utilise on tradeUtilise on trade

agreementsagreements

MultilateralMultilateral RegionalRegional BilateralBilateral


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ContentsContents





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z Improvement in economic governance to

increase efficiency and investment.z Expanding economic activities will create jobs

(high paying ones).

z Benefits will be felt if there is productivityimprovement compensated by higher pay.

z Educational improvement at all levels higher

education, technical and skilled work.zTargets for TFP improvement?

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High Income Economy needsHigh Income Economy needs

transformationtransformation


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Thank YouThank You

Dato' Dr_ Mahani

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