By Charles F Moreira, Editor
The 532-page 12th Malaysia Plan (2021 – 2025) tabled in parliament on 27 September 2021 by Prime Minister Datuk Seri Ismail Sabri Yaakob, aims to develop a prosperous, inclusive and sustainable Malaysia.
The three themes of the Twelfth Plan are resetting the economy; strengthening security, wellbeing and inclusivity; and advancing sustainability. The four catalytic policy enablers of the plan focus on developing future talent; accelerate technology adoption and innovation; enhance connectivity and transport infrastructure; and strengthen the public service, whilst the 14 game changers represent bold and innovative actions to shift mindsets and change the approach to national development.
Taken together, these themes, enablers and game changers will enable Malaysia to attain its objective to become a high-income nation.
There’s just too much there to fit into an article or even a series of articles, so we will focus on those parts of the plan related to productivity and technology.
Amongst the issues and challenges which Malaysia faces are low productivity especially amongst micro, small and medium enterprises (MSMEs), low quality of investment and low gains from global value chain participation.
During the 11th Malaysia Plan (2016 – 2020), economic growth continued to be driven by capital and labour, and overall labour productivity grew at 1.1% per annum during the 11th Plan, from RM84,114 per worker in 2015 to RM89,025 in 2020.
However, productivity growth across all sectors was slower following the impact of the COVID-19 pandemic both in terms of value-added and employment. Productivity grew the most in the manufacturing sector, from RM110,300 to RM120,700 per worker in 2015 and 2020 respectively, these figures being in constant 2015 prices, according to the Department of Statistics Malaysia (DoSM) and the Economic Planning Unit (EPU). However at 1.8% actual annual growth rate, this growth fell short of the 3.9% target over the same period.
Second came services where productivity per worker grew at 1.3% per annum, from RM79,100 in 2015 to RM84,300 in 2020, far short of the 3.9% per annum target. Next came productivity per worker in construction grew by 1.0% per annum, far short of the 4.3% per annum target. Next came productivity per worker in agriculture which grew at 0.5% per annum over that period, which surpassed the 0.2% per annum growth target.
Productivity per worker in mining and quarrying was stellar at RM1,303,600 per worker in 2015 and RM1,247,600 per worker in 2020 – a drop of 0.9% per annum and far short of the 4.2% per annum growth target.
Issues and challenges
Several key issues include low productivity amongst MSMEs, low quality of investment, slow structural economic transition, wide development gap between states, low share of compensation of employees, limited gains from global value chain participation, disruption of the medium-term fiscal consolidation and adverse impact on the environment from unsustainable development.
All these challenges can significantly affect Malaysia’s economic performance, so macroeconomic strategies under the 12th Malaysia Plan will continue to focus on ensuring sustainable economic growth.
More particularly, despite various efforts to boost productivity, MSMEs were three times less
productive than large firms, resulting in a wider productivity gap during the 11th Malaysia Plan, and the lack of technology adoption and limited diffusion of technological innovation by MSMEs contributed to low productivity.
Besides that, MSMEs were highly dependent on low-skilled workers, and with them accounting for 97.2% of total establishments as at December 2020, enhancing their productivity will greatly contribute to increase national productivity.
The low adoption of emerging technology and automation among firms has adversely impacted their productivity and efficiency. Based on the approved investment data, Malaysia is shifting from
labour-intensive to more capital-intensive industries, with the ratio of capital expenditure to labour increasing from 0.7:1 in 2010 to 1.5:1 in 2020, but this investment was largely on physical structure accounting for 59.5% of total investment, while investment in ICT equipment and other machinery and equipment was at 20.3%.
Whilst it is imperative for Malaysian firms to move further up the value chain and diversify sources of growth by developing new and complex products in the services and manufacturing sectors to be competitive in the global market, however, most industries in Malaysia remain at the lower end of the production value chain, with labour-intensive economic activities and low technology content.
Malaysian firms still lag the labour productivity gap with firms in in East Asia and in the Organisation for Economic Co-operation and Development (OECD) countries, particularly in
the manufacturing and services sectors.
Large manufacturers are globally more competitive in terms of multi-factor productivity, but small and medium sized manufacturers are well behind their regional counterparts. Most services firms are sub-optimally small and those with relatively high labour productivity employ too few workers, whilst workforce skills and labour issues are often cited as the main obstacles to invest in the manufacturing and services sectors.
The services sector is driven by the expansion of the traditional services sub-sectors (electricity and gas, water, sewerage and waste management, wholesale trade, retail trade, motor vehicles, food and beverage, accommodation, transportation and storage, other services as well as government services), whilst the modern services sub-sectors (information & communication, finance & insurance, business services, private health services and private education services) remain stagnant.
At the same time, the agriculture sector lacks high technology adoption and whilst the implementation of various strategies to increase agrofood production to achieve food self-sufficiency steadily increased agrofood’s share of total agricultural value-add from around 45% in 2015 to 53.3% in 2020, however this is still below the 60% target for 2020. Agrocommodity, the other sub-sector, accounted for 45.5% value-add share in 2020.
The agriculture sector is heavily dependent on palm oil despite initiatives to diversify the production of crops.
Also, gross domestic product (GDP) growth from 2016 to 2020 and GDP contribution by industry sector in 2020 varied widely by state and territory across Malaysia.
Similarly, MSME manufacturers focus more on product assembly and packaging, and Malaysia’s manufacturing sector lags behind advanced countries in terms of capacity and capability to develop local technology.
Low gains from global value-chain participation
Based upon OECD-WTO (World Trade Organisation) figures for 2015, at 0.5, Malaysia’s global value-chain (GVC) participation ranked the lowest amongst nine countries, behind South Korea (0.6), Taiwan (0.8), Philippines and China (each 1.0), the United Kingdom (1.6), Indonesia (1.9), Australia and the United States (each 2.3).
This GVC participation ranking is an index arrived at by dividing the share of Malaysian products used in other countries’ exports by the share of imported products used in goods produced in Malaysia for export.
The 36.9% imported content in Malaysia’s exports was the highest amongst the nine countries – i.e. South Korea (32.6%), Taiwan (32.4%), Philippines (22.0%), China (17.3%), United Kingdom (15.1%), Indonesia (12.9%), Australia (11.6%) and the United States (9.5%).
On the other hand, at 18.7% of Malaysia’s exports used in other countries’ exports, Malaysia was slightly ahead of China (17.5%) but behind South Korea (19.1%), the United States (22.2%), Philippines (22.4%), the United Kingdom (23.7%), Indonesia (24.1%), Taiwan (24.4%) and Australia (26.8%).
So Malaysia’s GVC participation ranking was found by dividing 18.7% by 36.9% which gives 0.5068.
In simple terms, Malaysia’s exports contained the highest proportion of imported content amongst these nine countries in 2015, whilst Malaysia’s exports accounted for the second lowest proportion in other countries’ exports besides China’s, and this can effectively reduce the profits of Malaysian manufacturers, especially when the Ringgit exchange rate is weak relative to other countries’ currencies, especially the US Dollar, which is used in most international trade and especially when the proportion of imported inputs used in Malaysian exports is high.
A bit of trivia here:– I find that one of the cheapest brands of jam available on Malaysian shelves is a brand of jam imported from a manufacturer in Manchester, U.K. where a 454 gramme (one pound) bottle is cheaper than Malaysian brand jams as well as brands of jam made in neighbouring countries.
Whilst we cannot say for sure since many factors could be involved in their shelf price, however this could be due to the level of imported inputs used in these more expensive Malaysian and regionally produced jams.
In Part 2 and quite likely subsequent parts, we’ll look at the measures proposed in the 12th Malaysia Plan to overcome the above problems over the next five years.
Meanwhile, dear readers can download copies of the 12th Malaysia Plan in English from the Economic Planning Unit’s website over here:- https://rmke12.epu.gov.my/en
Or in Bahasa Melayu over here:- https://rmke12.epu.gov.my/bm