Economic Transformation Programme – Human Resources Required!

ARCHIVES 2010

By admin-s On Sep 25, 2010

To the layperson and the uninitiated, (the ETP) is about the be-all and end-all of a development ‘blueprint’ to propel us to become the newly industrialized country (NIC). This MP hates to take away the much-needed-feel-good factor we all yearned for. But as usual, he will be frank and objective about his critique.

By Dr. Dzul

The ‘Open Day’ for the Economic Transformation Programme or ETP by DS Idris Jala from the Pemudah comes after a decade of admitted economic stagnation. The ambitious ETP is designed to address the ceaseless economic and investment setbacks that have had a demoralizing effect on economic actors in Malaysia.

ETP is Part 2 the New Economic Model (NEM), following the announcement of Part 1 (Strategic Reform Initiatives or SRIs) at the end of March during Invest Malaysia 2010.

ETP has set the key economic targets for the next 10 years. In essence, the country’s real GDP need to grow by 6% p.a. during 2011-2020 to raise the Gross National Income (GNI) to RM1.7trillion (USD523b) by 2020 (2009: RM661b or USD188b) that will lift per capita income to USD15,000 (RM48,000) by 2020 (2009: USD6,700 or RM23,770).

131 Entry Point Projects (EPP) have been identified to contribute to 41% of the rise in GNI next 10 years, with 60 Business Opportunities (BOs) to be realized over the next 10 years which would contribute another one-third of the projected GNI increase.

The proposed projects for implementation (‘entry point projects’ or EPP) in each sector were revealed with some details.

All these are under the 12 National Key Economic Areas (NKEAs) announced much earlier that will be the economy’s drivers for growth, investment and job creation. These NKEAs are Electrical & Electronics; Oil, Gas & Energy; Palm Oil; Financial

Services; Tourism; Wholesale & Retail; Education; Healthcare; Agriculture; Business Services; Communications Content & Infrastructure; and Greater Kuala Lumpur.

This Member of Parliament from Kuala Selangor is from the Pakatan Rakyat and an MP from the Islamist Party of Malaysia, PAS. I have no qualm to say that the plan is massive, comprehensive and perhaps admittedly impressive.

To the layperson and the uninitiated, it is about the be-all and end-all of a development ‘blueprint’ to propel us to become the newly industrialized country (NIC). This MP hates to take away the much-needed-feel-good factor we all yearned for. But as usual, he will be frank and objective about his critique.

For the umpteenth time, he will say that he wants all government programmes to succeed. It’s wrong for anyone especially the opposition to think otherwise. It hurts the rakyat further nor does it benefit the opposition to take over a failing or a failed state.

But being an opposition MP, he has to do his constitutional duty – to ‘check and balance’ the government of the day. In the final analysis, it is back to the basic question: Will we be better off or worse off with this ETP?

In all objectivity and earnestness, let’s us get down to scrutinising the numbers game.

Growth numbers?

6% p.a. real GDP growth target for 2011-2020 is to raise the Gross National Income (GNI) to RM1.7trillion (USD523b) by 2020 from RM661b (USD188b) in 2009, and lift per capita income to USD15,000 (RM48,000) by 2020 from USD6,700 (RM23,770) in 2009.

(For the uninitiated, Pemandu’s use of GNI is perhaps deliberate. GNI is GDP plus incomes of its nationals outside (interest and dividends) less (minus) similar payments to other countries. A Singapore-owned company operating in Malaysia will count towards Singapore GNI and Malaysia GDP, but will not count towards Malaysia GNI or Singapore GDP).

I’m not going to dispute the projected growth of 6% per se if the government is insistent that it’s doable. A reminder, however, that we failed to achieve our targeted growth in both the 8^th and 9^th Malaysia Plan (MP) is in order. Despite the good time, 8^th MP only saw a growth of 4.7% per annum, while the 9^th MP averaged out at 4.2%. Conceding that the impact of the global financial crisis of 2008 adversely affected these numbers. There is still no grounds for believing that 6% will be achieved going forward. But are we about to see a repeat? Yes, very much so. Why?

We are rudely reminded of the vulgarities of the global economy with the possibility of the ‘double-dip’ lurking dangerously ahead. The scenario where governments and consumers of the advanced economies – US, UK and Europe – will be spending less and are more concerned with de-leveraging their debts. Meanwhile those with a high national saving and have been saving too much – China, Asia, Germany and Japan – are not willing to spend and produce more for obvious reason to compensate for the fall in demand by the de-leveraging countries earlier.

Hence you have a ‘double-whammy’ situation of diminishing global aggregate demand in the recovery exacerbating the softer and lower economic growth. Our optimism is thus as baffling as it is misplaced.

So how are we driving our growth?

ETP puts it that RM1.4trillion in funding and investment (I-factor) are required to achieve the above targets. Of this total, 92% will be private investment with a 73:27 split between domestic direct investment (DDI) and foreign direct investment (FDI), and a 65:35 split between non-GLCs and GLCs.

The 8% balance is public sector investment (G factor), which should be pure Government investment as the GLCs are classified under private sector. Saddled by public debt, it is best that the government restrain their gearing lest it will hurt our sovereign rating. They must also refrain from cannibalizing our national saving and shortchanged our future generation resources, namely oil and gas.

A closer look at our historical records grimly reminded us that these macroeconomic numbers are unrealistic.

In terms of total value in nominal terms (not taking account of inflation), private investment during the 9^th MP was RM356.1 billion of which 72% was private domestic investment and 28% was foreign direct investment (FDI).

While the split between the domestic and foreign remains at ~70/30, the target of RM1.4 trillion in private investment and funding seems to be a very tall order for the period of 2011-2020 as opposed to RM356.1 billion that was achieved for the 9^th MP. It is almost 4 fold more than the 9^th MP while the GDP are expected to grow from RM661 in 2009 to RM1.7 trillion for 2020 or at best 2.5 fold. How that numbers jive with Pemudah in their projection is again perplexing.

These numbers will be even more intriguing if we were to take into account our recent performance in enticing private investment both locally, much worse from abroad or the FDI. Judging by the World Investment Report, Unctad 2010, it is dismal to say of the least. I shall not repeat the numbers here at they are now ubiquitous and very painful.

A perusal of the data below is clearly evident that contribution from private investment (I-factor) as % of GDP has markedly dwindled from 33.9% in 1995 to hardly above 8% at the end of the 9^th MP period.

Despite all these historical records, Pemudah with its head, Idris Jala boldly announced that they are going to generate 4.5 times more of private investment to propel the 6% growth. That’s indeed arguably laughable. Worse still, they have not put in place in ETP, of concrete measures to overcome the investors ‘brain barriers’ that go beyond economics consideration i.e. judiciary etc.