The economic potential of the SG4

The four PN-led states are looking towards interconnected activities with access to specific inputs, processing areas and distribution channels.

Murray Hunter

The announcement of a grouping of four state governments under Perikatan Nasional – Terengganu, Kelantan, Kedah and Perlis – called “state government 4” (SG4), is an exercise in sound economics.

The SG4 is really an expansion of the Northern Economic Development Corridor (NCER), covering Perlis, Kedah, Penang and Perak, and the East Coast Economic Region Development Council (ECER), introduced by former prime minister Abdullah Ahmad Badawi back in 2008.

The SG4 should be primarily an economic, rather than a political, grouping if it is to be effective.

These economic corridors closely follow the Thai regional development model, which was inspired by the cluster development theory, developed by the Harvard economist Michael Porter.

From the cluster perspective, the SG4 is a geographic concentration of interconnected activities across a number of fields.

They synergise with each other, with various industry specialisations and access to specific inputs, processing areas, and channels for distribution. This private enterprise-based model is supported by government institutions including, think tanks, vocational education, universities, and other technical support.

The key to developing the SG4 cluster will be to harness and synergise the various comparative advantages of each sub-region of the cluster, so competitive advantage can be created.

The objective of such a cluster is to provide an underlying business environment which will maximise productivity, and thus competitiveness. This is in great contrast to the GLC based development models Malaysia has traditionally utilised.

Terengganu, Kedah, Perlis and Kelantan will become a unified development region, under state rather than federal management.

The combined states have a GDP of RM121.3 billion, which is equivalent to 7.3% of Malaysia’s GDP. The four states comprise 5.6 million people, or 17.3% of Malaysia’s population of 32 million.

The GDP per-capita of Terengganu is RM32,199, Kedah (RM25,967), Perlis (RM 23,126), and Kelantan (RM16,547), all well below the national average of RM54,863. This is why the SG4 is desperately required.

Developing the SG4 cluster

The role of the state governments will be to create both the hard and soft infrastructure to generate the best conditions possible for the cluster. They will need to focus on transport, so each area is economically connected by road, if not rail through some strategic paths.

This will require close cooperation with the federal government, as it has the funds.

Port and airport facilities will have to be upgraded to support the extra volume to international customers. New industrial parks need to be developed in strategic locations for the potential industries the SG4 wishes to attract. The gateways to southern Thailand need to be improved, to solve the many bottlenecks along border trade.

Soft infrastructure requires local government regulation to be business friendly, with quick turnaround times from applications to the granting of permissions and licences.

Vocational colleges and universities will have to be aligned with the specific skills that will be needed around different parts of the cluster. Specific regional research will be required, as research undertaken by the national research organisations follows national agendas.

The major focus of the state governments will be streamlining their states to facilitate the activities expected to arise from their focus on gaining local and overseas investment. This is perhaps a primary reason former prime minister Dr Mahathir Mohamad was asked to become their informal advisor, to focus on acquiring new investment from South Korea and Japan.

The key objective of the SG4 cluster will be to enhance diversity, increase the level of economic activity, and massively increase productivity through increasing output per production unit through being able to obtain better inputs, process them better, with specifically skilled people, under a regime of streamlines, transport and logistical systems.

The SG4 cluster will be the envelope of a number of sub-clusters, which include agriculture, aquaculture and fisheries, chemicals, tourism, mining, oil and gas, forestry, and manufacturing.

Each sub-cluster should develop linkages and opportunities for service industries to greatly expand economic activities in a professionally oriented service sector.

The grassroots economy

The SG4 cannot ignore the development of the grassroots rural economy. These in themselves may be sub-clusters, where they must focus upon culturally compatible enterprises. This will include food and beverages, small scale manufacturing, small-holder agriculture, homestay and tourism, and handicrafts.

These will be village and town based, and built around the lives and culture of the inhabitants. To achieve these clusters, the government must create nurturing support to facilitate start-ups and the growth of existing SMEs (should they want to grow). This will require onsite specific skilled vocational education, access to microfinance, assistance in start-up, and assistance to reach customers on identified platforms.

Prerequisites

For the SG4 there are a number of prerequisites required. The state governments must see themselves as facilitators and not players in new industries. So, the concept of starting GLCs to create new industries should be resisted. At the SME level the main push factor will be specific vocation education to enlighten locals as to what opportunities are potentially available. The creation of champions who will inspire others will be paramount.

The SG4 can only be developed in cooperation with the federal government. That will be the key. Politics must be put behind those in political government, otherwise the SG4 will fail before it even begins.