Recently, the Minister of Finance II assured the nation that we remain not only competitive but are also the recipient of quality foreign direct investments (FDI), and have the ability to sustain our growth above the 5 percent level.
Nevertheless, after attending a recent DAP fund-raising dinner as a guest, I heard an almost divergent and different story about the state of the economy.
Which is the true storyline? How can we be competitive and uncompetitive at the same time?
I am going to quote Tony Pua ( photo ), the economic advisor to the DAP, and then each of us can undertake our own research and decide who is telling the truth. Most of the statistics used are from secondary sources and can therefore be verified. So, here goes.
In 1966, according to Pua, the GDP per capita of South Korea was about 30 percent that of Malaysia at US$130. But last year, South Korea\’s GDP per capita was three times more than that of Malaysia at US$16,421, while Malaysia\’s was at US$5,040. In exactly 40 years how could South Korea overtake us? What is Korea doing that we are not? What makes Korea move so fast when they too were hit by the East Asian financial crisis?
Was not Korea also one of our Look East countries? Have not almost all our planners and economists been there to learn from them? Did they not visit us in the early 1960s to learn community development? Was not their Saemaul Undong Programme the upgraded version of the community development programmes? How then could we fall behind so tragically?
The answer lies in one word: knowledge. They have been able to utilise knowledge to create value. They use what our national consultant; Professor Chan Kim, calls value innovation in his Blue Ocean Strategy.
In fact this was the central thesis of the Second Industrial Master Plan of 1996-2005: move up the value chain or face the effects of poor value added. Rather unfortunately, 10 years after the IMP2 was launched, I can say that our industrial development strategy has largely ignored the role of value innovation; being stuck with the older paradigm of growth we call value-added growth from FDI investments.
One solitary fact can confirm this reality of the older paradigm: we are still highly dependent on poor quality foreign labour to maintain our industrial growth and the manufacturing industry.
The evidence of such labour intensive investments are evident from another two set of figures: Malaysia had FDI worth more than US$7 billion in 1996 whereas, in 2006, it was only US$5 billion. Compare this with both quantity and quality of FDI into Singapore: US$9 billion in 1996 and US$24 billion in 2006.
What is even more important is that Singapore is now an entirely services-type knowledge economy and is even off-loading their lower end investments into our so-called Southern Economic Region. Do we even understand what is really happening in the globalised new knowledge economy?
Neighbours doing better
When we compare Malaysia with Thailand, the story becomes even clearer. In 1996, Thailand had only about US$2 billion worth of FDI. In 2006, while we are hovering about US$6 billion, Thailand had nearly US$10 billion worth of FDI. Yes, almost double the amount of investments than Malaysia had. Thailand is about the same level as Malaysia in terms of the level of sophistication of industrialisation.
But, I suspect they are able to do it without the kind and quality of foreign workers, as they have adequate supply of workers and are able to move up the value chain. They also have a more liberal regulatory investment environment than Malaysia. Today, Thailand is the region\’s capital for the automotive industry, even though we started with a lot of noise and domestic investment.
I dare not look at the FDI figures for Vietnam but seriously suspect that if they have not overtaken us they will do so in the not so distant future; simply because their labour and land costs are much lower. We should not even think about Indonesia; for, as their political stability improves, their investments in oil palm and manufacturing might help them overtake us.
Where are our sources to finance and sustain our current level of economic growth? Pua\’s answer is \”from lottery money\”! What he means is our oil and gas reserves; our Nature-given lottery. Or, simply put, from our own Global 100 Company – our national asset and source of development funding. He says the current contribution of Petronas to development funding is about RM53.7 billion or 46.8 percent of the revenue sources.
This, according to Pua is an unprecedented level of internal development funding whereas the original level of Petronas funding in 2004 was only 25 percent, when Pak Lah Administration took over. Pua anticipates that Petronas\’ oil resources should run out by 2010 and asks the question: then what?
Is this then wise and prudent development? And is our development expenditure going towards value innovation? Will these monies, which are the sources of all the so-called ECERs, going to create value or simply only value-add to existing operations, thereby eroding the competitiveness of our economy?
An even more pertinent question is: are the ECER sources of wealth creation or really a one-off wealth distribution process via infrastructure development, as the Multimedia Super Corridor has become?
Bloated civil service
The most damning figures that Pua reflected upon were that the cost of operating and developing the nation has dramatically jumped from RM45.6 billion in 1998 to a potential RM128.9 billion in 2008; a 218 percent increase over the last 10 years. [Note that the numbers quoted are purely \’operating expenditure\’ and doesn\’t actually include \’development expenditure\’]
Another way to look at these figures is that this is the cost of the 9th Malaysia Plan development. Even if we factor in inflation of an average of 3-4 percent, the 218 percent is not justifiable. Unless we can say that development under Pak Lah is more pronounced than that under Dr Mahathir Mohamad, we have no logical explanation.
Pua gave a tongue-in-cheek answer to this query: \”We are buying expensive screw drivers and screwing ourselves up!\” He was referring to the 2006 Auditor-General\’s Report which highlighted screwed up ways of buying and paying for screw-drivers which appear to be illegitimised ways of stealing public funds through incompetent and corrupt purchasing processes.
To my mind, the real crooks are senior government servants (as controlling officers) who spent the budget without legitimate authority. Surely both the Public Accounts Committee and the Anti-Corruption Agency could find out the whats and the whys, but is there real political will to do so? It is definitely easier to go out and catch the ikan bilis and make a big show of it.
What do we then conclude about bad governance of this nation and its resources? Words like integrity, honesty, and accountability, ring hollow when there is a serious lack of leadership integrity. Leadership integrity is upheld only when the leaders of any organisation say what they mean and actually mean what they say. Then they need do go out and do it.
To reflect on poor governance, we only need to reflect on the size of the public services. Malaysia has the highest per capita public services in the region with about 4.68 percent, with Japan our nearest rival at about 3 percent. Every other country has a lower per capita of public servants.
With a 35 percent increase in salaries for some ranks, is it unfair for the population to expect good public services delivery? Instead, what we get one-eyed public service which selectively bullies unsuspecting communities; protects the real crooks; destroys legitimate places of worship; and condones the building of illegal ones. I see a monstrosity in my neighbourhood, which was the rape of a legitimate and legal playground, all in the name of religion and development.
We see selective persecution and the closing of one eye when it suits the Little Emperors. In the meantime, the country loses its competitiveness; and slowly but surely loses its capacity for growth. Wake up Malaysia!
