Today, oil money, courtesy of Petronas, constitutes 44 per cent of Federal government revenue. Oil revenues is the single largest contributor to the GDP of Malaysia.
We are all aware that world oil prices have declined to less than half of its high-point of USD145 per barrel. We are also aware that the Malaysian government used US$125 per barrel of oil as its benchmark price for the 2009 Budget to estimate the revenue it assumed it would earn.
Clearly, Malaysia's economic managers are now forced to recalculate the 2009 Budget assumptions. The deferment of the Eurocopter deal is the most high-profile response to the expected decline in Federal government revenue. We can expect more of such measures come November 4, when Najib as MOF1, takes to the floor of the Parliament.
But, this is the immediate future. We should be even more concerned about the near-distant future.
In the not-too-distant future of, say, 2012 or 2014, Malaysia's oil spigots are expected to run dry. What does this mean for a Malaysian nation that has enjoyed the oil largesse since 1974? If oil revenues constitute 44% of the Federal government revenues in 2008, wouldn't that mean that Federal government revenues will decline significantly, even if Petronas has oil revenues from non-Malaysian sources?
This is a real spectre that all Malaysians need to accept in the next four to six years.
.
Strategies to deal with an oil-less future
I believe that when Najib spoke of liberalising elements of the NEP, he has been adequately briefed to be fully aware of an oil-less future for Malaysia. In a sense, looking at ways to liberalise elements of the NEP is the pragmatic and, highly necessary, strategic and tactical view.
I believe that the effect of the mooted NEP liberalisation is directed at foreign direct investment (FDIs). The Malaysian government needs to highlight the highly liberal and decentralised FDI strategies of competitor countries like China. The autonomous economic zones stretching from the Pearl River delta to Shanghai did not become the factory of the world by accident. In the 1990s, Beijing empowered provincial governments with very wide discretion even on equity structures and land ownership for FDIs. This strategy was highlighted by Kenichi Ohmae to be one of the key success factors for coastal China's economic leap. Our economic managers may have this in mind.
Key elements of the Malaysian economy
In a future where oil revenues as a contributor to the Federal government has declined, Malaysia's economic growth drivers will, more so than ever, have to come from:
1. Industrial-manufacturing base.
2. Primary industries such as palm oil and rubber.
3. Tourism.
4. Services sector, encompassing banking and finance, especially Islamic finance will become even more prominent since Kuala Lumpur is already recognised as a centre for Islamic banking. But, do not, for one moment, forget that Singapore is already equally recognised as a center for Islamic banking. That's competition for you.
One of the key routes that all nations take to foster economic growth, Malaysia being no exception, is the search for good quality FDIs. That was the idea that drove the numerous Economic Corridors under the Badawi Administration. But, as I have previously stated in earlier blog posts, at Malaysia's present stage of development, such Corridors are no more than mere venue-providing and construction opportunities for a select few. Underlining such an approach is the ready supply of cheap labour for low-skill assembly, soldering and packaging.
Industrial-manufacturing activity
Let's face it. Most of Malaysia's E&E (electrical and electronics) exports are generated by FDIs. While the Ministry of International Trade and Industry has crowed about this sector for years and years, the truth is that Malaysia is only a venue provider and a supplier of cheap labour. The FDIs can uproot themselves at any time. I saw with my own eyes how, despite having spent ten years in Malaysia, the giant US toy manufacturer, Mattel, uprooted itself from the North Port, Port Klang area within months to relocate in Indonesia. It paid all severance and retrenchment benefits and left. We are a mere budgetary item for the multinational companies (MNCs).
.
That leaves us with surgical gloves and furniture. In the case of furniture, Malaysia suffers from poor industrial design or, even the lack of it. As I said in a previous post, industrial design is a key value chain element. But, we are short of it. It is a skill that can be learnt. But is our education system churning out the correct type of skill sets?
Primary industries
Let's look at rubber. Natural rubber, as far as I'm aware, has certain unique properties that makes it the only shock absorption material for heavy loads such as bridge spans. Natural rubber has properties that maintain its quality in high-performance tyres that are put in punishing conditions such as Formula One racing cars, aircraft and, even the Moon Rover. Synthetic rubber falls apart under extreme conditions.
.
But, what happened to Dunlop tyres owned by Sime Darby once upon a time? Non-rubber producing countries have global brands like Michelin, Goodyear, Silverstone and, even the Korean Kookmin. What happened? Dunno. We only tap rubber, smoke them into SMRs and sell them semi-processed.
.
Let's look at palm oil. Extract the palm oil and it becomes crude palm oil (CPO). Add additional processes and it becomes oleochemicals. Then it can be processed into margarine, soap and cooking oil. Wonderful.
The only problem is, all the world wants is palm oil in CPO form. The oleochemical part is usually done in the importer countries. It is a prime candidate for import substitution industries in the importer countries.
By the way, most of Malaysia's palm oil based soap brands are non-Malaysian. Owned by the Japanese-owned Kao or, the US-owned Procter & Gamble or, the European-owned Unilever.
Tourism
This is one possible bright, shining star. But we need to clean the public toilets and, get the taxi drivers not to over-charge.
.
Education is a key factor
Seriously, Malaysia needs to move up the value chain. Dr M mystically describes this as making Malaysia a high cost centre. By high cost, Dr M means moving up the value chain.
There seems to be a disconnect in the minds of the Minister of Education(MOE), the Minister of International Trade and Industry(MITI) and the Minister of Finance(MOF). Let me help to connect the dots.
To move up the value chain, we must start with Primary and Secondary education. Two key elements are needed:
1. English language proficiency is crucial. Teaching Mathematics and Science in the English language is crucial. This will allow Malaysians to be assimilated into the modern world of knowledge and, into the modern economy.
2. More resources must be put into training teachers to become more proficient in English. The current crop of teachers come from a 100% Bahasa Malaysia medium. Forget about investing in ICT, computer labs and all that nonsense. We need software NOT hardware.
After the Secondary education level, Malaysians must have the option of going to vocational schools to learn mid-level technical skills or, pursue tertiary or high-level skills at the universities. Here, a sound command of the English language will be a significant advantage.
.
Why is it so difficult for MOE, MITI and MOF to take this holistic view and jointly tell the Malay, Chinese and Indian tribes that teaching English in Mathematics and Science secures the future of their children and, advances the economy of Malaysia by ensuring that their children will get higher pay due to higher skills?
Employment and entrepreneuring
With higher skills, Malaysia will move up the value chain to become the high cost centre that Dr M spoke of. This means higher incomes and more high-level jobs for Malaysians.
It can be jobs from the FDIs. It can be jobs from Malaysian SMEs that produce components such as solar cells and, possibly, nanobots.
In a future without oil money, money can only come from our brains. And, if Malaysian brains are not properly prepared, the shock of becoming poor or, less rich can be a dangerous threat to social stability and national security.
But, this is the immediate future. We should be even more concerned about the near-distant future.
In the not-too-distant future of, say, 2012 or 2014, Malaysia's oil spigots are expected to run dry. What does this mean for a Malaysian nation that has enjoyed the oil largesse since 1974? If oil revenues constitute 44% of the Federal government revenues in 2008, wouldn't that mean that Federal government revenues will decline significantly, even if Petronas has oil revenues from non-Malaysian sources?
This is a real spectre that all Malaysians need to accept in the next four to six years.
.Strategies to deal with an oil-less future
I believe that when Najib spoke of liberalising elements of the NEP, he has been adequately briefed to be fully aware of an oil-less future for Malaysia. In a sense, looking at ways to liberalise elements of the NEP is the pragmatic and, highly necessary, strategic and tactical view.
I believe that the effect of the mooted NEP liberalisation is directed at foreign direct investment (FDIs). The Malaysian government needs to highlight the highly liberal and decentralised FDI strategies of competitor countries like China. The autonomous economic zones stretching from the Pearl River delta to Shanghai did not become the factory of the world by accident. In the 1990s, Beijing empowered provincial governments with very wide discretion even on equity structures and land ownership for FDIs. This strategy was highlighted by Kenichi Ohmae to be one of the key success factors for coastal China's economic leap. Our economic managers may have this in mind.
Key elements of the Malaysian economy
In a future where oil revenues as a contributor to the Federal government has declined, Malaysia's economic growth drivers will, more so than ever, have to come from:
1. Industrial-manufacturing base.
2. Primary industries such as palm oil and rubber.
3. Tourism.
4. Services sector, encompassing banking and finance, especially Islamic finance will become even more prominent since Kuala Lumpur is already recognised as a centre for Islamic banking. But, do not, for one moment, forget that Singapore is already equally recognised as a center for Islamic banking. That's competition for you.
One of the key routes that all nations take to foster economic growth, Malaysia being no exception, is the search for good quality FDIs. That was the idea that drove the numerous Economic Corridors under the Badawi Administration. But, as I have previously stated in earlier blog posts, at Malaysia's present stage of development, such Corridors are no more than mere venue-providing and construction opportunities for a select few. Underlining such an approach is the ready supply of cheap labour for low-skill assembly, soldering and packaging.
Industrial-manufacturing activity
Let's face it. Most of Malaysia's E&E (electrical and electronics) exports are generated by FDIs. While the Ministry of International Trade and Industry has crowed about this sector for years and years, the truth is that Malaysia is only a venue provider and a supplier of cheap labour. The FDIs can uproot themselves at any time. I saw with my own eyes how, despite having spent ten years in Malaysia, the giant US toy manufacturer, Mattel, uprooted itself from the North Port, Port Klang area within months to relocate in Indonesia. It paid all severance and retrenchment benefits and left. We are a mere budgetary item for the multinational companies (MNCs).
.That leaves us with surgical gloves and furniture. In the case of furniture, Malaysia suffers from poor industrial design or, even the lack of it. As I said in a previous post, industrial design is a key value chain element. But, we are short of it. It is a skill that can be learnt. But is our education system churning out the correct type of skill sets?
Primary industries
Let's look at rubber. Natural rubber, as far as I'm aware, has certain unique properties that makes it the only shock absorption material for heavy loads such as bridge spans. Natural rubber has properties that maintain its quality in high-performance tyres that are put in punishing conditions such as Formula One racing cars, aircraft and, even the Moon Rover. Synthetic rubber falls apart under extreme conditions.
.But, what happened to Dunlop tyres owned by Sime Darby once upon a time? Non-rubber producing countries have global brands like Michelin, Goodyear, Silverstone and, even the Korean Kookmin. What happened? Dunno. We only tap rubber, smoke them into SMRs and sell them semi-processed.
.Let's look at palm oil. Extract the palm oil and it becomes crude palm oil (CPO). Add additional processes and it becomes oleochemicals. Then it can be processed into margarine, soap and cooking oil. Wonderful.
The only problem is, all the world wants is palm oil in CPO form. The oleochemical part is usually done in the importer countries. It is a prime candidate for import substitution industries in the importer countries.
By the way, most of Malaysia's palm oil based soap brands are non-Malaysian. Owned by the Japanese-owned Kao or, the US-owned Procter & Gamble or, the European-owned Unilever.
Tourism
This is one possible bright, shining star. But we need to clean the public toilets and, get the taxi drivers not to over-charge.
.Education is a key factor
Seriously, Malaysia needs to move up the value chain. Dr M mystically describes this as making Malaysia a high cost centre. By high cost, Dr M means moving up the value chain.
There seems to be a disconnect in the minds of the Minister of Education(MOE), the Minister of International Trade and Industry(MITI) and the Minister of Finance(MOF). Let me help to connect the dots.
To move up the value chain, we must start with Primary and Secondary education. Two key elements are needed:
1. English language proficiency is crucial. Teaching Mathematics and Science in the English language is crucial. This will allow Malaysians to be assimilated into the modern world of knowledge and, into the modern economy.
2. More resources must be put into training teachers to become more proficient in English. The current crop of teachers come from a 100% Bahasa Malaysia medium. Forget about investing in ICT, computer labs and all that nonsense. We need software NOT hardware.
After the Secondary education level, Malaysians must have the option of going to vocational schools to learn mid-level technical skills or, pursue tertiary or high-level skills at the universities. Here, a sound command of the English language will be a significant advantage.
.Why is it so difficult for MOE, MITI and MOF to take this holistic view and jointly tell the Malay, Chinese and Indian tribes that teaching English in Mathematics and Science secures the future of their children and, advances the economy of Malaysia by ensuring that their children will get higher pay due to higher skills?
Employment and entrepreneuring
With higher skills, Malaysia will move up the value chain to become the high cost centre that Dr M spoke of. This means higher incomes and more high-level jobs for Malaysians.
It can be jobs from the FDIs. It can be jobs from Malaysian SMEs that produce components such as solar cells and, possibly, nanobots.
In a future without oil money, money can only come from our brains. And, if Malaysian brains are not properly prepared, the shock of becoming poor or, less rich can be a dangerous threat to social stability and national security.
4 comments:
haha... good one...
i guess it is hopeless to be in this country since the movers and shakers aren't moving eventhough they have been shaken since Mar 8th...:P
the sad part is there is so much talk but so little concrete actions. instead, we have people sitting in the august House arguing about social contracts and road signages when the real economic pie is shrinking.
beside manufacturing
we need to develop more business in agriculture !!!!
when people does not want to buy our electronic product
do malaysian can by that thing or really need to buy it?
We must focus on agriculture so we can be self depended and have enough food to feed our own Malaysian.
just my 5 cent opinion
mfa_tm
The blogger has written an important and meaty post. Let's amplify on it:
1)After a whirlwind tour of Southeast Asia, Deng went back to launch China's promarket reforms in 1978 that within thirty years put her right up the world charts in almost all fields. In fact Deng started it all by opening up Shenzhen first. Only a few years later, Mahathir stood with him atop one of the spanking new towers in that city and marveled at the rapid transformation of that city from sleepy fishing village to thriving centre of an industrial metropolis evidential of the region state concept mooted by Ohmae way back in 1993. What happened in Shenzhen was replicated in thousands of other places all over the eastern half of that monumentally huge nation.
If we are to revive our own economic transformation, we need someone right away with the same slapdash courage and pragmatic vision of a Deng. Looking at the present pool of political leaders in our midsts, that'd however be asking too much - a leader who will use any cat to catch rats and who will shake people from their dogmatic slumbers and awaken them in no uncertain terms to the peril at our doorstep.
2)Success tends to bring its own failure. In the past we were successful in attracting FDIs, particularly from the japanese who came because of our look-east policy. We thought it was because we made them welcome that they came, not seeing that they came because of their flying-geeze formation - indeed we were used because our address enabled them to circumvent the quota to restrict japanese goods that had avalanched into the US directly from Japan then.
Because they saw us as just a place for wire-harness making, aircond assembling, metal stamping and the like, the net between value of semifinished goods imported and value of final finished products reexported was often just enough to pay for the wages of the thousands of starry-eyed low-cost labor those factories deployed. Much less if you consider how much tax-free incentives we had also given them and the multinationals from other countries.
You know that Miti knew this from the way it tried to hide the figures - just by using approved projects to equate as landed projects year after year, when the true state of matters is actually less encouraging.
When the japs finally left, their last word of warning was to ask us what we have been doing to build our human capital all those years they were here.
Which might as well be the answer to the MDC for why they have not come in the same droves as envisaged for the MSC, our epitome of value-added high-worth knowledge capital.
In other words, we have been in complete denial regarding the type of human capital that is invariably needed to continue to attract the best-of-breed FDIs needed to add values to our GDP that will make us remarkable amongst emerging nations as a preferred profit centre in a galaxy of other profit centres to which those coldeyed MNCs can park.
If Singapore, Shenzhen, Hong Kong and Mumbai had done it with less, why didn't we?
3) Now we are caught. We are caught in the lacuna of:
3-1 the three trends mentioned in the businessweek article that has weakened the global FDI flow; in a strong position, we could coast through it, but in a weakened position as attractor of those with real manufacturing prowess, we will probably tank; and
3-2 the hollowing out of our position - right now we are neither an Indonesia or Vietnam to be low-cost again, and not yet able to ascend to a Singapore or Korea to be high-value; we are probably sliding to be another Thailand for brown goods if not a Philippines for services, and
3-3 we haven't been sterling in our international reputation in many regards lately.
So while we are having those problems, we have a federal government shaky at best and faced with a humungous financial challenge to try and make its new budget work when its estimated sources of income have all been decimated, and one of them will have to depend on foreign oilfields for revenue when foreign governments would naturally see their assets as too much their own life-savers to want to give highly profitable terms.
And the old man had to come out and talk about the NEP. One wonders whether he really knows what investors think of that term as much as it has been denied the targets of the NEP had already been reached long ago - if one believes those who process the data.
What can be next, it may be asked?
a) find that Deng;
b) adopt the Hong Kong model;
c) work to reamalgamate Singapore;
d) unsentimentally change the entire paradigm of our education policy for best fit to international requirements based on Malaysia as a region state of preferred choice;
e) make this whole country the sassiest, most open and funniest place to be in the world;
f) emphasize cost efficiency in everything we do, even the way we think;
g) educate and rehabilitate those who object just because they want to maintain their comfort zones or fear-borne supremacy;
h) create a new rationalisation:
"if everyone or enterprise is fully supported by the government in accordance with his or its ability to do the best and make the most, then that will ultimately create more opportunities for others to also benefit more in the long-run than any benefit that comes out of playing zerosum games on the races."
And i think the fastest way to fulfill all this is to adopt (b) first. Let it create the new engine to pull everyone up. Or push those to excel. Either way, if we don't, we will perish so one might as well perish while trying rather than sit, wait, hope and pray.
Let's say we don't. The govt will soon be shaving its budget. Which means a lot of development will be jettisoned when they are needed to keep industries afloat. And if Singapore retrenches those 70,0000-100,000 malaysians, we will have an abnormal human resource sector of too many chasing too few viable jobs because all the others have to be filled by those foreign workers whose lower wages are what makes our export products still competitive. So what does the govt expect these retrenched workers to live - on their savings, perhaps on the aid that the govt has to give from its already red budget that has still to work out for those thousands of new graduates who will be coming out of our paper mills by May next year.
There are so many whammies here it feels like being knocked out in a boxing ring, doesn't it?
Did i hear someone in the back say 'we will still survive; somehow we will muddle through as we have done before....'?
Of course we will, but for one, we need to make tourism really efficient - read the complaint about the TDC customer service at one northern airport; understand why travel agents are complaining that Chinese tourists are made to spend too little time here owing to the way their itinerary has been structured to favour one neighbour..and so on.
Of course we will, but for two, remember those free trade zones in another country have been overbuilt to the extent they are ready for fast move-in and each of those industrial hubs are at least ten times in size and more modern and infrastructurally connected than the six we have that can still be called free trade zones for the amount of kinetic energy one must try to imagine they still have.
Of course we will, but for three, we should be discarding buddy-networks to keep some existing assets alive and building better place seaports and airports to take advantage of the fact that the new locus of the world is Asia, to be specific east Asia. That means the eastern seaboard of West Malaysia, and the two states in East Malaysia.
let us catch the last boat via tourism and English lingua franca before we are too late.God have mercy on Malaysia -our beloved land . We must defend our last ground or else we will lose out to the new emerging economies.
Bring in the tourist dollar - give them the playground - just quaratine them in their resticted zone while they soak in the Malysian sun n sea n surf with their mates - we sell them our local supplies at decent prices.
Bring on the English - to capture and trap the education hub , remember how we once boasted as a nation that can hold our heads high n communicate with the whites in their own language. That is then fabulous n we are no less malaysian bcos we embraced both bahasa malaysia and english at the very least- 2 languages.
Don't play play with this last boat or else we have only the refugee boat when the country is flooded with unemployment , stop blaming only the subprime. We are shooting ourselves in the foot.
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