Monday, June 29, 2009

Redux: A future without oil money

As a change of guard takes place in Petronas, we need to take a holistic view of the prospect of Malaysia's future without oil money. Tengku Razaleigh Hamzah has written something about the key principles and values of and, some transitional issues involving Petronas here. Anyway, this is what I wrote on October 29, 2008:

A future without oil money

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.

This is one possible bright, shining star. But we need to clean the public toilets and, get the taxi drivers not to overcharge.

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.


walla said...

Y: "Najib has only recently said that not all non-malays are well-off as if he needs to justify to anyone why the PSD has to finally start recognizing meritocracy in its awarding of scholarships to our national brains. That is as clear an admission that all along it has always been by race first and foremost.

Now, four questions remain.

One, has Petronas all along been practising the same race-based offers of jobs and scholarships as well?

Two, on that score one should also ask TRH since he's saying Petronas has been giving out scholarships on a broad front with no strings attached, was it also on the basis of the applicant's faith as well? You know why i ask this question.

Three, would there also have been a problem with appointing someone bright to the board of Petronas if it was not the wish of a PM or any other power-holder?

And most importantly, fourth, how many of our national brain assets have been wasted these past three decades caused by this type of race/faith/position shenanigans, wasted from not valuing and capturing their youthful fervor, but also wasted in one stroke by changing the direction of their lives from not being able to get into places they could have easily walked into if given government financial support whose amount has in other regards been frittered away in one useless project after another just to chase some social-engineering pipe dream?

And that is why after half a century of independence we are still talking about brains, loss of competitiveness, globalization, resource curse, and socio-economic imperatives.

Today, 27 million people of this country who are people of the seven billion human beings on this planet are facing difficult challenges of how to migrate their activities upwards in order just to maintain their already-shrunken lifestyles.

Nobody has a clue what to do next before we become a net oil importer.

We are still grappling with how to gingerly turn minds around so that they who wield power or gibber the loudest will not trip others up again who are trying to do whatever is necessary to beef up our competitiveness without regard to racial sensitivities, as if race has anything to do with national contribution.

In nothing that we have been speaking of and in none of the economic policies and programs the government has been trying to sell has there not been a concluding dovetail to the one big factor - our brain power.

We have sold out our brain power; we have thrown away our national treasures; we have done them, their families, and our national future a grave injustice."

Z: "(tongue rolls out). Hey, Y, you don't speak, do you? You orate."

Y: "No, Z. I fulminate. And you want to know why? Take this english language issue. Why is it happening? It's because the government screwed up for thirty years. Politician after politician, they all played to their own bigoted galleries. Now do you see any one of them daring enough to stand up to admit they had all screwed up? You can expect a better response from the shop assistant in the screw and nail section of your nearest DIY shop.

Look, Z, english language is the language for knowledge and business. If we want to push for bahasa, go ahead but tell the rural parents first why english is critical for the future of their children; make it a transparent and pervasive communication process. Don't just conduct a kaki-ayam survey and then say a decision will be made next month, blah-blah.

You know, there is a distribution of key factors in this country. Where national competitiveness, value-adding and wealth creation are concerned, you will find more of those key factors in the urban than in the more sparsely populated rural areas. It's a norm in any country in the world. Even the advanced economies suffer from that malady. That's why it's so stupid to try and have the cake and eat it. You can't put in speed-breakers to restrain the urban aheaders so that your rural voters can come up and be thankful to you. Thankful today, all die together tomorrow.

walla said...

It's like that guy who goes into the papers showing him holding a plan and saying so and so many km of roads will be tarred in this and that rural place. Have you seen how much government funds are sunk into doing such things in rural places where only bicycles and buffaloes traverse? It's ok to help lift up the rural people but do so with some better sense of proportion, not just to look good on tv, especially where demand-supply mismatches have already overflowed in the urban areas which pay more taxes."

Z: "Your analogy of language to road-tarring in urban versus rural setting is apt, Y.

But bahasa is our national language, culture of half the population, and unifying tongue of all our ethnicities, Y."

Y:" Ok, i'll humour you, Z. Say we adopt bahasa as the sole lingua franca and medium of instruction right up to secondary schools. The fifth formers come out. They go into local uni's. And come out four years later unemployable. They go into foreign uni's. And struggle through their courses with an added load of language grappling, losing out to their international peers in speed of knowledge acquisition and, mind you, those peers will be our competitors later. Or, they go into vocational streams. And become pawns to employers expecting more self-knowledged workers which they can't be because the only manuals you can get to read in bahasa are on emosi, motivasi and integrasi. So, they put on their ties and go to the only other neighboring country which can understand our instructed national language. And come home boxed in pieces. Go ahead, say something, make my day."

Z: "But without local integration, how can we even start to talk about global integration, Y?"

Y: "You want to talk about integration, Z? Let me tell you about integration. First, call up Utusan's Awang Selamat and ask him to define clearly what he thinks is integration. Go ahead, but be ready to swallow whatever is said from this best of our local-trained brains of the most authoritative of our national conscience paper. Next, do an online airline booking. It shows the check-in plan of the plane for you to select your seat. The system fails. You call the helpdesk. The helpdesk officer says sorry-lah i cannot see the plan on my screen. You ask the helpdesk to confirm your seat for you. And then you turn up to see it's not done and the seat has been taken. Meanwhile your investor friend arrives after a long journey, gets into a limo and heads for the hotel only to be stopped and sent back to the airport by the JPJ.

Apart from the blogger of this site and a few others, are there still any brains left in this country?

And that's integration for you, Z. In fact, you might as well disintegrate the whole notion of the service sector right now. It's all just polemics. Better we not waste our time. Better we go see Megan Fox and pour out our woes, man.

Look, Z. What we think is our imperative is not a global imperative at all. For years we have been talking only to ourselves. It's easy to do so, you know. Just open the mouth and say ahhh. But we have to put food on the table, and clear logjams from reservation systems to roads so that our brains and people can shape up our relevance to the world so that they can make more money that the government can tax more to pay for the new roads that are to be paved in the rural places to lift up the rural folks.

Learn to see things more pragmatically. Put all frigging priorities right. Now, tell me how your airy-fairy notion about language and integration will put the next pasta with carbonara on the table so that your young who did not choose to come into this cozy world of ours will have something nice to eat that's not yesterday's starch."

Z: "Ok, i get your point, Y. Especially Ms Fox. But say we don't adopt bahasa as the medium for science and maths. Will that also mean the vernacular schools should use english as the medium?"

walla said...

Y: "What have you been smoking, Z? If you have it now, i want some too. Do you know the actual standards of science and maths taught in mandarin in our chinese schools, for instance? Well, do you? It's at least four years ahead of our national schools. Now, tell me as a parent let alone a politician who has the true interest of the whole nation at heart what you would do? Kick your own ass? Secondly, do you know what is the rank of China in the world's maths and science olympiads? Year after year, numero uno. So can you not think one day the world may be learning those subjects in mandarin, just as the english-speaking countries are already scrambling to learn mandarin now?

I am not finished, Z. Let me quote for you what Harry Lee of Singapore had once told his people:

'Every year our unions and labour department subsidize trips to China. We tell the participants don't just go look at the Great Wall but go to the factories and ask what are you paid, and what hours do you work. And they come back, all shell-shocked. (Lee Kuan Yew, July 11 2005)'

Now if the mayan prophecy doesn't hold by 2012, China may eclipse the US by 2039. Both of us will be long dead before then, Z, so we won't suffer the ignominy of ignoring the importance of Mandarin in this century because we were too puffed up to give our foresight and gumption a chance.

Look, Z, the bahasa people pulled in the vernacular schools as a counter-shield to save their own cause, not because they didn't know how advanced science and maths in mandarin is compared to what's going on in our national schools.

The bottom-line is this: if we really want to help our rural folks up, get them grounded better in english language instruction, not condition their study of science and maths away from the knowledge pool in english they will be too hamstrung to partake later. That would be a graver sin against their final interest. Unless you want them disguised as indons to sell nasi periuk in Jakarta in 2020."

Z: "But there are not enough english language teachers in the rural areas, Y."

Y: "Then screw all the past MOEs."

Z: "(cough). That may be difficult, Y."

Y: " Why not?"

Z: "Because looking at the economic discompetitiveness even to the near midterm so pointedly illustrated by our blogger, we will have only one saving regard - to autopeotomize ourselves."

Y: "I'm hardly moved, Z. For fifty years, we have been eunuchs from top to bottom. Auto-peotomy will in fact be our best contribution to the human race. At least it will end stupidity."

Z: "But what about Megan Fox?"

Y: "Go home, Z. Put some pepper on the starch."

donplaypuks® said...

To paraphrase Marx, a spectre is haunting Malaysia.

The spectre of depleting oil, subsidies and economic 'spillages'.

The cure is honesty, merit and a balanced economy.

I think Malaysia should choose quickly and branch out more into Value Added Manufacturing, Tourism, Education and Financial Services. More money should be made available for R&D into palm oil, rubber and agriculture where one of the aims should be to be self sufficient in food.

For far too long have we been the outsource cannon fodder centre for USA and Europe.

If we cut back on defence (we really don't need Eurocopter, Sukhoi Jets and Scorpene Subs), white elephant crooked bridge and deals projects and plundering by political parties, we'll have the money and will get there with yards to spare!!

the standard of you English is among the top 3 in Malaysia!

donplaypuks® said...

I meant among bloggers

chapchai said...

"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."

A friend of mine was a lecturer in English at a teachers' training college. Her trainee teachers could barely string a few words together to form a sentence,and she had to fail most of them. She was hauled in by the Education dept. who instructed her to lower "the bar" so that more passes could be achieved. In frustration she resigned and joined a private educational institution where the standard of English is very high. In a relatively rich country like Malaysia there shouldn't be such a big gap of standards in English between private and state schools.

de minimis said...

bro walla

As always, you articulate the issues with great subtlety of thought. I'm still examining the threads of your proposition.

bro dpp

You flatter me so. Thank you kind sir.


What you have described is a challenge that many seem to choose to ignore in the hope that when things are swept under the carpet, no one will notice the sickening bulge. When the bulge is revealed fingers will point everywhere but no culprits will ever be found. This is the general malaise that we have learnt ruefully to expect.

walla said...

Thanks for the ride, CT, and good luck.