Getting back on track to Wawasan 2020

2020 is 13 years away. If Malaysia is serious about achieving Wawasan 2020, far-reaching political and economic reforms are necessary.

Advertisements

Wawasan 2020 envisioned that “Malaysia can be a united nation, with a confident Malaysian society, infused by strong moral and ethical values, living in a society that is democratic, liberal and tolerant, caring, economically just and equitable, progressive and prosperous, and in full possession of an economy that is competitive, dynamic, robust and resilient” by the year 2020.

Wawasan 2020 requires the Malaysian economy to grow at 7% per annum. The 9th Malaysia Plan envisages an annual growth of 6.5%, while the Third Industrial Master Plan targets 6.3% growth for the plan period.

However, these targets have all been missed since 1998 except in 2000. Regional competitors such as Vietnam are fast gaining on Malaysia, let alone heavyweights such as China and India. Far-reaching political and economic reforms are the order of the day.

The administration, to its credit realises that Malaysia is in a state of flux. To put Malaysia back on the Wawasan 2020 track, the Government must continue to hasten, broaden and deepen its current economic reforms.

A top-to-bottom review of the whole economy is necessary to develop a proper sequence and time-line to liberalise the Malaysian economy.

Malaysia’s traditional development model of “picking the winners” by insulating selected domestic firms and/or sectors from international competition should be rethought as the experience has been far from satisfactory.

Comprehensive independent and transparent studies should be undertaken of the various protected firms and sectors to determine the costs and benefits of these protections and to ascertain if they have made these firms internationally competitive.

The Government should also systematically reduce its ownership and control of firms in the economy. Strategies to address adjustment challenges should be put in place to assist and/or phase out industries that are not internationally competitive.

Malaysia’s affirmative action policies should be recast to one that is consistent with international norms. Affirmative action will have to be redefined and replaced with a comprehensive social safety net for all marginalised groups.

To ensure that Malaysia does not become an international outcast, the rule of law consistent with international standards must be upheld, protected and promoted. A key issue that must be addressed immediately in a just manner is religious and racial extremism. Inaction by the administration on this matter will derail Wawasan 2020.

Active citizenry is pre-requisite to a vibrant nation. As economic affluence increases, so does self-actualisation. The right to association and the freedom of expression are cornerstones to achieving Wawasan 2020.

New forms of association and expression should be encouraged and experienced. These are essentially manifestations of a maturing nation.

Political reforms are important to reflect the rising expectations of society and to ensure that the administration is responsive to domestic and global demands.

Key to political reforms is the independence of our institutions.

The Judiciary, civil service, Royal Malaysian Police, Anti–Corruption Agency, Election Commission, academia, media, non–governmental organisations, religious bodies and other institutions that form the backbone of a healthy democracy should be allowed to function independently.

At the same time, these institutions must be held accountable through due process of the law for their actions.

This article was first published by the Malaysian Institute of Economic Research

Keeping Malaysia competitive

Malaysia’s favourable ranking in terms of international competitiveness masks its institutional weaknesses. Malaysia should reform its institutions to address these weaknesses to remain competitive.

National competitiveness is key to continued prosperity. Currently, there are several rankings that measure the competitiveness of nations. The more widely quoted rankings are the World Economic Forum’s Global Competitiveness Index (WEF), the IMD World Competitiveness Yearbook (IMD) and AT Kearney’s Confidence Index (ATK). While the validity and/or accuracy of these rankings can be debated, they are generally as a general indicator of how a country ranks in relation to its competitors.

The IMD ranking assesses factors grouped in four key areas -economic performance, government and business efficiency, and infrastructure. Malaysia ranked 21 in 2003, 16 in 2004, 28 in 2005 and 23 last year. Singapore ranked 4 in 2003, 2 in 2004, 3 in 2005 and 2006. Taiwan ranked 17 in 2003, 12 in 2004, 11 in 2005 and 18 in 2006. China ranked 29 in 2003, 24 in 2004, 29 in 2005 and 19 in 2006. India was 50 in 2003, 34 in 2004, 39 in 2005 and 29 in 2006.

The WEF looks at selected factors grouped under nine pillars, which they consider critical to driving productivity and competitiveness. The nine pillars are: institutions, infrastructure, macro economy, health and primary education, higher education and training, market efficiency, technological readiness, business operations and innovation. Malaysia ranked 31 in 2004 and 26 in 2006. Singapore ranked 7 and 5, Taiwan 4 and 13, China 44 and 54, while India 56 and 43 respectively.

The ATK ranks countries by tracking the impact of likely political, economic and regulatory changes on the foreign direct investment intentions and preferences of the leaders of the world’s leading companies. Malaysia was ranked 15 in 2004 but dropped of the ranking in 2005. Singapore was ranked 18 for both years and Taiwan was ranked 25 in 2004 but did not make the top 25 in 2005. China was ranked 1 in both years and India was ranked 3rd in 2004 and 2nd in 2005.

The WEF, IMD & ATK rankings are a serious cause for concern to Malaysians. Singapore outranks Malaysia by a considerable distance and is in the top ten. More importantly, China and India, which have problems far more complex than Malaysia, are catching-up on Malaysia. India and China’s WEF and IMD ranking reflect their current status as late developers but where investors see the future, as indicated by ATK. Malaysia unfortunately was not in the ATK top 25 for 2005, indicating that investors do not see potential in Malaysia.

Observing more closely, Malaysia’s weakness is caused mainly by its institutions. Malaysia’s ranking in the WEF basic requirements are pale compared to Singapore. Malaysia ranked 26 for efficiency enhancers, 32 for higher education and training, 9 for market efficiency and 28 for technological readiness. Singapore ranked 3, 10, 4 and 2, respectively. As for innovation factors, Malaysia ranked 22 for innovation factors, 20 for business sophistication and 21 for innovation, while Singapore ranked 15, 23 and 9 respectively.

Malaysia’s basic requirements are close to Taiwan’s performance but Taiwan’s efficiency enhancers and innovation factors push Taiwan ahead of Malaysia. Meanwhile, India and China are fast catching up in these two categories and both these countries have the size and potential to provide most of the manufactured products and services currently provided by Malaysia.

While these ranking can lead to many interpretations, they establish the fact that Malaysia is not keeping pace with the pacesetters. All is not lost as Malaysia’s overall performance is still respectable. However, the government must reform its institutions to remain competitive.

This article was first published by the Malaysian Institute of Economic Research

Transparency key to National Integrity Plan

The achievement of the National Integrity Plan can be hastened through the immediate implementation of transparency as a core principle at all Government levels.

THE overall objective of the National Integrity Plan (NIP) is to fulfil the fourth challenge of Vision 2020, which is “to establish a fully moral and ethical society whose citizens are strong in religious and spiritual values and imbued with the highest ethical standards.”

The NIP identified for the first five years (2004 – 2008) the following five targets known as Target 2008 to achieve the above stated objective:

Effective reduction of corruption, malpractices and abuse of power;

Increasing efficiency of the public delivery system and overcoming bureaucratic red-tape;

 Enhancing corporate governance and business ethics;

 ·Strengthening the family institution; and

 Improving the quality of life and people’s well-being.

The main obstacle to the achievement of the NIP Target 2008 appears to be the perception that the public sector and the elected and appointed representatives are corrupt and inefficient.

International rankings such as Transparency International’s Corruption Perception Index confirm this affecting Malaysia negatively.

Transparency is an essential precondition for containing corruption, as it renders abuse difficult and increases the likelihood of detection.

Most importantly, through transparency, accountability and economic efficiency is raised. When processes are transparent, lawmakers, regulators and civil servants are made to be accountable for their decisions.

Some compelling trends in Malaysia call for an immediate implementation of transparency as a core principle. Privatisation programmes and Government procurement in Malaysia are conducted through non-transparent processes. Only notifications of tenders are made public.

The criteria for selection and the selection process are secretive. There is also no avenue for arbitration. A greater cause for concern is the fact that concessions agreements are considered “official secrets”.

Compounded with a non-transparent selection process, the concession agreements and Government procurement lead to sub-optimal outcomes from a public policy standpoint. This has also led to allegations of corruption.

For example, the outsourcing of health support services from the public sector to three monopolies has raised the estimated expenditure of the Health Ministry for these services to RM750mil in 2005 from RM220mil in 1994.

The privatisation of water services in Johor, Selangor, Kuala Lumpur and Putrajaya has seen the water tariffs increased at higher rates compared with states where water utilities are managed and operated by the public sector.

The Public Works Department is under siege for the multi-billion ringgit fiascos involving the MRR2, the Matrade Building and the Navy Recruit Training Centre.

The recent upward revision of toll rates in the Klang Valley based on clauses in the concession agreement and not on cost considerations has angered the public. All these contracts were tendered and approved through non–transparent processes.

Malaysia recently achieved top position in a pilot project Reports of the Observance of Standards and Codes (ROSCs) initiated by the IMF/World Bank.

This indicates good governance in the financial sector as the project surveys the adherence to international standards of the domestic financial sector.

The underlying philosophy of the ROSCs is the importance of international standards in enhancing transparency, which in turn strengthens the international financial architecture by identifying weaknesses and fostering market efficiency and discipline that ultimately contribute to a more robust financial system.

At the national level, these international standards provide a benchmark that can help identify vulnerabilities and guides policy reform.

The Water Services Industry Bill passed in 2006 is also a step in the right direction as it includes provisions to ensure full transparency. So too are the publicly known benchmarks for GLCs.

Limiting the use of the Official Secrets Act for matters relating only to national security, defence and international relations, is also an important step in strengthening the institutional framework for an efficient market economy.

The Government can hasten the achievement of the NIP Target 2008 through a single stroke of implementing transparency as a core principle at all levels of Government.

Together with transparent privatisation and Government procurement processes that include civil society participation, transparent, clear and defendable criteria, and making all documentation from these processes publicly available and accessible, will enable Malaysia to conform to international standards and enjoy all the attending benefits.

This article was first published by the Malaysian Institute of Economic Research.