New Economic ModelProspects & Challenges

Datuk Nicholas S. Zefferys, Member: Pemudah & NEAC

President AMCHAM

9 April 2010

GlobalisationCapitalism

PrivatisationLiberalisation

DeregulationDemocratisation

“Optimising the opportunity for the individual human spirit to hope, strive, achieve, & profit.”

VISION 2020New Economic Model

10MP

2010

10 Year“Window of Opportunity”

Achieving a High-Income, High-ValueFully Developed Economy

“By the year 2020, 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.”

Working paper by former P.M. Tun Dr. Mahathir bin Mohamad

VISION 2020

Macroeconomics of Malaysia

GDP = C + I + G + ( X - M )

AggregateOutput ofa country

Value of allgoods & servicesproduced in 1 year

Personalconsumptionexpenditure

Fixed investment inresidential & non-residential structures,Equipment, & changein business inventory

Governmentpurchases

NetExports

The “Hardware” of Economic Measurement

Socio-Economics of Malaysia

GDM = 1 + I + E + ( BG - BD )

Gross DomesticMindset ofMalaysia

“All for one and one for all” or Unity(Valuing vs. Tolerating differences)

Innovation (Creativity + InvestmentIn R&D); Funding of “ideas”

Education (Talent & Knowledge) Investment (Quality from Primaryto Tertiary & Advanced Degrees)Good “career” opportunities

Net Talent Gain

A Paradigm Shift In “Software” or Mindsets

Socio-Economic Perspectives

The future of the country is ultimately dependent on:

• Confidence & Will• High Aspirations• Competitiveness• Openness• Attractiveness

These are essential elements of a prosperous investment climate in Malaysia

Employment Structure Over Time

Industry

Services

Agriculture

Time, Per Capita Income

Share of Employment

Source: IMF, 1997

Malaysia:58% Svc’s Today70% by 2020

3 Central Goals

High Income; Inclusiveness; Sustainability

8 Strategic Reform Initiatives

Re-Energise Private Sector Develop Quality Work Force

Create Competitive Econ. Strengthen Public Sector

Transparent/Mkt Friendly Affirmative Action

Build Knowledge base Infrastructure

Enhance Sources of Growth Ensure Sustainability of Growth

1+IDNA Code of the Future

One Malaysia Innovation

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Wherefore Malaysia In 2020?• National Mission• MSC• MDEC• 9MP, 10MP, 11MP• Stimulus Packages• Corridors• Budget 2010• GTP• 6 NKRA’s/KPI’s• Affirmative Action• NEM• Pemudah• NEC, NEAC

1Malaysia, People First,

Performance Now

Malaysian Force Field

Opportunity

Fear Driven

Entitlements

Stakeholder Representation

Top-Down Gov’t. Driven Bottom-up Enterprise

Protectionism Market Driven

Ali Baba/One-Eye Closed Transparency/Governance

Legacy Forces Change Drivers

Socratic DebateRote Learning

Media control Free Press

Sovereignty Human Rights

Authoritarianism (Napoleons)

Opportunity Driven

Weak Institutions Professionalism

Weak Judicial System Rule of Law; Independence

Growth Drivers?

FDI•GDP Growth•Quality Jobs Growth•Career Opportunities•Ability to Fund Ideas

Talent

Innovation

R&D

Domestic Inv.

Note: 60% of population is below 30; rising expectations for themselves & their children.

Productivity

Domestic Domestic InvestmentInvestment

PrivatePrivateInvestmentInvestmentAbroadAbroad

Domestic Investment Has DwindledDomestic Investment Has Dwindled

% GDP% GDP 1996-97: 37% range1996-97: 37% range2000-08: 7 to11% range. 2000-08: 7 to11% range.

Private Domestic Investment is not driving growth. •Loss of confidence?•Loss of opportunities? •Greater ROI’s abroad?

Significantoutflows

2010 R&D goal = 1.5% of GDP2010 R&D goal = 1.5% of GDP(currently only = 0.5%)(currently only = 0.5%)Goal of 60 researchers/10,000 pop.Goal of 60 researchers/10,000 pop.(currently one of lowest)(currently one of lowest)

Low-ValueLow-ValueAdding EconomyAdding Economy

R&D Has Not Gained TractionR&D Has Not Gained Traction“A Failure To Launch”“A Failure To Launch”

Japan = 3.2% of GDPJapan = 3.2% of GDPUSA = 2.6% USA = 2.6% Sing. =2.4%Sing. =2.4%China = 1.6%China = 1.6%Microsoft = 30% of RevenueMicrosoft = 30% of Revenue

R&D ProgressR&D Progress

•Poor English & “Soft” skills Poor English & “Soft” skills •Univ. Education Quality/FocusUniv. Education Quality/Focus•Primary/Secondary School FailurePrimary/Secondary School Failure•Engineer, IT, Technical ShortagesEngineer, IT, Technical Shortages•Real Careers Opportunities Better outside of MalaysiaReal Careers Opportunities Better outside of Malaysia•Severe shortages in various skill areasSevere shortages in various skill areas

Loss of talent abroadLoss of talent abroad

Talent Shortage & Brain DrainTalent Shortage & Brain Drain

Shortages of Local TalentShortages of Local Talent

Relationship Between Government, Business & Rakyat

Inevitable mutual dependence between government and business in national productivity

Ongoing dialog needed to remove obstacles, lower unnecessary business costs, create appropriate inputs, information, & infrastructure

PEMUDAH: Solid example of successful PPP

Malaysian Growth Market Prospects?

• 2 Billion new Asian consumers

• Bottled-up demand that will resurface out of necessity

• Return of greater risk-taking

• Emerging industries: health care, renewable energy, bio-tech, fin. services, other.

What’s Needed?

• Improved policies• Sound implementation• Policy coordination

amongst various Government Ministries & Agencies

Positive responses from Investors,Private sector, and the Public.

5 Comfortable Habits Addictions& Systemic Barriers

1. Addicted to cheap labour

2. Addicted to subsidies

3. Addicted to oil funding the government

4. Addicted to oil as a major source of energy

5. Addicted to opaque top-down government

Prime Minister, Nov. ‘09, Bankers Club speech

5 Comfortable Habits (cont’d)

1. Cheap Labour: Must move beyond low- wage & low-value into new technology to be globally competitive

2. Subsidies: Skews the marketplace; Innovation is driven by competition on a level playing field.

3. Oil Funding: Need broader based funding of gov’t.4. Oil Energy: Need alternative sources of energy &

environmental sustainability.5. Peoples’ Government: Gov’t shut off from the

people is shut off from their realities. The new Internet connected & worldly-informed society calls for participatory gov’t that shares information & drives greater innovation; openness to new ideas.

3 Important Drivers• Greater Market Orientation

Focus on delivering what markets/customers need; entrepreneural, innovative, productivity driven

• More Open EconomyPrivate sector encouraged to invest domestically & to expand abroad. FDI welcomed in a liberalised business environment across all sectors. Benchmarking to global standards, Open to expertise.

• Private Sector DrivenLess Government direct/indirect ownership in private sector domain. Government to facilitate vibrant private sector driven growth. Private sector to drive the growth.

Business Current Situation Proposed Engagement Informal - Rural - Women

Off the radar screen & not registered Unaware of aid schemes Low business skills Lack capital & financial ability Subsistence farmers; Small holdings Migrating to urban poverty Financially stressed Marginalised Lack of child care Unaware of opportunities

Engage, advise of business opportunities Educate; soft-loans & grants Train, educate & support network Access to trng & loans/grants Assist to identify business development opportunities Job training & resettlement Micro-financing Empowerment; mentoring networks Child care centres Awareness, exposure, access

Bottom of the Business Pyramid

Micro Hi illiteracy rate Use rudimentary technology Low skills Motivated but unaware Bottom 40% income group No business acumen

Facilitate & assist Micro-financing Educate, avail of management expertise Empower Family planning assistance Train - educate

Small Need for incubation Lack access to financing Lack entrepreneurial skills Poor management/marketing skills Low networking presence Poor ICT usage

Provide office space Financial training, guarantee schemes Skills development; entrepreneur programmes Training & capacity building Linkages & exposure; local & MNCs Awareness of productivity & opp.’s

Business Current Situation Proposed Engagement

Ministerial/Government/Regulatory Institutional Transformation

Moving from THIS . . . . . . to THIS !

Treating Symptoms(i.e. reforming with

one eye closed)

Strategic Cooperation(i.e. constructive

collaboration)

Mgt/Business Transformation

Vertical Command Control

Horizontal SymbioticPartnerships

(with Employees also)

Moving from THIS . . . . . . to THIS !

At the end of the day . . .

. . . it’s all about the proper balance betweenGovernment, Private Enterprise, and Society that will determine if Malaysia is a followeror and innovating country that creates new spaces.

“A Forward Thrust”

Terima Kasih Xie Xie

Nandree Shukriya