Chapter 2: Background of Malaysian Economic Development PDF

CHAPTER 2 BACKGROUND OF MALAYSIAN 1 ECONOMIC DEVELOPMENT OVERVIEW OF CHAPTER 2 2. Background of Malaysian Economic Development 2.1 Overview of few economic Development Policies 2.1.1 Short term, Medium term and Long term 2.1.2 NEP, NDP, NVP and NEM (Objective and strategies) 2.1.3 Othe...

CHAPTER 2 BACKGROUND OF MALAYSIAN 1 ECONOMIC DEVELOPMENT OVERVIEW OF CHAPTER 2 2. Background of Malaysian Economic Development 2.1 Overview of few economic Development Policies 2.1.1 Short term, Medium term and Long term 2.1.2 NEP, NDP, NVP and NEM (Objective and strategies) 2.1.3 Other policies: Privatization (advantages and disadvantage), 12 NKEAs 2 2.1 OVERVIEW OF FEW ECONOMIC DEVELOPMENT POLICIES Long Term Plan Medium Term Short Term Covers longer time period of more than 6 Covers shorter time period of 5 Yearly Plans years. years or less than 5 years. Ex.: Ex.: Ex.: Annual Budget 1) New Economic Policy 1) Malaya plans: Budget 2020 (1971-1990): 20 years Before independence Budget 2019 National Development Plan (1st – 2nd plans) 2) Budget 2018 (1991-2000): 10 years 2) Malaysia plans: 3) National Vision Policy: (1st – 10th plans) (2001-2010): 10 years 4) New Economic Model: (2011-2020): 10 years 3 DEVELOPMENT PLANS IN MALAYSIA Period 5 Years Plan OPP Pre-NEP 1956-1970 1st Malaya Plan (15 years) 2nd Malaya Plan 1st Malaysian Plan NEP 1971-1990 2nd Malaysian Plan OPP1 (20 years) 3rd Malaysian Plan 4th Malaysian Plan 5th Malaysian Plan NDP 1991-2000 6th Malaysian Plan OPP2 Vision (10 years) 7th Malaysian Plan 2 0 NVP 2001-2010 8th Malaysian Plan OPP3 2 (10 years) 9th Malaysian Plan 0 NEM 2011-2020 10th Malaysian Plan (10 years) 11th Malaysian Plan 4  DEVELOPMENT PLANS IN MALAYSIA: NEW ECONOMIC POLICY (NEP) 1971-1990 Introduction Government introduced NEP covering a period of twenty years with main objective of national unity. The approach used was growth with equity and active government participation in the economy. Objective: To create national unity Strategies: 1. To eradicate poverty 2. To restructure society 5 Strategies: 1. To eradicate poverty ▪ It was done by increasing the access of the poor to land, capital, training and other public amenities. ▪ Increased income through education and employment of Bumiputera in modern sector ▪ MARA was established 2. To restructure society ▪ aims at reducing the dependence of the Malays and other indigenous people on subsistence agriculture ▪ and at increasing their role in the modern rural and urban sectors of the economy. ▪ Rectification of employment pattern 6 DEVELOPMENT PLANS IN MALAYSIA: NATIONAL DEVELOPMENT PLAN (NDP) 1991-2000 Introduction The plan reaffirmed relevance of the NEP by retaining its main elements at the same time, in view of emergence of fresh challenges. It introduce several new thrusts for balance development and set the pace for Malaysia to become a fully develop country by the year 2020. Objective: To create national unity through ‘Balanced Development’. Strategies: 1. To reduce eventually eradicate poverty 2. To accelerate the process of restructuring Malaysian society 7  New Dimensions Reducing hardcore poverty and relative poverty Eradicating poverty Human resource development Strategies of NDP Rely more on private sector participation Restructuring society Employment and rapid development of an active BCIC 8  DEVELOPMENT PLANS IN MALAYSIA: NATIONAL VISION POLICY (NVP) Introduction 2001-2010 The NVP begins with the 8th Malaysian Plan (2001-2005) until 9th Malaysia Plan (2006-2010). Objective: NVP’s objective is national unity. Particularly it aims to establish a united, progressive and prosperous Bangsa Malaysia that lives in harmony and engages in full and fair partnership Strategies: 1)Eradicating poverty irrespective of race. 2)Restructuring of society. 3)Balanced development. 4)Strategies of Vision 2020. 9  Strategies: 1)Eradicating poverty irrespective of race. ▪ Strengthening the sources of growth, the financial and corporate institutions and macroeconomic management. ▪ Brought new opportunities in information technologies: ICT, K-economy, MSC 2)Restructuring of society. 3)Balanced development. ▪ Pursuing environmentally sustainable development ensures future generations will be able to reap the benefits of the economic growth. ▪ Closing the gap of development between regions 4)Strategies of Vision 2020. 10 DEVELOPMENT PLANS IN MALAYSIA: NEW ECONOMIC MODEL (NEM) Introduction 2011-2020 The New Economic Model (NEM) was launched by the Prime Minister of Malaysia on 30 March 2010 to transform the Malaysian economy into one with high income and quality growth by the year 2020. Malaysia’s economic engine is slowing. We are caught in a middle income trap – we are not amongst the top performing global economies. Our economic growth has come at considerable environmental cost and has not benefited all segments of the population. Even we have substantially reduced poverty, a hefty 40% of Malaysian households still earn less than RM1,500 a month. Income disparity must still be actively addressed. 11  NEW ECONOMIC MODEL (NEM) Objectives/goals: 2011-2020 (cont.) 1. High income status 2. Sustainability 3. Inclusiveness Strategic Reform Initiative: 4. Re-energizing the private sector 5. Developing quality workforce and reducing dependency on foreign labour 6. Creating a competitive domestic economy 7. Strengthening of the public sector 8. Transparent and market friendly affirmative action 9. Building the knowledge base infrastructure 10. Enhancing the sources of growth 11. Ensuring sustainability of growth 12 STRATEGIC REFORM INITIATIVE: 1. Re-energizing the private sector ▪ NEM will rationalising business incentives, creating a conducive environment for private investment and rebalancing public-private sector role ▪ incentives will focus on firms developing high-value activities with spill-over benefits to the rest of the economy. Government will give support to those firms investing in innovative and technologically advanced production and services. 2. Developing quality workforce and reducing dependency on foreign labour ▪ Inspiring the workforce to draw out their best through increasing local talent, reskill the existing labour, retain and access global talent, remove labour market distortions constraining wage growth and reduce reliance on foreign labour. 3. Creating a competitive domestic economy ▪ Improve economic efficiency through competition, build entrepreneurship and remove market distortions leading to misallocation of resources. 13 4. Strengthening of the public sector ▪ This strategy aims at creating a lean and customer-focused government. ▪ It improves decision making process, improve service delivery, reduce frictions costs, and provide a safety net to facilitate a smooth transition. Strengthening public finance management. 5. Transparent and market friendly affirmative action ▪ The aim of this strategy is escaping low income, which focus more on increasing income and narrow the gap between rich and poor. ▪ Reduce income disparity, create market-friendly affirmative action, narrow regional differences, encourage reward on the basis of performance and promote equal and fair access to opportunities. 6. Building the knowledge base infrastructure ▪ With the aims of innovating today for a better tomorrow, this strategy will create an ecosystem for entrepreneurship, promote an environment for innovation and establish stronger enabling institutions. 14  NEW ECONOMIC MODEL (NEM) 2011-2020 Objective 1: High Income Status (cont.) ▪ Must – unlock investment, drive labour productivity & boost efficiency ▪ Target an average real growth rate of 6.5% per annum between 2011-2020 – then it is estimated that per capita GNP will rise to approximately USD17,700 ▪ Enabling economics progress with :– i. aggregate demand must grow at robust pace, ii. investment will be the driver towards growth, iii. private investment must growth reaching 20% by 2020 ( in 2010 – only 10%) iv. Fiscal prudence – further reduction in fiscal deficit ( in 2009 – 7.4% of GDP; in 2010 – expected to decline to 5.6%) 15  NEW ECONOMIC MODEL (NEM) Objective 2: Inclusiveness 2011-2020 (cont.) Generating benefits for all Malaysians – to foster sense of belonging Families endowed with opportunity & capabilities to pursue their aspirations in connected, sophisticated modern cities, townships & villages No group will be marginalized & essential needs of the rakyat will be satisfied Free from fear of crime, indignity of discrimination & anxiety of need Use transparent & market-friendly affirmative action programs to build the capacity & capability of low-income households and small businesses (quotas or imposing conditions will be eliminated) Hence, the market-friendly affirmative action programmes will : ❖ Target assistance to the bottom 40% of households – 77.2% are bumiputera & many are located in Sabah & Sarawak ❖ Ensure equitable & fair opportunities through transparent processes ❖ Allow access to resources on the basis of needs & merit to enable improvement in capacity, incomes & well-being ❖ Have sound institutional framework for better monitoring & effective implementation 16  NEW ECONOMIC MODEL (NEM) 2011-2020 (cont.) Objective 3: Sustainability ▪ Measures proposed must be sustainable in both economic and environmental terms ▪ Investment & policy decisions will only be made after full consideration of their long-term impact on the society, the economy as a whole & the environment ▪ Economic sustainability – ensured through the establishment of the fiscal discipline needed to safeguard macroeconomic balance & financial stability ▪ Public sector reform – one of the important component of long term fiscal sustainability i. on going reform of civil service (e.g. staff up-skilling & retraining), ii. increasing efficiency of public services iii. more customer-focused ▪ Environmental sustainability – reject traditional approach to economic growth which has grossly neglected the environment ▪ Equal emphasis on both protection of the environment & economic growth ▪ Formation of ‘green GDP’ concept which allows proper consideration of the impact of growth on the environment & the appropriate design of measures to address environmental concerns 17  DEVELOPMENT PLANS IN MALAYSIA: PRIVATIZATION Introduction ▪ Defined as the transfer to the private sector of activities and functions which were traditionally vested with the public sector. ▪ Applies to enterprises already owned by the government and to new projects. The transfers involve 3 essential organization related component: i. Management responsibility ii. Assets iii. Personnel ▪ Privatization must involve the transfer of at least one of the components. ▪ The government introduced Privatization Policy in 1983. 18  DEVELOPMENT PLANS IN MALAYSIA: PRIVATIZATION (cont.) Advantages: 1. Benefits to the public 1. Manpower development 2. Efficiency and productivity 2. Gains to the government 1. Reduction in the government’s administrative burden 2. Tax paid to the government 3. Economic growth 4. Bumiputera participation in the corporate sector 5. Technology transfer 19 DEVELOPMENT PLANS IN MALAYSIA: PRIVATIZATION (cont.) Disadvantages: ▪ Consumers have to pay higher prices e.g. water, electricity ▪ Increase in general price level - inflation ▪ Social services are no longer provided by the government ▪ Reduction in consumer/workers’ welfare if the firm’s objective is to only maximize profits ▪ Wider income gap ▪ Insecurities amongst workers – fear of retrenchment, erosion of benefits (since all these depends on firms’ objectives & profitability) 20  DEVELOPMENT PLANS IN MALAYSIA: ECONOMIC TRANSFORMATION PROGRAMME (12 NKEAs)(cont.) 1. Oil, gas and energy 2. Palm oil and rubber 3. Financial services 4. Tourism 5. Business services 6. Electronics and electric 7. Wholesale and retail 8. Education 9. Healthcare 10. Communication content and infrastructure 11. Agriculture 12. Greater Kuala Lumpur/ Klang Valley 21