KJ John
Nov 6, 07 4:47pm
Recently, the Minister of Finance II assured the nation that we
remain not only competitive but are also the recipient of quality
foreign direct investments (FDI), and have the ability to sustain our
growth above the 5 percent level.
Nevertheless, after attending a recent DAP fund-raising dinner as a
guest, I heard an almost divergent and different story about the
state of the economy.
Which is the true storyline? How can we be competitive and
uncompetitive at the same time?
I am going to quote Tony Pua (photo), the economic advisor to the
DAP, and then each of us can undertake our own research and decide
who is telling the truth. Most of the statistics used are from
secondary sources and can therefore be verified. So, here goes.
In 1966, according to Pua, the GDP per capita of South Korea was
about 30 percent that of Malaysia at US$130. But last year, South
Korea’s GDP per capita was three times more than that of Malaysia at
US$16,421, while Malaysia’s was at US$5,040. In exactly 40 years how
could South Korea overtake us? What is Korea doing that we are not?
What makes Korea move so fast when they too were hit by the East
Asian financial crisis?
Was not Korea also one of our Look East countries? Have not almost
all our planners and economists been there to learn from them? Did
they not visit us in the early 1960s to learn community development?
Was not their Saemaul Undong Programme the upgraded version of the
community development programmes? How then could we fall behind so
tragically?
The answer lies in one word: knowledge. They have been able to
utilise knowledge to create value. They use what our national
consultant; Professor Chan Kim, calls value innovation in his Blue
Ocean Strategy.
In fact this was the central thesis of the Second Industrial Master
Plan of 1996-2005: move up the value chain or face the effects of
poor value added. Rather unfortunately, 10 years after the IMP2 was
launched, I can say that our industrial development strategy has
largely ignored the role of value innovation; being stuck with the
older paradigm of growth we call value-added growth from FDI
investments.
One solitary fact can confirm this reality of the older paradigm: we
are still highly dependent on poor quality foreign labour to maintain
our industrial growth and the manufacturing industry.
The evidence of such labour intensive investments are evident from
another two set of figures: Malaysia had FDI worth more than US$7
billion in 1996 whereas, in 2006, it was only US$5 billion. Compare
this with both quantity and quality of FDI into Singapore: US$9
billion in 1996 and US$24 billion in 2006.
What is even more important is that Singapore is now an entirely
services-type knowledge economy and is even off-loading their lower
end investments into our so-called Southern Economic Region. Do we
even understand what is really happening in the globalised new
knowledge economy?
Neighbours doing better
When we compare Malaysia with Thailand, the story becomes even
clearer. In 1996, Thailand had only about US$2 billion worth of FDI.
In 2006, while we are hovering about US$6 billion, Thailand had
nearly US$10 billion worth of FDI. Yes, almost double the amount of
investments than Malaysia had. Thailand is about the same level as
Malaysia in terms of the level of sophistication of industrialisation.
But, I suspect they are able to do it without the kind and quality of
foreign workers, as they have adequate supply of workers and are able
to move up the value chain. They also have a more liberal regulatory
investment environment than Malaysia. Today, Thailand is the
region’s capital for the automotive industry, even though we started
with a lot of noise and domestic investment.
I dare not look at the FDI figures for Vietnam but seriously suspect
that if they have not overtaken us they will do so in the not so
distant future; simply because their labour and land costs are much
lower. We should not even think about Indonesia; for, as their
political stability improves, their investments in oil palm and
manufacturing might help them overtake us.
Where are our sources to finance and sustain our current level of
economic growth? Pua’s answer is “from lottery moneyâ€! What he
means is our oil and gas reserves; our Nature-given lottery. Or,
simply put, from our own Global 100 Company - our national asset and
source of development funding. He says the current contribution of
Petronas to development funding is about RM53.7 billion or 46.8
percent of the revenue sources.
This, according to Pua is an unprecedented level of internal
development funding whereas the original level of Petronas funding in
2004 was only 25 percent, when Pak Lah Administration took over. Pua
anticipates that Petronas’ oil resources should run out by 2010 and
asks the question: then what?
Is this then wise and prudent development? And is our development
expenditure going towards value innovation? Will these monies, which
are the sources of all the so-called ECERs, going to create value or
simply only value-add to existing operations, thereby eroding the
competitiveness of our economy?
An even more pertinent question is: are the ECER sources of wealth
creation or really a one-off wealth distribution process via
infrastructure development, as the Multimedia Super Corridor has become?
Bloated civil service
The most damning figures that Pua reflected upon were that the cost
of operating and developing the nation has dramatically jumped from
RM45.6 billion in 1998 to a potential RM128.9 billion in 2008; a 218
percent increase over the last 10 years. [Note that the numbers
quoted are purely 'operating expenditure' and doesn't actually
include 'development expenditure']
Another way to look at these figures is that this is the cost of the
9th Malaysia Plan development. Even if we factor in inflation of an
average of 3-4 percent, the 218 percent is not justifiable. Unless we
can say that development under Pak Lah is more pronounced than that
under Dr Mahathir Mohamad, we have no logical explanation.
Pua gave a tongue-in-cheek answer to this query: “We are buying
expensive screw drivers and screwing ourselves up!†He was referring
to the 2006 Auditor-General’s Report which highlighted screwed up
ways of buying and paying for screw-drivers which appear to be
illegitimised ways of stealing public funds through incompetent and
corrupt purchasing processes.
To my mind, the real crooks are senior government servants (as
controlling officers) who spent the budget without legitimate
authority. Surely both the Public Accounts Committee and the Anti-
Corruption Agency could find out the whats and the whys, but is there
real political will to do so? It is definitely easier to go out and
catch the ikan bilis and make a big show of it.
What do we then conclude about bad governance of this nation and its
resources? Words like integrity, honesty, and accountability, ring
hollow when there is a serious lack of leadership integrity.
Leadership integrity is upheld only when the leaders of any
organisation say what they mean and actually mean what they say. Then
they need do go out and do it.
To reflect on poor governance, we only need to reflect on the size of
the public services. Malaysia has the highest per capita public
services in the region with about 4.68 percent, with Japan our
nearest rival at about 3 percent. Every other country has a lower per
capita of public servants.
With a 35 percent increase in salaries for some ranks, is it unfair
for the population to expect good public services delivery? Instead,
what we get one-eyed public service which selectively bullies
unsuspecting communities; protects the real crooks; destroys
legitimate places of worship; and condones the building of illegal
ones. I see a monstrosity in my neighbourhood, which was the rape of
a legitimate and legal playground, all in the name of religion and
development.
We see selective persecution and the closing of one eye when it suits
the Little Emperors. In the meantime, the country loses its
competitiveness; and slowly but surely loses its capacity for growth.
Wake up Malaysia!
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