CEKU meets PEMANDU: Insights into the Economic Transformation Programme (ETP)

By Melissa Kong, Dimishtra Sittampalam and Natasha Su Sivarajah

I. Introduction

Since Merdeka, Malaysia has enjoyed 3 decades of robust economic growth; we have had more than 5% of GDP growth every year with an exception of the years following the two major financial crises in 1997 (currency crisis) and 2000 (dot com bubble), when GDP growth slowed to 4-5% a year. During the course of vigorous economic growth, we had political stability and market proximity, which accrued to healthy influxes of foreign direct investment (FDI).

In the 80s, the production lines of multinational corporations (MNCs) were attracted to Malaysia, providing a multitude of jobs albeit low-skilled ones; there were no initiatives to expand the know-how to the locals as well.  Efforts to ‘create a Malaysian Champion’ ensued, where subsidies were heavily pumped in to mega Malaysian companies, today known as Government Linked Companies (as they were bought over partially by the government due to the heavy blows suffered after the financial crises).  The 3 decades since Merdeka was a period of economic transformation.  A primarily agriculture-based economy upon independence, the transformation created a large middle income population which fed the booming industrial revolution and led to mass urban migration; into the towns and cities and away from the paddy fields.

Today, a predominant amount of the nation’s investments comes from the government.  GDP growth is driven by only the top 20% of the nation’s population, while the bottom 40% have incomes that are yet to keep up with inflation.  Regional players have risen to par and are close to superseding us; market proximity is becoming less of an attraction factor.  Moreover, what about the FDI plunge last year, our gaping income to purchasing power ratio, and the fact that although we have eradicated hard core poverty, it remains that 34% of Malaysians earn below the poverty line income level?

All these resounding questions led us to find out more about the Economic Transformation Programme (ETP) – whether or not its ideas and initiatives would pivot the nation’s economy into high-income level progressiveness and how exactly it is different from the 10th Malaysian Plan and the New Economic Model (NEM).

II. ETP Overview

The CEKU team met with some representatives from the Performance Management and Delivery Unit (PEMANDU), namely Dr. Mohd. Emir Mavani, ETP Director, Mr. Ziad Razak and Mr. Syahrilazli Mahammad, Associate ETP Directors of Financial Services & Oil & Gas, as well as Mr. Steven Soon, the ETP Associate Director of Communications, Content and Infrastructure, at their office in Putrajaya on 23rd December 2010.  Also present were Marc Foong and Allie Subramaniam from the Communications arm of the ETP.  PEMANDU occupies parts of the first floor of the Prime Minister’s Office in Putrajaya, and is made up of only 60 staff.  Starting immediately after brief formalities, Dr. Mohd. Emir Mavani began by briefing us on the ETP.

The ETP is a comprehensive effort co-created by the public and private sectors that will transform Malaysia into a high income nation by 2020.  It complements 3 common foundations: The Government Transformation Programme, 1Malaysia: People First, Performance now, and the 10th Malaysian Plan.  While the 10th Malaysian Plan, expounding on a series of proposals put forth in the NEM, outlines government development plans for the next 5 years, identifying the 12 National Key Economic Areas (NKEA) in the process, the ETP blueprints concrete changes with reference to these plans, and facilitates their implementation.  So far, 131 Entry-Point Projects (EPP) across all 12 NKEAs are in the works.

Upon commencement of the ETP, letters of invitation were sent out by PEMANDU to all identified Malaysian companies to participate in the new government initiative.  500 industry representatives from both the public and private sectors then participated in 8-week long labs to identify the EPPs, or projects to be owned by the companies participating in the ETP, initiated and developed 2020.

Among the key characteristics of the ETP is that 92% of the 1.4 trillion Ringgit worth of total investments would come from the private sector, allowing the government to focus on trimming its budget deficit, while making the role shift from that of the nation’s key investor to a more facilitative one.  The ETP plans to create 3.3 million new jobs with its newly identified EPPs, to increase Gross National Product (GNP) to RM 48,000 from RM 23,700) by 2020, as well as a shift towards a more service-based economy, with a 7% targeted increase in the contribution from the services sector.  A real growth rate of 6% in the next 10 years is required to achieve all this.

III. Session with the Financial Services Director

The financial services sector is the core of any advanced economy. The recent economic crisis has shown the importance of getting a strong financial sector right. The financial sector is a key component of not only small entrepreneurs to large public listed firms, but is also a key growth engine in its own right of any economy. Financial Services may be a single NKEA but the spillovers to the other NKEAs are substantial.

At the discussion, we were informed that the Financial Services NKEA was the second biggest contributor to Gross National Income (GNI) amongst the NKEAs identified, contributing almost RM121.5 billion to it, of which RM28.8 billion comes directly from the 10 EPPs. A total of 45,000 jobs will be created through this, with baseline growth resulting in a further 229,000 jobs created. And these aren’t the usual ordinary jobs we’re not interested in – the jobs that will be created are the ones that would excite us, the ones that would get us to come home instead of migrating abroad. With so many of our brightest young talents going abroad to work in banks, investment firms and hedge funds, having the financial hub of the region in our backyard would bring us back.

The 10 EPPs come from four main thrusts that we think are well balanced and effective. They will strengthen our current financial core, serve the needs of our high-income population, develop new growth areas and go on the offensive. The EPP we personally liked best was the increase in insurance of our population – the best way to go about creating a strong social safety net that every high-income country needs. Our current insurance penetration simply doesn’t allow for that.

IV. Session with the Oil, Gas & Energy (OGE) Associate Director

Our discussion then moved on to the biggest contributor to GNI amongst all the NKEAs – oil, gas and energy (OGE). As of 2009, it collectively represents 19% of Malaysian GDP.  The expected growth of our economy will result in a rise in the demand for energy, hence the importance of this NKEA. Projects from other NKEAs, primarily the Palm Oil, Tourism and Electronics and Electrical NKEAs, will also have a multiplier effect on the OGE NKEA.

Within the OGE NKEA, there are four main thrusts, namely sustaining oil and gas production, making Malaysia the prime oil field service hub in Asia, enhancing downstream growth and developing a sustainable energy platform. The first three thrusts focus on improving existing resources, while the fourth explores energy efficiency and alternative energy sources.

In lieu with reducing dependency on non-renewable energy sources, Malaysia is set to build two nuclear power plants by 2022 while hydropower takes precedence in Sabah and Sarawak. Heavy investments have also been made towards developing Malaysia’s solar power capacity, with Malaysia set to overtake Germany as the second largest manufacturer of solar cells globally. Hybrid carmakers have also been given tax exemptions, while energy efficient incentives have also been introduced.

This NKEA will create a whopping 52,300 jobs in the field. 40% of the jobs created will be highly-skilled jobs, in line with the vision of the ETP.

V. Session with the Communications, Content and Infrastructure (CCI) Associate

Director

Connectivity and high telecommunication services penetration were once luxuries that have become commodities in recent years. Both are of vital importance in facilitating economic growth in a developing nation, hence why the Communications, Content and Infrastructure (CCI) sector has been identified as one of the NKEAs.

The CCI NKEA encompasses several aspects, and its Associate Director, Steven Soon, talked us through them. The nurturing of Malaysia’s creative content industry involves the cultivating of local creative content, developing a local content hosting platform and the digitising of existing archives from the local mass media in order to preserve them. The EPPs under the CCI NKEA are also aimed at enhancing and regulating current infrastructure, introducing new technology like cloud computing and leveraging on the CCI sector to develop other sectors, thus expediting a gradual transition towards a knowledge-based economy via efforts such as e-Learning and e-Government.

In order to ensure connectivity in rural and remote areas as part of the EPP that promises broadband for all, the Malaysian Communications and Multimedia Commission (MCMC) manages the Universal Service Provision (USP) fund to develop Internet penetration in these areas. The USP was established as part of the Communications and Multimedia Act 1988, and makes it mandatory for all telecommunication firms to contribute 6% of their annual income to the USP fund. This measure is aimed at combating skewed growth, targeting areas where it is less profitable for companies to invest in establishing and developing Internet and mobile phone penetration.

VI. Conclusion

The ETP is not without its share of criticism. Its selective open tender approach, in which a few ETP projects have been deemed to be too expensive to be funded by private companies, has been rebuked as counter-productive to the government’s goal of obtaining maximum value at the lowest possible cost. Some have raised concerns about the ETP being too ambitious and unrealistic – a ten year timeline to meet all the targets set by the ETP in all 12 NKEAs leaves little, if any, margin for error. Although the plans and projects outlined in the ETP are impressive, it is the execution and implementation that counts.

 

Thus far, recent progress reports of results of the ETP have been promising. PEMANDU is also making a strong effort to connect with and collect feedback from the rakyat by hosting several open days.  The team has also established their presence online via Twitter (you can follow them @etp_roadmap) and their blog. 19 EPPs were recently announced by the Prime Minister.  The PEMANDU CEO, Senator Dato’ Sri Idris Jala, remains optimistic about the program as a whole. However, whether or not the ETP will succeed in galvinising our nation to reach its goal of becoming a high income economy remains to be seen – we still have a long way to go.

To find out more about PEMANDU and the ETP, visit www.pemandu.gov.my. The official overview of the ETP and each of the NKEAs can be found at http://etp.pemandu.gov.my/Download_Centre-@-Download_Centre.aspx.

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