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The Malaysian Dilemma
Malaysia Perspective | 28 September 2011

By Predeeben Kannan

After growing relatively well last year and decently in the first quarter of 2011, the Malaysian economy has clearly slowed down in Q2-2011. Many factors are working against the nations’ economic growth, some due to developments around the world, while some are purely due to fundamentals.

After growing 4.9 percent in the first quarter of 2011, the Malaysian economy grew just 4.0 percent in the second. Although Bank Negara maintains that overall GDP for 2011 will still be in the 5 percent range, it would be interesting to see how the third and fourth quarter can produce the necessary growth to achieve such figures.

According to most analysts, the challenges that lie ahead for Malaysia includes the general slowdown in worldwide demand for manufactured products; the possibility of a recession in the US and Europe, as well as the slowdown of the Chinese economy coupled with the stronger Ringgit, which is making the country’s exports more expensive.

The Challenges Ahead
Bank Negara Governor, Tan Sri Dr. Zeti Akhtar Aziz highlighted that the assessment of the growth would still depend on other factors. She agreed that the downside risks to Malaysia’s external demand is greater now due to the lower than expected jobs and economic growth in the US coupled with the debt situation in Europe.

“If we have a situation where the United States and Europe slipped into a recession or any other trigger factors that could result in the disruption in international financial markets, we will have to make a reassessment … right now, our assessment is very likely, given the performance of the first half, and that it (the full-year growth) will be closer to 5 percent,” said Tan Sri Zeti.

Another more “local” element that is triggering worries is the strength of the Malaysian Ringgit. The local currency rose more than 6 percent in the last year, and touched a 14 year high in July based on speculation that the central bank will support a stronger currency to reduce the downside risk of inflation.

Bank Negara stated that Consumer Price Index (CPI) for July rose 3.4 percent y-o-y, compared with the 3.5 percent y-o-y, previously. In her announcement to the media, Tan Sri Zeti mentioned that the country’s full-year CPI would remain within the target of 2.5 percent to 3.5 percent. She reiterated that the central bank would continue to focus on maintaining the right balance between controlling inflation and supporting the country’s economic growth when deciding on the direction of the monetary policy.

Early signs indicate a degree of restraint by the central bank. Bank Negara kept its Overnight Policy Rate (OPR) unchanged at 3 percent, at its monetary policy committee (MPC) meeting in July. This took analysts by surprise as they expected the central bank to raise rates to manage inflationary pressure. In defence of this move, Tan Sri Zeti said that the prevailing rate was necessary to support the domestic economic growth. The MPC would meet again this month to decide on the direction of the OPR.

A Realistic Policy Needed
In addition to the less than stellar monetary and economic indicators, there are other more pressing matters that concern the Malaysian economy. High up on the agenda is the shortage of skilled workforce. These talents are critical for the nation to achieve its target of a high income nation by the year 2020. Key to this issue is the low wages offered to workers in selective industries such as construction, agriculture and plantations, all of which are strategic sectors to ensure the balanced development of the Malaysian economy in the next decade, if the country decides to be less reliant on volatile industries like manufacturing and the electronics sectors.

Over the years, Malaysia has lost some of its best talents to neighbouring countries Singapore, Australia and New Zealand, due to various reasons. One of which could be the lower wages offered to skilled professionals in Malaysia. The other reason could be the stricter immigration laws that make it less appealing for Malaysians married to foreigners to come back home with their “foreign” families. Another critical factor that has been highlighted by Malaysians, who have lived abroad, is the lack of a level playing field in the Malaysian employment scene. These professionals are unwilling to leave their well paying jobs abroad, without the reassurance of long-term job and personal development opportunities in Malaysia.

Based on recent estimates by the World Bank, there are some 1 million Malaysians living abroad, but only a handful of the highly skilled Malaysian professionals return home. The reasons for the difficulty to attract skilled workforce also lies with the fact that the country is not recognised as a hub for skilled employment. In order to change that perception, Malaysia needs to develop and nurture the growth of skilled industries that would attract both Malaysian and foreign talents from abroad, to enable the country to move up the value chain.

Some Positives Remain
Despite the many negatives that have been plaguing the Malaysian economy, including the lack of skilled workforce and the unwillingness of Malaysians living abroad to return to their home country, there has been some good news to cheer about. The central bank governor announced that foreign direct investments in Malaysia have increased in the second quarter with gross and net inflows of foreign direct investments higher at RM13.4 billion and RM6.2 billion respectively. She is confident that the trend will continue into the second half of this year, as there will be more aggressive implementation of the 10th Malaysia Plan as well as the Economic Transformation Programme.

Key to the developments in 2011 would be the Iskandar Malaysia (IM) region in Johor. According to the Iskandar Regional Development Authority (IRDA), committed investments in IM have reached RM76billion as at the first half of 2011, with foreign investors accounting for close to 59 percent of the figure. Out of this figure, some 40 percent or RM30billion have already been realised, with more to be realised from the second half of the year, onwards.

Fortunately for Malaysia, there are continuous development projects created to spur the local economy even during slowdowns in the global economy. This is in part due to the effective economic development programmes launched by the government since independence. Part of the success also lies with the “creative” nature of the large local corporations in Malaysia, that are always looking for new ways to develop residential and corporate projects that benefit the people as well as attract tourists due to the “unique” designs and trendsetting technologies. For now at least, Malaysia seems to be maintaining the strong “development” mentality. This is reassuring for the country, as it tries to attract global players to invest in the local economy, especially after the dust of the economic downturn has subsided.

* The views in this article are strictly those of the writer. Predeeben Kannan is Managing Director and Advisor of Probe Research, a media advisory and consultancy organisation. He can be reached at

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