The world is facing an unprecedented economic crisis now. It is expected to be far worse than the depression post World War I, which spun the economies of the Western world into conundrum well into the 30s. Malaysia, being the 17th most important trading nation and 29th largest economy will be affected by this far reaching viscous economic cycle.
The RM 1.3 trillion (PPP adjusted) Malaysian economy, with an export valued RM 720 billion (2008) would seriously expected to be impaired in 2009 as over 55% of it goes to the Western economies of US, Singapore, Japan and EU. The American economy already growing at a negative growth of 3.8% (Q4 2008) and rising. 13 million more jobs are expected to be shed from the 150 million workforce. As of present, the unemployment rate is at 7.6%.
The crunch in these economies already showing signs, as growing cancellation of orders already recorded. The Penang economy, which based on manufacturing, especially in electronics and ICT, already presenting slightly more than 10% reduction in this sector alone. So far, ten of thousands of jobs already lost in this fastest growing economy in the country, which contributed 30% of national manufacturing export.
The economy needed boost to weather this really upcoming inevitable storm. The focus of the RM 7 billion stimulus package announced late last year is on physical development and human capital programs. The arguments that the cost for infrastructure development industry has been drastically reduced of late due the effect from the rapid fall of oil prices and coupled with the multiplication factor that is able to be trickled down still stands.
Human capital is the buzzword of the day. Training programs, especially specifically tailored for ‘employability’ and job placements of the 80,000 odd unemployed graduates have been emphasized, which also include the retraining and redeployment of the tens of thousands recently retrenched workers.
In the eagerness to achieve this human capital programs, recently a RM 400 million package has been announced in Parliament. More to come, especially through the recently created economic corridors as the warnings of industries, especially manufacturing and construction already expected to shrink drastically. These structured and aggressive programs to create ‘employability’ of the workforce is the ‘in thing’, amongst the politicians. It would certainly look good for the UMNO Annual Assembly end of March and politicians vying for posts, like Minsiter of Rural and Regional Development Senator Tan Sri Muhammad “Mike Tyson” Muhd. Taib and Minister of Higher Education Dato’ Seri Mohd. Khaled Nordin who are running for Deputy and Vice President respectively.
The thirteen million question is that, by just making these tens of thousands young Malaysians more ‘employable’, are there are direct and active programs to create the environment where businesses are really expanding and actually require more workforce?
The bet on the industries within the economy which have potential growth lies on retail and hospitality sectors, which include tourism (value of GDP is RM 26 billion). as compared against manufacturing (RM 52 billion), petroleum and mining (RM 37.2 billion) and financial services and capital markets (RM 22.5 billion). Since these industries now lies for domestic market power of purchase (the influx of tourism is expected to be impaired), not much left to be desired. Does the domestic market has enough muscle to sustain growth, especially when not many businesses are actually doing well and fixed income earners have their power of purchase shrunk due to sharp increase in prices, especially consumer goods and their quality of living actually starting to decline?
The aggregate demand, especially in these ‘high stake’ industries needed to be increased. It is not convincing enough when the power of purchase in the consumers’ hands actually come from the rapid and aggressive expansion of consumer and retail borrowings, especially high interest products such as credit cards and personal loans. This unhealthy trend of giving easy access to consumer borrowings in the hands of the Malaysian workforce is worrying, which lately has shown incredible growth. So far, RM 24 billion of credit card and personal loans already classified as ‘problematic’ and this is looming unprecedentedly into very dangerous territories. In this upcoming economic storm, this pattern will in time prove to affect Malaysians socially.
The Government should consider promoting Malaysians spend on their own earnings and cash at hand, rather than from short to medium term borrowings. One of the more effective way is for Malaysians to use digital cash, which is linked into their own accounts.
In the actual sense, the net aggregate demand created from the actual monies in the consumers’ hands has not risen, factored from the recent sharp increase in prices and inflationary pushed economy. Malaysian economy should move from the current Government induced monetary policy to Keynesian.
Another thirteen million ringgit question would be: How long would the retail and hospitality sector is able to sustain on an ‘artificial’ growth (based on rapid increase in consumer borrowings and not actual cash in hand) and how will this actually affect real GDP, in the medium term?
Aggregate demand on the retail industry could be improved by rapidly increasing cottage industries and SME/Is to cater for the more price conscious consumers, especially when larger FMCG industries would be facing credit crunch versus drop in demand issues. However, the ongoing problem for entrepreneurs is the availability of financing facilities. Despite so many schemes available, the accessibility is the real killer. Financial institutions should stop behaving like conventional banks with conservative practices and policies. Instead, they should be innovative and flexible in the products offered, coupled with willingness of taking more risk to ensure facilities are not only available, but much more accessible.
The financial institutions needed much more than mere change of policies and improvement of processes. They are in need of serious restructuring programs. The processes and criterion of making financing facilities more accessible should consider many entrepreneurs will not able to furnish capital nature of collateral. The fact that these firms behave like any other capitalists with too much emphasis on ‘return on investments’ is the real hindrance.
Bank Negara Malaysia is able to play the role for the injection into the financial institutions specifically to stimulate the SME/Is and retail development programs. Part of the BNM reserve of RM 318 billion should be deployed to stimulate aggregate demand. Part of the RM 270 billion within the EPF system should also be injected back into the system as liquidity will promote the effort to increase aggregate demand. Of course, any fiscal stimulus to be introduced must be bold enough, which should encompass the increase on consumer spending and aggressive tax relief programs on specific industries, to ensure more injection of profits back into the system.
Thus, major commercial banks should be re-nationalized to make the national agenda of massive entrepreneur creation a success. Profits should be made with facilities extended to capitalistic large corporations and then cross-subsidize for products meant to assist entrepreneurs in the SME/Is. This makes economical sense as spreading risks amongst SME/Is with high growth potential, especially since they have greater survivability in these trying times (as compared to the larger corporations and giants).
The development of SME/Is should be coupled with the emphasis to develop the agrobased industries, which the PM ‘Flip-Flop’ Dato’ Seri Abdullah Ahmad Badawi’s strategic vision to expand, horizontally and vertically the agriculture sector. The ever ambitious economic corridors like NCER, ECER and Iskandar Malaysia should give this program some serious thoughts and planning, instead of getting conglomerates to mop up all the opportunities that should have been created for the small holders.
This is the right time to develop and improve on services, which include capital and financial sectors. Boutique investment firms and homegrown consultancies should replace the traditional and conservative merchant banks. Innovative financial products based on syariah compliance, especially more flexible and vibrant instruments, is the current flavour. The advantage of the Malaysian capital market already exist a developed financial and legal system and resources, which include professionals, should be capitalised and developed further.
The role of the Government is ‘prepare the mind of the people’, in these trying times. Of course, the traditional maxim of ‘Government is there to provide what the people cannot do for themselves’ still stand. Building the viable ecosystem is pertinent to ensure the economy is healthy. So many quarters want to see Federal Government develop a market driven economy, especially in the retail sector.
Federal Government also should re-look into the emphasis of GLCs on ROIs and making money. GLCs are created to be economically self sustaining, without impairing their primary role to assist in nation building. Lately, behaving like hard core capitalists would actually worsen the economies of the common rakyat, especially when goods and services are pricier.
Instead, Federal Government and GLCs should focus and promote on the development of the content development and services on the ICT related industries, especially on web-based and communication based products and services, which content development for the infotainment industry. With a staggering number of 15.9 million internet and 23.4 million mobile phone users, this sector has amazing growth potential. Many techno-preneurs to serve these ‘steroidly-adrenalised’ industries with very encouraging potentials should be developed, with the right programs, incentives and availability and accessibility of facilities, which include funding and grants.
On top of that, communication related services could be imported and re-sited in Malaysia, like call and online service centres. This is one aspect of the human capital program coupled with ICT infrastructure development that should be really pondered and developed. The availability of skilled and knowledge based workforce have been factored into the sector set to be potential leaders in these growing service industries within the region.
The volatility of currencies, especially the US greenback and sharp devaluation of the British Pound Sterling is worrying. The world should consider barter trade, if not the gold backed Gold Dinar as the medium of exchange, for a consistent currency to ensure stability in value of exported goods.
At no part, the rural development programs, especially to realise the New Economic Policy (NEP) should be sacrificed, especially in the excuse of “moving the economy forward and to a better and progressive level, using the principles of the market forces”. Programs under NEP, are designed to stimulate the purchasing power of the majority of rural Malaysians. This is important in creating the consumer base, more over if the emphasis of developing indigenous centric retail and SME/I industries.
Strategic planning is required to ensure our entire resources; physical, commercial, economical and human capital are deployed effective and efficiently. Malaysia could really come out a winner in this, with lesser effort compared to others.
Never the less, all of these would not show result without strong political leadership. That is a really bitter lesson we learnt from putting PM ‘Flip-Flop’ Abdullah in charge of the nation five years ago.