Is Malaysia on the cusp of a second take-off?
If we get it right and at the same time get our acts together, when we look back 10 years down the road, 2023 may be remembered as the beginning of Malaysia’s second take-off.
If we fail, our country will continue to stagnate as we have been for the past quarter century. The last time a vast majority of Malaysians felt that the next generation would be far better-off than the current one was before the Asian Financial Crisis hit in 1997.
Malaysia experienced the first take-off with the transformative and massive growth between 1988 and 1997, part of which was during Datuk Seri Anwar Ibrahim’s previous stint as Finance Minister.
During the heydays, huge amounts of foreign investments rushed into the Southeast Asian region, including Malaysia.
A Kluang businessman who graduated from a Taiwan university in 1988 was hired by a Taiwanese firm to build a factory in China. Following the Tiananmen incident that struck on 4 June 1989, the rest of the world shied away from China for several years. He was fired and had to return to Johor, his home state. But in just three years he made his first million, by building factories for Taiwanese firms in none other than Johor. Malaysia benefitted from the greater global situation.
I was a teenager then and I recall vividly the mood of the time, the massive optimism which unfortunately turned into exuberance and seeded the subsequent crisis. Regularly we heard how teachers opted for early retirement to go into business or work for private companies as the private sector paid so much better than the public sector (today, it’s the other way around because wages in the private sector are simply too slow).
Some relatives who emigrated or worked illegally as migrant workers in Japan and Taiwan in the 1970s and 1980s returned home to find decent jobs with decent pay in Kuala Lumpur.
Confidence, optimism, and a sense of national unity and purpose defined that golden era. Malaysia was looking outward,not inward. Malaysia was sufficiently confident to see herself as an active leader for the Global South and the Third World, and a global investor, going as far as investing in Africa, and playing a role during the Balkan wars.
Then came the 1997 Asian Financial Crisis.
The region-wide economic crisis led to political crises in Southeast Asian states the following year which saw the fall of Indonesia’s dictator Suharto and the sacking and persecution of Anwar Ibrahim in Malaysia.
The economic and financial crises, coupled with China’s entry into the World Trade Organisation in 2001 as a competitor for cheap manufacturing, resulted in two decades of lacklustre economic performances in Malaysia and the region.
Malaysia remains stuck in an old model of low-wage, low quality growth based on unskilled labour. Malaysia no longer sees herself as an aspiring middle power. Malaysia lost the ambitions she had in the 1990s. We become myopic, inward looking, transactional, and to a certain extent, we lost hope.
The new era
Covid-19 pandemic, the United States-China rivalry, climate crisis, the war in Ukraine, and the worst inflation since the 1970s, changed the regional dynamics altogether.
From the fall of the Berlin Wall in 1989 to the start of the Russian invasion of Ukraine on 24 February 2022 can probably be described as the age of innocence in which many thought that wars, conflicts, and geopolitical rivalries were long gone.
We have now entered a new and difficult era of geopolitical rivalries, which may last for another decade or two. Understanding this will allow us to see the world differently.
Southeast Asia has come under global spotlight. US and European firms are looking for a “China+1” safe haven or even an exit from China, into Southeast Asian states. Chinese firms are also coming to the region to set up shops, especially if they have to export to the US and Europe.
This is Malaysia’s chance at a second take-off, moving on from the low wage, low skill economic model to become a high income nation with a vibrant and dynamic economy.
The ideas presented in the National Investment Aspirations, namely creating high value jobs, building strong linkages to the domestic industry, developing strong industry clusters, creating an economy that produces complex products and services, improving inclusivity, with ESG (environment, social and governance) as an overarching theme should guide us on what to do next.
Malaysia occupies a unique value proposition among the Southeast Asian countries.
Malaysia should not be competing with Vietnam, Indonesia, Thailand, and the Philippines. Each of these countries has close to or more than 100 million population and they are generally quite young. They have demographic dividends which eluded Malaysia since at least 20 years ago.
Yet Malaysia has many other dividends, such as being located in the middle of the world’s busiest trade routes, quality infrastructure, a multilingual workforce, high level of educational attainment, and a reasonably sound legal system.
Malaysia should position herself as a two-third alternative of Singapore. Admittedly, Singapore’s economy is more dynamic and more sophisticated than Malaysia’s, but this also comes with a higher price tag.
If an investor is prepared to pay two-thirds of Singapore’s pay and tolerate that Malaysia is less efficient by a third compared to Singapore, she would find Malaysia a perfect destination of investment.
When there are jobs that pay two-thirds of Singapore’s wages, there will be no shortage of highly skilled Malaysian labour who are migrant workers in Singapore now. Each day from 4am onwards, about 50,000 Malaysians leave for Singapore from both my constituencies of Iskandar Puteri and Perling on motorbikes to work at SGD2,000 per month as labourers in the manufacturing and services sectors.
When I asked them – the older ones with ageing parents or those with young children – many are ready to come back if the pay is two-third of what they get in Singapore. Yet, more often than not at the moment they can only get one-third of Singapore’s pay. Herein lies the challenge of mismatched wage expectations.
Each time someone comes to the Ministry of International Trade and Industry to tell us that Malaysia does not have enough talent, I will simply say, “I beg to differ”. Malaysia has most of the talents needed by our industries. The problem is, they are mostly working in Singapore.
The second take-off for Malaysia requires us to understand this reality: that the Malaysian and Singapore labour markets are intertwined.
But are we competing with Singapore? Not exactly. In the new geopolitical situation, Malaysia and Singapore are not rivals. We are partners that complement each other to face a complex and troubling world.
Rental and other costs in Singapore have risen very significantly over the past three years as a significant number of Western firms relocate their regional headquarters from Hong Kong to Singapore. Many rich Chinese nationals also move their wealth to Singapore.
Relocating industries and services to Malaysia, as well as paying a wage closer to Singapore’s, is a mutually beneficial exercise for both our countries.
Building a middle class society
Ultimately, our mission is to build a middle class society during Malaysia’s second take-off era.
Malaysia’s most crucial problem is low pay. Median wage in 2021 was RM2,250 for Malaysian citizens. Median wage is not mean (average wage). It means that 50% of Malaysia’s 9.7 million wage earners are earning less than RM2,250 per month.
Malaysia’s economic structure is of a pyramid shape where the top is small and the bottom is huge. Only 15% or so Malaysians are eligible to pay income taxes, which means only 15% of our population fulfill the minimum taxable income of RM2,833 per month (after deductions). This implies a gross monthly salary of around RM3,400-3,500.
The B40 and M40 labels are of very little meaning. Essentially, most Malaysians don’t live well and don’t live with a decent quality of life.
We should aim to build a middle class society in which the middle income group is bigger. We should envisage that 60% of Malaysians earn enough to qualify to pay income taxes. Then our society is a diamond-shaped structure where the middle is huge.
We may want to envisage that in five years, 50-60% of Malaysians will be earning more than RM4,000 per month (two-thirds of Singapore’s pay for low end workers).
To reach there, we need to rethink jobs, skills development, and investment policies. If we follow the economic debates in the United States and most other economies, jobs are front and centre in every discussion. Jobs for Malaysians, good and decent jobs for Malaysians should be at the centre of our economic debate.
A middle class society is the material basis for Malaysia Madani. In a decade’s time when we look back, Malaysians should be able to identify the upward mobility in their lives and the improvement of livelihood with Prime Minister Anwar and the Kerajaan Perpaduan. But we have to start now to see the fruits in 2033.
This article first appeared on The Edge and was subsequently published in Sinar Harian