01 May 2013
Higher manufacturing technology needed
SINCE independence, Malaysia's industrial performance has
concentrated on increasing domestic production capacity through
import-substitution and export-orientation policies.
They were initially effective in increasing production volume and the
contribution of the manufacturing sector in gross domestic product
increased tremendously. However, this strategy reached a point of
diminishing returns in the late 1990s because production was trapped
under a high-volume, low-value level.
The government then introduced a series of industrial master plans (IMP) to move domestic production up the value chain. Despite all IMP1 targets scoring higher than expected, this strategy has its own limitations. Interventionist policies cannot deliver consistent progress without considering other variables that affect the performance of the manufacturing industry.
Malaysia's industrial policy must take into account the changes in the global economy, particularly China. Statistics from the World Bank suggest that Malaysia seems unable to piggyback on China's success in attracting FDI inflow compared to its peers, namely Singapore and Thailand.
As a result of high FDI inflow, two-way trade between China and Asean is increasing at double-digit growth rate year-on-year. China was the fastest growing trading partner of Asean last year.
Malaysia must find its niche in capturing the complementary benefits of China's rapid growth in trade and investment. This can be done by moving away from competing directly with China in labour-intensive exports to upgrade manufacturing technology.
This requires Malaysia to close the tap on employing low-skilled foreign workers that allows manufacturers to continue suppressing production cost.
This is crucial as wage level determines the type of labour and production value of an industry. Foreign labour now accounts for almost 21 per cent of the Malaysian workforce whereby 35 per cent of them are employed in the manufacturing sector.
Employing foreign workers is like introducing subsidies -- easy to implement but stubbornly difficult to remove. In Malaysia, employment of foreign workers is limited to a maximum of five years after which the employers must repatriate them back to their home countries. Such laws make efforts in reducing the number of foreign workers near impossible. Strict enforcement of laws alone cannot tackle the oversupply position of foreign workers, especially when they are retrenched during economic crisis.
Interventionist policies cannot exist in the environment whereby free-trade deals are increasingly becoming a popular tool for industrial development.
On one hand, interventionist policies require protectionism and government support but, on the other, FTAs liberalise them. Under FTAs, the role of developing domestic industry is left to the power of market forces and private initiative.
There are two main reasons why a free-trade deal is necessary; first: countries face intense global competition beyond trade liberalisation. And second, the private sector is unresponsive to industry-specific policies. Malaysia has to carefully strategise its FTA engagements if it wishes to continue participating in the race for FDI.
Direct government involvement in the economy is welcomed only if the private sector is incapable of encouraging investments. However, pervasive controls by the government can potentially reward unproductive economic activity, and, more often than not, punish efficiency. In other words, the price of intervention can be very high.
Failures in government intervention are not just exclusive to Malaysia but also exist among highly industrial economies. Malaysian state-owned enterprises should refrain from participating in risky business ventures that demand high rates of return. They must be transparent and accountable by conforming to the rule of law without prejudice.
The manufacturing industry is still the best engine of growth to achieve the status of high-income nation. As FDIs are indeed market-driven, future policy formulation must reflect the needs of the private sector. The manager should stay pitchside and let the players kick the ball.
New Straits Times
Wednesday 1 Mei,2013
Che'Yahya Che'Soh
Principal SMKSB@STAR
Segambut, Kuala Lumpur.
The government then introduced a series of industrial master plans (IMP) to move domestic production up the value chain. Despite all IMP1 targets scoring higher than expected, this strategy has its own limitations. Interventionist policies cannot deliver consistent progress without considering other variables that affect the performance of the manufacturing industry.
Malaysia's industrial policy must take into account the changes in the global economy, particularly China. Statistics from the World Bank suggest that Malaysia seems unable to piggyback on China's success in attracting FDI inflow compared to its peers, namely Singapore and Thailand.
As a result of high FDI inflow, two-way trade between China and Asean is increasing at double-digit growth rate year-on-year. China was the fastest growing trading partner of Asean last year.
Malaysia must find its niche in capturing the complementary benefits of China's rapid growth in trade and investment. This can be done by moving away from competing directly with China in labour-intensive exports to upgrade manufacturing technology.
This requires Malaysia to close the tap on employing low-skilled foreign workers that allows manufacturers to continue suppressing production cost.
This is crucial as wage level determines the type of labour and production value of an industry. Foreign labour now accounts for almost 21 per cent of the Malaysian workforce whereby 35 per cent of them are employed in the manufacturing sector.
Employing foreign workers is like introducing subsidies -- easy to implement but stubbornly difficult to remove. In Malaysia, employment of foreign workers is limited to a maximum of five years after which the employers must repatriate them back to their home countries. Such laws make efforts in reducing the number of foreign workers near impossible. Strict enforcement of laws alone cannot tackle the oversupply position of foreign workers, especially when they are retrenched during economic crisis.
Interventionist policies cannot exist in the environment whereby free-trade deals are increasingly becoming a popular tool for industrial development.
On one hand, interventionist policies require protectionism and government support but, on the other, FTAs liberalise them. Under FTAs, the role of developing domestic industry is left to the power of market forces and private initiative.
There are two main reasons why a free-trade deal is necessary; first: countries face intense global competition beyond trade liberalisation. And second, the private sector is unresponsive to industry-specific policies. Malaysia has to carefully strategise its FTA engagements if it wishes to continue participating in the race for FDI.
Direct government involvement in the economy is welcomed only if the private sector is incapable of encouraging investments. However, pervasive controls by the government can potentially reward unproductive economic activity, and, more often than not, punish efficiency. In other words, the price of intervention can be very high.
Failures in government intervention are not just exclusive to Malaysia but also exist among highly industrial economies. Malaysian state-owned enterprises should refrain from participating in risky business ventures that demand high rates of return. They must be transparent and accountable by conforming to the rule of law without prejudice.
The manufacturing industry is still the best engine of growth to achieve the status of high-income nation. As FDIs are indeed market-driven, future policy formulation must reflect the needs of the private sector. The manager should stay pitchside and let the players kick the ball.
New Straits Times
Wednesday 1 Mei,2013
Che'Yahya Che'Soh
Principal SMKSB@STAR
Segambut, Kuala Lumpur.
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