2nd OECD-AMRO Joint Asian Regional Roundtable

By Allauddin Hj. Anuar Economic Planning Unit, Prime Minister’s Department, Malaysia 19th July 2013

1

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2008

2007

2009

2010

2011

GNI Per capita income (USD) GNI Per capita income by countries, 1987 - 2011

High incomeUpper middle incomeLower middle incomeLow income

Singapore

Korea

Mexico

Malaysia

USA

East Asia Developing

World

Malaysia has been in the upper middle income league since 1988, but has yet to transform into high income country status…

2

Slower Growth Post Asian Crisis

Relatively Slow Growth in Recent Years

"Stuck in the Middle"

7.4

7.3

7.3

6.8

6.3

4.2

5.0

5.6

2.9

3.3

2.5

1.5

0

Japan

UK

US

Philippines

India

Thailand

Indonesia

Taiwan

Korea

Vietnam

% 8 6 4 2 10

Malaysia

Singapore

China 9.8

1 3 5 7 9

GDP growth 1990-2000*

5.1

4.2

6.6

3.8

3.5

4.7

3.9

6.8

4.3

1.4

1.5

0.7

0 2 4 6 8 10%

9.5

GDP growth 2000-2010* 3rd highest growth

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

1970 1975 1980 1985 1990 1995 2000 2005 2010

Vietnam

Thailand

Taiwan South Korea

Singapore

Philippines

Malaysia

Japan

Indonesia

Hong Kong

China

USD GDP/capita 1970: 2010 (PPP)**

1997 crisis Sources: * World Economic Outlook Database, April 2012 ** The Conference Board Total Economy Database™, January 2012, http://www.conference-board.org/data/economydatabase/

7th highest growth

Asian Financial Crisis 1997/1998

3

0

5

10

15

20

25

30

35

PrivatePublic

• … largely due to a decline in private investment

Private and public investment, percent of GDP

% Percentage

Private Investment Declined Significantly After the Asian Financial Crisis 1997/1998...

-15

-10

-5

0

5

10

15

20

1995 2000 2005 2010 2011

Private saving minus investment

Public saving minus investment

% Percentage

• Savings exceed investments by significant amounts….

Balance as percent of GNP

4

Productivity-led growth yet to gain its momentum

37.8 34.5 37.5 17.4 46.9 45.4 57.3 58.2

33.2 30.8 24.0

29.0 34.7 38.5 53.1 54.6

42.7 41.8 58.7

100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

8th MP 9th MP 10th MP JAPAN Korea S'pore UK USA

%

Source: EPU, EIU

Slow progress in contribution of TFP to economic growth, low compared to the high-income economies

The economy still highly dependent on traditional factor inputs, i.e. labour and capital

(2011-2015) (2006-2010) (2001-2005)

TFP

L

K

5

TFP

K + L

(2006-2010)

Low R&D Expenditure in the Economy… R&D Expenditure, % of GDP

Source : World Development Indicator, World Bank Note: *2010 6

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1.7

3.4

3.7

1.1

2.4

2.9

1.8

2.2 2.5

1.5 1996

2000

2005

2009

• R&D expenditure recorded at only 1.06% of GDP in 2010, lower than Developing Asia & Pacific average

Note LowSec=PMR, UpSec=SPM, PostSec=STPM, Tertiary=Diploma, degree Source: Department of Statistics, Korea IntenationaLabor Organisation, Taiwan Department of Statistics

7

Workforce today still relatively unskilled . . .

77% of workforce educated up to SPM or equivalent only

%

4

1998

4

2001

3

2007

4

LowSec

Primary

4 None 2009

0

Tertiary 100

PostSec

20

UpSec

40

60

80

1990 0

100

20

40

60

80

%

3%

9%

5%

1%

0%

-3%

5.7%

5.0%

2.6%

2.9%

CAGR ’90 – ‘07

Singapore 1997

Singapore 2008

Taiwan 2007

Korea 2007

0

100

20

40

60

80

% CAGR

’98 – ‘07

Tertiary

PostSec

UpSec

LowSec

Primary

None

Unskilled

Semi-skilled

Skilled

77% 28%

Management & professionals Semi and

unskilled

Management, professional and other skilled

Only 28% of Malaysian jobs are in

the higher skilled bracket

Developed economies have significantly higher proportion

of higher skilled jobs

2009 2007

Developing & retaining a first-world talent base

Skilled2 labour force Percentage, 2008

SOURCE: World Bank Education Statistics, Economic Intelligence Agency, International Labour Organisation, Korea Ministry of Labour, Singapore Ministry of Manpower, US Bureau of Labour Statistics 8

Malaysia needs to close the gap to achieve the characteristics of a First-World Talent Base

1 Adjusted to Purchasing Power Parity 2 Management, professional and other skilled occupations 3 Tertiary education is the educational level following the completion of secondary education, i.e. after 11-12 years of basic schooling. Colleges, universities, institutes of

technology and polytechnics are the main institutions that provide tertiary education

Malaysia (2009) S’pore

Korea

Finland

USA

Australia

UK

H.Kong

Country

OECD average = 37.6

36.0

42.5

42.9

36.3

43.8

29.3

51.0

28.0

Labour force with tertiary education3

Percentage, 2007

OECD average = 27.4

25.6

31.9

32.7

34.1

34.8

35.0

35.9

23.4

Labour productivity US$ PPP1 ’000 per employee, 2009

67.2

71.7

92.9

66.5

52.9

60.8

26.6

OECD average = 64.8

78.6

Economic Agenda

Different approach

Concentrated growth strategy Import Talent

Home-grown talent

TEVT

Autonomy to universities

Reform labour law

Multiple Angles

New Approach

Inclusiveness

Well-being and liveability

Environmental Sustainability

Good governance Efficient, dynamic & responsive government Smart partnerships

Moving towards inclusive socio-

economic development ~ ensure income &

wealth are distributed in an equitable

manner

Building an environment that enhances quality of life ~ raise the quality of life of the rakyat commensurating with high income status

Developing & retaining a first- world talent base

~ develop, attract & pertain quality human capital

Creating the environment to unleash economic growth ~ foster economic growth with the private sector as main engine driver High-

Income Advanced Economy

The Transformation Agenda

9

1 2

4 3

0

2

4

6

8

10

12

14

16

18

20

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

USD

$ (T

hous

and)

Malaysia

Minimum HIC

-68.9%

Malaysia is on track towards a High Income Country

GNI per capita income (USD$)

Note: Minimun HIC year 2020, estimates: USD$15,300 Sources: World Bank, IHS Global Insight & EPU

2018 USD$15,398

2000 USD$3,420

2010 USD$8,346

2020 USD$17,378

1990 USD$2,370

2013 USD$10,687

1990 USD$7,621

2000 USD$9,266

2010 USD$12,276

-63.1%

-32.0%

2013 USD$13,172

-18.9%

2020 USD$15,280

10

GNI per Capita*

2010 2012 2013 2015 2020 2010 2012 2013 2015 2020

RM33,010 (USD10,687)

Long-term Targets 2011-2020

Real GDP

* At current price

RM26,882 (USD8,346)

RM30,812 (USD9,976)

RM38,237 (USD12,379)

11

RM890.0b

RM749.1b

RM789.9b

RM674.9b

RM1,150.0b

RM53,300 (USD17,400)

12

Linked-Charts

13

WHERE WE ARE HEADING…. Economic agenda -private sector led ~ Creating the environment for unleashing economic growth ~ enhancing the role of financial sector -innovation ~ ensure that Malaysia becomes an efficient, flexible, and

vibrant business environment -role of government in business ~ as facilitator

Need a different approach -review of business regulation ~ Modern & market friendly business

regulation -remove subsidies ~ Remove market distortions -introduce competition law ~govern all firms including GLCs against anti-

competitive practices

The Pillar for Transformation

Continue… 14

- National Key Economic Areas

15

Concentrated growth strategy

16

Early childhood

Pre-school Basic education

Tertiary ▪ University / Colleges ▪ Polytechnic ▪ Community colleges ▪ TEVT

Professional working life

Retirees/ Second career

Themes ▪ Mainstreaming and broadening TEVT

▪ Enhancing the competency of tertiary graduates

▪ Accelerating labour reform ▪ Attracting & retaining top

talent ▪ Upgrading existing talent

pool

Integrated Talent Development

Ages 0+ 4+ 6+ 17+ 20+

Revamping education system to significantly raise student outcomes

Raising skills to increase employability

Reforming labour market to transform M’sia into a high-income nation

SOURCES: EPU

▪ Ensuring every child succeeds ▪ Holding schools accountable for

outcomes ▪ Investing in great leaders for schools ▪ Attracting and developing the best

teachers

1 2 3

Integrated Human Capital and Talent Development Framework for Malaysia

Nurturing, attracting and retaining top talent

Principles of new approach to affirmative action

▪ New affirmative action instruments will allow resources to be optimally allocated and will not cause, contribute or perpetuate economic distortions

Market-friendly

Needs-based ▪ Households in the Bottom 40% of income

distribution including specific disadvantaged groups with clear needs will be targeted

Merit-based ▪ Programs will encourage competition and

award opportunities to the most qualified individuals and businesses

Transparent ▪ Policies, procedures, and criteria will be

made clear and public

Multiple angles in addressing inclusiveness

1Malaysia perspective

Aim to provide all Malaysians with equitable opportunities to participate in economic growth

Social perspective

Ensure that disadvantaged groups are supported to be active participants in society & where necessary, adequately assisted to raise their quality of life

Geographic perspective

Regardless of location, citizens will be able to enjoy equitable access to basic infrastructure & services

Income perspective

Focus on households in the Bottom 40% income group to enable their income to move in line with mean national income

Inclusive Development

The new approach to addressing inclusiveness will require re-orientation of affirmative action instruments

Ensuring equality of opportunities & safeguarding the vulnerable

17

People-centric public transport system - to make public transport an attractive mode of choice

Public transport

Transforming healthcare to improve quality and universal access. – emphasises on wellness & disease prevention Health

Access to quality and affordable housing - matching demand & supply for affordable housing, & promoting an efficient & sustainable housing industry

Housing

Provision of efficient public utilities & essential services - driving efficiency & productivity gains in the provision of reliable services

Public utilities

Making our streets and communities safer. Reducing crime & improving people’s sense of security Safety

Valuing the nation’s environmental endowments - prudent management & conservation of existing resources Environment

Living spaces Vibrant and attractive living spaces - to live, work and play with a focus on cities

Building an environment that enhances quality of life

18

The Financial Sector as An Enabler Towards Achieving High Income Country

19

• Main objectives are being to achieve sustainable growth and development, as well as overall prosperity

• Banking institutions as the backbone of the financial system, while insurance and other specialized institutions and the capital market will increase in importance

• New growth areas, increased role of SMEs will demand wider range of specialised products & services

• As domestic corporates expanding, regionally & globally, more capital investment in technology will be required to increase productivity – increase in demand of long-term financing

• Trade financing facilities demand to finance the expansion in the international trade and cross border activities

• Financing needs to cater the physical infrastructures development Continue…

The Malaysia’s Financial Sector Masterplan

20

Financial Sector

Efficiency

Effectiveness

Stability

Prudential

Infrastructure

• Greater penetration of efficient & low cost delivery channels

• Scale advantages in operation • Leveraging on world-class skills • Greater investment in technology & skill

enhancements

• Broaden range of products & services to meet the needs of customers

• Financial innovation • Innovation & conducive operational

environment

• Sound & stable financial system to withstand economic and financial shocks

• Efficient, effective & robust financial institutions, strong prudential regulations & supervision, and efficient & reliable infrastructure

• Effective prudential regulations & supervision, amid providing an conducive environment to development of efficient & innovative financial system

• Strong infrastructure the backbone to the overall stability of the financial system