Malaysia - Economic Outlook and measures needed

Malaysia’s growth has slowed down to half of what it was before in the past 10 years because of a loss of private investor confidence, said Prof Dato’ Woo Wing Thye.

Prof Woo highlights the loss of investor confidence in Malaysia.

Prof Woo highlights the loss of investor confidence in Malaysia.

He was speaking at the ‘Penang in Asia’ Lecture series on ‘The World Economy in 2012: Implications for Malaysia’ organised by the Socio-Economic and Environmental Research Institute (SERI) at the main campus, attended by about 100 people.

He highlighted that since 2000, private investment – the sum of FDI, truly domestic investment, and government-linked companies - has gone down and is less than public investment, and that Malaysia cannot grow unless private investment confidence is restored.

Prof Woo said that FDI to Malaysia has decreased due to: cheaper labour in China; inadequate local human capital; immigration policy that favours inflow of low-skilled labour; and Malaysia being placed in a high-risk category by the US and Western Europe since 2001 because of the world’s fear of Muslim fundamentalism and incidences that project a non-tolerant situation in Malaysia.

Prof Woo speaks about the economic outlook for the country.

Prof Woo speaks about the economic outlook for the country.

Another reason for declining investments is the discrimination against domestic investors, leading to the flight of world-class Malaysian firms and capital abroad. He said the NEP-raced based promotion and university acceptance also led to the migration of educated manpower.  ‘These internal weaknesses had been masked by massive FDI, but the moment the FDI slowed down, the lack of domestic capital and domestic technical skills were felt,” he explained.

The third reason for the low investments in Malaysia is the mismanagement of government-linked companies which depleted their funds.

“Reviving the growth of Malaysia is more than reviving FDI flow but to revive investment by domestic businesses. This is where the NEP has run its course,’ he said, adding that Malaysia must change accordingly to compete internationally.

He said Malaysia must develop into a knowledge-based society and move up on the value-added chain, producing more skilled workers, “So the whole new Malaysian Policy Framework is to mobilise and increase private domestic investment. FDI will come if we are able to have a higher level of human capital, and this will help us move up the value-added chain,” he said.

Hamdan Majeed (left) of Khazanah Nasional Bhd chairs the Q&A.

Hamdan Majeed (left) of Khazanah Nasional Bhd chairs the Q&A.

To the question on what to expect for Penang in the next decade, Prof Woo said Penang should continue the movement up the ladder in the electronics sector but the new area would be services. “Penang is a great place for institutions of higher education and high schools for the region. This is a place where people in China are happy to send to educate in English. So it can be an education hub.”

He said in order to have good institutions of higher education, the nation’s human capital development should be high. “So we should do everything possible we can to stop the brain drain; the government should abandon the NEP in favour of normal policies.”

Prof Woo is a Professor of Economics at the University of California at Davis, and also chairs the state’s international and economic advisory pane.