The future of Najibonomics

John Lee is a third-year student of economics at Dartmouth College in the United States. He has been thinking aloud since 2005 at infernalramblings.com.

 commentary: John Lee is looking in Malaysian Economy from clinical point of view., an ivy league student, what so great about this joker, as i am also an ivy league graduate, i don't go around giving advise to the PM on how to run things....he is a dozen a dime now a days... I mean, it is easier for him to comment from the outside on how Najib's team handling things back home., Najib is handling it the best he could ever be, for that i commanded him, and also, this economy is actually just came out from the stagnant economic policy of Abdullah Badawi...but one thing I couldn't agree more is that Pak Lah is the very reason why our economy has basically gone down the drain., He single handedly chase away most of the potential FDI and undone all the economic policy that Dr. Mahathir had built in 22 years... to me, Pak Lah should be held responsible for all the economic spiral downward during the "dark ages" of his administration....

MARCH 1 — The more I learn about 1 Malaysia and the Najib Razak administration, the more convinced I am that this is all just another giant farce.

I cannot tell where this perception that Najib is more competent or principled than his predecessor is coming from.

1 Malaysia is all propaganda without results, and the actions of our government show it is more concerned with a good show rather than substance.

The latest propaganda triumph of the Najib regime is an impressive 4.5 per cent economic growth rate in the last quarter of 2009.

All well and good, but as Najib himself conceded, the growth was driven by unique conditions: the holiday season drove up consumer spending to a degree we cannot expect for the other three quarters of the year, and the government also ramped up its stimulus spending to boost aggregate demand.

This is not a sustainable economic recipe; it is not real, meaningful economic growth.

The government has been running deficits like mad for years, artificially boosting demand. Now, that is fine if we are doing it to keep pace with increasing aggregate supply.

Aggregate supply hinges on natural resources, technological innovation, and capital —both capital goods, and the more intangible human capital. And Najibonomics is a complete failure on the supply side, I can tell you right now.

In terms of capital, it is no secret that net investments in Malaysia are dropping off a cliff. Until about halfway through the Abdullah Badawi administration, net investment on an annual basis was hovering somewhere near zero—that is to say, foreign investments coming in roughly equaled Malaysian investments going out.

We want a positive level of saving and investment to boost our capital stock — but in the final years of the Badawi government, and now under Prime Minister Najib, we literally have seen investment drop off a cliff.

To put this in more concrete terms, what this means is that foreigners are refusing to invest in Malaysia, and Malaysians insist on investing their money overseas.

A back of the envelope calculation suggests that last year, Malaysians invested almost as much money in the entire Australian property market alone as foreigners invested in the whole of Malaysia.

Investors, both Malaysian and foreign, have completely lost confidence in our country — nobody wants to put money in Malaysia, and so our savings are flowing out of the country, instead of being invested in local enterprise.

Even if you don’t invest directly, you are still probably being screwed. The Employees’ Provident Fund (EPF), eschewing the best practices of most other public pension funds around the world, concentrates its investments solely in Malaysia, ensuring our employees’ pensions are subject to the risk of putting all their eggs in one single basket. Worse still, the Ministry of Finance manipulates the EPF portfolio at will to artificially prop up our stock market.

In other words, our financial markets are a farce built upon the farce of the EPF.

And speaking of economic farces, only about 10 per cent of working age Malaysians, or 1.5 million people, pay taxes. This isn’t because of massive tax evasion —  it’s because only 1 out of every 10 Malaysians even earns enough to qualify for the income tax.

Even if we assume every last one of these Malaysians is a professional, square that with the 500,000 Malaysian professionals overseas. One out of every four Malaysian professionals lives and works abroad —  our human capital stock stands at only 75 per cent of its full potential, and it is falling; last year, the emigration rate nearly doubled.

At home, our schools and universities are not training high-value workers, and our economy is distorted by rent-seekers.

When my father began working as an engineer thirty years ago, his salary was in the RM1,000 to RM2,000 range. That is still the case for a young engineer starting today—despite massive inflation and rising costs of living. Things are so bad that most of these young workers —  who by right should be skilled professionals, commanding high wages —  are not even eligible to pay income tax.

It’s no wonder people are losing faith in Malaysia. We have no plan to fix our fundamentals.

Our school system discourages innovation in favour of accepting orders from above; our economic system stifles entrepreneurship in favour of corrupt rent-seeking.

Our prosperity is pump-primed by petroleum and forestry — when we run out of these resources, without any human capital or meaningful industrial enterprises, our economy will collapse.

Instead of bravely confronting these realities, Prime Minister Najib is content to proclaim our recovery from the global recession — as if all will be nice and dandy now.

He should be announcing an ambitious policy to reverse our capital outflows, reduce our dependence on natural resources, and improve our human capital.

This is a crisis in the making —  with no investment, we cannot build up our industry, and with no human capital, we cannot compete in the knowledge economy; the problem goes beyond a short-term recession.

But these things do not concern Najib’s regime.

After all, this is a regime of propaganda, not results. The government under Najib now brazenly seizes books it doesn’t like from bookstores across the country. It blatantly rewrites history by contradicting Tengku Razaleigh, who helped draw up the original petroleum royalty agreements with the states.

There is no policymaking here—just propaganda.

The Barisan Nasional government is simply a ship of fools, content to lead us to disaster. They have no vision for the country, no idea of the massive challenges we face or any intention to face such challenges to begin with.

All this government does is pat itself on the back for putting on a good show. We deserve a government which lives in reality, not the neverland of 1 Malaysia. Why is this regime of “no action, talk only” supposed to be so much better than the alternatives?

* This article is the personal opinion of the writer or publication. The blog owner does not endorse the view unless specified. To share the above article, please click the followings:

 

 

We need to sell Malaysia

by Alex Paul

FEB 8 — As you read this, 400,000 people are in danger of being made homeless by rising sea levels, but we haven’t taken much notice.

We haven’t done so because those people live in the Maldives, a small nation with no natural resources other than its (non-extractable) natural beauty. Thanks largely to global warming, the tiny collection of 26 atolls are being submerged by the rising levels of the Indian Ocean, but is struggling to get help.

In October last year, its Cabinet staged a publicity coup of sorts by holding a special meeting under water. It worked — and the Maldives got its fleeting moment of fame to highlight the impact of global warming. The gimmick is a stark demonstration of the challenges that smaller countries face in getting any meaningful international attention, even for the most pressing of issues.

Further East, another landscape change of sorts is affecting Malaysia. In the rapidly changing world map of international investment, the relatively small Malaysia is increasingly fading from prominence. This isn’t entirely its own doing — the world looks very different today than it did 10 or 15 years ago.

Gone is Malaysia’s position alongside the Asian “tigers” of East Asia, once the rising stars of the emerging markets.  In its place is an increasingly liberalised landscape dominated by the BRIC (Brazil, Russia, India and China) giants and populated by new investment destinations stretching from Turkey and Hungary in the West, to Vietnam and Indonesia in the Far East.

Malaysia’s prominence in this new environment matters because it is facing increasing competition for that all important ingredient for growth — foreign investment. Even the most avid “Malaysia Boleh” patriots amongst us should agree that its importance is vital in the development of the economy.

Malaysia, after all, serves as a testament to the positive role that foreign investment can play in the economic development of a young nation — foreign capital helped start whole new industries (from plantations to car plants) that created new jobs, imbued useful skills and transferred valuable know-how. Domestic investment and demand has yet to reach levels where they can independently sustain national growth.

The good news is that there is now more money than ever before looking for a home in the emerging markets. Investors ranging from hedge funds looking for a quick return to more traditional long-only equity funds are now allocating larger proportions of their portfolios to these markets as their clients demand a share in the economic expansion of the new world. Even the mighty Anthony Bolton, a highly respected former UK fund manager at Fidelity, has been persuaded to come out of retirement to invest the growing tide of international money looking to make a play on China’s growth.

The bad news is that despite this growth, Malaysia may not benefit if it remains passive.

The increase in quantity has not necessarily meant that there has been a corresponding growth in quality. So even as the pie has expanded, Malaysia must compete ever harder for a better slice. Some foreign capital is invested directly in actual businesses or projects and is known as Foreign Direct Investment (FDI). Other investments, categorised as Portfolio Investments, are less direct, and find a home in listed securities, whether debt or equity.

FDI is favoured because it is generally long-term in nature (what one financier I recently spoke to called “stickiness”) and often comes with non-financial benefits like a transfer of knowledge or technology. Portfolio Investments, whilst not always the case, are often short-term and is increasingly comprised of “hot money” looking to make a quick return from market imbalances or anomalies.

If Malaysia does not give itself a makeover to attract committed new capital, it will be left with short-term investments — the equivalent of speed dating in the international capital markets. International money will not invest in long-term projects in Malaysia if it perceives an opportunity to make greater returns with less risk in other markets.

In the borderless world of capital, foreign companies can still benefit from Malaysia’s markets by selling them goods made in newly-built plants in cheaper neighbouring countries whilst foreign investors can continue to cherry pick the best Malaysian companies or assets by buying listed securities.

Complicating this conundrum is Malaysia’s relatively small size.  With a population of just under 30 million (compared with the 85 million Vietnamese and 120 million Indonesians), Malaysia has a small domestic consumption market. Having benefited from a reputation of being a source of cheap, skilled labour, it is now also perceived to be a more costly investment choice than its more populous neighbours.

So how is Malaysia to compete in this new environment?

Firstly, by creating a new Malaysian story. Liberalisation for its own sake is no longer enough. Malaysia’s ability to attract new investment by opening up its economy is somewhat limited by its social priorities domestically. The new policy framework must focus on attracting quality investments by creating a set of new, attractive and sustainable economic fundamentals. A low-cost labour base is no longer relevant. Instead, the new Malaysian story must focus on its undersold and unique asset — a growing middle-class that is well educated, English speaking, and increasingly spendthrift.

Secondly, it must sell this new Malaysian story to the world. One-off gimmicks will not do the trick here. Climbing mountains or landing Proton Wiras on the North Pole to get attention isn’t just ineffective, it’s a distraction. Instead, policies must lead perception. Malaysia needs a clear, loud and constant voice on the world stage. The Ministry of International Trade and Industry currently performs that role in some guise, but it needs to increase its profile. The bureaucrats in Putrajaya could do worse than to get some help from the likes of AirAsia, Genting and YTL — all home-grown companies of international repute.

Thirdly, Malaysia must be part of the Asean story. Malaysia must push not just for regional co-operation, but for economic integration. Investors increasingly look at markets in the context of its region, both positively (as Ireland has benefited from being a member of the EU) and negatively (as some Gulf states have suffered as a result of bad news emanating from Dubai).

Individually, Asean nations are simply not large enough to attract sufficient international attention. But as an economic bloc representing some 600 million consumers, its place on the world map will grow in prominence. If Asean moves from being a diplomatic platform to a more open and integrated market, the region will go from being a “nice to have” to a “must have” for international investors.

These actions are nothing if not ambitious, but as the competitive landscape continuous to evolve, Malaysia must take immediate and bold steps or risk being submerged in the rising tide of globalisation.

* This article is the personal opinion of the writer or publication. The blog owner does not endorse the view unless specified.