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NEACNational Economic Advisory Council
New Economic Model for MalaysiaNEAC
Section ISection I
Issues and Challenges
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We Have Been in the Middle Income Trap for Quite Some TimeWe Have Been in the Middle Income Trap for Quite Some TimeHistory shows the need of a compelling reason to change is required to escapeHistory shows the need of a compelling reason to change is required to escape
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8
(USD thousand)
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22
20
2
18
16
14
12
10
0
ChileArgentina
Thailand
Slovakia
Poland
Indonesia
Malaysia
HIGH INCOMEBOUNDARY
GNI Per Capita1990 - 2008; USD thousand
Korea
Czech Rep
Source : World Bank, NEAC Analysis
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Malaysia’s Growth Trajectory Has Diverged LowerMalaysia’s Growth Trajectory Has Diverged LowerSlower growth means our aspirations will take longer to achieve all things being constantSlower growth means our aspirations will take longer to achieve all things being constant
Post-Crisis growth
gradient
Divergence
Pre-Crisis growth
gradient
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Post Asian Crisis, Our Growth Rate Has Been MediocrePost Asian Crisis, Our Growth Rate Has Been MediocreWe are no longer a clear leader in the region having lost our shineWe are no longer a clear leader in the region having lost our shine
Average annual GDP growth
7.0
1.6
2.0
2.9
3.2
5.4
5.5
6.1
7.2
8.4
8.6
9.1
11.5
Average 6.0
Japan
UK
US
Philippines
India
Thailand
Indonesia
Taiwan
S. Korea
Vietnam
Singapore
Malaysia
China
Pre-crisis1990-1997; %
1.5
2.4
2.5
3.8
4.8
4.9
5.0
5.2
5.4
5.5
7.0
7.5
10.0
Average 5.0
Japan
US
UK
Taiwan
Thailand
S. Korea
Philippines
Indonesia
Singapore
Malaysia
India
Vietnam
China
Our growth rate is now equivalent to that of our neighbouring countries
Post-crisis2000-2008; %
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Lacklustre Demand-Side Performance IndicatorsLacklustre Demand-Side Performance IndicatorsGiven the state of today, private investment is key Given the state of today, private investment is key
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Not Investment But Consumption Has Been Driving GrowthNot Investment But Consumption Has Been Driving GrowthThe private sector has taken a backseat with the government filling in the vacuumThe private sector has taken a backseat with the government filling in the vacuum
Private & Public investment as share of GDP1989-2008;%
Average annual growth1991-2006; %
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76
3
9
7
Investment
Government expenditure
Private consumption
Post-crisis2000-2006
Pre-crisis1991-1997
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Specific areas of weakness are preventing us from moving forwardSpecific areas of weakness are preventing us from moving forward- fundamental reform is long overdue- fundamental reform is long overdue
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Amidst Global Changes, Our Advantages are Being UnderminedAmidst Global Changes, Our Advantages are Being UnderminedWe must act before our position deteriorates furtherWe must act before our position deteriorates further
WE CANNOT CONTINUE AS WE ARE
Our strong position in commodities and manufacturing is being eroded
Global investment is focusing on larger scale markets, not small economies
Lack of talent and innovation, ineffective institutions and widespread corruption are barriers to growth
Intense competition in our new sources of growth e.g. medical tourism, ICT, and Islamic products and services
Our immediate neighbours have renewed vigour evidenced by growth rates; reforms are well being implemented
In the region, our economy was one of the hardest hit by the recent global crisis
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Section IISection II
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The New Economic Model
The Prime Minister’s Vision - Transforming MalaysiaThe Prime Minister’s Vision - Transforming MalaysiaThe Two Pillars of the National Transformation Programme The Two Pillars of the National Transformation Programme
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GovernmentGovernmentTransformationTransformation
Plan (GTP)Plan (GTP)
Effective Delivery of Effective Delivery of Government ServicesGovernment Services
1010th th & 11& 11thth Malaysia Plan Roll-Out Malaysia Plan Roll-OutMacroeconomic growth targets & expenditure allocationMacroeconomic growth targets & expenditure allocationImplementation of Government’s Development ProgrammesImplementation of Government’s Development Programmes
Economic Economic Transformation Transformation
Programme (ETP)Programme (ETP)
New Economic Model New Economic Model A High Income, InclusiveA High Income, InclusiveAnd Sustainable NationAnd Sustainable Nation
RakyatQuality of Life
RakyatQuality of Life
HighIncome
Inclusiveness Sustainabiliy
1Malaysia – People First, Performance Now1Malaysia – People First, Performance NowPreservation and Enhancement of Unity in DiversityPreservation and Enhancement of Unity in Diversity
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The New Economic Model (NEM) The New Economic Model (NEM) Aspirations of a united and advanced nation – The Goals to be AchievedAspirations of a united and advanced nation – The Goals to be Achieved
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RakyatQuality of Life
Targets US$15,000 - $20,000per capita by 2020
Meets present needs without compromising
future generations
Enables all communities to
fully benefit from the wealth of the country
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The GoalsThe Goals
High Income Inclusiveness SustainabilityLifting the real growth rate to an average of 6.5 % per annum over the 2011-2020 period
Enhance growth for expanding economic opportunities
Promoting sustainability through improved public financial management
Per capita GDP will rise to about USD 17,700 by 2020
Pursue equitable and fair opportunities and fairness in process
Environmental sustainability as top priority
Aggregate demand will have to grow at a robust pace
Accelerate liberalisation for growth
Will unlock the value of investment to be as a main driver of economic growth by 2020 , as well as labour productivity and efficiency
Focus on the bottom 40% of households and small business
Private consumption will rise and increase its share of GDP
Emphasis opportunities for inclusiveness
Public consumption will slow down Stress knowledge creation and the knowledge economy
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Section IIISection III
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The Economic Transformation Programme (ETP)
Middle Income
Trap
1.1. Re-energising the Private SectorRe-energising the Private Sector
2.2. Developing Quality Workforce Developing Quality Workforce and Reducing Dependency on and Reducing Dependency on Foreign Labour Foreign Labour
3.3. Creating a Competitive Domestic Creating a Competitive Domestic EconomyEconomy
4.4. Strengthening of the Public Sector Strengthening of the Public Sector
5.5. Transparent and Market friendly Transparent and Market friendly Affirmative ActionAffirmative Action
6.6. Building the knowledge base Building the knowledge base infrastructureinfrastructure
7.7. Enhancing the Sources of GrowthEnhancing the Sources of Growth
8.8. Ensuring Sustainability of GrowthEnsuring Sustainability of Growth
Feedback: Review, Revise
Break logjam of Break logjam of vested interests vested interests through political through political will and leadershipwill and leadership
Prepare Rakyat for Prepare Rakyat for changechange
The Economic Transformation Programme (ETP)The Economic Transformation Programme (ETP)The reforms required to escape the middle income trapThe reforms required to escape the middle income trap
Risk
Coherent “big push” to boost transformation and growth
RakyatQuality of Life
RakyatQuality of Life
HighIncome
Inclusive-ness
Sustain-ability
Enabling Actions Strategic Reform Initiatives Outcomes
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Economic Transformation Requires Tough Decisions and Bold MeasuresEconomic Transformation Requires Tough Decisions and Bold MeasuresHow far are we willing to go in the reforms?How far are we willing to go in the reforms?
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Five (5) Selected Tough Decisions To Be Made
Restoring market prices for goods and services will improve economic efficiency but but may initially raise consumer prices and costs of doing businessmay initially raise consumer prices and costs of doing business
Practices that promote fair and equal opportunity will inspire market confidence and create a competitive economy but may lead to political repercussions but may lead to political repercussions
Reduced dependence on foreign labour encourages firms to move up the value chain or embrace automation while those that cannot will exit, costing some local jobswhile those that cannot will exit, costing some local jobs
Flexible hiring and firing reduces entry and exit costs for businesses while wage levels will better reflect skills; but the perception of less job security will irk unions but the perception of less job security will irk unions
Greater decentralisation in decision making to achieve speedier implementation and effectiveness but may require some delegation of authoritybut may require some delegation of authority
THERE MUST BE A CHANGE IN MINDSET AND POLITICAL WILL
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Eight (8) Strategic Reform Initiatives (SRIs)Eight (8) Strategic Reform Initiatives (SRIs)All SRIs have cross-cutting impact over all sectorsAll SRIs have cross-cutting impact over all sectors
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8
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2
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6 4
5
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Re-energising the private sector
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Developing a quality workforce and reducing dependency on foreign labour
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Creating a competitive domestic economy
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Strengthening the public sector
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Transparent and market-friendly affirmative action
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Building the knowledge base and infrastructure
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Enhancing the sources of growth
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Ensuring sustainability of growth
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Section IVSection IV
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What’s next from the NEAC?
NEAC Part 2 : Policy Measures and Implementation FrameworkNEAC Part 2 : Policy Measures and Implementation FrameworkParticipation of stakeholders to ensure ownership and buy-in on detailed actionsParticipation of stakeholders to ensure ownership and buy-in on detailed actions
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NEAC Part 2: Policy Measures and Implementation Framework Planning NEAC Part 2: Policy Measures and Implementation Framework Planning
Current Reform Initiatives already announced: Light the Fuse for Momentum
NEAC Task Forces on SRIs for Policy MeasuresAnd Implementation Framework Planning
NEAC input for 10th MP
NEMLaunch by
Prime Minister
10th Malaysia Plan
Launch
Endorsement ofETP Implementation
Plan
Roll-out ETP policy measures
NEAC Continuous Engagement of Ministries and Stakeholders
PublicConsultation
www.neac.gov.my
www.neac.gov.myNational Economic Advisory Council
RakyatQuality of Life
Targets Targets USD15,000 - USD20,000USD15,000 - USD20,000
per capita by 2020per capita by 2020
MeetsMeetspresent needs present needs
without without compromising compromising
future future generationsgenerations
Enables all Enables all communities to communities to
fully benefit fully benefit from the from the
wealth of the wealth of the countrycountry
New Economic ModelNew Economic Model(NEM)(NEM)
Economic Transformation Programme Economic Transformation Programme (ETP)(ETP)
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End
