Whither the reforms in the ETP?
The government has recently announced the launching of the Economic Transformation Programme or ETP which is part of the New Economic Model (NEM) on Sept 21.
I congratulate the government for introducing a comprehensive economic development plan that aims to position Malaysia as a high-income economy by 2020.
However, I wish to ask a few questions from a layperson's understanding of the economy to seek clarification on the eventual implementation of the plan and to obtain answers to the many challenges and contradictions facing us today.
Gross National Income (GNI) projections
Overall, the country's GNI is projected to grow to at least RM 1.7 trillion (US$523 billion) from RM660 billion (US$188 billion) in 2009 (using RM3.25 to US$1 exchange rate) for a 178% growth over 10 years (2010-2020).
What is the impact to the GNI projections if the Ringgit weakens to RM3.50 and above per US$1?
Will floating the ringgit help in meeting the exchange rate needed to achieve the GNI targets?
6% annual growth rate target
This would require a 6% annual growth rate for 10 years (2010-2020). However, from 2000 until 2010, Malaysia's average annual GDP Growth was 4.72%.
How are we going to maintain a 6% annual growth rate for the next 10 years with the predicted global economy remaining weak as compared to the preceding 10 year annual average of 4.72% when the global economy was relatively strong (except for the 2008 financial meltdown)?
ETP's GNI growth contribution target
The ETP projects will provide RM1.258 trillion (US$387 billion) or 74% of the country's GNI of RM 1.7 trillion (US$523 billion) by 2020. The remaining 26% is expected to come from non-ETP project sectors.
The ETP projects are part of the 11 NKEAs. The four largest NKEAs (oil, gas and energy, financial services, palm oil and wholesale and retail) are projected to generate 60% of the 78% ETP based projects incremental GNI growth from the 11 NKEA sectors.
What will be the impact on GNI targets if commodity prices (oil, gas, energy, palm oil) that are the two main NKEAs become lower during the 10 year ETP period?
GNI per capita target
GNI per capita will reach above RM48,000 by 2020 from RM23,700 in 2009, for an increase of 102% over ten years. For context, the income distribution schedule indicates that there are 5.8 million households in 2007. Of that, 8.6% have an monthly income below RM1,000, 29.4% had between RM1,000 and RM2,000, while 19.8% earned between RM2,001 and RM3,000; 12.9% of the households earned between RM3,001 and RM4,000 and 8.6% between RM4,001 and RM5,000. Finally, around 15.8% of the households have an income of between RM5,001 and RM10,000 and 4.9% have an income of RM10,000 and above.
Furthermore, increased GNI per capita should take into account the real cost of living situation faced by ordinary Malaysians.
In the 1970s a car may cost only RM7,000 but today it is at least RM45,000. A comfortable house in the 1970s may cost RM50,000 compared to today's RM350,000. A basic meal in the 1970s may cost RM1 but it is RM5 now. And the starting salary in the 1970s would be RM1,200 compared to RM2,000 today. And it can be assumed that even with the doubling or tripling of average salaries by 2020, the cost of the above items may have also doubled or even tripled likewise due to inflation.
ETP workforce requirement
ETP will create 3.3 million new 'middle class' jobs, of which half will require diploma or vocational qualifications. However, we can find that the quality of our workforce is based on the following characteristics:
This makes accessibility and affordability for quality education (only 4% of private institutions compared to 33% of public institution's academic staff has a PhD) a challenge in producing an educated workforce.
Furthermore, with 70% of public institutions' enrolment made up of bumiputeras while 95% of private institutions enrolment are non-bumiputeras, unless more proactive measures are taken, such as more scholarships (not PTPTN loans) and drastic investments along with improvements in primary and secondary education are taken, racial disparity in education will create its own set of challenges.
ETP's innovation key success factor
Innovation is one of the most critical factors to move up the economic value-chain and escape the 'middle income trap'.
However, Malaysia currently has a low research and development (R&D) capacity based on the following statistics:
The ETP requires investments worth RM1.376 trillion (US$444 billion) over 10 years (2010-2020) for the following projects:
Who are the real beneficiaries of the ETP and NEM?
Based on our past 'national expenditure pricing' experience, could we assume that the following breakdown of the total investment amount of RM1.376 trillion (RM 1,376,000,000,000,000) will be as follows:
Legal fees: (2%) RM27.52 billion; consultancy fees (8%) RM110.08billion; facilitation fees (10%) RM137.6 billion; overpricing costs (30%) RM 412.8 billion
Does this mean that the total fees and costs payable of RM 688 billion or 50% of the investment total is to be considered as a normal economic leakage, leaving the remaining 50% to actually be invested in the ETP projects?
Who will ETP's burdens fall on?
If the RM 1.376 trillion ETP investment amount requires a return on investment of 10%, then annually after 2011, the ETPs need profits-after-tax of RM137 billion. Based on a 20% profit margin, this means the entire entry point projects and business opportunities entities must generate RM685 billion in annual gross revenues.
Does this mean in 2020, the 30 million Malaysians must spend at least 80% (with the balance 20% being spending by foreigners as tourist or as importers) - which would be RM22,933 per capita, that is, 47% of the RM48,750 high-income GNI per capita target - to meet the ETP's gross revenue needs of RM685 billion annually just to remain viable?
What about a political reformation programme?
It would appear from this enquiry that the rewards for the ETP will benefit the few while the risk and true cost as always will be shared by the rakyat.
As I said earlier, that the government's comprehensive economic development plan is commendable BUT if the government is sincere in making it a reality to benefit all Malaysians, then immediately, a fifth pillar to the National Transformation Agenda must be added which is a Political Reformation Plan (PRP) which would also be the 'Political Contract' that complements the 'Social Contract' of our country.
The Political Reformation Plan or 'Political Contract' would include repealing all anti-democratic laws, respecting separation of powers, reforming national elections and restoring local government elections, returning the judiciary's and other state institution's independence, fighting corruption, ensuring a free media and by abiding to the true meaning of our constitution, then and only then, will the economic transformation plan become a resounding success for a Better Malaysia.
Isn't that so? Hidup Malaysia!
NURUL IZZAH ANWAR is the MP for Lembah Pantai.
I congratulate the government for introducing a comprehensive economic development plan that aims to position Malaysia as a high-income economy by 2020.
However, I wish to ask a few questions from a layperson's understanding of the economy to seek clarification on the eventual implementation of the plan and to obtain answers to the many challenges and contradictions facing us today.
Gross National Income (GNI) projections
Overall, the country's GNI is projected to grow to at least RM 1.7 trillion (US$523 billion) from RM660 billion (US$188 billion) in 2009 (using RM3.25 to US$1 exchange rate) for a 178% growth over 10 years (2010-2020).
What is the impact to the GNI projections if the Ringgit weakens to RM3.50 and above per US$1?
Will floating the ringgit help in meeting the exchange rate needed to achieve the GNI targets?
6% annual growth rate target
This would require a 6% annual growth rate for 10 years (2010-2020). However, from 2000 until 2010, Malaysia's average annual GDP Growth was 4.72%.
How are we going to maintain a 6% annual growth rate for the next 10 years with the predicted global economy remaining weak as compared to the preceding 10 year annual average of 4.72% when the global economy was relatively strong (except for the 2008 financial meltdown)?
ETP's GNI growth contribution target
The ETP projects will provide RM1.258 trillion (US$387 billion) or 74% of the country's GNI of RM 1.7 trillion (US$523 billion) by 2020. The remaining 26% is expected to come from non-ETP project sectors.
The ETP projects are part of the 11 NKEAs. The four largest NKEAs (oil, gas and energy, financial services, palm oil and wholesale and retail) are projected to generate 60% of the 78% ETP based projects incremental GNI growth from the 11 NKEA sectors.What will be the impact on GNI targets if commodity prices (oil, gas, energy, palm oil) that are the two main NKEAs become lower during the 10 year ETP period?
GNI per capita target
GNI per capita will reach above RM48,000 by 2020 from RM23,700 in 2009, for an increase of 102% over ten years. For context, the income distribution schedule indicates that there are 5.8 million households in 2007. Of that, 8.6% have an monthly income below RM1,000, 29.4% had between RM1,000 and RM2,000, while 19.8% earned between RM2,001 and RM3,000; 12.9% of the households earned between RM3,001 and RM4,000 and 8.6% between RM4,001 and RM5,000. Finally, around 15.8% of the households have an income of between RM5,001 and RM10,000 and 4.9% have an income of RM10,000 and above.
Furthermore, increased GNI per capita should take into account the real cost of living situation faced by ordinary Malaysians.
In the 1970s a car may cost only RM7,000 but today it is at least RM45,000. A comfortable house in the 1970s may cost RM50,000 compared to today's RM350,000. A basic meal in the 1970s may cost RM1 but it is RM5 now. And the starting salary in the 1970s would be RM1,200 compared to RM2,000 today. And it can be assumed that even with the doubling or tripling of average salaries by 2020, the cost of the above items may have also doubled or even tripled likewise due to inflation.
ETP workforce requirement
ETP will create 3.3 million new 'middle class' jobs, of which half will require diploma or vocational qualifications. However, we can find that the quality of our workforce is based on the following characteristics:
- 30% of Malaysians obtained higher education qualifications (2005), compared to Singapore's 46%, Thailand's 41% and South Korea's 89%;
- 80% of our workforce have only received secondary level (SPM) education (2007);
- Only 25% of our workers are high skilled (2007), compared to Singapore where 49% are highly-skilled, Taiwan 33% and South Korea's 35%;
- Workforce productivity for Malaysian labour is an average of 2.9% (1998-2007), compared to China's 9.2%, India's 4.4%, Thailand 3.1% and Indonesia's 3% labour productivity for the same period.
- Inefficient education services delivery: In 2007, the percentage of Malaysia education expenditure as % of GDP was a high 4.5%, compared to the Philippines' 2.6%, Singapore's 2.8%, Hong Kong's 3.3% and South Korea's 4.2%.
- Rising tertiary education costs, lower education quality: Malaysia has 20 public universities and 627 institutes of higher learning. Under the 10MP, selected public universities will be corporatised and combined with private institutions of higher learning, the fee-paying structure will see fees increase from an average of RM10,000 to RM50,000 per student and it is projected that 90% of tertiary education students will enrol not in public but private institutions.
This makes accessibility and affordability for quality education (only 4% of private institutions compared to 33% of public institution's academic staff has a PhD) a challenge in producing an educated workforce. Furthermore, with 70% of public institutions' enrolment made up of bumiputeras while 95% of private institutions enrolment are non-bumiputeras, unless more proactive measures are taken, such as more scholarships (not PTPTN loans) and drastic investments along with improvements in primary and secondary education are taken, racial disparity in education will create its own set of challenges.
ETP's innovation key success factor
Innovation is one of the most critical factors to move up the economic value-chain and escape the 'middle income trap'.
However, Malaysia currently has a low research and development (R&D) capacity based on the following statistics:
- 2006 World Bank data indicates that Malaysia's R&D expenditure was 0.6 % of GDP, compared to South Korea's 3.2%, Singapore's 2.3%, Australia's 2.2% and China's 1.4%. Malaysia has a lot more to do to prioritise its spending.
- Based on the number of R&D researchers per million population, Malaysia had 372 researchers per million population. While South Korea had 4,187 per million, Singapore had 5,736, Australia 4,231 and China 927 per million population. Malaysia has to prioritise its human capital development.
The ETP requires investments worth RM1.376 trillion (US$444 billion) over 10 years (2010-2020) for the following projects:
- 133 Entry Point Projects (EPPs)
- 60 Business Opportunities (BOs)
- 60 percent private sector or RM825.6 billion
- 32 percent government-linked companies or RM440.32 billion
- 8 percent government or RM96 billion
- In the past 10 years, private companies invested just RM535 billion. Malaysia's private investment rate of around 10% of GDP is among the lowest in Asia;
- The World Foreign Investment Report (WIR) 2010 showed that FDI in Malaysia plunged 81 percent last year, trailing behind the Philippines, Vietnam, Thailand, Indonesia and Singapore. The Philippines attracted US$1.95 billion (RM6.24 billion) in FDI compared to Malaysia's US$1.38 billion, while Singapore received more than US$16 billion.
- National debt has reached 53% of GDP which is an unsustainable level. According to Idris Jala the government debt stands at RM362 billion and rising, and may reach RM1.158 trillion by 2019 with the possibility that Malaysia may go bankrupt like Greece.
Who are the real beneficiaries of the ETP and NEM?
Based on our past 'national expenditure pricing' experience, could we assume that the following breakdown of the total investment amount of RM1.376 trillion (RM 1,376,000,000,000,000) will be as follows:
Legal fees: (2%) RM27.52 billion; consultancy fees (8%) RM110.08billion; facilitation fees (10%) RM137.6 billion; overpricing costs (30%) RM 412.8 billionDoes this mean that the total fees and costs payable of RM 688 billion or 50% of the investment total is to be considered as a normal economic leakage, leaving the remaining 50% to actually be invested in the ETP projects?
Who will ETP's burdens fall on?
If the RM 1.376 trillion ETP investment amount requires a return on investment of 10%, then annually after 2011, the ETPs need profits-after-tax of RM137 billion. Based on a 20% profit margin, this means the entire entry point projects and business opportunities entities must generate RM685 billion in annual gross revenues.
Does this mean in 2020, the 30 million Malaysians must spend at least 80% (with the balance 20% being spending by foreigners as tourist or as importers) - which would be RM22,933 per capita, that is, 47% of the RM48,750 high-income GNI per capita target - to meet the ETP's gross revenue needs of RM685 billion annually just to remain viable?
What about a political reformation programme?
It would appear from this enquiry that the rewards for the ETP will benefit the few while the risk and true cost as always will be shared by the rakyat.
As I said earlier, that the government's comprehensive economic development plan is commendable BUT if the government is sincere in making it a reality to benefit all Malaysians, then immediately, a fifth pillar to the National Transformation Agenda must be added which is a Political Reformation Plan (PRP) which would also be the 'Political Contract' that complements the 'Social Contract' of our country.
The Political Reformation Plan or 'Political Contract' would include repealing all anti-democratic laws, respecting separation of powers, reforming national elections and restoring local government elections, returning the judiciary's and other state institution's independence, fighting corruption, ensuring a free media and by abiding to the true meaning of our constitution, then and only then, will the economic transformation plan become a resounding success for a Better Malaysia.
Isn't that so? Hidup Malaysia!
NURUL IZZAH ANWAR is the MP for Lembah Pantai.
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