Monday, November 19, 2007

Not Running Fast Enough

I've been wanting to blog about this for a while, but never got round to doing it ;-). For a couple of dinners and ceramahs, I've been presenting my Powerpoint slides to give an overview of the state of the Malaysian economy. After all, as the economic advisor to the party's secretary-general, so I had better know my stuff. ;-)

So I'm extremely thankful to Dr K J John who picked up from my speech and presentation at the DAP Petaling Jaya fund raising dinner on the 1st November and wrote about the general state of the Malaysian economy in his regular column in Malaysiakini two weeks back. Saved me a little trouble from doing the write up myself, heh heh.

One of the key points of the dinner to press home the point that our economy is clearly underperforming its potential. All the Barisan Nasional government mouthpieces will tell you is that the economy is "growing", but they don't tell you that we are going much slower than our competitors in the region.

Have a look at the GDP per capita (US$) comparison chart below:

Back in 1966, 10 years after achieving independence, we were regarded as a wealthy country. In fact, our GDP per capita was nearly 3 times that of South Korea's at US$350 versus US$130. Our football team was also probably much stronger as well ;).

However, shortly within 24 years, South Korea's economy caught up and match ours at US$1900 per capita in 1990. And just like an inevitable script, both South Korea's economy as well as its football team trashed us by 2004. South Korea's GDP per capita at US$16,000 is now more than triple that of an average Malaysian at US$5,000. Of course, while our football team is now ranked 140+ in the world, South Korea qualified for the World Cup semi-finals in 2004.

The same story can be repeated with other countries like Taiwan or Singapore (needless to say). Will the story be repeated in the next decade with our other competitors like Thailand, Vietnam or Indonesia?

Looking purely at Foreign Direct Investment (FDI) data, this certainly looks like a real possibility. You will remember just about 2 months ago, the local mainstream media trumpeted the fact that Malaysia achieved a 10 year record of US$6 billion in FDI. It is a relief that the decline in FDI has stalled at least for 2006, however, FDI data cannot be read without putting it in the global context. Globally, FDI has increased tremendously over the past 4-5 years, while Malaysia has benefited little from it.

Let's take a look at the table below which compares the FDI received by Malaysia and Thailand over the past decade.

It is clear that in the mid-1990s, Malaysia consistently out-attracted our northern neighbours in terms of FDI. However, over the past 6 years, Thailand has beaten us for 5 years, with increasing margins! And it doesn't look as if we will be able to overhaul Thailand's achievement any time soon as well... Indonesia beat us last year for FDI for the first time in history. We managed to scrape past them marginally this year. But it is sad that we have now been relegated to a lower division to compete with countries which in the past, were substantially behind Malaysia in terms of development.

To quote Dr John:
I dare not look at the FDI figures for Vietnam but seriously suspect that if they have not overtaken us they will do so in the not so distant future; simply because their labour and land costs are much lower. We should not even think about Indonesia; for, as their political stability improves, their investments in oil palm and manufacturing might help them overtake us.
The only reason why we have managed to stay respectably afloat in the past decade, and particularly in the past few years, has been the fact that Malaysia has been blessed with oil and gas. The revenues from oil and gas has allowed us to mask the failures and weaknesses in the other sectors of our economy. I've written extensively about it here.

The question then is, will things fall apart once our oil lottery money runs out - which it will, not too far in the near future?
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