Thursday, April 01, 2010

Initial Comments on New Economic Model

The New Economic Model (NEM) reads like continuity, short on the much needed “transformation”

The much anticipated “New Economic Model” (NEM) which has been much touted as the key pillar for change by the Prime Minister, Datuk Seri Najib Abdul Razak has been announced this morning.

Unfortunately, with all the hype created prior to the announcement, interested Malaysians and foreign investors are set up for disappointment. This cannot be clearer than the report yesterday by Reuters, which said
“According to a draft of the plans seen by Reuters, there are no firm measures to be announced, just a raft of ambitions for growth and to re-orient the Malaysian economy to high-value services and to boost domestic investment and consumption...

Najib himself has promoted the NEM as a completely "new model" although many of the proposals such as shifting to an income based view of poverty from a race-based one have been around for years and were in the 9th Malaysia Plan.

Expectations that Najib will deliver a raft of privatisations that could cut the budget deficit are also likely wide off the mark.”
The report by Reuters could not have been more accurate. The language and content of the NEM have been couched in the same fashion. Among the most tangible plans highlighted in his speech were on the 8 Strategic Reform Initiatives which focused on “Re-energising the private sector to lead growth; Developing a quality workforce and reducing dependency on foreign labour; Creating a competitive domestic economy; Strengthening the public sector; Putting in place transparent and market friendly affirmative action; Building knowledge base infrastructure; Enhancing the sources of growth; and Ensuring sustainability of growth”

How different is the above and the bulk of his speech from the economic policy announcements by BN in the past?

In Tun Dr Mahathir Mohamad's last Budget speech 2004, he said
“We must persevere and stand up to face these challenges. We must enhance our sovereign competitive edge to enable us to compete with global players in the international market. This can only be achieved through increasing productivity, reducing the cost of doing business, acquiring technology and be more innovative. Efforts to improve the effectiveness of the public sector delivery system have contributed towards the efficient implementation of Government development policies and strategies. In addition, measures must be taken to effect a shift in the mindset of Malaysians to enable us to become more competitive.”
In Tun Abdullah Badawi's inaugural Budget 2005, he said
“In order to achieve greater success, there must be a transformation in the way we do things and we need to refocus on key strategic areas. The outdated work systems and legislation need to be revamped and a positive culture inculcated to improve competitiveness and position Malaysia to be at par with the developed countries.

“Moving forward, the Government intends to accelerate the transition towards a higher value-added economy. Priority will be given to developing products in new areas of growth. In this regard, domestic investments will be promoted while foreign investments will continue to be emphasised in selected and strategic economic sectors.”
And in Tun Abdullah Badawi's 9th Malaysian Plan 2006, he highlighted the need “to move the economy up the value chain”
“The Ninth Plan period will see changes in the structure and improved performance of the economy with every economic sector achieving higher value added and total factor productivity. New growth areas will gain in strength. Private sector investment will surpass the public sector in spearheading economic growth. The economy will become more centred on human capital, particularly with increasing competition from globalisation and progressive market liberalisation. Increasing the Value Added of Manufacturing, Services and Agriculture...
Clearly from the above, the NEM announcement today by the Prime Minister is less of a much-needed transformation, but more of a “continuity” to past policies.

The Prime Minister has chosen to break the announcement of NEM into 2 parts, the first today, and the “details” only in June. It is disappointing that the Prime Minister has only chosen to make a high-level policy announcement, after 1 year in power, when such a policy announcement which is short on specifics could have been made more than 6 months ago.

The market is expecting market-changing measures to reform and transform Malaysia's economy. The Prime Minister's speech today certainly failed to deliver the goods.

We welcome the Prime Minister's admission of rampant “rent-seeking” and “patronage” in the existing administration and his call to stamp out such practices. But the devil will be in the details, and if the lofty goals are not followed through with tough new policies on open tenders and transparency, then the NEM will fail to achieve its goals as per its predecessors, the National Vision Policy, the National Development Plan which were heirs to the New Economic Policy.


marcus63 said...

the big question is has the NEM convinced me to bring my money and skills back from a foreign land to contribute to nation building. No.
the reasons are, the NEM is read like a prepared text which any economics professor can churn out about the areas that need to address to move up the value chain. it is full of rhetoric and bombastic language but short of detail on how to get there.
two, the approach to tackle the problem is too timid in its 2-part which of course begs the question of wait and see the public response then fine tune part 2. where is the boldness to transform?
three, this pm has a bad track record. there has been too many flip flops in policies that begets the question if the NEM wont be another flip flop.

Anonymous said...

All he effort put in by Najib to spin NEM, and its largely spin rather than real, his own deputy Muhiyiddin killed it, the day after he announced it.

The problem is NOW both of them are in trouble. The one concrete annoucement the tender of key property parcels will be so heavily watched, they will have to cancel it because the Chinese and foreign funds are too good that the new bumi players cannot win.

When they cancel it, there will be so much blaming, they HAVE to fight. Their respective followers won't accept anything else..This is feudal politics at its most natural..

Anonymous said...

TALK is cheap. Get rid of "rent-seeking" and patronage...haha

Just ask yourself this question:
If you are raking in millions every year without the need to work hard, then suddenly one day - you are told no more $$$ without work, what would you do? Would you let that happen willingly?

Do you think UMNO will really give up the patronage and "rent-seeking"? It's like shooting yourself in the foot.

I rest my case...

Ravin P said...

And in the process(of failing) the government would have squandered another few hundred billion ringgit!! Wanna take a bet Tony. A suggestion for you whenever anyone joins PR they should sign an oath stating that they are Malaysians first and second. So meaning if they join a race based party they have to automatically give up their seat/position/.... Just throwing ideas. Cheers and have a good Easter weekend.

Jayenjr said...

Is there any further need of evidence that UMNO has simply been regurgitating the same old story for many years? That they are completely clueless as to how to carry this country forward? Let's be honest about one thing: Najib didn't get to be PM on his own merit; umno wanted him at the throne room in Putrajaya, until they get fed up with him. This means, whoever UMNO places as PM, will remain on their leash. And that is why Najib is re-hashing the same stuff that he predecessors spewed, hoping that Malaysians will forgive & forget what was said - and not accomplished - in the past. The bottomline is this: Forget about this fancy jive mother talk from UMNO/Najib. As long as UMNO controls Putrajaya, no real reform will take place. What is the point of giving the Rakyat a good business plan when civil apparatuses such as the MACC, the Judiciary etc still remain lame & not completely independent? I don't even want to mention the rate the UMNO appointed Parliament Speakers are going. Unless change happens at Putrajaya, Malaysia will turn into a cowboy town/lawless land. We must aspire for change!

homeless said...

In Malaysia, talk is not cheap, it is free.


Same content, different packaging.

Lee Wee Tak said...

the consultation proccess shows that the najib administration is clueless after a year

however, it can be a clever political hedge - if MEB fails, it is not entirely BN's idea

by the way, it is a nice reference point to coin more lovely GE manifesto pledges....

why not spend the tax payers' money like that? heads I win tails you lose

Jeremiah said...

I wrote this to Panglima Andrew Sheng, one of the advisors to the NEAC's NEM:

"As economists, we know that dismantling price subisidies is sound economic policy as it discourages excessive consumption of a limited energy resource. However in the unique case of Malaysia, there is an seldom acknowledged "quid pro quo" arrangement where the consumers ' benefit of government's subsidy of petrol costs is counterbalanced by the huge excise taxes that Msian drivers have to pay for their cars.

(Of course, this quid pro quo is not valid if we include Proton as one of the car choices, but tell me, which higher middle class citizen - i.e. the 10% of the tax base who contribute more than 90% of personal income revenues - will opt to drive a Proton instead of foreign makes like Toyota/Honda/etc?)

To get an idea of the costs and benefits, we should compute the excessive premium (70-120% excise and import duties) we pay for foreign cars e.g. a 2 litre Toyota passenger car and discount it over a person's average working life, assuming we replace our cars every five years. Compare that number to the petrol subsidy we enjoy based on the average petroluem consumption per capita over the same period.

My conclusion: the government can go ahead and carry out the Goods Services Tax. But to be fair to all motoring citizens, they should liberalise the auto sector to make car prices more in line with disposable incomes by reducing import taxes significantly if they plan to reduce the petrol subsidy.

If you compare the prices of comparable models in Spore, Indonesia, Thai or Australia, cars cost much lower dollar for dollar (i.e. without converting the currencies as salaries are different). Better still, divide the cost of a foreign car to the average wage level in each country.

So instead of just focusing on how to generate higher wages through higher productivity, the government can instantly raise our standard of living by lowering car prices to their market levels and at the same time raise petrol prices to ensure that we bear the real economic costs of driving. Measures to improve public transport and impose restricted city driving zones will definitely be effective in raising productivity of the workforce as a whole. But the removal of protectionism of the local car industry is also crucial to our living standards.

This brings me to the point that the the National Automotive Policy should be consistent with the new paradigms of the NEM, which call for the shift from preferential treatment of specific industries/firm to one which favours technologically capable industeis and firms (page 101 in the NEM Part 1 report). If the NEM aims to create a new work culture of innovation and entrepreneurship among Malaysians, then we should be free of all traces of protectionism. High car prices for the sake of an inefficient protected industry plus traffic jams will not fail to remind us that the country remains entrenched in the old economic model."

YB Tony, this is a point worth taking up in Parliament. Why is the National Automotive Policy glaringly inconsistent with the NEM's new paradigm? Apart from mentioning APs, the NEM should propose reforms in the NAP.

Some half-past six economists may propose raising the Ringgit exchange to make foreign cars cheaper but that would just be symbolic.

Unknown said...

This country has been robbed and powerfully, systematically pushed forward to backwardness. Every one can see it ourselves. It's no joke!
Do we dare to make comparison with other surrounding countries near to our vicinity? We are sad and feeling ashamed of doing this comparison. Once we compare, we are derogated to be imbecile.
We are at the poor and pitiful situation economically far behind after other countries.
All those BN ruling elites are still in the middle of half-open minded to progress the development of our country. Wanted to make them improved, is it possible? Might as well make ourselves improved.
Only thing is that this up-hill task to make people change, needs more times and intensive political educations to help brighten up their knowledge of the important of the changes. In order to enhance the innovative influences in people's thoughts of reinvention that brings them to upper betterment, PR should go into people circle constantly to let them understand more about national issues of livelihoods are facing more coming difficulties if we people do not want to change ourselves boastfully.
BN would go on robbing more until we become destitute in poverty. And sadly to say, they enjoy their lives in foreign countries happily. And we, pitiful to say, suffer here struggling for making both ends meet. Is this the life we want? Do we suppose to be in this denigrated position if we say this country is ours? Don't let those bogus Malays on top of our heads. We great Malaysian should leap over this fiasco and forward to development and advancement.
It is for sure!

Anonymous said...

Dear Tony,

Here is my take on the NEM

I think it offers an honest assessment of the problem..But lacks the steps needed to rectify them..

And a jump in income would increase income inequality more than anything else....

Yours faithfully,
Ee Suen Zheng