NEAC
National Economic Advisory Council
New Economic Model for Malaysia
NEAC
Section I
Issues and Challenges
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2
We Have Been in the Middle Income Trap for Quite Some Time
History shows the need of a compelling reason to change is required to escape
GNI Per Capita
(USD thousand)
1990 - 2008; USD thousand
22
Korea
20
Slovakia
18
Czech Rep
16
14
Poland
12
HIGH INCOME
BOUNDARY
10
8
Chile
Argentina
6
Malaysia
4
2
0
Thailand
Indonesia
Source : World Bank, NEAC Analysis
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3
Malaysia’s Growth Trajectory Has Diverged Lower
Slower growth means our aspirations will take longer to achieve all things being constant
Pre-Crisis
growth
gradient
Divergence
Post-Crisis
growth
gradient
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4
Post Asian Crisis, Our Growth Rate Has Been Mediocre
We are no longer a clear leader in the region having lost our shine
Average annual GDP growth
Pre-crisis
Post-crisis
1990-1997; %
2000-2008; %
China
11.5
Malaysia
9.1
China
10.0
Vietnam
7.5
Singapore
8.6
India
Vietnam
8.4
Malaysia
5.5
5.4
S. Korea
7.2
Singapore
Taiwan
7.0
Indonesia
Indonesia
6.1
7.0
5.2
5.0
Philippines
Thailand
5.5
S. Korea
4.9
India
5.4
Thailand
4.8
Philippines
US
UK
Japan
Taiwan
3.2
2.9
2.0
Average 6.0
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UK
2.5
US
2.4
Japan
1.6
3.8
Our growth rate is
now equivalent to
that of our
neighbouring
countries
1.5
Average 5.0
5
Lacklustre Demand-Side Performance Indicators
Given the state of today, private investment is key
2006-10
9th MP
Estimate
Mid-Term Review Target
GDP
3.2
6.0
Consumption
5.6
7.6
Public
4.1
6.2
Private
6.0
8.0
Investments
3.7
8.6
Public
6.8
7.0
Private
-0.4
9.8
Exports
-0.3
4.8
Imports
1.0
6.4
Components
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Not Investment But Consumption Has Been Driving Growth
The private sector has taken a backseat with the government filling in the vacuum
Private & Public investment as share of GDP
1989-2008;%
Average annual growth
1991-2006; %
Pre-crisis
1991-1997
Post-crisis
2000-2006
14
9
6
7
7
3
Private consumption
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Government
expenditure
Investment
7
Specific areas of weakness are preventing us from moving forward
- fundamental reform is long overdue
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8
Amidst Global Changes, Our Advantages are Being Undermined
We must act before our position deteriorates further
Our strong position in commodities and
manufacturing is being eroded
Intense competition in our new sources of
growth e.g. medical tourism, ICT, and Islamic
products and services
Global investment is focusing on larger
scale markets, not small economies
Our immediate neighbours have renewed
vigour evidenced by growth rates; reforms
are well being implemented
Lack of talent and innovation, ineffective
institutions and widespread corruption
are barriers to growth
In the region, our economy was one of the
hardest hit by the recent global crisis
WE CANNOT CONTINUE AS WE ARE
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Section II
The New Economic Model
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10
The Prime Minister’s Vision - Transforming Malaysia
The Two Pillars of the National Transformation Programme
1Malaysia – People First, Performance Now
Preservation and Enhancement of Unity in Diversity
Government
Transformation
Plan (GTP)
Economic
Transformation
Programme (ETP)
High
Income
Rakyat
Quality of Life
Inclusiveness Sustainabiliy
Effective Delivery of
Government Services
New Economic Model
A High Income, Inclusive
And Sustainable Nation
10th & 11th Malaysia Plan Roll-Out
Macroeconomic growth targets & expenditure allocation
Implementation of Government’s Development Programmes
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11
The New Economic Model (NEM)
Aspirations of a united and advanced nation – The Goals to be Achieved
Targets
US$15,000 - $20,000
per capita by 2020
Rakyat
Enables all
communities to
fully benefit
from the wealth
of the country
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Quality of Life
Meets present
needs without
compromising
future
generations
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The Goals
High Income
Inclusiveness
Sustainability
Lifting 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
13
Section III
The Economic Transformation
Programme (ETP)
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14
The Economic Transformation Programme (ETP)
The reforms required to escape the middle income trap
Enabling Actions
Strategic Reform Initiatives
Outcomes
Coherent “big push” to boost transformation and growth
1. Re-energising the Private Sector
Middle
Income
Trap
Risk
Break logjam of
vested interests
through political
will and leadership
2. Developing Quality Workforce
and Reducing Dependency on
Foreign Labour
High
Income
3. Creating a Competitive Domestic
Economy
4. Strengthening of the Public
Sector
Prepare Rakyat for
change
5. Transparent and Market friendly
Affirmative Action
Rakyat
Quality of Life
Inclusiveness
Sustainability
6. Building the knowledge base
infrastructure
7. Enhancing the Sources of Growth
8. Ensuring Sustainability of Growth
Feedback: Review, Revise
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15
Economic Transformation Requires Tough Decisions and Bold Measures
How far are we willing to go in the reforms?
Five (5) Selected Tough Decisions To Be Made
Restoring market prices for goods and services will improve economic efficiency but
may 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
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 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
Greater decentralisation in decision making to achieve speedier implementation and
effectiveness but 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)
All SRIs have cross-cutting impact over all sectors
Ensuring
Sustainability
of Growth
Reenergising
Private
Sector
1
8
Enhancing
Sources of
Growth
Developing
Quality
Workforce
2
8
Strategic
Reform
Initiatives
7
3
Competitive
Domestic
Economy
(SRIs)
4
6
Building
knowledge
base
infrastructure
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5
Transparent
& Market
Friendly
Affirmative
Action
Strengthening
Public Sector
17
Re-energising the private sector
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18
Developing a quality workforce and reducing dependency on foreign labour
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19
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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22
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 IV
What’s next from the NEAC?
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27
NEAC Part 2 : Policy Measures and Implementation Framework
Participation of stakeholders to ensure ownership and buy-in on detailed actions
NEAC Part 2: Policy Measures and Implementation Framework Planning
Current Reform Initiatives already announced: Light the Fuse for Momentum
NEAC Continuous Engagement of Ministries and Stakeholders
Public
Consultation
NEAC Task Forces on SRIs for Policy Measures
And Implementation Framework Planning
Roll-out
ETP policy
measures
NEAC input for 10th MP
NEM
Launch by
Prime
Minister
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10th Malaysia
Plan
Launch
Endorsement of
ETP Implementation
Plan
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Economic Transformation Programme
(ETP)
New Economic Model
(NEM)
Re-energising
Private
Sector
Targets
USD15,000 - USD20,000
per capita by 2020
Ensuring
Sustainability
of Growth
Rakyat
Enables all
communities to
fully benefit
from the
wealth of the
country
Quality of Life
8
1
7
Enhancing
Sources of
Growth
Developing
Quality
Workforce
8
Strategic
Reform
Initiatives
6
2
Competitive
Domestic
Economy
(SRIs)
Meets
present needs
without
compromising
future
generations
3
5
Building
knowledge
base
infrastructure
End
National Economic Advisory Council
www.neac.gov.my
4
Transparent
& Market
Friendly
Affirmative
Action
Strengthening
Public Sector