Malaysia becoming a victim of policy complacency

FMT Column 30th May 2020

Malaysia is currently suffering multiple crises, all at the same time.

Late last year, inflation reared its ugly head due to primarily international factors, leading to many analysts saying that inflation was only a short-term phenomenon.

Inflation has been exacerbated by the fact that Bank Negara Malaysia has been printing too much money, adding fuel to the fire. This has pushed the ringgit almost into a free fall, spurring on inflation even more. Forecasts made at the beginning of the year are being surpassed.

Rapid rises in food prices have followed,, given that 60% of Malaysia’s food consumption requirements are imported.

Now interest rates are on the rise again, making credit even more expensive to already financially stressed families. Many more families will fall into relative poverty as the year progresses.

There will be a slowdown in growth and even recession, potentially placing Malaysia in a bout of classic stagflation.

Meanwhile, many food staples are in short supply all over the country, in what could most definitely be described as a food crisis, a claim denied by the ministry of agriculture and food industries as late as March 10.

The ministry has since then enacted a number of ineffective stop-gap measures, such as claiming to do away with APs (import permits) and banning poultry exports from June 1.

Malaysia is now in a deep policy malaise.

While Thailand is enjoying a food export boom, bringing wealth to rural communities, and Indonesia is facing a buoyant domestic recovery due to a massive local market, Malaysia is unable to quickly increase local food production.

This leaves Malaysia at the mercy of international supply, where many countries are beginning to ban the export of foodstuffs to protect their own populations.

Real economic reform has been neglected

Malaysia has a uniquely structured mixed economy. Government-owned companies reportedly make up a massive 42% of total equity on the Kuala Lumpur Stock Exchange. Government-linked investment companies make up a further 25.9%, representing RM440.4 billion in total assets.

However, these companies operate in the pursuit of profit for their shareholders, the government. GLCs like Petronas are a major source of government revenue. Khazanah is used to bail out other companies.

The announcement by the government recently, that GLCs must play a community role through CSR, based upon historical evidence, is just a token gesture.

GLCs have been able to maximise revenues through a hive of rent-seeking economic activities across various sectors of the economy.

Creativity and innovation are not part of the creed of GLCs. In fact, GLCs, through their massive sizes, stifle creativity and innovation in the economy.

Potential competitors are scared away from being innovators in several industries. They have special privileges, where regulation may be changed without warning to disadvantage the private sector.

The government’s soft spot for foreign investment over local non-Bumiputera investment is seeing Malaysian entrepreneurs taking their businesses offshore. Even new business concepts like Grab moved to Singapore, which has a more business-friendly environment.

Malaysia has been a net exporter of capital for a number of years.

The agricultural sector has been dangerously neglected since former prime minister Mahathir Mohamed’s push for industrial development back in the 1980s.

Crop diversity in Malaysia has actually decreased with the drastic shrinking of the cocoa industry, due to plant management issues that the country’s research institutes couldn’t solve.

Smallholders across the country have not been given much assistance, and are even harassed according to stories coming out of Cameron Highlands.

Politically connected cartels have been trying to take over the poultry industry, with supply today in dire shortage.

Market gardening, beef production, and fruit orchards have all been subject to absurd ideas within Industry 4.0, such as vertical farming, where there is no shortage of land in the country.

These initiatives just raise capital costs, have long learning curves, and are beyond the financial reach of MSME entrepreneurs.

New agricultural initiatives are celebrated with the creation of new agencies, where their directors have their own agendas, often ignoring and excluding the real industry. The performance of corridor and biotech agencies have been lacklustre.

The country’s business sector is strangled with APs, import permits, and other licensing, restricting markets and business operations.

Artificial monopolies are toxic for free markets and the general business environment, just forcing consumers to pay more. Malaysians pay some of the highest internet rates in the region.

Five-year plans are just glossy documents off which consultants have made millions of ringgit.

The objective of writing these plans is not to create new visions for the nation. It is just to make a profit from the creation of these documents.

New initiatives, like developing the aerospace industry, are just targeted at helping a few privileged companies.

Running the bulk of Malaysia’s administrative environment is a bloated civil service.

Unfortunately, the civil service is not a hotbed of creativity and innovative thinking. It’s a reflection of the nation’s poor education system, which has failed to deliver the skills of critical thinking on the part of graduates. Although new cohorts of civil service inductees want a professional work environment, they are corrupted by politicised leadership in the service.

When the country needs highly skilled technocrats to solve critical issues, they have been found wanting.

Where to, now?

A number of policy issues require hard decisions and reforms.

Malaysia’s health system needs to be enhanced after the recent pandemic. A national dental scheme is needed. Urban centres need deep consideration to make them sustainable, and land management is in crisis.

Education needs massive reform, from pre-school to post graduate education, where vocational and lifelong education need dramatic enhancement.

Malaysia’s pension and EPF schemes need massive overhauls.

Food production and poverty eradication are two important areas that need immediate attention before these crises become chronic.

While the nation is facing the biggest crisis since Merdeka, the politicians are bickering and maneuvering for power.

As we have seen, from Barisan Nasional to Pakatan Harapan, Perikatan Nasional and whatever the latest hybrid government is called, it doesn’t really matter who is in government.

What Malaysia needs more than ever is a government that will take on the problems facing the rakyat now, in a transparent manner, and which is directly answerable to the people.

Malaysia now needs a people’s champion who can manage the economy and reform it. Who can do this job?

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