The Asian Wall Street Journal
4th April 2001

Malaysia's New Socioeconomic Plan
Promotes Growth, Goals of Malays

By CRIS PRYSTAY

Staff Reporter of THE WALL STREET JOURNAL

KUALA LUMPUR, Malaysia -- The Malaysian government signaled that it will continue to play a dominant role in guiding the country's economy, with the twin goals of promoting the interests of the ethnic Malay majority and achieving high-speed growth.

On Tuesday, Prime Minister Mahathir Mohamed unveiled Malaysia's third long-term socioeconomic plan, which forecasts average annual growth of 7.5% through 2010 and a doubling of per capita income to $6,213 by that date. Under the plan -- dubbed the New Vision Policy -- the government said it will promote the creation of an information technology-led "knowledge" economy, strengthen capital markets and the banking sector, and devise new affirmative action programs to increase the economic clout of ethnic Malays.

The New Vision Policy is the latest incarnation of the government's New Economic Policy, which was begun in 1971 after Malaysia was rocked by ethnic riots in 1969. With programs that offered Malays favored access to education, employment, credit facilities and stock purchases, the NEP aimed to boost the stake held by Bumiputeras -- or "sons of the soil" -- in the corporate sector from 2.4% in 1971 to 30% by 1990. Malays make up just under 60% of the Malaysia's 22 million people, while ethnic Chinese account for about 25% and ethnic Indians about 8%.

The NEP lifted Malays' equity in local businesses to 19.3% by 1990. But the NEP's successor for the period 1990-2000, known as the National Development Policy, made little headway in reaching the 30% Malay-ownership goal. Bumiputeras' share of total equity in the corporate sector declined to 19.1% by 1999, according to figures cited in the new plan. According to the plan, the share of corporate equity held by ethnic Chinese fell to 37.9% in 1999 from 45.5% in 1990, while foreign ownership rose to 32.7% from 25.4%. To help Malays reach the 30% ownership target by 2010, the government said it will continue its privatization program which favors selling state companies or giving other concessions to concerns owned by ethnic Malays. Kuala Lumpur also plans to increase the capacity of higher-education institutions and to expand national trust-fund schemes set up to distribute wealth to Malays.

While the pro-Malay policies have contributed to a relatively high degree of ethnic and social stability in Malaysia, opposition party critics say the effort has fallen short of spreading the wealth evenly to the Malay community. Instead, the critics claim it has concentrated the benefits in the hands of a few well-connected businesspeople and political figures. "It's aggravated a greater intra-inequality among the Malays, and in the process has not contributed to either national unity or integration," said Lim Kit Siang, chairman of the opposition Democratic Action Party.

Others say the policy has fostered a sense of complacency in many young Malays, who have grown up expecting a guaranteed place in Malaysian universities and a job as their due. Presenting the new plan to parliament, Dr. Mahathir conceded that the Malay community needs to foster a sharper entrepreneurial instinct. "The government can only go so far in setting the necessary conditions and the enabling environment for the restructuring of society to take place," Dr. Mahathir said. "In the final analysis, it is the Bumiputera community that will have to intensify efforts for the realization and accomplishment of these targets. In the face of challenges ahead, the Bumiputera must be prepared to change their mindset, and even value system."

Under the new policy, the government will also try to increase Indian equity ownership in the economy to 3% by 2010, marking the first time Kuala Lumpur has targeted the Malaysian Indian community for economic help. "In the past, the division has always been between Bumiputera and non-Bumiputera. This is a recognition that there's been some degree of neglect" of the Indian community, said Abdul Razak Baginda, executive director of the Malaysian Strategic Research Center, a private think-tank.

Emotions have recently run high among ethnic Indians after clashes last month between Indians and Malays in an impoverished neighborhood in Kuala Lumpur left six dead. A group of non-governmental organizations later filed a report to the Malaysian Human Rights Commission alleging that mostly ethnic Malay police didn't act quickly or forcefully enough to protect Indians in the slum area. For many Indians, the incident underscored the degree to which their community has been neglected in Malaysia's past social and economic policy plans.

"This [new policy] is positive because it's a recognition that they should be a focus," Mr. Baginda said.

Write to Cris Prystay at cris.prystay@awsj.com

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The Financial Times, UK
4th April 2001

Policy to help Malays extended

By Sheila McNulty in Singapore

Malaysia has extended by another 10 years its affirmative action plan to bring the ethnic Malay majority parity with the minority Chinese ethnic group.

Mahathir Mohamad, the prime minister, on Tuesday announced continued commitment to the 2001-2010 New Vision Policy. It sets a target of Malay control over 30 per cent of the corporate sector - a goal Malaysia has been trying to reach since it first imposed in 1971 a quota system favouring Malays in schools, work and share disbursements.

That system was the cornerstone of the New Economic Policy, the original affirmative action policy that followed violent race riots in 1969. When it was enacted the Malay stake in the corporate sector was 2.4 per cent. It rose to 19.3 per cent in 1990, but at the end of 1999 the Malay share of the corporate wealth was 19.1 per cent.

"We have still some way to go in achieving effective Malay participation and creating self-reliant and sustainable Malay entrepreneurs," Dr Mahathir said in the report.

The prime minister has warned the Malays repeatedly during his 20-year rule not to get complacent, insisting the policy will one day have to be dismantled. But analysts did not expect him to do so now, given how the ruling party has been losing the all-important Malay ground to the opposition.

But some Malaysians recently have questioned whether the policy should be based on economic need instead of race, to help poor Indians and Chinese as well.

They expect this would lead to a more unified nation, instead of one where people identify foremost with their ethnic group. This, in turn, would help prevent racial violence, which, though it has been rare, left six people dead last month just outside Kuala Lumpur, the capital.

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Asia Times
4th April 2001

A new perspective on Malaysia's future

KUALA LUMPUR - Malaysia must remain competitive by developing into a knowledge-based economy (K-economy), given the current global developments in Information Communication Technology, according to a new plan unveiled on Tuesday.

Malaysia needs to undertake productivity improvements in traditional industries and enhance its technological and knowledge capabilities in order to maintain its competitive edge, according to the "Third Outline Perspective Plan" (OPP3) prepared by the Economic Planning Unit of the Prime Minister's Department.

The report, tabled by Prime Minister Mahathir Mohamad at the Lower House of Parliament, said it was also imperative for local industries to move along the value chain into related upstream and downstream activities. These changes are necessary so that the manufacturing and services sectors can lead economic growth during the OPP3 period.

"Malaysia has yet to match the competency of the more advanced economies such as South Korea, Japan and Taiwan," said the report.

Malaysia ranked 17th in the K-economy Development Index (KDI), which compares Malaysia with 21 other countries, which are mainly developed, in terms of their readiness. With regard to the readiness for the K-economy, Malaysia is better prepared with respect to its telecommunications infrastructure and literacy level but has to intensify efforts to improve its research and development (R&D) capability, computer usage, Internet connectivity and higher education enrollment.

The proportion of R&D expenditure to GDP in Malaysia is low compared with some countries that have successfully built indigenous capability to innovate, produce new technology as well as design new products. It added that science and technology and R&D efforts were partly constrained by the lack of critical mass of scientists and engineers.

In human resources development, the percentage of those in labor force with tertiary education is still small at 13.9 percent. The enrollment at the tertiary level of the 17-23 years age group increased to 25 percent but it is still lower compared with many of the newly industrialized economies.

Under the OPP3 period, all Malaysian primary school teachers will be qualified graduates and some will hold Master's degrees and child psychology qualifications. In line with the shift towards the knowledge-based economy, the move is to ensure that teachers possess a high level of competence in teaching as primary schooling provides the foundation for student's learning ability and absorption of knowledge.

This is among several measures to be taken by the government to produce a quality labor force, which is knowledge-rich and has superior thinking skills, in line with the globalization and the rapid technological advances, according to the Economic Planning Unit's report.

Other measures include the review of the school curriculum to inculcate thinking skills and generate creativity and independent learning among students, especially at the primary and secondary levels.

"A strong basic education is the foundation for building a healthy, skilled and agile labor force and for competing successfully in the world market," said the report.

The report said schools would be provided with facilities to allow them to teach more subjects using interactive multimedia technology and Web-based teaching. Wireless mobile computing technology will be introduced in schools in the remote and inaccessible areas so that they can still enjoy the benefits of Information and Communication Technology (ICT).

Besides connecting the majority of schools, including those in the rural and remote areas through Intranet and Internet by the year 2010, a mechanism would also be set up to link schools with industries to ensure that the school curriculum will remain relevant to the industry. "Industries will be encouraged to accept upper secondary school and college students to participate in attachment training and internship during school and college holidays," it said.

The other plans include turning universities into centers for the creation of intellectual capital and new knowledge, in addition to its role of producing the country's future workforce.

"This will hinge on their ability to produce a pool of high caliber researchers who are actively engaged in R&D as well as undertake research activities that have commercial viability. In this regard, a few of the existing public universities will be restructured to become research universities focusing on post-graduate degree programs," it added.

Private institutions will also be encouraged to increase their involvement in providing education at all levels and given incentives to those which offer courses in technical and medical. They include greater flexibility in hiring foreign teaching personnel and less stringent immigration conditions. In promoting lifelong learning, the government, according to the report, would provide affordable accessibility to training courses and training programs through the Internet and other ICT-related media.

The report said the future growth and development of the economy would be driven by the knowledge-based industries in all sectors, particularly the manufacturing and services sectors. In the knowledge-based economy, high technology and science-based industries as well as knowledge-intensive industries such as ICT, pharmaceutical industries and the R&D activities will generate jobs requiring tertiary education, especially those trained in the science and technology disciplines.

Labor productivity growth during OPP3 is expected to increase by 4.2 percent per annum for all sectors, in line with the shift towards the knowledge-based economy.

The report said Malaysia's population was projected to increase to 28.9 million in 2010 at an average growth rate of 2.2 percent per annum. The growth rate was slower compared with the 2.5 percent per annum achieved during OPP2 and this was attributed to the continued decline in the overall fertility rate as more and more women pursue higher levels of education or training. The fertility rate is the number of children that a woman will bear during her child-bearing age.

The working age group of 15 to 64 years is projected to increase from 62.9 percent in 2000 to 65.7 percent in 2010. The size of the labor force, meanwhile, is expected to increase by 3.1 percent per annum or an additional 3.3 million during the OPP3 period, to reach 12.9 million in 2010.

"The growth of the labor force is attributed to the increase in the size of the working-age population and in the labor force participation rate (LFPR) from 65.5 percent in 2000 to 68.1 percent in 2010," it added.

The female labor force participation is expected to increase from 44.5 percent in 2000 to 49.0 percent in 2010, with more participation in the professional and technical group.

According to the report, the demand for labor would increase at an average rate of 3.1 percent annually with the expected rapid Gross Domestic Product (GDP) growth and this would result an increase in employment from 9.3 million in 2000 to 12.6 million in 2010.

The services sector is expected to continue to have the largest share of total employment, where by 2010, it will increase to 51.5 percent, accounting for 59.4 percent of total employment creation.

At the end of OPP3, the agriculture sector's share of employment is, however, expected to constitute 9.8 percent of total employment and the reduction is due to the introduction of high technology cultivation methods and large-scale farming as well as increased mechanization.

Reducing imbalances

Accelerating the progress of less-developed states and reducing socio-economic imbalances among regions will also be the main thrust of the OPP3.

Mahathir said among the measures to be taken would be to promote the concentration of economic activities by each state on the basis of their comparative strength. Besides this, the industrial dispersal program would be continued as well as further improving infrastructure and the access to quality basic amenities in the less developed states, he said.

Mahathir said all the states in the country registered improvements in the quality of life arising from improvements in per capita income as well as access to better infrastructure, social services and basic amenities. As bumiputera (ethnic Malay) companies had already made inroads into the construction, transportation and agricultural sectors, there was a need for them to diversify into other high value-added activities, particularly in the manufacturing, services and distributive trade, he said.

Mahathir said an enabling environment would be created, including the provision of incentives and financing, to assist bumiputera acquisition of appropriate technology as well as management expertise.

In addition, the privatization program would continue to be implemented to create more opportunities for bumiputera entrepreneurs at the corporate level. The programs to develop the Bumiputera Commercial and Industrial Community (BCIC) would focus on building more sustainable, self-reliant and world-class bumiputera entrepreneurs capable of competing effectively both in the domestic and international business, he said.

"There is a need for bumiputera entrepreneurs to develop positive values and the ethics of business for them to be continuously successful and self-reliant," he said.

(Asia Pulse)

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The Business Times, Singapore
4th April 2001

M'sia aims to be resilient, competitive: Dr M

By Diana Oon Abdullah in Kuala Lumpur

PRIME Minister Mahathir Mohamed yesterday spelt out Malaysia's National Vision Policy (NVP), which aims to build a "resilient and competitive nation" to survive increasing globalisation and the further reduction of trade barriers in the next 10 years.

Under the NVP, the government is projecting average economic growth of 7.5 per cent over the next 10 years, compared with the 7 per cent average achieved in 1990 to 2000. Per capita income is also expected to rise from RM13,359 (S$6,366) to RM23,610 by 2010.

The government will place enormous emphasis on educating workers to develop Malaysia into a knowledge-based society. It expects the number of workers in the IT industry to almost triple over the next 10 years, from 108,000 in 2000 to 307,000 in 2010.

Local private and public institutions will be able to supply the needed information and communications technology (ICT) workers, although the government is also banking on bringing back Malaysian IT professionals working abroad.

However, a package of incentives announced in the Budget last October met with lukewarm response from Malaysians abroad -- only 12 approvals were reported by February this year, and some 100 inquiries received by mid-March. Government officials have acknowledged that Malaysia is also likely to bring in foreign IT professionals, to be handled by the Multimedia Development Corporation that oversees the development of the Multimedia Super Corridor.

The NVP also maintains privatisation as a method of increasing bumiputra or indigenous Malay corporate ownership. According to the Economic Planning Unit, bumiputra-controlled companies accounted for 61 per cent, or 109 of the 180 companies privatised up to the year 2000. Bumiputra ownership of share capital in privatised companies stood at 28 per cent or RM8.1 billion for the period 1971-2000, while non-bumiputras controlled 28 privatised companies and owned RM5.3 billion or 15.6 per cent of the total equity.

The government, however, continued to own RM16.5 billion, or more than half of the shares in privatised companies. Privatised projects boost bumiputra economic participation in that at least 30 per cent equity in privatised projects have to be owned by a bumiputra, and at least 30 per cent of contract-works for major privatised projects need to go to bumiputra contractors.

The government continues to support its privatisation programme despite criticisms following several privatised projects being reverted to the government. Waste water management company Indah Water was bought over by the Ministry of Finance last year, and the government is in the process of a RM6 billion buyout of the Putra and Star light rail transit companies.

The government's attempts to push more bumiputras into high-paying jobs made some progress in the last 10 years. By the end of last year, 63.8 per cent of those in high-paying jobs were bumiputras. Meanwhile, bumiputra engineers made up 26.5 per cent of the profession by the end of last year, compared with 13.1 per cent in 1991. Bumiputra representation over the last 10 years also increased in the areas of law, accounting and medicine. The government is expected to continue to push bumiputras into tertiary and higher education so that their representation in all professions will reflect the population distribution, which is projected to be 68.3 per cent by 2010, up from 66.1 per cent now.