Strategy for growth

Datuk Seri Effendi Norwawi (pic) delivered a speech in the Senate last week during the 2009 Budget debate. Below is an excerpt from the speech entitled The Impact of this Global Financial Crisis on the Long Term Economic Development in this Country

OUR target to become a developed nation by 2020 is again confronted by ‘macro’ challenges. Ten years after the 1997-98 Asian financial crisis, the global financial crisis will result in slower growth worldwide from 5% in 2007 to 3.7% (2008) and 2.2% in 2009 (source: IMF World Economic Outlook Update, Nov 2008).

Malaysia, as a small open economy that relies on global demand, will be affected.

More than half of Malaysia’s total production is aimed at the global market. Around 80% of our exports go to 10 countries, all of which are suffering economic slowdown.

The latest gross domestic product forecast of 3.5% for 2009 announced by the Deputy Prime Minister shows that we are indeed in a slowdown.

Bank Negara has said that the country’s financial system is not exposed to subprime crisis. The local banking system is strong, supported by risk weighted capital ratio of 13.2% and non-performing loan ratio of just 2.5%. We hope the local financial system would continue to remain strong and be able to support economic activities in the country.

The ongoing crisis is different compared with that of 1997-98. The turmoil in 1997-98 grew from the credit crunch that stunted growth in the real economy. Now, the country’s real economy is facing a crisis and we have to safeguard our financial system to avoid a potential dangerous reverse effect, where weakening cashflow and a business downturn would set off a credit crunch crisis.

This is the vicious cycle that would prolong the economic downturn.

Datuk Seri Effindi Norwawi

The impact of the economic crisis need to be studied in two perspectives: short term (growth) and long term (development).

The impact on economic growth in the near term, 2009-2010, has been widely discussed. I must stress the importance of understanding the impact on the long-term economic development of the country. How will it impact Vision 2020?

It’s true that we have survived 1997-98. During the 1998 economic crisis, the domestic economy contracted 7.4%. We then saw a V-shaped recovery the following year, with the economy posting a growth of 6.1% in 1999.

From a different perspective, however, the 1997-98 crisis had a negative impact on longer term growth. The average growth over the past 10 year prior to the crisis in 1997 was 9.1%, while the average growth rate between 1997 and 2007 was 5.6%.

It is clear that the 1997-98 crisis had affected the country’s longer term growth rate.

I want to suggest that the current economic crisis be reviewed in depth so we can take the appropriate measures to ensure our longer term plans are not compromised.

We are halfway towards the year 2020. The average real income per capita compared to advanced nations (Organisation of Economic Cooperation and Development), Malaysia’s real income per capita rose 1% from 14% to 15% between 1997 to 2007.

South Korea’s grew 10 percentage points from 44% to 54% over the same period.

In the early 70s, Malaysia could be considered at par with South Korea. Today, the gap has widened. We need to increase our efforts and focus on keeping pace with countries like South Korea. We only have 12 years before 2020.

I would like to suggest setting up a comprehensive national strategic plan and an institution with the mechanism to implement the national mission. This mission, which was first announced at the launch of the Ninth Malaysia Plan in March 2006, outlined the country’s core development plan for the next 15 years.

To achieve this, we need to have a strategic national mission masterplan with a clear target and implementation schedule that also includes definitions and detailed measurements for all core missions.

This plan need to be understand, agreed upon, and implemented by all parties involved in the public and private sectors and the general population. The roles of ministries and agencies towards achieving the national mission need to be spelled out clearly in a plan.

The accountability and the responsibility of overseeing the whole project/plan must be optimised to move in a single direction. Existing sectorial strategic plans such as the Third Industrial Masterplan (International Trade and Industry Ministry), Education Development Masterplan (Education Ministry), the National Science and Technology 2 Plan (Science, Technology and Innovation Ministry), National Strategic Higher Education Plan (Higher Education Ministry) and the Third National Agricultural Plan (Agriculture Ministry) need to be incorporated into this strategic plan.

Each plan need to realise the goals of the National Mission Masterplan.

A lon- term plan such as Vision 2020 needs high level of commitment to realise. I would like to suggest the setting up of a National Development Council (the Malay acronym is MPN) to be chaired be the Prime Minister, as the platform to oversee the implementation of the national mission. This is to ensure every resource be optimised and coordinated to the best level.

Under MPN, I would like to suggest the setting up of a full-time “task force” (Direktorat Pembangunan Negara or DPN) to be manned by experts and professionals that can be formally institutionalised.

The directorate can be set up almost immediately by putting under it an existing institution, Malaysia Development Institute (MDI). Currently MDI is being tasked to plan the country’s strategic macro direction and do research on the national mission.

With a clear mandate and transparent accountability, this task force is answerable to the Prime Minsiter and MPN to come out with a strategic plan, coordinating programmes, and its implementation and day-to-day running of all intiatives that is being planned. The task force is the strategic planner and execution coordinator that will work with all ministries and agencies involved throughout the whole project.

The importance of migrating towards k-economy and moving up the value chain have been repeated time and again.

But without a clear focus and coordination, we are still unable to show a result that we can be proud of. I believe with a MPN and DPN close monitoring, the focus and the execution that we wanted would be achievable.

For a bigger impact, the utilisation of resources need to be optimised. We again need to be focused and Malaysia must identify new growth areas to be prioritised.

The strength and resources capacity available must be maximised on a bigger scale. Malaysia needs to identify the industries with high potential for development as Malaysia’s niche to make Malaysia an international and dominant brand at the global level.

Spreading our resources to thin will be a waste. To move forward qucikly, we need to create our own Blue Ocean and to be above our competitors with specific and clear offers that can attract local and foreign investors.

History had shown us that global economic crisis has always been the spark for radical changes. Malaysia needs to realign its strategy to stimulate its economy and avoid being dragged into a slump in the near future. At the same time, we must turn this global crisis into the catalyst for Malaysia to implement strategic changes that will bring us closer to the objective, mission and dreams of becoming a developed nation.

The Star