FELLOW delegates from Malaysia and esteemed investors,
MALAYSIA’S INHERENT STRENGTHS
Malaysia has a long history of trade. We are in an enviable geographical location as both a land and maritime country straddling the most important trade routes. Economically, we are also a key part of various global supply chains.
We are also one of the few nations that have had a long and deep experience in managing and enjoying a multiracial, multicultural, multi-religion balance that gives us a richness of diversity which has benefitted us in terms of openness and the ability to thrive in areas of complexity.
After gaining our independence 66 years ago, Malaysia’s economy evolved at a fairly rapid pace. From being once the world’s largest producer of tin and rubber, today, we are well recognised in the oil & gas sector for the steady, global success of Petronas in exploration, extraction, storage and delivery of energy. The Peninsular Malaysia’s northern region is home to semiconductor manufacturers that sit on various levels of the global electronics supply chain. We are also gaining strength in new areas. For instance, Malaysia is the top ranked Southeast Asian country in the global Drone Readiness Index released earlier this year.
We have greatly diversified our economy over the decades. Between 1996 and 2021, Malaysia’s rank in the Economic Complexity Index elevated from 54th position to 24th.
This propelled Malaysia’s average long-term real GDP growth to 4.4% between 2011 and 2022. In contrast, the median for both regional and A-rated countries were 3.6% and 2.9%, respectively.
WHAT WENT WRONG
Yet, the country’s progress and socioe-conomic development has been stymied. Ignoring the Covid-19 pandemic years, the two decades before and after 1998 witnessed a significant decline in our average economic growth.
Investment figures dropped compared to the percentage of GDP. New economic resources that could boost growth did not emerge prominently as the economy still focused on domestic activities without fully capitalising on global market opportunities.
The government’s budget ran on a deficit for decades, and worse, some of the expenditure went to reimbursing unproductive living costs’ subsidies that benefit the rich more than those who genuinely need help. This eventually limited the government’s fiscal room to earnestly invest in public services and infrastructure.
The Covid-19 pandemic only worsened the inequality.
Upon taking office as prime minister, it was clear that we had no choice but to cross the Rubicon and reset Malaysia. I prioritised three areas: strengthening our governance, restructuring our economy, and paving our future.
STRENGTHENING OUR GOVERNANCE
Ladies and gentlemen,
To begin Malaysia’s journey of regaining our lead, of utmost importance in our sweeping action plans is to regain trust – of the people, investors, and businesses. Good governance is not to be trifled with.
The Fiscal Responsibility Act (FRA), which will be tabled in Parliament in October, outlines the principles and fiscal rules to enhance accountability, governance, and transparency in fiscal management. This will be complemented by other fiscal frameworks such as the Medium-Term Fiscal Framework (MTFF) and Medium-Term Revenue Strategy (MTRS).
The government is also in the midst of digitising public services through the establishment of GovTech Malaysia. This will ensure efficient and seamless delivery of public services by improving the quality of public data, efficient implementation, and strengthened monitoring.
The scourge of corruption, ill-gotten gains and bribery have no place in the new Malaysia. The people deserve far better, and so do the businesses and the investors who are drawn to our unique advantages.
The reforms we have made, and the ones we will make, for instance, transparency in procurement award and quality execution of any government business is now a rule, not a mere norm.
We will do our level best to cater to your needs and ease your process of doing business in our country, provided that you are in cohesion with realising our dream to chart new heights for Malaysia.
RESTRUCTURING OUR ECONOMY
Ladies and gentlemen,
The transformation that Malaysia sorely needs is mapped out in our MADANI Economy: Empowering the People, a robust framework to systematically address the structural deficiencies in the government’s fiscal policy and revenue drivers, the country’s economic ecosystem, and Malaysians’ well-beings.
The MADANI Economy framework not only addresses the longer-term issues about the country’s competitiveness and attractiveness as an investment destination, but it also addresses the immediate issues surrounding cost of living affecting ordinary Malaysians.
If you imagine Malaysia as a house, the MADANI Economy framework aims to do two things:
a) One, is to raise the ceiling of this house, which is to increase the economy’s overall potential and its competitiveness. This includes efforts to reverse premature deindustrialisation and catalyse new economic activities and industries, boost the productivity of firms and workers, thereby increasing national competitiveness.
b) Two, is to raise the floor of this house. We want to provide everyone in the country with an adequate quality of life. It encompasses policies on the provision of public goods, social protection, economic security and wealth sharing mechanisms to build a more equal society which is fundamental to elevating the quality of life for the people. The underlying philosophy on Raising the Floor is social justice, ensuring equal access and equal opportunity for all to facilitate upward mobility for everyone.
We seek to become one of the top 12 countries in the Human Development Index; we wish to raise the share of labour income in GDP to 45%; and we want to bring up our female labour force participation rate to at least 60%.
Within a period of ten years, we also strive to be within the top 25 countries in the Human Development Index and the Corruption Perceptions Index; and finally, we want to taper our fiscal deficit from 5.6% last year to 3% or less from next year onwards.
On the government’s part, the need to consolidate our fiscal position is the key to begin this transformation journey. We can no longer continue the blanket subsidies that benefit the rich more, and we have to enhance our tax revenue.
It is incumbent upon us to do these in order to have sufficient funds to invest in our people’s health and development.
PAVING OUR FUTURE
Ladies and gentlemen,
Today, I will share three key building blocks that clearly demonstrate the MADANI Economy in action. These are the first few concrete steps along the path that our economic development takes moving forward. These would be discussed in much greater detail in the other sessions held today, but do allow me to present a snapshot.
National Energy Transition Roadmap
The first, and one of the largest, most visible and tangible shifts in Malaysia can be seen in the recent release of Malaysia’s National Energy Transition Roadmap. It is driven by 10 catalyst projects in various stages of progress, and these fall into six energy transition levers of energy efficiency: renewable energy; hydrogen; bioenergy; green mobility; and carbon capture, utilisation and storage.
Renewables are a low-hanging fruit to increase Malaysia’s economic complexity and generate investment spillover, while at the same time help the country to achieve its net zero carbon emission target by 2050.
The renewables industry is growing fast, with US$495 billion poured in globally just last year alone, and it is a high-skilled industry that could help build Malaysia’s workforce capability and added value.
The National Energy Transition Plan will drive the nation towards achieving a renewable energy capacity mix target of 40% by 2035, and 70% by 2050. Going forward, coal energy production will be gradually phased out.
Our mission is to increase the renewable energy’s total primary energy supply (TPES) from 4% in 2023 to 22% in 2050. Natural gas is set to play a significant role, accounting for 56% of TPES by 2050. All in all, the government envisions total investment opportunities of US$247 billion to US$278 billion (RM1.2 trillion to RM1.3 trillion) by year 2050.
To facilitate the investments, we have lifted the ban on cross border trade in renewable energy, and set for a renewable energy exchange to be established and launched in 2024 to act as a market aggregator that will enable price discovery and monetise excess power.
Together with Sarawak Energy and Malaysia’s national utility company Tenaga Nasional (TNB), we are making progress in the cross-border energy business, and leading discussions in the Asean Power Grid, an initiative to construct a regional power interconnection to connect the region. To gain acceptance and build momentum, this initiative has started with cross-border bilateral terms and will gradually expand to a sub-regional basis before eventually leading to a total integrated Southeast Asia power grid system.
Furthermore, we have allocated US$430 million (RM2 billion) as seed funding for the National Energy Transition Facility to enable catalytic blended finance in areas such as the EV value chain, hydrogen energy, and carbon capture and usage. This seed funding is reserved for energy transition projects that are marginally bankable or yielding below-market returns.
New Industrial Master Plan 2030
It is also important for Malaysia to revitalise our manufacturing sector as a whole. For a developing economy, Malaysia has, over the decades, prematurely de-emphasised the manufacturing sector even though it generates a higher productivity than the services. Our manufacturing sector has also not moved with the times, and is stuck in the low-productivity and low-wage businesses.
The strategic solution for this lies in the New Industrial Master Plan 2030. In short, it is a key strategic component of the MADANI Economy that drives a focus towards high impact, high-growth sectors – E&E, chemicals, aerospace, pharmaceuticals and advanced materials such as minerals and metals.
The magic of course does not come from simply identifying areas of pursuit. Unlike the industrial plans of the past, this is a seven-year plan. With a short time-period to succeed, it is all about encouraging, developing and rewarding agility, intensity and a “true north” attitude to getting things done, and done well.
The New Industrial Master Plan has four missions: to advance economic complexity; to tech up for a digitally forward nation; to strive for a net-zero future; and to safeguard economic security and inclusivity. Rather than sectoral targets, the big shift here is to empower industry to be agile and to seek creative and unique ways to deliver the mission. It is, at one go, inclusive as well as inspiring.
To ensure implementation with industry, the plan also offers four enablers: to mobilise the financing ecosystem, foster talent development and attraction, strengthen best-in-class investor journey for ease of doing business and to introduce a whole-of-nation governance framework.
It will take US$20.3 billion (RM95 billion) in total investment to implement, predominantly derived from the private sector and mobilised from private equity, capital and financial markets. Close to 10% will be allocated by the government via the National Industrial Master Plan Development Fund and the National Industrial Master Plan Strategic Co-investment Fund.
As the variety of needs and scope for investment here can differ between the largest and smallest players, this is also an opportune moment to encourage a better blend of foreign direct investments (or FDI) and DDI (or domestic direct investments), and explore less conventional sources such as private equity, alternative fundraising, or other innovations as the participants see fit.
12th Malaysia Plan
Under the MADANI Economy framework, the government also made a significant review to Malaysia’s five-year plan, which is now in the midst of the 12th iteration. Some of the missions set in the MADANI Economy framework have been included into the ongoing 12th Malaysia Plan, which shall expire in 2025.
We are going to act expeditiously to realise the vision, primarily in the areas of eradicating hardcore poverty, restructuring our economy to one that is of high value-added and sustainable, as well as revamping the Islamic economy and financial markets with new product innovations and alignment with ESG principles.
While the MADANI Economy puts emphasis on jump-starting Malaysia’s industrial economy, the 12th Malaysia Plan Mid-Term Review gives a focus on bolstering the exports of Malaysia’s services sector, such as the creative and tourism industries.
THE GREEN SHOOTS OF RECOVERY
Ladies and gentlemen,
In the past few months, we have seen the early results from our whole-of-government commitment to deliver change to the Malaysian economy and its people. Signs of confidence and commitment in sectors that serve current global growth drivers reassure us that we are on the right path.
In August this year, the Germany-based global semiconductor company Infineon Technologies agreed to invest an additional €5 billion (US$5.4 billion) over the next five years to build the world’s largest 200mm silicon carbide power fabrication plant in Malaysia.
In the same month, China-based Geely Global, the automotive giant that owns Volvo, agreed to invest up to US$10 billion (RM45.6 billion) to build the largest automotive city in Malaysia, effectively making Malaysia its automotive base in Asean.
And of course, there is Tesla. Despite the fierce courting by other regional economies, we rather quickly won over Tesla. Together with that of SpaceX, which plans to build eight ground gateway stations with a capital expenditure of US$4 million, which is not inclusive of spending on leasing, power and fibre through Starlink Malaysia.
People often speculate what concessions or incentives this government has made to get this level of support from major global corporations. The truth is, there was not much. Elon Musk knows my life story, that I have spent more than half a century fighting to make Malaysia a better place for everyone. And he knows the strategic and latent strengths that Malaysia possesses. What sealed the deal was my explicit guarantee that he doesn’t need to worry about all the nitty-gritty, bureaucratic encumbrances that he may face in dealing with some other countries.
Companies like Tesla, Amazon, Infineon and Geely are but some of the leaders of global industry that have recently stepped up to be part of this change and put their trust in us. We intend to deliver fully, and hopefully, even beyond their expectations.
I hope I have clearly articulated Malaysia’s economic reform, our strategy to deal with the complexity of the times we live in, as well as provide a sense of the true mettle that lies in the leadership of this nation, its administrative and industry leaders.
With that, I thank you, ladies and gentlemen. – September 22, 2023
This is the edited version of Prime Minister Datuk Seri Anwar Ibrahim’s keynote address at the Invest Malaysia forum on September 21 in New York