The bigger picture of competitiveness
T is through challenging times of hardships and uncertainties that the strong is separated from the weak.
In light of the current global macroeconomic slowdown, it is the country’s underlying economic resilience that keeps domestic businesses and household consumption afloat.
A recent global macroeconomic and business environment competitiveness report published by the IMD World Competitiveness Centre suggested that Malaysia’s global competitiveness ranking slipped to the 19th position (out of 61 economies) in 2015-16, down from 14th position in 2014-15.
According to the ranking, Malaysia is five spots behind Taiwan and only six ahead of China. Should this be taken as a warning sign that the Malaysian economic fundamentals are shaken?
The IMD competitiveness ranking heavily factors in macroeconomic performances in its criteria. Given the sharp deterioration of the ringgit exchange rate and higher costs of living, and following various domestic cost-push price pressures since 2014, these developments have certainly hurt our economic competitiveness.
However, if the weak ringgit and price pressure situations are transitory and would improve when the domestic economy rebounded, the decline in ranking could just be taken as a cyclical trend.
Therefore, the more important trends to take note of are the core fundamental factors of efficiency in market operations, logistics solutions, market transparency and business friendly policies.
According to a separate competitiveness study by the World Bank which emphasises more on “soft criteria”, i.e. efficiency in registering a property, obtaining credit, enforcing contracts and as such, Malaysia’s ranking in Doing Business 2016 Report fell one spot to 18th out of 189 countries.
Nevertheless, Malaysia (at 14th place) scores favourably in the ease in starting businesses against neighbouring Asean countries such as Thailand (96th) and Indonesia (173rd), and not too far from Singapore (10th).
Relatively less cumbersome procedures and shorter time to register a business is a positive advantage Malaysia has over red-taped laden economies such as Thailand and Indonesia.
While Malaysia’s competitiveness appears good on paper, have these “soft criteria” been translated into actual dollar and cents? nomic environment, it is a positive sign that foreigners still have confidence in our economy by bringing in capital.
Given the weak ringgit, it is arguably one of the more affordable investment opportunities for foreigners who remain confident in the Malaysian economy.
Notwithstanding the decline in global demand in terms of manufacturing output and oversupply in commodities such as crude oil, foreigners can lock in the value that the Malaysian market can offer at a cheaper exchange rate.
Therefore, it is a laudable effort by the gGovernment and Bank Negara to continue instilling confidence in the Malaysian economy and corporate landscape to ensure that the fundamental soundness of our market is not lost amid the noise of uncertainties and market volatility.
However, Malaysia cannot afford to rest on its laurels. The conundrum of the “middle income” trap remains a palpable threat.
Businesses and the authorities must recognise by now that the underlying matter for the economy to graduate into high-income nation status boils down to the rate of gross domestic product (GDP) growth.
The Malaysian labour force has been growing at 3.4% per annum and headline consumer price index has averaged around 2.44% annually since 2010. In order to achieve our economic objectives by the end of the decade, the official Malaysia real GDP growth target in the 11th Malaysia Plan is ideally around 5%-6% per annum between 2016 and 2020.
However, the latest World Bank global GDP forecast suggests that the baseline Malaysian GDP growth could only be 4.4%, 4.5% and 4.7% in 2016, 2017 and 2018 respectively, falling short of official projections.
While there are elements of cyclical slowdown in the World Bank’s projections as global macroeconomic recovery post-Global Financial Crisis remains disappointing, the downside risks of slower GDP growth due to structural issues could pose serious consequences to the economy.
A sluggish economic growth rate might not be able to sustain public debt, household income growth and full employment in the coming years. continuous manufacturing value-add, while keeping up with innovation in the services sector, particularly on the Internet-of-things.
Ultimately, the Malaysian domestic market is only as big as its 31 million population size and the total nominal value of private consumption GDP generated last year was only RM626.2bil.
In order to enhance opportunities for upside growth, there has to be a wider openness in the economy to trade with foreign countries and also to attract foreign capital as part of the solution strategy to keep GDP growth going afloat.
As mentioned, the Malaysian infrastructure and logistics are of global standards. Furthermore, stable government policies and robust financial market access also ensure connectivity and financial liquidity.
There is no reason for foreign capital to bypass Malaysia as an investment destination and head to neighbouring countries such as Thailand and Singapore, if not for the relative shortcomings within our shores.
The Malaysian economic promises remain commendable on paper, but could be lacking in execution. The Government has already outlined its thoughts on how our economy should grow under the 11th Malaysia Plan and what is left is to execute the ideas wholeheartedly.
Corporates would be responsive to the government plans as long as incentives are good and aligned to economic profit and growth.
In short, Malaysia remains an attractive destination for conducting businesses in an easily accessible market propped up by favourable economic policies. An outward looking economy anchored by steady domestic demand could be the ultimate formula to ensure a sustainable economic growth.