Enhancing productivity
A key element in an increasingly challenging global economy
ALTHOUGH Malaysia’s productivity growth over the last couple of years has been quite encouraging, the country still has a long way to go to achieve the level that requires of it to be considered a high-income economy.
According to the Malaysia Productivity Corp (MPC), the government agency that promotes productivity growth and innovation in the country, Malaysia needs to have a productivity level of at least US$28,140, alongside a per capita income of US$15,000, by 2020 to achieve that lofty goal. Based on current exchange rates, that would translate into a productivity level of RM87,500 and a per capita income of RM46,672.
Malaysia’s productivity level last year stood at RM54,023. Its per capita income, on the other hand, was estimated to be RM28,725 (US$9,575).
In its recently released Productivity Report 2011/2012, the MPC argues that productivity-driven growth is what’s needed for the country to achieve a high-income status. This is because productivitydriven growth is the only element that can deliver sustainable and quality economic development for the country.
As MPC chairman Tan Sri Azman Hashim puts it, “productivity growth is the impetus towards raising the living standards of an economy over the long term.”
Productivity, which measures the amount of output per worker per year, is a key indicator of the overall competitiveness and innovation of an economy. Essentially, it is the reflection of the efficiency of the country’s economic system and the effectiveness of its economic policies.
Aiming high
Malaysia registered productivity growth of 4.6% last year on the back of a gross domestic product (GDP) growth of 5.1% and a 0.6% increase in employment.
This compares with a productivity growth of 5.8%, which amounted to RM51,407, in 2010 when the country’s GDP grew 7.2% and employment rose 1.4%.
According to the MPC’S report, Malaysia’s productivity growth last year was higher than that of many developed countries under the Organisation of Economic Cooperation Development (OECD) such as South Korea (2.1%), Finland (1.9%), United States (1.2%), Canada (0.6%), United Kingdom (0.5%) and Japan (-2%).
It was, however, lower than that registered by key emerging economies such as China (8.7%), Indonesia (5%) and India (4.9%).
Among the OECD countries, Malaysia’s productivity level of US$14,217 last year was significantly lower than that of Ireland (US$96,559), United States (US$92,369), Japan (US$74,258) and South Korea (US$34,490).
Compared with selected countries in Asia, Malaysia’s productivity was higher than that of Thailand (US$4,801), China (US$4,443), Indonesia (US$3,040) and India (US$3,040), but lower when compared to the more developed countries in the region such as Hong Kong (US$65,174), Singapore (US$55,702) and Taiwan (US$43,827).
“Being still a developing nation, our productivity level will naturally be a lot lower than those of developed countries,” International Trade and Industry Minister Datuk Seri Mustapa Mohamed explained in the press briefing in conjunction with the launch of MPC’S latest report on the country’s productivity performance.
He notes that as long as Malaysia could maintain a minimum productivity growth rate of 4% to 5% every year from now till the end of the decade, the country would be on the right track to achieve its highincome ambition.
Challenges ahead
But in the face of an ailing global economy, triggered by the worsening debt crisis in Europe and ongoing structural adjustments in the US economy, it is hard for tradedependent economies like Malaysia to not any feel the negative impact.
MPC acknowledges that Malaysia, being a small and open economy, will be vulnerable to major changes in the global economic environment.
The best option, therefore, is to concentrate on domestic consumption, it stresses.
The journey ahead for Malaysia will undoubtedly be challenging, as one of its engine of growth, that is, exports, take a back seat.
Nevertheless, MPC believes that the country’s economy will still be able to sustain its growth momentum this year, with productivity expected to grow at more than 4%.
MPC argues that Malaysia’s productivity will benefit from the implementation of more Entry Point Projects (EPPS) under the Economic Transformation Programme, with the private sector driving growth and Government playing a supportive role in improving productivity.
According to MPC’S projection, construction and services will be the main sectors driving the country’s overall productivity growth this year.
Productivity in the construction sector is expected to grow 5.6%, in line with several major infrastructure projects that will be implemented this year, while productivity in the services sector is expected to expand 4.9%.
The manufacturing sector, however, is expected to remain under pressure due to the ongoing global economic uncertainties, with productivity in the sector expected to register a modest growth of 2.3% this year, compared with a 2% growth in 2011.
Simplifying business
According to Azman, several initiatives are already in place to enhance the country’s productivity.
One of the initiatives that has been highlighted in the MPC report is modernising business regulation.
This includes removing unnecessary regulatory burden through comprehensive review of regulations that impede business innovation and effectiveness.
The burden of regulation on business in the country last year was estimated at Rm15bil, or 2.5% of its GDP.
By modernising business regulation, the Government hopes to slash the cost of unnecessary regulation by Rm1bil a year through 2015.
Another initiative that the MPC has embarked on is modernising business licensing to create a favourable and competitive business environment in the country.
This effort is done in collaboration with the Focus Group under Pemudah, or the Special Task Force to Facilitate Business.
To date, 52% of the 761 licences reviewed by the Focus Group have been identified for elimination or simplification.
This initiative is expected to be completed by this end of the year, and is expected to see a reduction of Rm729mil in business licences compliance cost. Housing starts and industrial production exceeded forecasts in April, pointing to strength in the US economy at the start of the second quarter.
Starts rose 2.6% to a 717,000 annual rate from March’s revised 699,000 pace. Industrial production rose 1.1%, the most since December 2010, indicating the world’s largest economy is withstanding the fallout from the European debt crisis. Auto purchases have exceeded a 14million annual rate in each month this year, the strongest performance since early 2008.
Europe: Mood is gloomy
A Greek caretaker government will prepare new elections for next month in what is shaping up as a ballot on whether the country should remain a euro member.
European inflation slowed last month and exports dropped in March as the euro region’s spreading fiscal crisis undermined the economy and consumer demand. The inflation rate in the 17-nation euro area fell to 2.6% from 2.7% in March.
China: Less inflow of FDIS
Foreign direct investment (FDI) inflows dropped 2.4% in the first four months of 2012 versus last year, the longest period of declining inflows since the depths of the global financial crisis and a sign of external economic headwinds.
The country drew Us$37.9bil in FDI between January and April, drown from Us$38.8bil attracted in the same period in 2011. April’s inflow alone was Us$8.4bil, down from Us$8.5bil a year earlier.
Japan: Better than expected
Machinery orders fell less than economists forecast in March, as earthquake reconstruction helped to support the nation’s growth.
Bookings decreased 2.8% from the previous month, when they rose by the same amount
India: Inflation quickens unexpectedly
Inflation unexpectedly accelerated in April, crimping the central bank’s scope to bolster economic growth by extending interest-rate cuts.
The benchmark wholesaleprice index rose 7.23% from a year earlier, after climbing 6.89% in March, compared with the median estimates of a 6.67% gainby 32 economists surveyed by Bloomberg.
South Korea: More workers
Unemployment rate held at a two-month low at 3.4% in April,as demand increased for jobs in health, social welfare and education. The number of employed people increased 1.9% to 24.76 million last month from a year earlier. Source: Bloomberg