Malaysian economy on the right track but with potholes
Malaysian economy on the right track but with potholes
One of Southeast Asia's rising economic stars is encountering
potholes on the road toward development. Johanna Son of
Inter Press Service reports.
KUALA LUMPUR (IPS): Malaysia's economy continues to speed
along the development track, but warning lights are signaling
problems that could choke its growth engine in the years ahead.
Signs of the country's wealth are easy to spot. Shopping
centers are filled with people and even more cavernous malls are
changing Malaysia's urban landscape. In bustling Kuala Lumpur,
the world's tallest building is rising above highways crammed
with brand new cars.
The statistics also reflect Malaysia's boom. The economy has
been growing by eight percent annually in the last seven years
and was projected to grow by 8.6 percent in 1994. It is expected
to grow by 8.4 percent this year and by 8.2 percent in 1996.
Despite rivalry from Asia's new favorites like China and
Vietnam, foreign investments in Malaysia rose by nearly 200
percent in the first nine months of 1994 compared to the previous
year. Malaysian firms are themselves investing abroad.
The country of 19 million people also reached full employment
in 1992 -- eight years ahead of the date set by government
planners.
"Actually, we can give ourselves a pat on the back," Malaysian
Prime Minister Mahathir Mohamad told the United Malays National
Organization (UMNO), the lead party in the ruling National Front
coalition, in November.
"Today Malaysia is seen as a model country," he said, because
it has moved from a producer of raw materials to one where
manufactured goods make up 78 percent of its industry exports.
When Deputy Premier and Finance Minister Anwar Ibrahim
presented the 1995 budget in October, he submitted one that
contained tax breaks and a bonus for civil servants and security
forces because the government expected US$252.8 million budget
surplus.
No one says Malaysia's boom will go bust soon, but experts say
it is time to address deeper ills that may threaten the country's
ability to sustain its impressive growth for the long haul.
"The Malaysian economy began to show signs of overheating
after a period of rapid expansion since 1987," says Muthi
Samudram of the Malaysian Institute of Economic Research (MIER),
an independent think tank, in a study submitted to the Asian
Development Bank (ADB).
Some of the danger signals are a worsening labor shortage,
wage rises that are exceeding growth in productivity, imports
that are galloping past exports, inflationary pressures and the
need for more local investments.
Malaysia's industrialization has been such that it is running
short of labor, drawing over a million foreign workers and
becoming Southeast Asia's mecca for jobseekers. The nation will
be short by two million workers by 2020 -- the year by which
Mahathir says Malaysia would be fully industrialized.
International Trade And Industry Minister Rafidah Aziz has
also expressed concern about very rapid hikes in wages: "This is
an unhealthy situation as it will affect our competitiveness."
According to government figures, wages grew by 6.7 percent and
outpaced a 5.3 percent rise in productivity from January to July
1994.
Likewise, the country may not be producing enough technically
able talent to help sustain its growth curve. Says Muthi: "The
declining trend in enrollment of students in science stream is
very disturbing when the nation is embarking on the
industrialization path."
The shortage of skilled labor is especially acute. Official
figures expect a gap of 17,200 engineers for 1991-2000.
Malaysia's Industrial Master Plan says the supply of engineers
must increase from 12,000 in 1985 to 50,000 by 1995.
The Mahathir government has been trying to close the gap by
encouraging technical training and proposing the use of English
in schools to move up the technological ladder like the Asian
tigers and build up a weak industrial base.
The economy's continued growth at full employment tends to
push inflation, expected to hit 4.3 percent next year from this
year's 3.9 percent. Still, as ADB senior economist Naved Hamid
notes, four percent inflation is an achievement by itself.
Economists point to Malaysia's widening current-account
deficit, spurred by a services deficit that was expected to reach
$2.78 billion by end of last year as foreign investors
repatriated profits and dividends.
There have been fears that foreign firms will pull out once
labor costs start rising. But Hamid says, "Foreign multinational
companies are not footloose in Malaysia. They are there to stay."
He believes the electronics industry -- one of the country's
key strengths -- will go a long way in keeping Malaysia's
economic machine revved up. The country remains among the world's
major exporters of electronic products.
Instead of pulling out, foreign electronics firms have shifted
labor-intensive products like black and white TVs to China or
Vietnam but kept the higher technology ones in Malaysia.
Economists, though, caution against relying too much on
foreign investments. Says Muthi: "It is important to recognize
that Malaysia can no longer depend on the high inflows of FDI.
Domestic investments have to be promoted vigorously and they need
to play an important role for sustained economic growth."
The government targeted $31.75 billion in investments for
1991-1995 but hit $33.7 billion in July 1994. The country aimed
to source 60 percent of this from abroad and the rest locally,
but as of July 1994 ended up with the reverse ratio.
Hamid says Malaysia has already earned its tiger stripes.
While the country may not have the industrial base of Japan or
Korea or their per capita incomes, it is a tiger by its rapid
growth in the past 30 years, exporting power and reducing
poverty.
But while standards of living have indeed improved drastically
in Malaysia in just a generation, such economic success is
extracting a social price as incomes grow and youths leave farms
for cities.
Problems like drug abuse, lepak (loafing by youths) and bohsia
(a Hokkien phrase that literally means 'no sound' but refers to
prostitutes) were serious enough to be discussed at UMNO's
general assembly in November, not least because they are
affecting Malay youth.
"Wealth and progress also have their problems," Mahathir said.
"Our family institution has more or less been crippled. Exposed
to urban living conditions with extraordinary freedom, many of
our children are affected with social diseases."