Malaysia's new economic blueprint to steady growth
Malaysia's new economic blueprint to steady growth
By Chen May Yee
KUALA LUMPUR (AFP): Malaysia's new economic blue-print to be unveiled this week is expected to apply gentle brakes to surging growth while pushing the service sector and an inadequate labor force to catch up.
The five-year Seventh Malaysia Plan is likely to target annual growth of eight percent, down from the torrid 8.8 percent of the previous plan, analysts said.
The plan, which will guide socio-economic development from 1996 to 2000, is to be presented to parliament by Prime Minister Mahathir Mohamad on Monday.
Rapid growth, a widening current account deficit and upward pressure on inflation marked the Sixth Malaysia Plan, and the new plan will have to tackle these problems, analysts said.
The slower growth target will call for big structural changes, focussing on increasing productivity with a more skilled labor force and better technology, they said.
"In trying to fine-tune (the economy) ... the formula for sustained growth will no longer be more capital and labor, now it is productivity," said Mustafa Mohd Nor, chief economist at Arab- Malaysian Securities.
"Exports must grow, services must go up, productivity must go up to reduce the cost of doing business," Mustafa said.
With the economy at full-employment, the only way to alleviate Malaysia's chronic labor shortage will be to upgrade training and education, economists said.
"The labor market is quite tight, not only in terms of quantity but quality," said Kevin Chew, an economist with Baring Research.
Unemployment was down to 2.8 percent last year from 2.9 percent in 1994 and three percent a year earlier.
The government has already moved to revamp its educational system, including switching emphasis from arts and science subjects to technical and vocational studies.
Technical training institutes are also being upgraded and foreign universities have been given the green light to set up branch campuses here.
While previous plans banked on Malaysia's attraction as a relatively low-cost manufacturing center, the country was now in limbo with rising inflation, analysts said.
"We are no longer low-cost enough anymore to compete with Vietnam (or) China," said Tan Teng Boo, managing director of investment consultancy Capital Dynamics.
"On the other hand, we are not skilled enough to handle high- tech industries, wafer plants, etcetera," Tan said.
While pushing for more high-tech sectors, authorities are also concentrating on services, including upgrading ports and freight and insurance charges to protect its deteriorating current account.
The current account deficit hit a record 17.8 billion ringgit (US$7.12 billion) last year and is projected to narrow to 17 billion ringgit this year.
The government might also look at exporting utilities like electricity to pad up its services account, especially with the huge Bakun hydroelectric dam in Sarawak set to begin operations in 2003, Mustafa said.
One area where the government might need some time to slow growth is construction.
Deputy Prime Minister Anwar Ibrahim last month forecast the country would issue 200 billion ringgit worth of construction contracts under the Seventh Malaysia Plan, compared to 112 billion ringgit under the previous plan.
Anwar had defended the continued strong growth as necessary to expand infrastructure capacities to reduce bottlenecks in the system. "That is still a big sum of funds ... so they must be involved in big projects," Mustafa said, but added that once most projects are completed in 1997 and 1998, construction growth was likely to taper off.
With slower overall growth, inflationary pressures are also set to ease, with the consumer price index expected to be capped below five percent, analysts said.