The Way Forward for Malaysia

September 13, 2010

http://www.btimes.com.my

Global Competitiveness: The Way Forward for Malaysia

by Dato Seri Mustapa Mohamed
MITI Minister (mustapa@miti.gov.my)

RANKINGS have now become commonplace. Countries are being benchmarked based on the level of transparency and the integrity of their institutions. In the economic sphere, the competitiveness of countries is evaluated on an annual basis by a number of institutions.

These rankings have played a role in shaping people’s perceptions about countries and institutions. They may not be entirely accurate, but many take heed of the assessments. And, even if they do not provide complete assessments, they do influence decision-making.

Each year, the Ministry of International Trade and Industry (Miti) monitors the results of three major international reports on countries’ competitiveness, namely the World Competitiveness Yearbook (WCY) 2010 by the Institute of Management Development (IMD), the Global Competitiveness Report (GCR) 2010-2011 by the World Economic Forum (WEF) and the Doing Business (DB) Report by the World Bank.

Many parties may not agree with the criteria or the scores and, in some countries, the publication of these reports have stirred some controversy. In an open society that we are in today, we have to accept and deal with the issues head on.

In May this year, the WCY placed Malaysia within its top 10 list of most competitive countries, moving us up eight positions. This is an impressive achievement.

In the latest report released last week, the GCR ranked Malaysia at 26th position in a list of 139 countries, two positions lower than the previous year. The DB report for the year is expected to be published in November this year.

Questions have been raised as to why the results vary so significantly. One explanation lies in the different methodologies adopted by each organisation responsible for the reports.One may rely on perception, another on hard data and yet another on a combination of both. While both the WCY and GCR rely on a mixed approach, the GCR contains a higher percentage of perceptive data.

The report uses 30 per cent hard data and 70 per cent survey data. For its assessment of Malaysia, the WEF drew on responses by 110 executives from companies operating in Malaysia. The World Bank, which publishes the DB report, adopts a more perceptive approach to carry out interviews with a cross-section of business and government.

In the GCR report published on September 9, Malaysia scored 4.88 out of 7, which is a marginal improvement over the 4.87 scored last year.

The index is made up of over 111 variables organised into 12 pillars. These pillars are in turn divided into three categories, namely “Basic Requirements” which measure areas such as the strength of institutions, the level of infrastructure and macroeconomic stability; “Efficiency Enhancers” which look at the state of the labour market, financial market sophistication and technological readiness; and “Innovation and Sophistication” which is self explanatory.

Those in the top 10 list are developed countries, namely Switzerland, Sweden, Singapore, the US, Germany, Japan, Finland, the Netherlands, Denmark and Canada. Among Asia-Pacific countries, Malaysia ranked eighth but maintained a lead over all but one of our ASEAN neighbours.

The GCR highlights both Malaysia’s strengths and weaknesses. A number of the areas, particularly those relating to our weaknesses, require our continued attention. However, some are less accurate and require clarification.

I would like to address three areas where we were found lacking in the report:

* Secondary enrolment (99th)

In Malaysia, we are proud of our success in improving access to primary, secondary and tertiary education. Benchmarked against the performance of other countries, however, we have not fared as well. We were ranked 99th in the area of secondary enrolment because of an apparent enrolment rate of 68 per cent. However, this number captures only enrolment in public schools. Omitted are statistics of students enrolled in Chinese secondary schools, religious schools, private schools and schools run by Mara. If we were to incorporate all these data, we would arrive at an enrolment rate exceeding 88 per cent. If accurately reflected, our ranking would improve by at least 20 positions.

* Restriction on capital flows (74th)

There are very few restrictions on capital movements as a lot has been done in the last decade to liberalise capital flows. Most of the restrictions introduced in 1998 as a response to the Asian Financial Crisis have since been repealed. Last month, Bank Negara Malaysia further liberalised administrative rules on foreign exchange transactions, enabling the use of the ringgit in international trade transactions. The low ranking highlights the need for us to communicate more effectively the accurate picture of our forex regime.

* Business cost of terrorism (103rd)

This ranking emphasises the need for us to improve our international image. It is disheartening that we are ranked so low when we have not suffered a terrorist attack as a result of the enhanced efficiency of our security services. The fact that we scored so poorly indicates that we have to do more to promote Malaysia as a safe, friendly place to do business.

These perceptions mask some of our biggest strengths, which are also revealed in the GCR report.\

The GCR identified Malaysia’s strengths as our business sophistication, financial markets development and the level of protection we provide to investors. Malaysia is ranked first in the Legal Rights Index together with Hong Kong and Singapore. We are also ranked fourth on our Strength of Investor Protection.

These high rankings are no less due to the reforms we introduced in recent years, including the establishment of Intellectual Property Courts, the passing of an Anti-Competition Law, and a prospective review of the Arbitration Act and the Legal Profession Act.

We also did well in Financial Market Development, being ranked seventh. The financial sector has been progressively liberalised. We have consistently done very well in this area in all three assessments.

Malaysia improved on the Quality of Roads (24 to 21), Internet Access in Schools (40 to 36), Business Impact of rules on FDI (43 to 31) and Labour-Employer Relationship (19 to 16). We also achieved good scores in Business Sophistication (25th) and Innovation (24th), which augur well for our future. These are achievements that we must highlight to the international business community.

The main message I hope to convey is that whether we like what the GCR says about us or otherwise, we have to look at every area constructively and see where we can make improvements. We have to take this seriously if we are to improve investors’ perception of Malaysia.

On the part of the government, the Najib administration has been working very hard to improve Malaysia’s competitive position. We are implementing substantive reforms that will bring real changes on the ground. However, we have to effectively communicate these reforms to stakeholders.

A final point that I wish to make is that all Malaysians must be open to change and reform. This is what we aim to achieve with the Government Transformation Programme, the Economic Transformation Programme as well as the New Economic Model.

Countries like China, Vietnam, India and Indonesia have all implemented radical changes in the last few years. They are now seen as dynamic and vibrant economies partly because of bold initiatives undertaken in the past decade.

The government is firmly on the journey towards reform. The effective and efficient implementation of these reforms will result in higher incomes and better opportunities for all Malaysians.

Dato Mustapa Mohamed, an Economist, is the Minister of International Trade and Industry