The World Bank is supportive of the reforms Najib intends to carry out.
The bank noted that Malaysia, like its fellow middle-income neighbours Indonesia, Thailand and Philippines, is trying to move out of the middle-income trap but said it requires investment in infrastructure, equipment, education and skills in levels far exceeding what they are currently experiencing, which is well short of the Republic of Korea, Japan, and Singapore when they were at similar per capita income levels, when they were at the same development stage.
“The slowdown in investment does not stem from a lack of savings—indeed, in all these countries, domestic saving exceeds domestic investment, resulting in external current account surpluses,” noted the bank in its report on economic policy in the developing world titled The Day After Tomorrow.
“An extreme example is Malaysia, where the current account surplus was 17 per cent of GDP in 2008 and 2009.”
It added that rigidities in the labour market and entry barriers tend to discourage private investors in Malaysia.
The bank however commended the Najib administration’s New Economic Model (NEM) with its emphasis on private sector led growth, innovation, removal of labour market restrictions and focus on talent, saying that it is representative of reforms that the nation requires. The prime minister had also earlier managed to push through several reforms such as liberalising the financial sector and selected services sub-sectors.
Malaysia has also recently embarked on a slew of private sector driven projects under its Economic Transformation Programme (ETP) that would require private funds to the tune of USD266 billion (RM822 billion).
The ETP aims to roughly triple gross national income (GNI) in the next 10 years.
Turning around the sentiment of private investors however will be one of the biggest challenges faced by the present government.
Many investors are mindful of the constraints in Malaysia including the lack of a world class workforce and education system, policy inconsistencies, bureaucratic red tape and the widespread acknowledgement that four decades of affirmative action has affected the country’s competitiveness.
A recent report by the Economist Intelligence Unit also noted that political resistance has delayed radical reform measures required to restructure the economy to a high income one.
A recent report by CIMB citing government statistics showed that Malaysians are investing more money abroad. The flow of money heading out in the second quarter saw a sharp increase to RM6.2 billion from the first quarter of this year when RM3.8 billion was recorded as direct investment abroad.
CEO of government think tank Pemandu, Datuk Seri Idris Jala appeared to acknowledge that private investment is largely a game of confidence.
“If there is no hope in the future, there is no power in the present,” he said recently.
What will be closely watched is whether the first batch of seven ETP. projects will commence soon as that would likely have a knock-on effect on investor confidence.
Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah said last week that if the seven ETP projects which are said to have named and serious investors, could take off next year, it would “give confidence”.
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