Malaysia is said to be caught in the middle income trap. With gross national Income (GNI) per capita of US$9,820 in 2012, Malaysia is in the upper middle income range of US$4,086 and US$12,615 category of the World Bank.
By 2020 the Malaysian government wants to breach the US$12,615 threshold to be classified as a high income nation.
When PM Najib Abdul Razak came into office in 2009, moving up towards high income nation status topped his agenda.
But where are we now with just six years left to reach the high income status?
The salaries and wages survey report of Malaysia for 2012 show that 9.09 million Malaysian workers out of 12 million workforces receive an average salary of RM1,881 per month (US$6,787 per annum).
In other words 75 percent of our workers are earning below the middle of the middle income range (US$8,350) even though the national average falls in the upper middle income range. It’s a fact that Malaysia has high income inequality, which pushed the average to near the upper threshold of the middle income range.
Human Resources Ministry surveys highlights the average wage increases are at the rate of 2.4 percent per annum. At this rate, wages will take about 33 years to reach Malaysian target of US$15,000. So is high income nation status by 2020 possible?
With about four million legal and illegal foreign workers depressing the unskilled worker’s salary and the pro-foreign workers policies of businesses and government, any hope of wage increase is remote and far-fetched.
Besides, only about 28 percent of Malaysian workers are considered skilled for higher value added jobs. The never-ending racial preferential policy has driven off two million skilled Malaysian workers offshore for better prospects elsewhere. High wage earning Malaysians are developing other countries to achieve high income status.
The shortage of skilled workers and the mismatches and deficiencies in the education system, coupled with abundant low wage migrant workers, indicate the policy paralysis in transforming the nation into a high income nation.
The Malaysian workforce includes 47 percent foreign workers, which acted as a financial steroid, and has numbed the policy makers from moving into automation and high end skilled work to earn higher salaries.
The education policy-makers know that industries needs students with strong analytical and problem-solving capabilities, a good command of English, and effective social networking skills. But parochial and bigotry policies stands in the way to allow private sector to play a more direct role in education policy matters.
Only 10 percent of students enrolled in upper level secondary technical and vocational education, much lower than the average enrolment rate of 44 percent for Organisation for Economic Cooperation and Development (OECD) countries (EPU, 2010). The government must have been busy politicking whiles others equipped themselves with technical skills.
Frequent flip-flops in policies
In 2012 the teaching of mathematics and science in English programme was withdrawn after spending RM7 billion and nine useful years. Whereas in 2014 after spending RM6 billion and three years, the school based assessment (SBA) programme is now put in the intensive care unit (ICU) for serious surgery. With frequent flip-flops in education ministry policies, producing high order thinking graduates remains a dream.
The Economic Transformation Programme (ETP) was launched in 2009 to attract major investments that will drive GDP growth above 6 percent every year to cross the GNI of US$15,000 by 2020.
But the economy has been struggling to post an average growth rate of 5 percent since the past decade which is below the required average 6 percent to take the country into fully developed and high income status by 2020.
Post-2014 looks somewhat promising to an export-dependent Malaysia given the improvement in the global economy. But domestic consumption, investment and government spending is expected to be on a lower scale taking into consideration the measures to reduce subsidy cutting, narrowing current account deficit and reducing the 55 percent public debt against the GDP.
This year is expected to be an inflationary year as the rollback of subsidy is expected to push the cost of living higher because food, electricity, fuel and transport among others will cost consumers more.
This will be further compounded by the introduction of the Goods and Services Tax (GST) in 2015. All these will put pressure on wage increases, causing another round of cost push inflation. Malaysian households are already burdened with a high debt which will reduce the growth in household spending.
Under the current scenario the Malaysian government does not have much fiscal option to redress and stimulate the growth above the required 6 percent.
Given this prospect, the government needs to undertake painful and radical structural reform that is long overdue to hasten the process to reach the 2020 target. Is it possible?
Improving the skill and competencies of workers, improving technical skills of graduates, improving the quality of teaching profession, reducing the brain drain and last but not least, treating Malaysians as Malaysians and not segregating and segmenting into race and religion, are the sure ways to lift Malaysia from middle income trap to high income status.
But one public objection from one obscure hard-line group can paralyse and derail the entire government’s effort to restructure bureaucracy.
Does the government under the leadership of Najib Abdul Razak have the iron will to make the much touted and talked about structural reforms. The ETP and GTP initiatives were initiated with much pomp and splendour but the outcome is higher debt and nothing to celebrate yet.
All attempts to reform have been hijacked by self-serving hardliners. The government needs to detox and cleanse these parochial bigots and self-serving hardliners to achieve the high income status by 2020. Till then it remains an elusive goal.
S RAMAKRISHNAN is a former senator.
