Snared in the middle income trap

Malaysia is said to be caught in the middle income trap. With gross national Income (GNI) per capita of US9820 in 2012, Malaysia is in the upper middle income range of US 4086 and US12615 category of the World Bank.

By 2020 Malaysian government wants to breach the US12615 threshold to be classified as high income nation.

When PM Datuk Seri Najib Tun Razak came to office in 2009, moving up towards high income nation status topped his agenda.

But where are we now with just 6 years left to reach the high income status?

The salaries and wages survey report of Malaysia for 2012 shows that 9.09 million Malaysian workers out of 12 million workforces receive an average salary of RM1881 per month (US$6787 per annum).

In other words 75% of our workers are earning below the middle of the middle income range (US$8350) even though the national average falls in the upper middle income range. It’s a known fact that Malaysia has high income inequality, which pushed the average to near the upper threshold of the middle income range.

Ministry of human resource surveys highlights the average wage increases are at the rate of 2.4% per annum. At this rate, wages will take about 33 years to reach Malaysian target of US15000. So is high income nation status by 2020 possible?

With about 4 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 wages increase is remote and farfetched.

Besides, only about 28% of Malaysian workers are considered skilled for higher value added jobs. The never ending racial preferential policy has driven off 2 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.

Malaysian workforce includes 47% foreign workers, which acted as financial steroid, 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% of students enrolled in upper level secondary technical and vocational education, much lower than the average enrolment rate of 44% for OECD countries (EPU, 2010). Government must have been busy politicking whiles others equipped themselves with technical skills.

In 2012 the teaching of mathematics and science program was withdrawn after spending RM7 billion and 9 useful years. Whereas in 2014 after spending RM 6 billion and 3 years, the school based assessment (SBA) program is now put in ICU for serious surgeries. With frequent flip flops in education ministry policies producing high order thinking graduates remains a dream.

The Economic transformation program (ETP) was launched in 2009 to attract major investments that will drive GDP growth above 6% every year to cross the GNI of US15000 by 2020.

But the economy has been struggling to post an average growth rate of 5% since the past decade which is below the required average 6% 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 global economy. But domestic consumption, investment and government spending is expected to be on lower scale taking into consideration the measures to reduce subsidy cutting, narrowing current account deficit and reducing the 55% 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 GST in 2015. All these will put pressure on wage increase 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%.

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 Datuk Seri Najib Tun 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 spender but the outcome is higher debt and nothing to celebrate yet. All attempts to reform have been hijacked by self-serving hardliners. Government need 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.

Explore posts in the same categories: From the desk of Senator S Ramakrishnan

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