Due to low oil and commodity prices Malaysia’s economy is suffering an economic slowdown. Najib has sought to replace the country’s economic aspirations with ideas more closely resembling South Korea’s, but will this work in Malaysia?
By Rasa Sarwari
The World Bank recently cut Malaysia’s forecasted growth due to the country’s ongoing economic slowdown and stagnating export sector. The global expert body’s reports estimate that Malaysia will now see its GDP growth rate slow to 4.2%, from the 5% of the previous year, and growth rates above 5% aren’t foreseen in the near future.
Currently, labour-intensive manufactured goods help drive economic growth as the country’s number one export. Moreover, Malaysia is the second largest oil exporter in ASEAN after Indonesia, and its economy relies heavily on its oil export sector. However, this market has taken significant losses since the oil crash of 2014.
Malaysia headed towards economic slowdown
Sudhir Shetty, the World Bank’s chief economist for the East Asia and Pacific Region, commented on Malaysia’s economic outlook stating “the slowing in growth … is largely because of the impact of subdued global demand on its open economy. And this is compounded by low commodity prices”.
And the region’s economic troubles are just beginning as “a sharp global financial tightening, a further slowdown in world growth or a faster-than-anticipated slowdown in China [will] test East Asia’s resilience”, Shetty explained. The wider risk of economic slowdown within Asia-Pacific regionally, and particularly in ASEAN, has led Shetty to believe that “these uncertainties make it critical for policymakers to reduce financial and fiscal imbalances that have built up in recent years”.
In the case of Malaysia, Najib Razak is both Prime Minister and Minister of Finance. As such, his policies have a direct effect on the nation’s outlook. And as rumours abound that the economy is headed towards bankruptcy, Prime Minister Najib has sought to dispel fears by saying “the country’s economy, even the world economy, has its ups and downs”.
Despite these reassurances, Malaysia’s international standing in the World Economic Forum’s annual Global Competitiveness Report has dropped from 18th place to 25th, out of 138 countries. This drop in global economic competitiveness is due to its declining score in eight of the twelve categories of the report.
South Korea’s model of economic development
During an interview last month with The Korea Times, Prime Minister Najib said he wanted to follow South Korea’s economic progress into a “knowledge-based, high value-added economy.” He added that “we take great interest in and are closely following the development of your creative economy model, with continued innovation serving as the backbone of Korea’s economy… we hope to learn from Korea in this respect.”
At the same time, Najib has sought to adhere to his party’s principles of economic development; inclusivity, sustainability, and innovation. Accordingly, he emphasises that “a sustainable economy is one in which we take care of our environment while developing the country … inclusivity is ensuring our people have the right skills by investing in training … lastly, we are trying to introduce a real focus not just on innovation, but on commercialising innovation”.
Currently, Malaysia’s economic growth centres on its 2.1 million strong migrant labour force which has allowed for the production of cheap manufactured goods, as well as hydrocarbon exports. But in the future, Najib plans a different direction for Malaysia’s future economic development model; relying on the knowledge-based sector. He intends to raise the amount of educated and skilled professionals in the country, reducing its need for migrant labour and oil revenue, as well as increasing economic growth and wages through productivity.
Despite Prime Minister Najib’s optimism, many critics believe that this transition would take decades. Moreover, many of Malaysia’s large corporations, which make billions through their palm oil plantations and factories, are not easily enticed to leave profitable industries. It is also worth noting that displacing Malaysia’s huge migrant workforce could lead to a humanitarian catastrophe when the Malaysian Employers Federation’s (MEF) estimates that there are six million legal and illegal foreign workers in the country.
When the Prime Minister, and the country, already has so much at stake he needs to step carefully. The idea of raising the bar of the knowledge-based economy is good, but what about today’s average worker? He needs to get to work on getting people to work, and fast.