NEAC National Economic Advisory Council New Economic Model for Malaysia NEAC

Section I Issues and Challenges www.neac.gov.my 2

e We Have Been in the Middle Income Trap for Quite Some Time History shows the need of a compelling reason to change is required to escape GNI Per Capita 1990 - 2008; USD thousand (USD thousand) Korea 22 20 Slovakia Czech Rep 18 16 14 Poland 12 HIGH INCOME BOUNDARY 10 Chile 8 Argentina 6 Malaysia 4 Thailand 2 Indonesia Source : World Bank, NEAC Analysis www.neac.gov.my

Pre-Crisis growth gradient Post-Crisis growth gradient Malaysia’s Growth Trajectory Has Diverged Lower Slower growth means our aspirations will take longer to achieve all things being constant Pre-Crisis growth gradient Divergence Post-Crisis growth gradient www.neac.gov.my

Average annual GDP growth Post Asian Crisis, Our Growth Rate Has Been Mediocre We are no longer a clear leader in the region having lost our shine Average annual GDP growth Pre-crisis 1990-1997; % Post-crisis 2000-2008; % China China Malaysia Vietnam Singapore India Vietnam Malaysia S. Korea Singapore Taiwan Indonesia Indonesia Philippines Our growth rate is now equivalent to that of our neighbouring countries Thailand S. Korea India Thailand Philippines Taiwan US UK UK US Japan Japan Average 6.0 Average 5.0 www.neac.gov.my

Mid-Term Review Target Lacklustre Demand-Side Performance Indicators Given the state of today, private investment is key Components 2006-10 Estimate 9th MP Mid-Term Review Target GDP 3.2 6.0 Consumption 5.6 7.6 Public 4.1 6.2 Private 8.0 Investments 3.7 8.6 6.8 7.0 -0.4 9.8 Exports -0.3 4.8 Imports 1.0 6.4 www.neac.gov.my

Private & Public investment as share of GDP Not Investment But Consumption Has Been Driving Growth The private sector has taken a backseat with the government filling in the vacuum Private & Public investment as share of GDP 1989-2008;% Average annual growth 1991-2006; % Pre-crisis 1991-1997 Post-crisis 2000-2006 Private consumption Government expenditureGovernment expenditure Investment www.neac.gov.my

Specific areas of weakness are preventing us from moving forward - fundamental reform is long overdue www.neac.gov.my

WE CANNOT CONTINUE AS WE ARE Amidst Global Changes, Our Advantages are Being Undermined We must act before our position deteriorates further Our strong position in commodities and manufacturing is being eroded Global investment is focusing on larger scale markets, not small economies Lack of talent and innovation, ineffective institutions and widespread corruption are barriers to growth Intense competition in our new sources of growth e.g. medical tourism, ICT, and Islamic products and services Our immediate neighbours have renewed vigour evidenced by growth rates; reforms are well being implemented In the region, our economy was one of the hardest hit by the recent global crisis WE CANNOT CONTINUE AS WE ARE www.neac.gov.my

Section II The New Economic Model www.neac.gov.my 10

The Prime Minister’s Vision - Transforming Malaysia The Two Pillars of the National Transformation Programme 1Malaysia – People First, Performance Now Preservation and Enhancement of Unity in Diversity Government Transformation Plan (GTP) Effective Delivery of Government Services Economic Transformation Programme (ETP) New Economic Model A High Income, Inclusive And Sustainable Nation High Income Inclusiveness Sustainabiliy 10th & 11th Malaysia Plan Roll-Out Macroeconomic growth targets & expenditure allocation Implementation of Government’s Development Programmes www.neac.gov.my

Meets present needs without compromising future generations The New Economic Model (NEM) Aspirations of a united and advanced nation – The Goals to be Achieved Rakyat Quality of Life Targets US$15,000 - $20,000 per capita by 2020 Meets present needs without compromising future generations Enables all communities to fully benefit from the wealth of the country HIGH INCOME Inclusiveness SUSTAINABILITY www.neac.gov.my

The Goals High Income Inclusiveness Sustainability Lifting the real growth rate to an average of 6.5 % per annum over the 2011-2020 period Enhance growth for expanding economic opportunities Promoting sustainability through improved public financial management Per capita GDP will rise to about USD 17,700 by 2020 Pursue equitable and fair opportunities and fairness in process Environmental sustainability as top priority Aggregate demand will have to grow at a robust pace Accelerate liberalisation for growth Will unlock the value of investment to be as a main driver of economic growth by 2020 , as well as labour productivity and efficiency Focus on the bottom 40% of households and small business Private consumption will rise and increase its share of GDP Emphasis opportunities for inclusiveness Public consumption will slow down Stress knowledge creation and the knowledge economy

The Economic Transformation Programme (ETP) Section III The Economic Transformation Programme (ETP) www.neac.gov.my 14

The Economic Transformation Programme (ETP) The reforms required to escape the middle income trap Enabling Actions Strategic Reform Initiatives Outcomes Coherent “big push” to boost transformation and growth Re-energising the Private Sector Developing Quality Workforce and Reducing Dependency on Foreign Labour Creating a Competitive Domestic Economy Strengthening of the Public Sector Transparent and Market friendly Affirmative Action Building the knowledge base infrastructure Enhancing the Sources of Growth Ensuring Sustainability of Growth Break logjam of vested interests through political will and leadership High Income Middle Income Trap Prepare Rakyat for change Inclusive- ness Sustain- ability Risk Downward Spiral Feedback: Review, Revise www.neac.gov.my

Economic Transformation Requires Tough Decisions and Bold Measures How far are we willing to go in the reforms? Five (5) Selected Tough Decisions To Be Made Restoring market prices for goods and services will improve economic efficiency but may initially raise consumer prices and costs of doing business Practices that promote fair and equal opportunity will inspire market confidence and create a competitive economy but may lead to political repercussions Reduced dependence on foreign labour encourages firms to move up the value chain or embrace automation while those that cannot will exit, costing some local jobs Flexible hiring and firing reduces entry and exit costs for businesses while wage levels will better reflect skills; but the perception of less job security will irk unions Greater decentralisation in decision making to achieve speedier implementation and effectiveness but may require some delegation of authority THERE MUST BE A CHANGE IN MINDSET AND POLITICAL WILL www.neac.gov.my

Eight (8) Strategic Reform Initiatives (SRIs) All SRIs have cross-cutting impact over all sectors Re-energising Private Sector Developing Quality Workforce Competitive Domestic Economy Strengthening Public Sector Transparent & Market Friendly Affirmative Action Building knowledge base infrastructure Enhancing Sources of Growth Ensuring Sustainability of Growth 1 8 2 7 3 6 4 5 www.neac.gov.my

Re-energising the private sector www.neac.gov.my

Developing a quality workforce and reducing dependency on foreign labour www.neac.gov.my

Creating a competitive domestic economy www.neac.gov.my

Strengthening the public sector www.neac.gov.my

Transparent and market-friendly affirmative action www.neac.gov.my

Building the knowledge base and infrastructure www.neac.gov.my

Enhancing the sources of growth www.neac.gov.my

www.neac.gov.my

Ensuring sustainability of growth www.neac.gov.my

What’s next from the NEAC? Section IV What’s next from the NEAC? www.neac.gov.my 27

NEAC Part 2 : Policy Measures and Implementation Framework Participation of stakeholders to ensure ownership and buy-in on detailed actions NEAC Part 2: Policy Measures and Implementation Framework Planning Current Reform Initiatives already announced: Light the Fuse for Momentum Roll-out ETP policy measures NEAC Continuous Engagement of Ministries and Stakeholders Public Consultation NEAC Task Forces on SRIs for Policy Measures And Implementation Framework Planning NEAC input for 10th MP NEM Launch by Prime Minister 10th Malaysia Plan Launch Endorsement of ETP Implementation Plan www.neac.gov.my

present needs without compromising future generations New Economic Model (NEM) Economic Transformation Programme (ETP) Rakyat Quality of Life Targets USD15,000 - USD20,000 per capita by 2020 Meets present needs without compromising future generations Enables all communities to fully benefit from the wealth of the country HIGH INCOME Inclusiveness SUSTAINABILITY 8 Strategic Reform Initiatives (SRIs) Re-energising Private Sector Developing Quality Workforce Competitive Domestic Economy Strengthening Public Sector Transparent & Market Friendly Affirmative Action Building knowledge base infrastructure Enhancing Sources of Growth Ensuring Sustainability of Growth 8 7 1 2 6 5 3 4 End National Economic Advisory Council www.neac.gov.my