1. Perdana Leadership Foundation - CEO Forum 2014 TAKING MALAYSIAN PRODUCTIVITY FROM THE INDUSTRIAL ERA TO THE KNOWLEDGE ERA Stewart Forbes Executive Director, Malaysian International Chamber of Commerce and Industry (MICCI)

2. Productivity in the Knowledge Era ❖ where are we now? : the business community’s view of productivity today. ❖ how does the new emphasis on services change the productivity scenario? ❖ productivity challenges : can we meet them? ❖ moving productivity forward : preventing 2020 becoming a dead end.

3. Where are we now? ❖ Malaysia continues to grow - 6.4% GDP in 2014 Q2 with private investment growth of 12.1%. ❖ Malaysia continues to attract investors, domestic and foreign. ❖ Various indices (IMD Competitiveness, World Bank etc.) show improving global status. ❖ But - speaking to businesses in Malaysia, there remains concern over the immediate future … and the government’s willingness to address fundamental structural reforms.

4. Where are we now? ❖ Costs are rising both for businesses and for the public. Rising costs are seen as reducing competitiveness. ❖ Roll back of subsidies, while a necessary long term fiscal measure creates short term difficulties for smaller companies. ❖ Malaysia has full employment resulting in a need for foreign labour, without a satisfactory environment for managing this labour which is seen by many as being more productive than local labour. ❖ Businesses see leakages abounding further reducing competitiveness and government legislation, rules and regulations suffering from a lack of effective implementation.

5. Where are we now? There is a gap between expectations of business and what they see being delivered.

6. Where are we now? Accepting the inevitability of increasing costs, businesses can only remain competitive through a corresponding increase in productivity.

7. Where are we now? Malaysia’s productivity level has been growing but the average rate of growth has been flat over a considerable period of time, allowing many countries once our equal to surge ahead. This must change.

8. How do services change the situation? ❖ Productivity in manufacturing can be enhanced through Capital Deepening. ❖ This is a situation where the capital per worker is increasing in the economy. [1] ❖ Overall, the economy will expand, and productivity per worker will increase. ❖ Thus investing in new equipment, automation and other technological assets can help boost productivity.

9. How do services change the situation? ❖ Services productivity however is a people game and less driven by physical assets. ❖ There are technological assets to support service productivity and TFP, such as ICT but ultimately successful services depend on skilled people and quality processes. ❖ Here Malaysia continues to play ‘catch up’ with much more needing to be done to generate the necessary quality of human resources necessary and the balanced legislative framework to allow business to manage those resources.

10. Productivity in the Knowledge Era Malaysia’s productivity is better than many neighbouring countries with which we compare ourselves. Is this the correct basis for comparison and does it lead to complacency? Why not create stretch targets by tracking only countries better than ourselves?

11. Productivity in the Knowledge Era While Malaysia’s productivity is still on an upward trend we are years behind other developed nations. Ultimately, there is little value being a big fish in a small pond. Despite being a relatively small economy, Malaysia should aim to be a bigger fish globally.

12. Can we meet productivity challenges? This is not a question of ‘can we’ but an issue of ‘we must’. WE MUST reinvigorate our education and vocational training systems. WE MUST review the way in which we manage our human capital, which is our greatest productivity asset. WE MUST enhance Total Factor Productivity (TFP) in the form of technology and efficiency as a key driver of economic growth.

13. Will 2020 be a dead end? ❖ All the signs are that Malaysia will achieve its target of ‘high income economy’ fairly comfortably before 2020. ❖ The status of ‘developed nation’ is a different formula but that too is moving in the right direction. ❖ However, both these statuses are reversible (as Argentina found to its cost in the 1950s). ❖ Thus productivity driven competitiveness (costs will not decline) must be sustained beyond 2020.

14. Sustaining Productivity Malaysia’s productivity is growing faster under the various transformation programmes. Malaysia’s productivity is better than a number of neighbouring countries. Manufacturing will remain important and bring new high value industries to Malaysia. Services offers additional avenues for growth and new knowledge based businesses. Historic rate of growth at around 2% is much too low and must continue to improve. We should measure ourselves against better countries not worse and must not be complacent. Greater Capital Deepening will be necessary for greater sector productivity. Productivity in services is all about people and skills and there is concern that not enough is being done.

15. Conclusions - Business Perspectives ❖ Action should have been taken before so many countries surged ahead of Malaysia but we are on the right track. ❖ Government and private sector investment have resulted in a good capital stock which can still be further enhanced by Capital Deepening. ❖ Productivity (both labour and TFP) becomes the keystone that will support sustainable growth. ❖ In the Knowledge Era, productivity will be driven by initiative, skills, communications, and innovation and cost will be a secondary factor.

16. Conclusions - Business Perspectives ❖ Three targets for real productivity : ❖ An education system (primary, secondary, tertiary and vocational) on par with the best in Asia. ❖ A human capital management system (domestic, foreign and expat) tailored for Malaysia’s needs as a developed nation in the 21st century, incorporating appropriate safeguards for workers and employers. ❖ Supporting IT environment on par with the best in Asia.

17. Perdana Leadership Foundation - CEO Forum 2014 TAKING MALAYSIAN PRODUCTIVITY FROM THE INDUSTRIAL ERA TO THE KNOWLEDGE ERA Stewart Forbes Executive Director, Malaysian International Chamber of Commerce and Industry (MICCI) THANK YOU NOTHING LESS WILL DO!