THE recent unveiling of the Madani Economy: Empowering the People framework is a move to navigate Malaysia towards being the economic leader in the South-East Asian region ahead of Budget 2024, which is expected to be tabled this October.
During the launch, Prime Minister (PM) Datuk Seri Anwar Ibrahim said the new framework addresses long-term issues such as the country’s competitiveness and attractiveness as an investment destination, as well as current issues like the increased cost of living.
Aside from that, the framework has already mobilised the government’s short-term aims to address pressing matters including accelerating the implementation of poor school and clinic projects, as well as eliminating severe poverty this year.
“Madani Economy will be the foundation of numerous more specific policies, including the National Energy Transition Roadmap, the New Industrial Master Plan 2030 (NIMP), and the Half-Term Review of the 12th Malaysia Plan (12MP), which will be revealed later,” Anwar said during the launch on July 27.
Concurrently, the framework establishes seven benchmarks as medium-term targets to be achieved within 10 years, including placing Malaysia in the top 30 largest economies in the world; top 12 in the world for the Global Competitiveness Index; ensuring that labour income reaches 45% of total income by 2025, up from 40%; increasing the participation of women in the labour force up to 60%; raising the Human Development Index to the global top 25; boosting the Corruption Perception Index to the world top 25; and maintaining fiscal sustainability with a fiscal deficit of 3% or less.
Leading Asian economy
Aiming to position Malaysia as Asia’s economic leader, Anwar highlighted the need for a revamp of the country’s economic structure.
Among the problems afflicting the economic system is the premature contraction of the industrial sector. For instance, the manufacturing sector’s contribution to GDP has fallen below 25%.
“The NIMP will revitalise industrialisation and kickstart a new economy. In the short term, the half-term review of the 12MP will allow the government to analyse and define priorities, including combining medium-term growth with more sustainable fiscal policy,” Anwar said.
The framework highlighted a regional (Asean) agenda which requires the need to establish greater economic integration with neighbouring countries, especially considering the world is facing supply chain constraints; the need to go beyond Free Trade Agreements; and emphasising new industrial mission under NIMP which will centre around activities that offer high-added value or economic sophistication.
Additionally, the government will also introduce outcome-based tax incentives to support and reward companies focusing on high-impact activities.
The second measure is to make Malaysia an investment destination which focuses on strengthening investment promotion agencies under the Malaysian Investment Development Authority (Mida) to attract investment and facilitate investor affairs proactively; reviewing investment incentives to focus on encouraging investments that generate high-income jobs and are sourced locally; and upgrading industrial areas with complete infrastructure and increase human capital development to meet the needs of investors.
As a start, the government has allocated RM100 million to complete the infrastructure of the industrial area which focuses on the green concept.
Concurrently, Domestic Direct Investment (DDI) will be set as one of the key performance indicators (KPI) for Malaysia’s investment achievements.
Thirdly is to internationalise local startups and small and medium enterprises (SMEs).
The framework highlighted the need for government-linked companies (GLCs) and government-linked investment companies (GLICs) to continue pushing DDI investment and support local vendor development in strategic industries such as electrical and electronics (E&E), digital economy and aerospace; and increase financing for export growth, including the Mid-tier Enterprise Development Programme and the Market Development Grant (MDG) by Malaysia External Trade Development Corp (Matrade), with an additional of RM20 million.
The framework also highlights the need for the capital market to be more active by allowing more firm listings and new local unicorns.
For this, the Securities Commission Malaysia (SC) will design a Financial Market Reform Policy that will simplify investment for retail; attract more investors for SMEs as well as the country’s new growth activities; and boost capital market competitiveness globally.
Malaysia ranks top 20 in the Global Start-up Ecosystem Report 2023 with a value reaching US$46 billion (RM208.38 billion) in the first half of 2020 to 2022.
Moving forward, the government together with GLICs will invest additional RM1 billion to match private funds to support local start-ups and encourage technopreneurs.
This includes ensuring the provision of funds for each phase of high-growth companies; expand the implementation of programmes such as Corporate Hackathon and MyHackathon; and allocate an additional RM100 million to intensify the research, development, commercialisation and innovation (R&D&C&I) ecosystem focusing on industrial needs, renewable energy (RE) a, food security and new growth activities; as well as increasing RM100 million of matching grant to assist MSME shift towards a more digital business model for the implementation of Digital ID.
The framework also envisions Malaysia as the global Islamic economy leader.
Today, the Islamic banking market accounts for 44.5% of financing (RM974.1 billion), while the Islamic capital market accounts for 64.3% (RM2,322 billion) of the Malaysian capital market.
“Although Islamic finance has been established for a long time, we need to transition towards something more sustainable and effective.
“Efforts have begun through BNM and the SC to draft the Halalan Tayyiban concept to flow through the Malaysia International Islamic Financial Centre (MIFC) in collaboration with the Islamic financial industry and ecosystem, including zakat and waqf boards, the banking system, and the Islamic stock market and sukuk,” Anwar said.
The steps implemented emphasise equity financing, which includes venture capital, equity crowdfunding, and the Islamic digital economy; Islamic social finance; and blended finance approaches, which will utilise capital and finances from a variety of sources.
Apart from that, the framework emphasised the importance of micro-entrepreneurs and the informal sector, with micro-businesses accounting for around 70% of MSMEs.
The government will also grant a RM100 e-cash credit to all Malaysian adults earning less than RM100,000 per year to approximately 10 million eligible participants, with RM1 billion in subsidies distributed to the bottom 40% (B40) and middle 40% (M40) categories.
This was inspired by the success of eBeliaRahmah (eBR), an e-cash programme that benefitted two million youths and assisted the business sector in generating money while establishing a paperless society.
Additionally, the framework highlighted green growth for climate resilience with the National Energy Transition Roadmap (NETR) to promote climate resilience.
Increasing RE generation capacity, installing solar panels on government buildings, and implementing RE trading policies through the electricity market system are among the main NETR efforts, with the government planning to provide specific incentives to promote new green growth activities.
Last but not least, there is a section on land use and food security that focuses on developing biodiversity assets for the carbon trading market.
Malaysia currently has 5.7 million ha of land dedicated to palm oil agriculture, with nearly another two million ha allocated to rubber plantations.
To improve the self-sufficiency level (SSL) and enhance food security, the government will focus on increasing crop area while optimising the use of existing plantation lands; and increasing the resilience of the agro-food sector through the application of agricultural technology to increase productivity for the benefit of small farmers, including regenerative agriculture approaches, climate-resistant crops, and the use of artificial intelligence (AI) technology.
The government will also improve irrigation infrastructure in Muda Agricultural Development Authority (Mada) areas of Kedah and Perlis to increase paddy production productivity to five seasons within a two-year period, worth RM3 billion; and support the local food industry and increase production with an allocation of RM200 million under Agrobank to help provide financing facilities, particularly for modern agricultural technology applications.
Elevating Malaysians’ Quality of Life
Apart from aiming Malaysia to be the leader in the Asian region, improving the people’s liveability also has become the next focus in the “Ekonomi Madani: Memperkasa Rakyat” framework where it comprises of the need for social protection, employment with meaningful wages, and wealth-sharing to build a more equitable and prosperous society.
Anwar, who is also the finance minister, contended that to measure the success of this economic structural reform is by looking at how far it can develop more job opportunities along with significant wages for Malaysians.
“The salary rate compared to the total income in Malaysia is 32.4% for the year 2022.
To achieve a more balanced economic sharing, the government will implement policies that support increasing wages relative to GDP to reach the level of 45% in line with more advanced countries,” he said.
Reviewing the minimum wage level and the introduction of laws that ensure a safe and comfortable working environment was among the efforts included in the framework.
To implement minimum wage, the Economic Ministry and Human Resources Ministry looked into the progressive wage model in order to achieve a more comprehensive income growth.
“Increasing income in line with productivity is critical to ensuring a meaningful quality of life in addressing the challenges of the cost of living,” Anwar said.
On the other hand, Anwar emphasised the need of minimising the dependency of low-skilled foreign labour which contributed to the lower wages.
He added that the government intended to adopt tiered foreign worker levies, with a portion of the levy increase going towards automation and training programmes for local workers.
Another focus in elevating the people’s livelihood is equal opportunities.
Anwar acknowledged that the Malays and the Bumiputras were the majority of the citizens facing poverty and in need of assistance.
On the basis of the social justice concept, equal opportunities shall be provided particularly by providing more aid to underprivileged populations.
Scholarships and full-boarding school education will emphasise low-income groups. “I firmly believe that only through quality education can we uplift the people from the cocoon of poverty,” he said.
The framework also prioritises training and financing programmes for specific groups which include women and youth.
Hence, the government will allocate an additional RM400 million for micro-loans under agencies such as SME Corp, National Entrepreneurial Group Economic Fund (Tekun), Majlis Amanah Rakyat (Mara), and Bumiputera Agenda Steering Unit (Teraju).
The government will also execute an industrial policy according to geography through specialised activities and investment by region that is aligned to the comparative advantage and level of development of the respective region.
The initiative is to reduce the development gap between regions as well as between developed and less developed states.
“The Klang Valley will continue to be developed to enhance its competitiveness as one of the major urban centres in Asia. Emphasis will be given to raising liveability and urban sustainability, enabling it to function as a hub for leading companies in the Asean region.
“As part of the Kuala Lumpur rejuvenation, the rebuilding of the Sultan Abdul Samad Building and its surroundings will be aligned with the Kuala Lumpur Strategic Master Plan for Creative and Cultural Districts, leveraging its historical heritage to create modern tourism attractions,” said Anwar.
While attracting the global inventions and knowledgeable workers to settle in Malaysia, the government will continuously strengthen the development of Iskandar Malaysia in Johor through the establishment of a competitive special financial zone.
Facilities offered to eligible companies and individuals will include special tax incentives, a 15% tax rate for knowledgeable workers, and fast-track immigration facilities to ease the entry of skilled professionals from abroad.
Regarding gender gap in the labour market, Anwar asserted that the female labour participation rate is still low at 55.5% compared to 80.9% for male.
Anwar said there is still a lot to be done to ensure higher participation of women in the workforce. The government’s goal is to increase the participation rate to reach 60%.
It will include immediate efforts including establishing affordable childcare centres — which is a part of the Care-Economy initiative to increase women’s workforce participation.
With the allocation of RM10 million, the government will ease the registration process and expand the childcare centre and nursery whitelisting programme nationwide.
Meanwhile, the framework also highlighted the social protection for the people; involving three pillars of the Social Protection Programme including prevention through social insurance, sustainable retirement savings and protection through social assistance.
“The government has allocated RM100 million for the year 2023 to provide an 80% grant to fund SOCSO contributions for gig workers. However, according to EPF data, more than 40% of the workforce does not have proper retirement savings protection, especially among informal workers.
“Therefore, as a starting point to ensure protection for all citizens, the government will gradually expand the coverage of EPF and SOCSO to the working-age population in phases,” Anwar said, adding that the government will continuously strengthen the employment insurance system and retraining programmes to provide job opportunities for the unemployed.
Healthcare service reforms is also a top priority, where the allocation for it will be increased in line with the government’s financial capacity.
One example of providing access to quality healthcare is the construction of a RM305 million National Disease Control centre (NDCC) on the outskirts of Negri Sembilan.
NDCC not only serves as a disease reference centre, but also prepares the country for pandemics that may occur in the future.
Meanwhile, the government has allocated RM42 million for the Bina Kerjaya Programme, which comprises upskilling programmes for informal workers including gig workers with qualification of Malaysian Certificate of Education (SPM) and below.
Anwar commented that education has been supply-driven for a long time and must be more demand-driven for a better alignment with the needs of development.
“We now live in a constantly changing and challenging global economy, so there is a need for a more progressive lifelong learning approach for all Malaysians at all levels,” he said.
For land transportation, the government is committed to improving infrastructures in major cities, including implementing Bus Rapid Transport in Johor Baru and light rail transit in Penang. The implementation of Mass Rapid Transit Line 3 (MRT3) in the Klang Valley will also proceed after ensuring a reasonable project cost.
The government is also keen on ensuring people enjoy basic facilities, where it has allocated an additional RM800 million for quality water supply in Sabah and Kelantan.
“We will expedite the implementation of flood mitigation projects, such as those in Kelantan, Pahang, Selangor and Johor,” he added.
Anwar further said that the Local Government Development Ministry is now working on the National Housing Action Plan, which includes the provision of housing supply.
“We hear the rakyat’s grievances of having to postpone owning their first home due to the inability to provide a house purchase deposit.
“Therefore, we are enhancing the loan scheme under the Housing Credit Guarantee Corp (HCGS) by providing financing guarantees of up to 120% of the house price, valued up to RM300,000.
“The 120% guarantee will cover all home-ownership costs through the loan, including the principal financing amount, legal fees, valuation fees, insurance, furniture purchase, and renovation costs. For this, up to RM5 billion will be allocated,” he explained.
Good Governance to Restore Confidence
Anwar said implementation is the key to succeed in the objectives of Ekonomi Madani: Memperkasa Rakyat, adding that it will only work with the support and trust of all parties.
Under the framework, Anwar contended that media freedom should be uplifted and empowered to provide the people with balanced and accurate news and information.
He also mentioned that service delivery will be streamlined and digitisation fully maximised to ease daily affairs like paying bills and renewing passports.
Moreover, the government will provide special appreciation assistance of RM300 for civil servants grade 56 and below, and RM200 to government retirees, including pensioners, issued pension recipients, Employees Provident Fund (EPF) retirees, optional retirees, and those who have not received a pension, as well as pensioned and non-pensioned veterans.
This special aid will benefit 1.3 million civil servants, including contract appointees, and over one million retirees.
Next, to bring the social enterprise sector to a higher level, Anwar said there will be more incentives and tax services while the government reevaluates the existing concept of Public-Private Partnerships (PPP) to become Philanthropic-Public-Private Partnerships (PPPP).
Moving forward, Anwar highlighted that rebuilding the country’s fiscal capacity is his top priority as he is aware of the debt figures faced by the country. He stressed that a serious crisis that could affect the nation’s structure is waiting ahead if there were no reforms taken.
He admitted that tax revenues are not sufficient to cover operating costs and that the government needs to borrow for development.
The tax-to-GDP ratio has fallen to 12%, the lowest in the region and a huge amount of money was spent on various subsidies in which, Anwar said, most of it benefited those who were not the target group.
“We need more efficient and targeted subsidy mechanisms so that the limited income is allocated to those who need it most.
“Despite the need for fiscal reforms, the government guarantees that it will never ignore the plight of the rakyat who are facing a high cost of living and will continue to provide assistance to those in need,” he said.
Source: https://themalaysianreserve.com/2023/07/31/madani-economy-empowering-the-people-navigates-malaysia-to-new-economic-direction/